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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1999
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR (g) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
1ST NET TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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COLORADO 33-0756798
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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LAWRENCE K. KIMBALL
CHIEF FINANCIAL OFFICER
1ST NET TECHNOLOGIES, INC.
11423 WEST BERNARDO COURT
SAN DIEGO, CALIFORNIA 92127
(858) 675-4449
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WITH COPIES TO:
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ROBERT BLAIR KRUEGER II, ESQ. KRESIMIR PEHARDA, ESQ.
JASON A. HOWARD, ESQ. MANNING MARDER & WOLFE, LLP
THE KRUEGER GROUP, LLP 45TH FLOOR AT FIRST INTERSTATE TOWER
11423 WEST BERNARDO COURT 707 WILSHIRE BOULEVARD
SAN DIEGO, CALIFORNIA 92127 LOS ANGELES, CALIFORNIA 90017
(858) 451-0200 (213) 624-6900
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Issuer's telephone number: (858) 675-4449
Securities to be registered pursuant to Section 12(b) of the Act: None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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TABLE OF CONTENTS
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COVER PAGE.................................................. 1
TABLE OF CONTENTS........................................... 2
PART I
DESCRIPTION OF BUSINESS..................................... 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 23
DESCRIPTION OF PROPERTY..................................... 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 28
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONNEL................................................. 29
EXECUTIVE COMPENSATION...................................... 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 31
DESCRIPTION OF SECURITIES................................... 32
PART II
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS...................... 34
LEGAL PROCEEDINGS........................................... 34
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS............... 34
RECENT SALES OF UNREGISTERED SECURITIES..................... 35
INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 35
PART III
INDEX TO EXHIBITS........................................... 37
SIGNATURES.................................................. 39
PART F/S
FINANCIAL STATEMENTS........................................ F-1
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PART I
The issuer has elected to follow Form 10-SB, Disclosure Alternative 3.
ITEM 1. DESCRIPTION OF BUSINESS.
1st Net Technologies, Inc., a Colorado corporation (with our subsidiaries,
"1st Net" or "we"), is an Internet products and services company specializing in
enabling core technologies. These technologies support a new paradigm pioneered
by us, called "Content Based Routing and Delivery", designed to control and
monitor information, telephony and video services in a single Internet platform.
We compete for revenues from Internet commerce.
1st Net was incorporated in Colorado on May 14, 1990 as Snow Eagle
Investments, Inc. We were inactive from 1990 until 1997. On April 2, 1997, we
acquired the assets of 1st Net Technologies, LLC, a California limited liability
company. On April 22, 1997, we amended and restated our Articles of
Incorporation to change our name to 1st Net Technologies, Inc. In 1997, we
commenced business operations. In 1998, we filed a 15c-211 application with the
National Association of Securities Dealers ("NASD") for quotation of certain of
our shares on the Over-the-Counter ("OTC") Bulletin Board under the stock symbol
"FNTT". The NASD approved our application on November 12, 1998.
1st Net has four subsidiaries: Children's Technology Group, Inc., a Nevada
corporation; Spirit 32 Development Corporation, a Colorado corporation; Mariah
Communications, Inc. a Colorado corporation; and, SSP Management Corporation, a
Colorado corporation. We acquired these subsidiaries in a period from August
1998 through May 1999.
OUR COMPANY
We are a provider of E-business software, financial and business
information portals, services and solutions that enable our clients to build,
deploy and maintain Web sites on the Internet. We first established our presence
on the Internet in 1995 by creating one of the first-ever Internet malls, 1st
NetZing Mall (the "Mall"). We now offer a diverse assortment of Internet
products and services with marketplace-acknowledged database capturing
abilities. Database capturing allows us to identify consumer interest and route
relevant content. Traditionally, content was delivered to the consumer in
various forms, including television, telephone, radio and mail. We are now
focused on consolidating content delivery systems into a single medium -- the
Internet.
Our principal business is the creation of Web sites for private and
publicly-traded companies, as well as the development and marketing of
E-commerce transaction-based Internet technologies. Our Online Investor
Relations Program offers unique "Corporate Due Diligence Web Sites" that provide
worldwide dissemination of information, usually for a particular publicly-traded
company, directed toward existing or potential shareholders and the investment
community at-large. In addition to publishing valuable content, our Web site
services enable our clients to conduct E-commerce and run Web applications. Our
Web site services include personalized domain registration, the creation of a
customized and dynamic Web sites which offers information such as executive
summaries, management biographies, shareholder reports, financial information,
SEC filings, "E"-mail, and online stock quotes and charts. We also provide our
clients with the means to communicate with their constituencies through our
information management system, "Envoy Express", which allows Web site users to
opt into the site's subscription database. We manage our clients' databases by
constantly updating, sorting and maintaining online access. We believe our
database services are superior to those offered by our competition because of
our password-protected Web interfaces, our capability to run spontaneous queries
over the Internet, and our ability to provide our clients with the option of
analyzing their own database quickly over the Internet. Our methods for
developing these databases are proprietary and closely guarded by us.
We are continuing to develop a range of Internet products, including
private label community Web browsers, an E-mail database capture software
program, and technologies to develop online communities. We have also built
popular online portals, including iporoadshow.net, otcdigest.com,
smallcapdigest.com,
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otcjournal.com, Angelnetwork.com, and investmentopportunity.com that provide
financial resources to a select audience. These Web sites target communities of
individual investors and financial analysts, providing valuable information
about public companies and their upcoming online roadshows, Webcasts, and video
presentations.
Our Mall at www.1stnetmall.com offers our client companies a place to
advertise and sell their products and services. The Mall is attractive to
advertisers because of the significant number of visitors to this Web site.
Consumers can make online purchases at the Mall with a simple click of a button.
At this time, the Mall is not generating any revenue for us.
INDUSTRY OVERVIEW
GROWTH OF THE WEB
In fewer than five years, the Web has emerged as a universal, rapidly
growing online business medium enabling millions of users worldwide to share
information, conduct E-commerce, and access business applications. According to
International Data Corporation ("IDC"), the number of Web users worldwide will
grow from an estimated $50 billion at the end of 1998 to an estimated $733
billion by the end of 2002. The explosive growth of the Web as an online
business medium has been fueled by a number of factors, including an increased
awareness of the revenue, cost and performance benefits from using the Web to
conduct business, and the large and growing number of Web users. We believe this
cycle of growth will accelerate as an increasing number of consumers become Web
users and businesses respond by building and enhancing their online Web sites
which will attract more users. IDC reported that the number of Web site
addresses, or URLs, is expected to grow from 300 million in 1997 to 3.2 billion
in 2000.
As developing or enhancing a Web presence becomes increasingly important to
businesses, business Web sites are becoming more complex. As the Web's
importance has grown, businesses have applied advances in Internet technology to
convert business Web sites from static "billboards" to sophisticated E-business
Web sites where businesses can interact with customers, employees, suppliers and
distributors in a unique manner. E-business sites may contain hundreds of pages,
audio and video content, provide access to data, or "E-publishing", provide
online commerce, or "E-commerce" capabilities, and run Web applications, or
"E-applications" such as interactive forms. E-business Web sites are rapidly
becoming a strategic necessity for many companies as they discover how
conducting business online can enhance revenues, reduce costs and improve
performance.
THE CHALLENGE OF BUILDING A BUSINESS WEB SITE
Although it has become relatively easy to access the Web, it is difficult
and expensive to build an effective Web presence. The challenges of building a
successful Internet Web site require solutions that address planning, design,
building and deployment, as well as Web site promotion and maintenance after the
Web site is placed online. Companies are often also faced with a difficult "make
or buy" decision, either to build a Web site internally, through a third-party
service provider, or through available "off-the-shelf" applications. Key factors
influencing their choice of solutions include ease and flexibility of building,
construction time, and the cost and flexibility of later maintaining and
enhancing their Web site. In addition, the Web utilizes multiple standards and
platforms, including different Web browsers, database and Web servers, which
increase the complexity of building a site that operates in multiple
environments.
Virtually all businesses desire to access the opportunities presented by
the Internet, but face a difficult decision about how to construct and maintain
their own Web site. Web site building products generally require programming
expertise for hypertext mark-up language, or "HTML", and hence are technically
difficult to use. Web-building products and online services tend to target
consumers with personal "home page" building tools and casual desktop users with
the ability to publish only simple, static information. While in-house
programmers may provide technical coding, hiring internal resources is typically
expensive and may not provide the flexibility required to maintain dynamic,
evolving Web sites.
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The evolution of businesses computing through an Internet-based
infrastructure has also created enormous complexity and produced significant
challenges, similar to those faced by companies as they moved from mainframe
computing to client-server environments. At that time, the need to manage
complex client-server environments gave rise to a large market for network and
systems management solutions. Those solutions, however, were not designed for an
Internet-based infrastructure. As a result, they do not adequately address
today's new challenges, including connectivity, management of endpoints outside
of the firewall, security requirements of a public network, and massive
scalability, all of which are critically important when communicating and
delivering services across the Internet.
These challenges have created the need for a new Internet services solution
that incorporates not only the development of a corporate Web site, but supports
E-business communications and services across the extended Web network. We
believe that the majority of businesses have not yet strategically embraced the
Web. Those businesses which have a Web presence often need to upgrade their Web
sites with important, new functions like E-commerce and Internet protocol
telephony, or otherwise improve their Web site features and promotions. Public
companies have more sophisticated Web site requirements and often desire
profiles of their company over the Internet to gain exposure to financial
analysts and investors. Packaged Web-building software programs do not address
these specific needs. A third-party service provider with expertise in the
capital markets, technical Web design, programming, maintenance, and Internet
promotions, is the practical answer for public companies that want to embrace
the Internet.
1ST NET'S SOLUTION
We provide E-business products and services that enable small businesses,
as well as large enterprises, to develop and maintain Web sites and to
communicate effectively on the Internet. We are developing community Web
browsers, in addition, that enable consumers to efficiently "surf" the Internet.
Our E-business solutions help businesses develop Web sites to publish content
relevant to investors and analysts, conduct E-commerce, create a list of
visitors to their Web site, and run E-applications. We collaborate with our
client companies to offer products and professional services uniquely suited to
fulfill a client's Internet market and online needs.
Smaller businesses require practical help to build or enhance their Web
sites quickly and efficiently, to add key functions like E-commerce, Web
applications, proprietary E-mail lists, Web-interactive business cards, and
Internet telephony protocol applications, and to work with a variety of industry
standards and platforms. Our professional services group is experienced in all
facets of Web site development, maintenance, and promotion, including site
layout and design, page building, content management, and integration of sites
with existing corporate applications.
1ST NET'S STRATEGY
Our strategy is to establish ourselves as a "one-stop-shop" provider of
E-business solutions by leveraging our position as a provider of Web services,
Internet telephony protocol applications, and E-business software. As more
companies seek Internet market solutions for capturing the explosive growth of
the Web as an online business medium, we believe our E-business products,
services and resources should serve as a desirable point of departure. Our
Internet telephony protocol capabilities, Internet financial and business
portals, our proprietary E-mail lists software, and professional E-mail and Web
site development, maintenance and promotion services uniquely position us to
expand our E-business solutions. Three key beliefs underlie our business
strategy:
ENABLING INFORMATION TECHNOLOGIES ARE CONVERGING
The Internet, in general (and E-commerce, in particular), is transforming
the way we transact business. Our proprietary Content-Based Routing and Delivery
Systems represents a completely new approach to distributing information. The
entire integration of communications, the Internet, cable, fiber optics/copper,
and cellular services, will increasingly be repackaged as a bundled service, and
delivered by a single source, for less than the cost of those services purchased
separately.
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We anticipate that our subsidiaries' Internet telephony protocol system and
Wisper radio frequency wireless voice and data technology will create an
entirely new paradigm in "least cost routing", with tightly integrated
technological solutions that transcend today's telecomputing applications.
Rather than electing to pioneer technology at considerable time and expense,
like Microsoft or Intel, we acquire existing technologies and tightly integrate
them for ready market acceptance and maximum economic impact.
AT THEIR CORE, MEDIA IN THE INFORMATION AGE IS CONTENT-BASED
In their most raw form, information is comprised of nothing more than
organized patterns of 0s and 1s. This is true whether the content is video,
sound, information, or problem-solving algorithms. Until recently, these media
in general, and underlying technologies in particular, have been discrete
entities. Now, with rapid consolidation in the technology marketplace, including
the mergers of AOL/Netscape, AT&T/Time Warner, Disney/InfoSeek, Yahoo/Geocities,
USA Networks/Lycos, and @Home/Exite, we are witnessing the birth of the next
generation in communications. These mega-mergers are repackaging content for
consumers and using either size, bandwidth, vertical integration, or the
"community play" to build value for their customers and shareholders.
CONTENT IS INEXTRICABLY TIED TO A DELIVERY SYSTEM
Without exception, all content must have a delivery system to be practical.
In the past, systems were designed for a specific type of content. Television,
for instance, was delivered via television signals and required both broadcast
capability and a television set to receive the signal. Telephone services
require both switching and handset equipment. Internet services require a
computer and backbone. Suddenly, many of these delivery systems have merged
capabilities to produce a greater value-added service offering. In the
foreseeable future, we believe this trend will continue until many of the
current industries will cease to be recognizable in their current form, as
organizations become "full service content providers." In other words, telephone
companies will not be just telephone companies, Internet service providers will
not be just Internet service providers, and entertainment companies will not
just use existing delivery systems. A new industry, CBD (Content-Based
Delivery), is emerging from the economic need to be competitive and to provide
an all-inclusive blended service package. In the eyes of the consumer, it may be
unnecessary to buy services from multiple service providers when they are
conveniently available from a single provider at a more competitive price.
We have developed a unique four-step business concept that capitalizes on
the driving forces of converging technology and the importance of delivering key
content to target affinity groups. We believe this model represents the next
generation in information technology companies. Our strategy of building niche,
online communities with our proprietary Content-Based Routing and Delivery
System is set forth below:
- Capture the Desktops. The process begins by capturing the desktops
of affinity groups with community browsers. These "portals to the Internet"
contain vital information and applications that are unique and specific to
the needs of each affinity group. For example, we are developing a
community browser for the diabetics market in conjunction with MediQuik
Services, Inc., a publicly-traded medical device company.
- Build and Manage Custom Databases. With our community browsers as
the gateway to the Internet for specific online communities, we can capture
the names and other information provided by community members, and thereby
build and manage custom databases for each client constituency.
- Route Key Content. We route key content from other content providers
to a client community. This enables us to deliver select content without
requiring our clients to develop it directly. For example, we have made the
latest books on diabetes treatment from Amazon.com available directly on
our diabetic's community browser.
- Facilitating E-commerce. By facilitating E-commerce directly through
our community browsers, we use transaction-based and revenue-sharing models
to develop a revenue stream for all business
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transacted online. For example, diabetics now have the ability to join a
managed care program and purchase discounted pharmaceuticals directly
online.
PRODUCTS AND SERVICES
We provide solutions for two broad categories of customers: large and small
business enterprises requiring professional Internet services, and individual
consumers who desire to browse, obtain financial information, and communicate
over the Web.
1ST NET'S PROFESSIONAL WEB SITE AND PROMOTIONAL SERVICES
We specialize in developing online investor relations programs for
publicly-traded companies. We help public companies leverage their worldwide
exposure and improve online shareholder relations and ongoing communications by
combining our broad financial expertise with proprietary online marketing and
database management systems.
Corporate Due Diligence Web Sites. We design, develop and host corporate
due diligence Web sites for publicly-traded companies. These Web sites generally
provide the following information:
- Capitalization information
- Executive summaries
- Management biographical data
- Financial statements
- Press releases
- A photo gallery
- Reprints of relevant articles
- Current and historical stock prices
- Shareholder reports
- Audio and video streaming of select content
- Identification of the company's transfer agent
- Identification of market-makers for the company's equity
- Password-protected real time database management systems
- SEC reports
- Traffic analysis in real time, and
- Extensive proprietary online marketing
Customer Web Sites Built By Us. Our professional services group is engaged
in a wide range of Web site projects that have required a rapid Web site
building cycle, a combination of rich content and transaction processing
capability, interactivity, personalization, and deployment on a variety of Web
browsers from multiple server platforms. Set forth below are some examples of
sites we have constructed, or are constructing, which are representative of our
Web site building capabilities:
- laforza.com is the site of Laforza Automobiles, Inc., a manufacturer
of luxurious, Italian-made sports utility vehicles and its division,
Monster Motorsports, an after-market customizer of high-end,
high-performance sports cars, including Mazda Miatas. The site features
E-commerce functionality, allowing customers to view the cars, and compare
prices. The site is maintained by three people.
- lexoninc.com is the site of Lexon, Inc., a company engaged in
research and development of Ebaf assay, a proprietary blood screening test
to detect colon, ovarian and testicular cancer.
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- nofear.com is a state-of-the-art Web site presently under
development of No Fear, Inc., one of the world's largest action sports and
apparel retail companies. Constructed in cooperation with Direct Systems
Support, an IBM Premier Partner, we expect to launch this site in October
1999. It will support E-commerce transactions, allow customers to browse No
Fear's selection of products, enable No Fear personnel to contribute
up-to-the-minute content, and feature video-streaming of music and action
sports.
INTERNET MARKETING SERVICES
We specialize in online marketing campaigns of products and services which
provide our clients with a significant advantage over their competition. Some of
these specialized services include: search engine indexing, meta-tag auditing,
news-group postings, targeted marketing campaigns, and targeted E-mail programs.
We also employ other proprietary marketing strategies. To improve the marketing
effectiveness of our clients' Web sites, we typically enhance ongoing campaigns
initiated by our clients. We have identified the following eleven vital
components of a successful marketing program:
- Publicly announcing a client's Web site with Internet search engines and
directories
- Issuing press releases
- Issuing announcements in newsgroups
- Participating in E-mail lists
- Obtaining links from other Web sites
- Purchasing advertising banners on other Web sites
- Coordinating on-site events
- Publishing an E-newsletter
- Conducting a direct E-marketing campaign
- Integrating the client's traditional marketing and sales programs with
our services, and
- Measuring the results and revising accordingly
E-MAIL SERVICES AND SOFTWARE
While most companies and organizations have Web sites, they often lack the
underlying sophisticated database systems to capture the names of visitors and
then sort them by select criteria for ongoing marketing and sales efforts. This
year we developed a new line of products, called Envoy Express, specifically to
fill this need. Our first such product, Envoy Mail, is a full-featured,
Web-based E-mailing and database management system that represents the "best of
breed" functionality of any mailing list system available today. Adding Envoy
Mail to a Web site enables a company to offer visitors to its Web site the
opportunity to join the company's E-mailing list. The list can then be stored on
our secure database server or at the client's location. Through our Envoy
Express administrator Web site, a client may then send personalized
announcements about its products and services to list members. The company may
also instantly view Web interface statistics with a click of the mouse.
Eventually, we intend to develop and introduce "Envoy CD", which will provide
our clients with many of these same functions in a CD format.
E-mail is now an increasingly essential means of communication, with both
the number of E-mail users and usage levels per individual projected to increase
significantly. E-mail has the highest usage of any service on the Internet. In
an October 1998 Jupiter Communications/NFO Interactive survey, approximately 93
percent of respondents reported using E-mail regularly. According to the
Jupiter/NFO survey, there are over three times as many online users who
regularly use E-mail as there are viewing or creating a personal homepage,
visiting a sports, music or games related site, or participating in online chat.
At the end of 1998, there were approximately 325 million E-mailboxes worldwide,
an increase of 64 percent from a year before, according to a study by Electronic
Mail & Messaging Systems. Forrester Research, a publicly-traded
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independent research firm which provides analysis of a range of technology
industries, projects that daily global Internet E-mail traffic will increase
from 100 million messages per day in 1996 to 1.5 billion messages per day in
2002.
Envoy Mail offers our client companies valuable Web-based E-mail
information management tools. Envoy Mail allows subscribers to manage and
capture their database of E-mail visitors to their Web site. We are an
outsourcing enhancement to, not in competition with, traditional E-mail services
and products offered by Internet Service Providers ("ISPs") employers and
schools. We charge our subscriber companies for E-mail list management on a
three-tiered basis: (i) subscribers to our "Ambassador" class are charged a set-
up fee to establish our visitor data capture capability on their Web site, and a
monthly flat rate which varies according to the size of their E-mail list; (ii)
subscribers to the "Diplomat" class receive the same service, except that they
elect to manage and maintain the E-mail database themselves and are not charged
any continuing fees; and, (iii) subscribers to our "Courier" class receive the
same service as the "Diplomat" class, but only pay us per their use of our
proprietary software.
COMMUNITY-BASED WEB BROWSERS
We are developing proprietary, community-based Web browsers that focus on
the interests and needs of specific online affinity groups, industries and
markets. Our browsers are built on the Internet Explorer platform developed by
the Microsoft Corporation. By using Microsoft's Internet Explorer core
technology, we have developed portals that utilize highly entertaining
interfaces and state-of-the-art animated 3-D and 2-D characters.
In association with our majority-owned subsidiary, Children's Technology
Group, Inc., a Nevada corporation ("CTGI"), we have developed a secure Internet
browser, Crayon Crawler(TM), designed specifically for children and its related
subscription community. Crayon Crawler (www.crayoncrawler.com) includes
monitored chat rooms, a talking book reader, a closed E-mail system, instant
messaging, and a stream of quality content serving both educational and
entertainment purposes. In addition, we are presently developing a suite of
Web-enabling modules, MindWalker(TM), which will serve as the basis for an
upcoming browser aimed at teenage Web users. We have licensed both the Crayon
Crawler and MindWalker marketing rights to CTGI on an exclusive and
non-exclusive basis, respectively.
Crayon Crawler is an important tool for both parents and teachers concerned
with children's access to inappropriate content on the Web. This secure Internet
browser features what we believe to be the world's first talking chat room with
animated talking characters that can actually read and send messages and E-mail
to children while blocking obscenity. Crayon-Crawler provides children with
protected access to the Internet using a "White List," while blocking all
pornographic, demonic, cultic and generally most other undesirable content. In
addition, Crayon Crawler offers hyper-links to family-oriented sites. Crayon
Crawler generates revenues by providing channel bar positioning and banner
advertising, subscription fees, and links to advertisers. Crayon-Crawler's chat
rooms are monitored so that parents can avoid unwanted or unsupervised
conversations by their children. Crayon Crawler also automatically logs children
who are members of our "MindWalker Community" into its closed community server.
This allows children to find out who else is presently online with them in an
environment that is closed to the Internet at large, while enabling us to
monitor the community to prevent intruders. In this way, children can
communicate with other community members all over the world without parents
having to worry about who or what their child will encounter.
Designed for the 5 to 11 year-old age group, Crayon Crawler helps to
protect children in today's computing environment, and provides a conduit for
education, entertainment, and exploration of the Internet without the worries
associated with unsupervised browsing. Specific features include the following:
- Browser And Database. Crayon Crawler provides access only to Web
sites which are approved to be on our "White List" of sites, as opposed to
a "Black List" (which we believe cannot possibly keep apace with the
numerous undesirable Web sites which are introduced on the Internet each
day). Crayon Crawler will not allow a child to access a Web address that is
not pre-approved by either a parent or the White List of the Crayon Crawler
community. Community databases are not accessible to non-members and the
community itself is closed, thereby creating greater security for children.
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- Sound And Speech Capabilities. Microsoft's Agent(TM) technologies
provide a child with animated characters that are text-to-speech enabled.
This allows Crayon Crawler to talk with dynamic responses. For example,
characters can speak to a child and respond to "Help" questions or read a
child his or her E-mail. When logged into the community, Crayon Crawler can
deliver non-redundant responses, which we believe makes the computer more
engaging and entertaining. Additionally, Crayon Crawler is RealAudio- and
MediaPlayer-enabled for streaming video and audio.
- Instant Messaging And Who's Online. Crayon Crawler automatically
logs children who are members of the MindWalker community into the
closed-community servers. This allows children to find out if any of their
friends are online and to communicate with them by sending messages. This
system also allows the MindWalker community system administrators to track
the activities of members and keep out potential intruders.
- Chat Clients. Crayon Crawler provides closed chat rooms for children
utilizing talking characters. We have designed Crayon Crawler not to work
with instant messaging systems, like Internet Relay Chat (IRC). This
feature provides additional security for unwanted or unsupervised Web
conversations.
- E-mail. Crayon Crawler provides a closed E-mail system for children
so that "spam," pornographic banners, links, and unwanted E-mail cannot be
sent to, or by, a child. It is designed specifically for children, and
E-mail addresses consist only of the child user's identification (i.e.
"Michael"), instead of "[email protected]", for example.
- Voice Activation. In the future, community browsers may be
voice-activated and voice-controlled. They may require only a minimum of
mouse and keyboard interaction. Additionally, they may be configured to
control the entire personal computer, if a user so desires, with a minimum
of keyboard and mouse interaction.
We are also currently developing sports, extreme sports, religious and
financial browsers. Once developed, our financial browser will enable
subscribers to monitor their financial portfolios, subscribe to different
financial news services, and register to have a Web browser that links them to
the most popular financial sites on the Internet with a simple "point and
click".
INTERNET TELEPHONY
Through our majority-owned subsidiary, Mariah Communications, Inc., a
Colorado corporation ("Mariah"), an emerging, development stage company, we are
building an international Internet Protocol telecommunications network. Mariah's
network will be capable of delivering multiple services including voice, fax,
data and video. Mariah leases capacity on existing private Internet Protocol, or
"IP", circuits from existing carriers and installs new, carrier grade Internet
Telephony equipment to enable the reliable delivery of high quality voice, data,
fax and video signals over IP-based networks on an international basis.
This type of service, known generally as Internet Protocol Telephony, or
"IP Telephony", offers significant advantages over conventional
telecommunications systems, including significantly reduced equipment costs,
improved bandwidth efficiency, direct routing of calls, lower costs and improved
ease of network administration and delivery of multi-media services over a
single network infrastructure. IP Telephony combines the low cost, global reach
of the Internet and the high quality and security of private IP-based networks
with the public telephone system's ease of access.
Our IP Telephony systems, presently under development, can replace
traditional PBX systems and redefine the role of ISPs, as well as the cost of
long distance calls and connectivity. Mariah is a PC-based telephony switch
which can be configured as a debit platform, PBX, ISP server, or for any other
telephony or Internet application. It distinguishes itself from other IP
Telephony products because it is built on proprietary open-ended architecture.
Mariah's network is based on a single central routing and authentication base
that is universally compatible. This system allows any third party IP telephony
product or major telephony switch to join the network and permits calls to be
terminated at any provider's Point of Presence ("POP") or, if necessary, to be
switched to a public telephone network. In association with our wholly-owned
subsidiary, Spirit 32 Development, Inc., Mariah is designing its switch to
supplement current ISP servers and assist in the
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development of IP Telephony networks, both private and public. Each switch will
be designed for replacement of traditional corporate PBX, which allows all calls
to be routed through the Internet. Mariah's technologies should eliminate all
inter-office long distance charges, and generate substantial revenues. We
believe that key features will include:
- Single switch configurations
- Multiple switches that will be linked for single-switch operation
- Centralized routing and billing
- Remote administration and operation capabilities
- Real-time reporting on all aspects of operations
- Least-cost routing for public switched calls
- Least latency routing for Internet switched calls, and
- "Class 5" network performance standards.
Spirit 32 Development, Inc. is presently developing proprietary I.P.
Telephony equipment. If such equipment is not capable of commercial application
in a timely manner, Mariah shall select an alternate supplier of I.P. Telephony
equipment. Mariah is presently planning the deployment of its facilities-based
I.P. network and the introduction of its services utilizing either Spirit 32
Development, Inc.'s or an alternate supplier's licensed technology.
According to industry sources, the global telecommunications market
generates annual revenues in excess of $250 billion. Internationally switched
telecommunications traffic grew from 28 billion use minutes in 1989 to 81.8
million minutes in 1997 and is projected to reach between approximately 128.7
and 158.6 billion minutes by 2001. In the United States, residential long
distance callers alone represent a $67 billion dollar market. In its infancy
today, the IP services market is estimated to increase to $1.8 billion by the
year 2001. In North America, intense competition has reduced both business and
residential long-distance rates. This is not the case, however, internationally
where callers to certain countries frequently incur high per minute rates. The
international telecommunications industry is growing rapidly due to:
- deregulation
- privatization
- expansion of telecommunications infrastructure
- technological improvements
- globalization of the world's economies, and
- free trade.
Significant improvements have occurred in the compression and transmission
of voice over the Internet over the last several years. The quality of service
of Internet Telephony is now equivalent to that of a digital cellular phone or a
quality analog cell phone connection. I.P. Telephony technology is continuously
evolving and it is expected that further improvements in technology will allow
I.P. Telephony to rival conventional telephony networks. The gateway equipment
which Mariah intends to eventually employ will be standards-based and will
utilize the newest digital signal processing and error correction technologies
for improved voice sampling and compression and reduced latency. These
technologies will enable Mariah to provide high quality, commercial voice
services with carrier class reliability (99.999% availability of service).
Unlike the transmission of telephone calls or facsimile messages over
traditional land-based electrical wires, telephone calls or other data
transmitted over I.P. networks are first converted into digital packets and then
sent by means of high-speed, land-based transmission lines, satellites or
microwave systems in packetized form. Data transmitted over the Internet is
also, prior to transmission, compressed such that much larger amounts of data
can be transmitted than over traditional circuit switched telephone lines. As a
result, the cost of telephone calls made over I.P networks are more bandwidth
efficient and each call is much less expensive to transport than calls made
through traditional long distance telephone carriers. Computer systems, known as
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gateways, act as the interconnection between the Internet or I.P. networks and
the traditional public switched telephone networks.
A telephone call made using Internet telephony begins with a telephone
connected to the lines of the local public switched telephone network operator.
The caller dials a local telephone number that connects to a gateway nearest the
caller (the "originating gateway"). The caller is then asked by an automated
voice response system to enter a personal identification number and the long
distance telephone number which the caller is attempting to reach (the
"destination number"). The originating gateway directs the call over the
Internet to the gateway that is located closest to the destination number (the
"terminating gateway"). Once the call reaches the terminating gateway, the call
is then switched to the local telephone network and is routed to the destination
numbers. The entire call completion process takes only a few seconds.
If a gateway does not exist in the local calling area from which the caller
is placing the call, the call is transferred through regular telephone lines to
the nearest originating gateway. If a gateway does not exist in the local
calling area of the destination number, the call is transferred from the
terminating gateway through regular telephone lines to the destination number.
Mariah, therefore, is able to reduce its costs and increase its profit for
calls, which originate and terminate through gateways, which are in the local
calling areas of the persons originating and receiving the call.
In order to lower costs and offer extended coverage, several corporations
have formed consortiums of Internet telephony companies. Each member of the
consortium owns and operates an Internet telephony gateway that communicates
with all other gateways in the consortium to provide subscribers with the
ability to place a voice or fax call from virtually any ordinary telephone to
any other ordinary telephone (or fax machine) at a cost that is significantly
below traditional long distance carriers. Each member agrees to share revenue
generated from calls originated or terminated through their gateway on a per
call/minute basis with other gateway operators who have accessed their gateway
to route and deliver calls. A month end settlement process occurs between all
gateway operators that reflects currency exchange rates and all call traffic
volume between each gateway operator. Each gateway operator is responsible for
setting the per minute calling rates to every other gateway in the consortium.
Mariah plans to join one or more of these consortiums.
Over the course of time, Mariah may build gateways. Initially, however,
Mariah intends to focus its efforts on designing and implementing IP Telephony
software and providing services. Mariah also plans to market its Internet
telephony services to other international long distance carriers and wholesale
customers which have a need for large blocks of long distance telephone time
between selected locations. Although margins at the wholesale level are lower
than retail margins, the sale of blocks of long distance time to other carriers
will enable Mariah to generate revenues with only a limited number of gateways
installed. Mariah has pre-marketed its services and identified several potential
wholesale opportunities.
Mariah's network may also support Web-to-Phone and "Call-Me" services.
Web-to-Phone connections enable the users of multimedia PCs to establish a
conversation with the owner of the website or their designated customer service
representative. Mariah intends to introduce this new capability to Web site
owners and developers in those markets where Mariah has owned or constructed
gateways and demand for E-commerce services has increased. Mariah believes that
this service will contribute to the development of sales made through the
Internet. Web-To-Phone enables customers to speak directly with sales people and
reservation agents while they are online and reviewing the content of a
particular website. Web-to-phone personalizes the experience of shopping over
the Internet and provides a new level of customer service.
Call-Me services enable the personal computer user to receive a telephone
call from a merchant with a Web site at any telephone number and time of day the
user designates by simply filling out an onscreen form. Call-Me services offer
businesses the opportunity to provide customers with greater convenience and
more personalized service. In addition to developing and marketing these
communications applications, Mariah will also evaluate the possibility of
investing in or acquiring companies engaged in the development of innovative
I.P. software and network applications.
Mariah plans to negotiate with international groups to form joint ventures
for the installation and operation of gateways in various domestic and
international locations. By working with local partners, Mariah
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can secure quick entry into the local marketplace. In addition, joint venture
partners can provide key services required for successful
operations -- including providing space, power, connections to the Internet and
local telephone companies as well as marketing resources and, in many cases,
access to an existing customer base that can use Internet Telephony services.
Joint venture partners also bring invaluable knowledge of local regulatory
processes and business practices. It is expected that in a typical joint venture
Mariah will install the gateway equipment and provide remote network
administration, centralized billing, finance and management functions, as well
as global marketing of services. There can be no assurance, however, that Mariah
will be successful in forming any joint venture or that any joint venture will
operate profitably.
Mariah expects that it will need approximately $10 million in capital over
the next 24 months to proceed with its business operations. Mariah does not have
any definitive agreements concerning financing and there can be no assurance
that any financing will be available on terms acceptable to Mariah. Without
financing, or some alternative source of funding, Mariah will only be able to
conduct limited operations.
INTERNET PORTALS
In association with our wholly-owned subsidiary, SSP Management, Inc., a
Colorado corporation ("SSP"), we own and maintain six Internet Web sites, which
have varying financially-related themes and content. Our OTCdigest.com Web site,
and SSP's Smallcapdigest.com, OTCjournal.com and Investmentopportunity.com Web
sites, present to individual investors clear, original and timely coverage about
public companies which generally have not yet attracted significant attention of
Wall Street or institutional money managers. In order to qualify for a profile
in our online publications, a public company must already have a complete due
diligence Web site which provides our subscribers with direct access to the
company's financial statements, SEC filings, business plan, and any available
analysts' report. Our Angelnetwork.com Web site, written exclusively for
accredited investors who must first execute an investor questionnaire to be
eligible for our subscriber base, introduces investors to companies in an early
stage of financing and educates them about alternative investment vehicles.
Membership for subscribers is free for all of our Internet publications. As of
August 25, 1999, we have approximately 228,000 opt-in subscribers to our online
financial publications.
PUBLICATIONS ON THE WEB
The Web has rapidly become a significant global medium for communications,
news, information and commerce. The Web allows content providers to deliver
information and programming in a manner not possible in the traditional
broadcast and print media. Although these traditional media can have large
audiences, they are generally limited to a specific geography, can deliver only
limited content or are not effective in a real-time basis. Broadcast media is
limited by the relatively small number of available frequencies or channels, the
rigidity of its schedules and its inherent capacity constraints, with each
channel or frequency carrying only a limited amount of information. By
comparison, the Web allows users to rapidly access, search and interact with a
rich supply of content, regardless of its location. In addition, despite the
large amount of undifferentiated information on many Web sites, users can
utilize and manipulate information more efficiently than in traditional media by
conducting real-time, customized searches.
A number of trends have led to increased demand for business and financial
news in all forms of media:
- individuals are proactively managing their money and the American
public is investing an increasing percentage of their household wealth in
securities, including investments in smaller, OTC Bulletin Board companies;
- the emergence of online trading of financial instruments has led
many investors to rely less on traditional brokers, and
- United States companies, even smaller public companies, increasingly
compete globally, requiring increased real-time knowledge of a broad range
of financial information from around the world.
Business Week reports that more than 70 firms now offer online trading, up
from approximately 30 at the end of 1997, including the majority of stockbrokers
within the United States. According to Business Week,
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Forrester Research predicts that there were over three million online investing
accounts at the end of 1997. Forrester Research predicts that this number will
increase to 14.4 million by 2002.
Driven by these factors, numerous traditional and online information
sources such as newspapers, magazines, broadcasters and specialized financial
Web sites are seeking to address the demand for timely and relevant financial
information. These companies are often unable, however, to effectively meet
consumers' needs for high-quality, compelling and relevant, real-time business
information. Newspapers and magazines cannot offer real-time data and
information, and broadcasters are limited in the depth and availability of their
content. Smaller public companies, in particular, are often ignored by media
sources altogether. While there has been a proliferation of Web sites, which
include financial and business information as part of their offerings, we
believe that most sites offering such financial and business data suffer from a
number of limitations. Frequently, these sites do not offer high quality
original content and often only cover the most highly recognized industries,
markets and companies.
We believe that a significant need exists for easy access to business and
financial information about those public companies, which tend to be overlooked
by more traditional media. Angelnetwork.com offers information over the Internet
about such companies, as well as educational and analytic tools unavailable from
more traditional media. By integrating high quality editorial content with data
about public companies, our Web-based portals and publications can enable our
audience to keep abreast of current business developments, track industry and
competitive trends, make informed investment decisions, and manage their
financial assets. We also believe that by assembling a loyal base of subscribers
who actively follow our business and financial profiles, our Web sites can
create a targeted audience that, over time, will be attractive to both financial
and non-financial advertisers.
STRATEGY FOR OUR WEB PORTALS
Our objective is to create leading branded Web sites for comprehensive
business and financial analysis of public companies, including our client
companies. We believe that this content will be both educational and will enable
investors to conduct their own analysis. Our strategy is designed to maximize
the quantity and quality of traffic on our Web sites and to develop a strong and
loyal community, thereby creating an audience which is highly attractive to
companies that are advertising and engaging in commerce over the Internet. Our
strategy to achieve this objective includes the following key elements:
Build Traffic And Subscriber Loyalty. We believe that our plans for
significantly increased marketing activities will provide us with increased
visibility among Web users and companies advertising and engaging in commerce
over the Internet. Additionally, we intend to pursue distribution relationships
with high-traffic Web sites to strategically place programming and links to our
Web sites as a key element in building traffic. We also purchase advertising
banners on other high-traffic sites. For example, we have advertised our Web
sites on Yahoo, Excite.com, Ragingbull.com and Silicon Investor.com. We are also
seeking to build our traffic with a national brand-building campaign in
traditional and other online media.
Deliver Original Data With High Editorial Value About Often Overlooked
Public Companies. Our publications will continue to cover public companies and
their financial markets, and other areas of interest to our audience, and
enhance this programming by expanding our staff of journalists, columnists and
adding selected third-party content. For example, our editorial staff for
Investmentopportunity.com, consisting of two experienced business journalists,
creates high quality news stories on a daily and weekly basis that inform,
educate and entertain our audience.
Build And Capitalize On Attractive Audience Demographics. We believe our
Web portals attract users who, as a group, are more affluent and better educated
than users of many other Web sites. Our Web sites, therefore, represent an
attractive medium for companies that advertise and engage in commerce over the
Internet. In order to attract new users and grow a loyal audience that appeals
to a broad range of advertisers and business partners, we are investing in
content, improved and expanded features, advertising, and promotional programs.
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Pursue Additional Revenue Streams. We believe that we have significant
opportunities to capitalize on our audience and content offerings to create
multiple revenue streams for future growth. In addition to revenues derived from
advertising, we intend to offer limited subscription services for certain market
data and analyst's reports, exclusive news, commentary and analytical tools. We
are also pursuing electronic commerce opportunities through strategic and
marketing relationships with retailers and service providers focused on Web
distribution. For example, we believe that our focused content and audience
provides us with excellent opportunities to build strategic commerce
relationships with financial service companies, such as marketers of credit
cards, consumer and home loan companies and insurance providers. We also believe
that an opportunity exists to leverage a unique brand of Web portals focusing on
smaller investors and smaller public companies, and to create strategic
relationships in key international markets.
Synergistic Investment Web Portals. Each of our six Internet Web sites
contains specific content. SSP has built and maintains a database of associated
subscribers who receive a particular publication associated with each individual
Web site. Collectively, the databases associated with these Web sites currently
contain approximately 200,000 opt-in subscribers. Based on current recruitment
rates, it is anticipated that by January 2000 we will own and maintain a
database of between approximately 400,000 and 500,000 opt-in subscribers. Listed
below are six commercial Web sites owned and maintained either by SSP or us,
including a brief description of their individual themes and revenue sources.
- OTC Digest (http://www.otcdigest.com). OTC Digest profiles public
companies who are clients of our Due Diligence Web Site and Database
Capture and Maintenance Services ("Due Diligence Services") and pay us (in
cash, stock or a combination of both) to be profiled. Published once each
week, this publication is free to our E-mail subscribers. In compliance
with Section 17(b) of the federal Securities Act of 1933, 1st Net's and
SSP's publications provide individual disclaimers and disclosures about
each company which pays us to profile it, including the source, form and
amount of all compensation we or SSP receive. Each issue of OTC Digest
offers a weekly update on stocks and highlights a particular company, while
also providing a "Special Situation Report" on market conditions for public
companies. When a client company subscribes to our Due Diligence Services,
we offer the company the opportunity to be profiled in the OTC Digest,
which has approximately 10,000 subscribers.
- The Angel Network (http://www.angelnetwork.com). First published in
December 1998, The Angel Network is written exclusively for our proprietary
database of accredited investors. This Web site profiles investment
opportunities, which are only available to accredited investors, and
provides educational tools for subscribers to evaluate investment
opportunities not available from traditional media. Applicable state and
federal securities laws, including the prohibition against the general
solicitation of securities under federal Regulation D, are strictly
followed. The Angel Network database has approximately 750 subscribers.
- IPO Roadshow (http://ww.iporoadshow.net). On April 18, 1999, we
introduced IPOroadshow.net to inform investors and financial market
analysts about upcoming online roadshows, Webcasts and video due diligence
presentations by companies "going public" or existing publicly-traded
companies. This Web site is developing a database of stockbrokers, money
managers, investment professionals and individual investors. By utilizing
video and audio streaming capabilities provided by INTERVU (NASDAQ:INVU),
IPOroadshow.net informs interested parties via E-mail from Envoy Express
about upcoming Web events. Customers of IPOroadshow.net acquire the ability
to conduct roadshows directly through the Internet without the time and
expense typically associated with such events.
- Small Cap Digest, OTC Journal and Investment Opportunity
(http://www.small-capdigest.com,http://www.otcjournal.com, and
http://www.investmentopportunity.com). SSP owns and maintains three
financial portals that are virtually identical in terms of theme, content,
and revenue streams. These three sites and their respective related
databases have been developed in order to create three separate and
distinct revenue streams for SSP. We generate revenues from each of these
investment portals through profiling public companies, which generally have
not captured the attention of either Wall Street or the major financial
media. Client companies are chosen after we perform due diligence on the
company. Information on the client company is sent to our subscriber base,
initially in the form of a
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"profile" by E-mail. Once a profile is released, SSP will continue to
provide timely updates with news releases and corporate developments to our
subscriber base via E-mail for a period of time which is specified in each
client contract. SSP strives to offer unique content not found at the
larger, more heavily trafficked sites in order to diversify sources of
revenues. Some examples of these Web sites' unique content include columns
by Dr. Richard Geist, Harvard PhD., Psychology, who provides a monthly
column on the psychology of investing for which Dr. Geist receives a fee
from SSP. SSP has also developed a simulated stock trading game where
players can register and buy and sell stocks in a simulated environment.
This game is currently played in beta test version, and we anticipate that
we will release the final version in mid-September 1999. SSP thereafter
anticipates having monthly contests for the best performing portfolios and
paying cash prizes to the three top performing portfolios. SSP also has a
number of other unique financially-related resources on its sites, each of
which is designed to stimulate increased and repeating traffic to the
sites. We believe that as these new and unique investment resources are
added to our sites, our traffic will increase, thereby creating an Internet
environment that may generate significant advertising revenues.
SALES, MARKETING AND DISTRIBUTION
We sell our products and services to our clients using a combination of
indirect distribution channels, our direct enterprise sales force, our online
distribution channels, and strategic relationships. We market our products and
services using a broad range of activities to generate demand and build brand
awareness. As of August 25, 1999, we have 14 employees, or approximately 22
percent of our workforce, engaged in sales and marketing activities.
INDIRECT DISTRIBUTION CHANNELS
Our indirect distribution channels and strategies include domestic and
international distributors, retail vendors, value-added resellers, and other
technology companies with whom we have and are continuing to establish strategic
relationships. To date, we have developed contractual relationships, or are
currently in negotiations, with non-exclusive distributors worldwide, including
Netcenter, Netsol International, Total Media Technologies, Cyber Vegas, and
Libretto of the United Kingdom. We are currently negotiating additional avenues
of distribution and we intend to investigate other new possible partnerships as
opportunities arise.
DIRECT ENTERPRISE SALES FORCE
Our direct enterprise sales force focuses on sales to corporate customers
domestically in the United States and, more recently, abroad in the United
Kingdom. The enterprise sales force is comprised of field representatives and
inside sales representatives. The field representatives and inside sales
representatives market and sell our products and services to corporate clients
that the inside sales team has identified as sales prospects. The inside
representatives develop and pursue leads generated from inquiries on our Web
sites, downloads of our trial products, and other direct marketing efforts. Our
sales force has increased from two employees to 14 employees in 1999, and during
that period revenues per salesperson have been rising steadily while our number
of transactions and inquiries has increased, as well.
ONLINE DISTRIBUTION CHANNELS
Our Web site, available at http://www.1stnettech.com, allows users to
download and purchase our products and services through links that reach to our
subsidiary companies' Web sites. Our subsidiaries also offer products directly
to consumers and corporate clients. In addition, we employ third-party
E-commerce and distribution sites, including netcenter.com and netsolmall.com,
where our products and services are sold. Additional online distribution
channels for the sale of our products and services include nofear.com and
totalmediatechnologies.com, which are scheduled to come online by September 30,
1999. Together, these online distribution channels provide us with a low-cost,
globally accessible, 24-hour sales channel.
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STRATEGIC RELATIONSHIPS
We have a number of strategic relationships with other technology companies
by which our products are incorporated into, or bundled with, a third party's
products. We believe that these strategic relationships significantly enhance
the opportunity for brand recognition and awareness of our products and
services, and also provide us with additional sources of revenues. Our strategic
relationships include:
INTERVU, Inc. (http://intervu.com). INTERVU is a leading service provider
for Internet video delivery solutions. This relationship encompasses our
Internet Web cast audio delivery of the "Angel Network Radio Hour", a one-hour
radio broadcast that features our interviews of various prominent business
executives, as well as video delivery services for our "IPO Roadshow.net" Web
site currently under development. We are a reseller of these Internet multimedia
delivery services through the "IPO Roadshow" Web site and the "1st Net Financial
Channel", which will also feature live and archived "IPO Roadshow" client
events. We additionally provide third party marketing services to INTERVU's
event clients in the sports and entertainment segments of INTERVU's business.
INTERVU offers powerful, turn-key solutions to deliver live and on-demand audio
and video-streaming over the Internet, from narrow-band (28.8, 56.6 and 100
Kbps) to broad band (300Kbps and higher, for near television-quality video). The
company's streaming media services are utilized for many different types of
business uses including entertainment, news reporting, corporate communications,
investor relations, and distance learning. INTERVU has developed an automated
content management system that is tied to a patent-pending, high-performance
distributed network comprised of numerous servers strategically positioned
around the United States and Europe. This distributed network architecture
allows the company to handle very high volumes of simultaneous Internet users
while ensuring first-rate delivery of audio and video to users' computers.
Netsol International, Inc. (http://www.netsolpk.com). We are developing
products and solutions in association with Netsol's offshore software
development group. Netsol employs over 100 information technology professionals
with offices in the United States, the United Kingdom and Pakistan. Netsol
International, Inc. is the parent company of Network Solutions (PVT) Ltd.
Pakistan, Netsol (U.K) Ltd. and Netsol USA, Inc. We believe this relationship
provides us with a competitive edge for our Web creation, design, and hosting
services for a variety of markets, including finance, children, and sports. For
Netsol, this alliance should generate steady revenues through our extensive
Internet marketing capabilities and help launch the first Internet-based project
developed by Netsol.
MARKETING AGREEMENTS
Laforza Automobiles, Inc. (http://www.laforza.com). We have entered into a
business arrangement with Laforza Automobiles, Inc.("LaForza") by which we
receive a cash commission for each automobile that we help to sell on the Web
site, which we developed for Laforza. Laforza Automobiles has two niches within
the automotive industry: (i) as an importer and distributor of a luxurious,
Italian-made sport utility vehicles called "Laforza"; and (ii) as an
after-market customizer of high-end, high-performance automobiles, called
"Monster Motorsports."
NO FEAR, Inc. (http://nofear.com). We recently signed an Internet marketing
and revenue sharing agreement with NO FEAR, by which we are developing an
E-commerce Web site aimed at marketing the company's line of over 500 products.
We will be paid a commission for all sales of NO FEAR products via the Internet,
and shall share in advertising revenues generated by NO FEAR's Web site.
La Jolla Fresh Squeezed Coffee Company, Inc. (http://lajollacoffee.com). La
Jolla Fresh Squeezed Coffee Company, Inc. provides unique and versatile products
to the specialty coffee market. La Jolla Coffee currently has over 32 distinct
coffee blends, including liquid coffee concentrates and cold coffee beverages,
which it manufactures and markets. At present, it is producing five blends of
cold coffee beverages in various sizes. We have entered into an agreement by
which we receive ten percent of all sales generated from La Jolla Coffee's Web
site in exchange for our Web site design, development, maintenance, and
marketing services.
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MARKETING ACTIVITIES
Since our inception, we have invested a significant percentage of our
revenues in a broad range of marketing activities to generate demand, gain
corporate brand identity, establish corporate and subsidiary Web sites, and
educate the market about our products and services. These activities have
included advertising, including print, radio, television and online, direct
marketing via E-mail, public relations, sponsoring seminars for potential
clients, participating in trade shows and conferences, and providing product and
service information through our Web sites. Our marketing programs are aimed at
informing our clients and customers of the capabilities and benefits of our
products and services, increasing brand awareness, stimulating demand across
market segments and encouraging other companies to enter into co-marketing and
distribution arrangements with us.
TARGET MARKET
E-commerce and financial services are some of the fastest growing online
segments of the Internet. 1st Net Technologies products and services target:
- Publicly-traded companies, of which there are currently over 50,000
- Corporate clients looking to enter the E-commerce environment
- High net worth investors using the Internet to gather financial
information and trading online
- Large organizations, affinity groups, schools, religious groups and other
growing virtual communities considering a single source for online
information and purchasing
- The registered broker-dealer and investment banking community, and
- Every company that wants to effectively market its products or services
on the Internet.
RESEARCH AND DEVELOPMENT
Our wholly-owned subsidiary, Spirit 32 Development Inc., a Colorado
corporation ("Spirit 32"), is currently developing an interface for major
telecommunications IP telephony switches without the need for hardware-based
routers. The purpose of this product line is to reduce the costs to major
telecommunication companies in implementing voice-over IP services. Spirit 32 is
also developing a software development kit that will allow third party
developers access to the myriad of services available in the community space, so
that they may write new community-based applications. Spirit 32 is also
developing "Starburst", a unique desktop IP Telephony application that
integrates the telephone and the computer. Starburst is a communication
management tool, which can screen and forward calls with "track-me" features. It
integrates and manages voice mail, e-mail, and faxes in a single application.
Starburst can also automatically route outbound phone calls with least
cost/highest quality parameters for IP or Public Switch Network ("PSTN")
routing. Starburst has real-time call summary and billing information and is
designed to work on the Mariah IP Telephony Network, but is compatible with any
IP telephony provider.
Spirit 32 engages in the design, development, and operation of data and
communications networks, as well as the development of content applications and
propriety software programs for those networks. These applications include
telecomputing, PC-based IP telephony, integration of major telephone switch
technologies, and community-based data information and transaction delivery
applications.
Spirit 32 operates a 10-megabit connection to the Internet in Denver,
Colorado. As of August 25, 1999, Spirit 32 has eight full-time employees. Spirit
32 has expertise in data and telephone network engineering and operation,
software development, design, Internet and Intranet application online
databases, information systems, and telephony applications, including voice-over
IP. Spirit 32 specializes in telecomputing based on Content-Based Routing and
Delivery systems. Spirit 32 is currently developing and testing a technology
based on low radio frequency broadcasts called "Wisper", a wireless voice and
data technology that can deliver up to "3 megabytes" rate connectivity
capabilities without any hard wiring and at a fraction of the cost of
conventional systems. The Wisper system can deliver up to a 45-megabit data line
throughput without hardware. This results in a substantial cost savings over
typical installations and eliminates associated costs.
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Since the technology does not require anyone on the user side to maintain the
connection, it reduces administrative and support costs substantially. This
innovative system can be used as a data delivery system, a telephone system
capable of voice-over IP, and an alternative to local telephone service.
Spirit 32 has two of these Wisper systems currently in use. The current
focus of the Wisper project is to improve the range of these systems, which at
present is two miles from the backbone termination. Using this infrastructure,
Wisper technology may deliver Content-Based Routing and Delivery with the
necessary speed and bandwidth required for a user-friendly environment at a
fraction of the cost for a standard system of this magnitude.
By obtaining a license of Internet Web technology, we are presently
marketing our 1st Net Web Card (the "Card"), a revolutionary new marketing tool
for the next millennium. This innovative technology delivers CD-ROM capability
in the shape and size of a business card that is capable of storing up to 32
megabytes of information. Information can include a multimedia presentation
combining audio and video capability including hyperlinks, a security device or
almost any other application. We are bringing this unique technology to market
as a reseller and will be bundling the Card with our Online Investor Relations
Program services.
We have incurred research and development costs in the production of Envoy
Express. Development of Envoy Express continues in 1999. Our total cost to
develop Envoy Express version 1.0 is expected to be approximately $220,000.
COMPETITION
The market for Internet services, software and products is relatively new,
intensely competitive and rapidly changing. The number of Web sites on the
Internet competing for consumers' attention and spending has proliferated and we
expect that competition will continue to intensify. We compete, directly and
indirectly, for advertisers, viewers, members and content providers with the
following categories of companies:
- publishers and distributors of traditional off-line media, such as
television, radio, and print, including those targeted to business,
finance and investing needs, which have established or may establish
Web sites, such as Marketwatch.com, The Wall Street Journal, CNN and
CNBC;
- General purpose consumer online services such as America Online and
Microsoft Network, each of which provides access to financial and
business-related content and services;
- Online services or Web sites targeted to business, finance and
investing needs, such as Mail.com and TheStreet.com
- Web search and retrieval and other online services, such as Excite,
Inc., InfoSeek Corporation, Lycos, Inc., Yahoo! Inc., and other
high-traffic Web sites, such as those operated by Netscape
Communications Corporation, which offer quotes, financial news and
other programming and links to other business and finance related
Web sites; and
- Web site building software developers and service providers,
including Microsoft, Adobe, Macromedia, Inc., GeoCities, Inc. and
Net Objects, Inc.
- Community Web browser and online community developers and service
providers, including Microsoft, America on Line and Surf Monkey.
We anticipate that the number of direct and indirect competitors with our
online financial portals will increase in the future. Many of them do not
primarily provide real-time coverage by experienced journalists. However, many
of our existing competitors, as well as a number of potential new competitors,
have longer operating histories in the Web market, greater name recognition,
larger customer bases and higher amounts of user traffic and significantly
greater financial, technical and marketing resources. Such competitors may be
able to undertake more extensive marketing campaigns, adopt more aggressive
pricing policies, make more attractive offers to potential employees,
distribution partners, advertisers and content providers and may be able to
respond more quickly to new or emerging technologies and changes in Web user
requirements. Further, there can be no assurance that they will not develop
services that are equal or superior to ours or that they
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achieve greater market acceptance than our product and service offerings.
Increased competition could also result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect our
business, results of operations and financial condition.
The Web, and 1st Net specifically, also must compete with traditional
advertising media, such as print, radio and television, for a share of
advertisers' total advertising budgets. Web companies and 1st Net would lose
revenue if the Web is not perceived as an effective advertising medium. In
addition, well-established traditional media companies may acquire, invest or
otherwise establish commercial relationships with our competitors. Recent
examples include NBC's recent investment in CNET's Snap service, Disney's
investment in Infoseek or USA Network's and Ticketmaster Online-Citysearch's
combination of their services with Lycos. These relationships create companies
with substantial media resources to promote and enhance their own services.
Greater competition resulting from such relationships could have a material
adverse effect on our business and, ultimately, our stock price. As a result,
there can be no assurance that we will be able to compete successfully against
our current or future competitors or that competition will not have a material
adverse effect on our business, results of operations and financial condition.
With respect to Mariah, two significant barriers to entry in the
traditional long distance telephone market are size (minimum efficient scale of
operations) and regulatory constraints which preclude smaller companies from
gaining significant market share. Internet telephony effectively eliminates or
reduces these barriers since it is presently unregulated and enjoys economies of
scope and scale by using the Internet and private I.P. networks as a common
voice video and data network. Internet telephony will decrease barriers to entry
and increase competition in the long distance industry. We believe that Mariah's
ability to compete in the Internet telephony industry successfully will depend
upon a number of factors, including the pricing policies of competitors and
suppliers; the capacity, reliability, availability and security of the Internet
telephony infrastructure; marketing; the timing of introductions of new products
and services into the industry; Mariah's ability to support existing and
emerging industry standards; Mariah's ability to balance network demand with the
fixed expenses associated with network capacity; and industry and general
economic trends.
The market for telecommunications services, in particular, is extremely
competitive and there are a growing number of competitors in the Internet
telephony industry. There are many companies that offer business communications
services and which will compete with Mariah at some level. These include large
telecommunications companies and carriers such as AT&T, MCI, and Sprint;
smaller, regional resellers of telephone line access; and other existing
Internet telephony companies. These companies, as well as others, including
manufacturers of hardware and software used in the business communications
industry, could in the future develop products and services that could compete
with those of Mariah on a direct basis. Many of these entities have far greater
financial and organizational resources than Mariah and control significant
market share in their respective industry segments. There is no assurance that
Mariah will be able to successfully compete in the Internet telephony industry.
Certain large public telephone companies are also positioning themselves to
enter the Internet telephony market to protect their dominant domestic market
from competition. Many of these companies are testing existing Internet
telephony gateway technology, which at the present time has limited call volume
capabilities. A number of companies are waiting for gateway manufacturers to
introduce advanced gateways that will be able to handle larger call volumes and
provide better quality and service. In North America, considerable discounting
has been experienced in recent years as competition has increased. In many
countries outside of North America, local telephone companies have begun
offering discounts to very large business and government customers with high
call volumes; there are few discounts available for individuals or small and
medium sized companies. It is expected that competition in the United States
will be led by carriers providing low cost but high quality Internet telephony
services at rates of $0.05 to $0.09 per minute. Smaller Internet service
providers and new carriers are expected to focus primarily on international or
niche markets.
INTELLECTUAL PROPERTY
Our success and ability to compete are dependent to a significant degree on
our proprietary technology. We rely primarily on state and federal copyright,
trade secret and trademark common law to protect its
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proprietary technology. We have several unregistered trademarks, various
unregistered copyrights and certain licenses of technology with third parties.
1st Net has no patents or other registered intellectual property, other than
certain trademarks. The source code for our proprietary software is protected as
a trade secret but not as a copyrighted work. In addition, it is our policy to
enter into confidentiality and non-competition agreements with its associates
and generally to control access to and distribution of its proprietary
technology. Notwithstanding the precautions taken by us to protect our
intellectual property rights, it is possible that third parties may copy or
otherwise obtain and use our proprietary technology without authorization or
otherwise infringe on our proprietary rights. It is also possible that third
parties may independently develop technologies similar to those of our own.
Policing unauthorized use of our intellectual property rights may be difficult,
particularly because it is difficult to control the ultimate destination or
security of information transmitted over the Internet. In addition, the laws of
foreign countries may afford inadequate protection of intellectual property
rights.
We may need to engage in litigation in order to enforce our intellectual
property rights in the future or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of management and other resources, either of which could have a
material adverse effect on our business, operating results and financial
condition. We also use certain third-party technology, such as Agent (TM)
software from Microsoft, and data and content from third parties. In these
license agreements, the licensors have generally agreed to defend, indemnify and
hold us harmless with respect to any claim by a third party that the licensed
software or content infringes any person's proprietary rights. There can be no
assurance that the outcome of any litigation between such licensors and a third
party or between us and a third party will not lead to royalty obligations for
which we are not indemnified or for which such indemnification is insufficient,
or that we will be able to obtain any additional license on commercially
reasonable terms, if at all. In the future, we may seek to license additional
technology or content in order to enhance our current features or to introduce
new services, such as certain of the community features we may introduce. There
can be no assurance that any such licenses will be available on commercially
reasonable terms, if at all. The loss of or inability to obtain or maintain any
of these technology licenses could result in delays in introduction of new
services until equivalent technology, if available, is identified, licensed and
integrated, which could have a material adverse effect on our business, results
of operations and financial condition. Because we license some data and content
from third parties, our exposure to copyright infringement actions may increase
because we must rely upon such third parties for information as to the origin
and ownership of such licensed content. We generally obtain representations as
to the origins and ownership of such licensed content and generally obtain
indemnification to cover any breach of any such representations. However, there
can be no assurance that such representations will be accurate or that such
indemnification will be sufficient to provide adequate compensation for any
breach of such representations. There can be no assurance that infringement or
other claims will not be asserted or prosecuted against us in the future whether
resulting from our internally developed intellectual property or licenses or
content from third parties. Any future assertions or prosecutions could
materially adversely affect our business, results of operations and financial
condition. Any such claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management personnel
or require us to introduce new content or trademarks, develop non-infringing
technology or enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on acceptable terms, if
at all. In the event of a successful claim of infringement and our failure or
inability to introduce new content or trademarks, develop non-infringing
technology or license the infringed or similar technology on a timely basis, our
business, results of operations and financial condition could be materially
adversely affected.
GOVERNMENT REGULATION
The laws and regulations applicable to the Internet and our services are
evolving and unclear and could damage our business. There are currently few laws
or regulations directly applicable to access to, or commerce on, the Internet.
Due to the increasing popularity and use of the Internet, it is possible that
laws and regulations may be adopted, covering issues such as user privacy,
defamation, pricing, taxation, content regulation, quality of products and
services, and intellectual property ownership and infringement. Such legislation
could expose us to substantial liability, as well as dampen the growth in use of
the Internet,
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decrease the acceptance of the Internet as a communications and commercial
medium, or require us to incur significant expenses in complying with any new
regulations. The European Union has recently adopted privacy and copyright
directives that may impose additional burdens and costs on international
operations. In addition, several telecommunications carriers, including
America's Carriers' Telecommunications Association, are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission ("FCC"), in the same manner as other telecommunications services.
Because the growing popularity and use of the Internet has burdened the existing
telecommunications infrastructure and many areas with high Internet usage have
begun to experience interruptions in phone services, local telephone carriers,
such as Pacific Bell, have petitioned the FCC to regulate the Internet and to
impose access fees. Increased regulation or the imposition of access fees could
substantially increase the costs of communicating on the Internet, potentially
decreasing the demand for our service.
A number of proposals have been made at the federal, state and local level
that would impose additional taxes on the sale of goods and services through the
Internet. Such proposals, if adopted, could substantially impair the growth of
electronic commerce and could adversely affect us. Also, the United States
Congress ("Congress") recently enacted the Digital Millennium Copyright Act,
which is intended to reduce the liability of online service providers for
listing or linking to third-party Web sites that include materials that infringe
copyrights. Congress also recently enacted the Children's Online Protection Act
and the Children's Online Privacy Act, which will restrict the distribution of
certain materials deemed harmful to children and impose additional restrictions
on the ability of online services to collect user information from minors.
Further, Congress recently enacted the Protection of Children from Sexual
Predators Act, which mandates that electronic communication service providers
report facts or circumstances from which a violation of child pornography laws
is apparent.
We are currently reviewing this legislation, and cannot currently predict
the effect, if any, that this legislation will have on our business. There can
be no assurance that this legislation will have significant additional costs on
our business or subject us to additional liabilities. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, copyright, defamation, obscenity and personal privacy is uncertain.
We may be subject to claims that our services violate such laws. Any new
legislation or regulation in the United States or abroad or the application of
existing laws and regulations to the Internet could damage our business and
cause the price of our common stock to decline. Due to the global nature of the
Internet, it is possible that the governments of other states and foreign
countries might attempt to regulate its transmissions or prosecute us for
violations of their laws. We might unintentionally violate such laws. Such laws
may be modified, or new laws may be enacted, in the future. Any such development
could damage our business.
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. In addition, the Securities and
Exchange Commission (the "Commission"), the NASD, various stock exchanges, and
other regulatory bodies, such as state securities commissions, require strict
compliance with their rules and regulations. As a matter of public policy,
regulatory bodies are charged with safeguarding the integrity of the securities
and other financial markets and with protecting the interests of customers
participating in those markets. Persons functioning as broker-dealers are
subject to regulations covering all aspects of the securities business,
including sales methods, trade practices among broker-dealers, use and
safekeeping of customers' funds and securities, capital structure, record
keeping and the conduct of directors, officers and employees. Our failure to
comply with any of these laws, rules or regulations could result in censure,
fine, the issuance of cease-and-desist orders, or the barring, suspension or
expulsion of a broker-dealer or any of its officers or employees, any of which
could have a material adverse effect on our business, financial condition and
operating results.
Mariah uses the Internet for transmission of long distance telephone calls.
Presently, the does not regulate companies that provide Internet Telephony
services as common carriers or telecommunications service providers.
Notwithstanding the current state of the rules, the FCC's potential jurisdiction
over the Internet is broad because the Internet relies on wire and radio
communications facilities and services over which these regulatory authorities
have long-standing authority. Access charges are assessed by local telephone
companies to long distance companies for the use of the local telephone network
to originate and
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terminate long distance calls generally on a per minute basis. Access charges
have long been a source of dispute, with long distance companies arguing that
the access rates are substantially in excess of cost and local telephone
companies arguing that access rates are needed to subsidize lower local rates
for end user and other purposes. The FCC currently is considering whether
subscriber calls to Internet service providers should be classified as "local"
or "interstate" calls. Although the FCC to date has determined that Internet
service providers should not be required to pay interstate access charges to
local telephone companies, this decision may be reconsidered in the future if
the FCC finds these calls to be "interstate." Mariah's costs for doing business
would increase if Mariah were required to pay interstate access charges.
YEAR 2000 COMPLIANCE
We have been working on the Year 2000 ("Y2K") challenge since January 1998.
All of our operating groups implemented policies and plans to address both
critical and non-critical systems, products, factories, and suppliers. In March
1999, we achieved Y2K readiness status. Ready status means that we have
inventoried date-affected assets, and adjusted and tested the adjustment to
ensure that assets will handle Y2K dates without error. Although we believe that
our assets are Y2K compliant, our current systems and products may contain
undetected errors or defects with Y2K date functions that may result in material
costs. Operational issues caused by Y2K errors could cause us to incur
significant costs in remedial work and loss of revenue from advertisers due to
down time.
We have not incurred material costs to date in this process, and currently
do not believe that the cost of additional actions will have a material effect
on its results of operations or financial condition. We have been communicating
the importance of Y2K remediation efforts and readiness concerns with our
clients and suppliers for the past year. Even with this effort, we are unable to
definitively determine that all of our major suppliers will reach a Y2K ready
status by the year 2000.
EMPLOYEES
As of August 25, 1999, we employed 64 full-time employees. We also utilize
independent contractors for legal services and sales development, among other
functions. None of our employees are represented by a labor union. We have not
experienced any work stoppages and consider our employee relations to be
satisfactory.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion contains certain forward-looking statements that
are subject to business and economic risks and uncertainties, and our actual
results could differ materially from those forward-looking statements. The
following discussion regarding our financial statements should be read in
conjunction with our financial statements and notes thereto.
The going concern opinion of our independent accountant, as disclosed in
our Independent Auditors' Report attached to part F/S, is as follows:
The Company [1st Net] has a relatively short history of operations,
has experienced losses in the year ended December 31, 1997 (as reported
upon separately by other auditors), and the twelve months ended December
31, 1998 as reported upon above. As of December 31, 1998, the Company
maintains an excess of $435,000 in retained deficits. Therefore, the future
profitability and viability of the Company will be based in large part on
the Company's ability to attract additional numbers of web site users, and
to secure profitable operating agreements with those users. There can be no
assurance that the Company will be able to operate profitably in the future
(see Note 1(a)) and accordingly, these consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot
continue in existence.
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Note 1(a) of such Report provides, in pertinent part, as follows:
The accompanying financial statements of the Company have been
prepared in conformity with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern. However, the
Company has incurred net losses of $429,013 during 1997 and 1998 resulting
in a retained deficit of $435,013 after dividends. In view of this matter,
realization of a portion of the assets in the accompanying financial
statement is dependent upon continued operations of the Company and
management believes that actions presently being taken and current revenues
being generated will provide the opportunity for the Company to continue as
a going concern.
GENERAL OVERVIEW
Our principal line of business is to provide Internet-related services and
products. These include, but are not limited to, E-commerce Web site
development, maintenance and hosting services; Internet marketing services;
Crayon Crawler(TM) Kids Safe Web Browser and Online Community; Envoy Express(TM)
database management services; IP telephony; wireless high-speed Internet access;
affinity group Web browsers and online communities; financial portals; and,
online investor relations on behalf of businesses throughout the United States.
Our overall strategy focuses on "Content-Based Routing and Delivery" using
a recurring revenue transaction-based model. Capturing desktops, managing
customer databases, routing content, and generating revenue from online
transactions are the key elements of this strategy.
THE COMPANY'S INTERNET SERVICES STRATEGY
Our Internet strategy is to leverage our position as a provider of Web
services, Internet telephony protocol applications, and E-business software. Our
strategy of building niche, online communities with our proprietary
Content-Based Routing and Delivery System and our four-step business concept
should allow us to generate recurring transaction-based revenues. We expect to
generate revenues when consumers make purchases and use our E-business software,
when consumers subscribe to our online communities, and when customers make long
distance telephone calls from their business or residential telephones using our
telephone calling cards or IP telephony. Proceeds from pre-paid subscriptions to
online communities and pre-paid telephone calling cards will be recorded as
deferred revenues when cash is received and as revenues when subscription or
telephone services are utilized. Our reserve for deferred revenues will be
carried on our balance sheet as an accrued liability. Internet-related services
are typically billed at a flat rate and are billed in advance. We recognize
revenues in the period earned.
Costs of sales include cost of merchandise sold, telecommunication service
costs, and commissions paid for customer acquisitions. Telecommunications
service costs paid by us are based on our customers' long distance usage. We pay
our carriers based on the type of call, time of call, duration of call, the
terminating telephone number, and terms of our contract in effect at the time of
the call.
General and administrative expenses consist of the cost of customer
service, billing, and cost of information systems and personnel required to
support our operations and growth. Depending on the extent of our future growth,
we may experience significant strain on our management, personnel, and
information systems. We will need to implement and improve operational,
financial, and management information systems. In addition, we are implementing
new information systems that will provide better recordkeeping, customer service
and billing. However, there can be no assurance that our management resources or
information systems will be sufficient to manage any future growth in our
business, and the failure to do so could have a material adverse effect on our
business, results of operations and financial condition.
RESULTS OF OPERATIONS
The following discussion reflects our acquisition of the majority of shares
of Mariah on August 15, 1998; our acquisition of all of the shares of SSP on
January 13, 1999; our acquisition of all of the shares of Spirit 32 on January
22, 1999; and our acquisition of the majority of shares of CTGI on April 19,
1999. Prior to the
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acquisition of 1st NetZing Mall on April 7, 1997, we had no revenues or expenses
for the fiscal year ended December 31, 1996 or the three-month period ended
March 30, 1997.
RESULTS OF OPERATIONS FROM JANUARY 1, 1999 UNTIL JUNE 30, 1999
REVENUES
Revenues for the three- and six-month periods ended June 30, 1999 were
$768,587 and $1,703,125, respectively, compared with the three- and six-month
periods ended June 30, 1998 of $170,581 and $452,509, respectively. In calendar
year 1999, we began selling our Internet services, which resulted in revenues
for the six-months ended June 30, 1999 of $673,955, generated primarily from Web
development and hosting services. Prior to calendar year 1999, our revenues for
the three- and six-month periods ended June 30, 1998 were derived solely from
Web site development and hosting services.
COST OF SALES
We incorporate our cost of sales into operating expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses (our operating
expenses) for the three- and six-month periods ended June 30, 1999 were $734,105
and $1,988,483, respectively, compared with $150,714 and $279,986 for the three-
and six-month periods ended June 30, 1998. For the three- and six-month periods
ended June 30, 1999, we began to realize sales from our Internet marketing
customers, thereby resulting in significantly increased SG&A expenses.
SG&A expenses for the six-months ended June 30, 1999 were comprised
primarily of employment costs of $839,676; advertising expenses of $132,675;
provision for bad debts of approximately $19,384, and $996,748 of other
operating expenses, rent, and legal services.
SG&A expenses of $430,700 for the six months ended June 30, 1998 were
comprised primarily of $154,224 in salaries paid to employees; and $285,476 of
other operating expenses, primarily legal services. Net (loss) profit was
$(235,755) and $192,390 for the six months ended June 30, 1999 and 1998,
respectively.
ASSETS AND LIABILITIES
Total assets were $3,186,763 as of June 30, 1999. Assets consisted
primarily of accounts receivables of $134,912; cash of $780,921; other current
assets of $1,500,193; equipment with a net book value of $453,116; and other
long term assets of $317,621. Liabilities were $744,790 as of June 30, 1999.
Liabilities consisted primarily of accounts payable of $79,356, payroll and
payroll related liabilities of $151,134, and other liabilities of $514,300.
STOCKHOLDERS' EQUITY
Stockholders' equity was $2,441,972 as of June 30, 1999. Stockholders'
equity consisted primarily of $3,441,564 offset primarily by our accumulated
deficit at June 30, 1999 of $999,591.
RESULTS OF OPERATIONS FROM APRIL 17, 1997 UNTIL DECEMBER 31, 1998
REVENUES
From the commencement of our business operations in 1997 until December 31,
1998, our revenues totaled $1,183,994. This amount originated primarily from Web
site development and hosting services.
COST OF SALES
Cost of Sales are included in our SG&A figures. SG&A for the period from
inception until December 31, 1998 totaled $1,619,007, comprised of salaries of
approximately $654,700; professional fees of approximately
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$246,149; and rent of approximately $68,312. Net loss for the period of
formation until December 31, 1998 was $435,013.
ASSETS AND LIABILITIES
Our assets as of December 31, 1998 were $803,220, with current assets of
$311,883 and long term assets of $315,361; computer equipment of $175,976; and
cash of $17,888. Liabilities as of December 31, 1998 were $309,963. Liabilities
consisted primarily of accounts payable of $187,781 and other liabilities of
$121,840.
STOCKHOLDERS' EQUITY
Stockholders' equity as of December 31, 1998 was $492,915. Stockholders'
equity consisted primarily of $927,928 raised in a private placement of equity,
offset by cumulative losses of $435,013 for the period ended December 31, 1998.
LIQUIDITY AND CAPITAL
We experienced positive cash flows of $14,891, resulting from $407,443 of
cash provided from our financing activities, offset by $355,095 of cash used in
operating activities, and $37,457 of cash used in investing activities. Net cash
used in operating activities of $355,095 was primarily due to a net loss of
$286,076. Net cash used in investing activities of $37,457 funded purchases of
computer equipment. Net cash provided by financing activities of $407,443 was
primarily due to the issuance of stock and an increase in current assets from
the purchase of Mariah.
SHORT-TERM FINANCING
We were initially capitalized by the issuance of 1,800,000 shares of our
Common Stock, at $0.001 per share, totaling $1,800, to an officer (whom has
subsequently resigned), in exchange for services related to organizing us as a
company. In June 1997, we engaged in private offering, resulting in the issuance
of 598,000 common shares, for a total of $149,500, less offering costs of
$42,250. On October 28, 1997, an additional 400,000 common shares were issued
under Regulation D, Rule 504 of the Securities Act of 1933 to a single investor
for $400,000.
On October 12, 1998, we issued an additional 450,000 common shares under
Regulation D, Rule 504 to investors for $450,000, less offering costs of
$81,387. As of December 31, 1998, we engaged in a private offering under
Regulation D, Rule 505 of the Securities Act of 1933 resulting in the issuance
of 200,000 shares of Series "A" Preferred Stock, for a total of $50,000. This
offering was subscribed in full by March 11, 1999, resulting in an aggregate
issuance of 472,400 shares of Series "A" Preferred Stock and 236,200 Common
Stock purchase warrants, at an exercise price of $5.00 per share exercisable
immediately, totaling $1,181,000, less offering costs of approximately $120,000.
All outstanding Series "A" Preferred Stock automatically converted to Common
Stock, on a one-to-one basis, in April 1999.
LONG-TERM FINANCING
We believe that our anticipated funds from operations and funds received
from our recent private offering, together with a potential future institutional
offering approximately $5,000,000 of our Common Stock, may be sufficient to fund
our capital expenditures, working capital, and other cash requirements for the
next 12 months. If we are unsuccessful, however, in raising institutional funds,
we will be required to seek other public or private funds to finance our
long-term operations ("Additional Funds"). Should we fail to raise Additional
Funds, we will probably have insufficient funds for our intended operations and
capital expenditures for the next 12 months, which will have a material adverse
effect on our long-term results of operations.
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CAPITAL EXPENDITURES
We expect to purchase approximately $750,000 of additional equipment in
connection with the expansion of our business. Because we presently do not have
the capital for such expenditures, we will have to raise these funds through an
equity offering or bank financing.
GOING CONCERN
Our independent certified public accountants have stated in their
independent auditors' report included herein that we have no current source of
revenue and, without realization of additional capital, it would be unlikely for
us to continue as a going concern. We believe that if we are successful in
raising sufficient additional funds, that our certified public accountants would
issue a going concern modification regarding our financial condition in our
upcoming Form 10-KSB. However, there can be no assurance that we will be able to
raise sufficient capital to meet our needs.
INFLATION
Management believes that inflation has not had a material effect on our
results of operations.
ITEM 3. DESCRIPTION OF PROPERTY.
We presently maintain our executive and administrative offices at 11423
West Bernardo Court, San Diego, California 92127. We lease this space, which is
approximately 4,000 square feet, from EI at a rate of $8,000 per month on a
five-year term that began on September 1, 1998.
Our property and equipment as of June 30, 1999 consists of the following:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Office Furniture and Fixtures............................. $ 22,624.00
Leasehold Improvements.................................... 22,954.00
Radio Equipment........................................... 16,073.00
Office Equipment -- Capitalized Leases.................... 207,578.00
Computer Equipment and Peripherals........................ 190,492.00
-----------
Total............................................. 459,721.00
Less Accumulated Depreciation............................. (49,994.00)
-----------
Net Property and Equipment........................ $409,727.00
===========
</TABLE>
The future minimum annual aggregate rental payments required under both
capital and operating leases that have initial or remaining non-cancelable lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999........................................................ $133,708.00
2000........................................................ 160,551.00
2001........................................................ 142,886.00
2002........................................................ 129,247.00
2003........................................................ 100,058.00
Thereafter.................................................. 0.00
-----------
Total............................................. $666,450.00
===========
</TABLE>
27
<PAGE> 28
ITEM 4.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets
forth information regarding the beneficial ownership of the shares of the Common
Stock (the only class of shares outstanding) of 1st Net on June 30, 1999, by
each person known by us to be the beneficial owner of more than five percent of
the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER(A) OF BENEFICIAL OWNER CLASS
- -------------- --------------------------------------- ------------------- ----------
<S> <C> <C> <C>
Common Stock Clifford J. Smith, President and Director(b) 400,000 6.5%
Common Stock Entrepreneur Investments, LLC/James H. Watson, 2,575,500 41.8%
Jr., Chief Executive Officer and Chairman (c)
</TABLE>
- ---------------
(a) All beneficial owners referenced in Item 4 are at the same address: 11423
West Bernardo Court, San Diego, California 92127. Unless otherwise
indicated, all persons listed have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
(b) Clifford J. Smith holds an option to purchase 100,000 shares of 1st Net
Common Stock at $3.00 per share. Mr. Smith's option has vested, enabling him
to exercise his right to purchase all 100,000 shares within 60 days. 300,000
of the shares owned by Mr. Smith are restricted under Rule 144 and were
issued on October 15, 1998 at $.001 par value for services rendered.
(c) Entrepreneur Investments, LLC, a Colorado limited liability company ("EI"),
of which James H. Watson, Jr., our Chief Executive Officer and Chairman, is
the sole beneficial owner, holds an option to purchase 300,000 shares of 1st
Net Common Stock at $3.00 per share. This option has vested and EI may
exercise its right to purchase all 100,000 shares within 60 days.
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth
information regarding the beneficial ownership of the shares of the Common Stock
(the only class of shares outstanding) of 1st Net on June 30, 1999, by each
person known by us to be a director or nominee or executive officer owning a
beneficial interest in equity securities of 1st Net.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER(A) OF BENEFICIAL OWNER CLASS
- -------------- --------------------------------------- ------------------- ----------------
<S> <C> <C> <C>
Common Stock Clifford J. Smith, President and 400,000 6.5%
Director(b)
Common Stock Entrepreneur Investments, LLC 2,575,500 41.8%
James H. Watson, Jr., Chief Executive
Officer and Chairman(c)
Common Stock Gregory D. Writer, Jr., former Chief 100,000 1.6%
Executive Officer(d)
Common Stock Lawrence K. Kimball, Chief Financial 25,000 0.4%
Officer and Director(e)
Common Stock Jeffrey Chatfield, Vice President of 100,000 1.6%
Investor Relations(f)
Common Stock Gerald C. Young III, Vice President of 50,000 .8%
Sales(g)
Common Stock Neville Billimoria, Vice President of 31,000 .5%
Marketing and Communications(h)
Officers and 3,281,500 53.317%
Directors as
a Group
</TABLE>
- ---------------
(a) All beneficial owners referenced in Item 4 are at the same address: 11423
West Bernardo Court, San Diego, California 92127. Unless otherwise
indicated, all persons listed have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
28
<PAGE> 29
(b) Clifford J. Smith holds an option to purchase 100,000 shares of 1st Net
Common Stock at $3.00 per share. Mr. Smith's option is vested so he could
purchase all 100,000 shares within 60 days. 300,000 of the shares owned by
Mr. Smith are restricted under Rule 144 and were issued on October 15, 1998
at $.001 par value for past services rendered.
(c) Entrepreneur Investments, LLC, a Colorado limited liability company ("EI"),
of which James Watson, Jr., our Chief Executive Officer and Chairman, is the
sole beneficial owner, holds an option to purchase 300,000 shares of 1st Net
Common Stock at $3.00 per share. This option has vested and EI may exercise
its right to purchase all 300,000 shares within 60 days.
(d) Gregory D. Writer, Jr. served as our Chief Executive Officer until June 29,
1999. Mr. Writer holds an option to purchase 100,000 shares of 1st Net
Common Stock at $3.00 per share. Mr. Writer's option has vested, enabling
him to purchase all 100,000 shares within 60 days.
(e) Lawrence K. Kimball holds an option to purchase 150,000 shares of 1st Net
Common Stock at $5.00 per share. Mr. Kimball's option vests quarterly (pro
rata) over the three-year term of his employment agreement. It expires April
19, 2009.
(f) Jeffrey Chatfield holds an option to purchase 25,000 shares of 1st Net
Common Stock at $3.00 per share. Mr. Chatfield's option has vested, enabling
him to purchase all 25,000 shares within 60 days. He also owns 75,000 shares
of Rule 144 restricted stock at $.001 par value that was issued on October
15, 1998 for past services rendered.
(g) Gerald C. Young III was issued 50,000 shares of Rule 144 restricted stock at
$.001 par value on October 15, 1998 for past services rendered.
(h) Neville Billimoria was issued 31,000 shares of Rule 144 restricted Common
Stock at $.001 par value on October 15, 1998 for past services rendered.
CHANGES IN CONTROL. We are not aware of any arrangement which might result
in a change in control of 1st Net in the future.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES.
James H. Watson, Jr., 37, has served as our Chief Executive Officer and
Chairman of our Board of Directors since June 30, 1999. He has been a member of
our Board since 1994. Since 1994, Mr. Watson has been the General Managing
Member, and the sole owner, of EI, our largest shareholder. From 1995 until
1997, Mr. Watson has been the President of N8 Concepts, a Colorado trademark
licensing firm. He was the Vice President of Marketing for AGT Sports, Inc., a
Colorado sports marketing firm, from 1993 to 1995.
Clifford J. Smith, 39, has served as our President and a Director since
September 1997. From 1991 until 1997, Mr. Smith was a food and beverage
executive for Marriot Corporation in San Diego.
Lawrence K. Kimball, 46, has served as our Chief Financial Officer,
Secretary, Treasurer and a Director since April 1999. He is also a Director of
CTGI. From 1997 until 1999, Mr. Kimball was a private business consultant in
Hawaii and Southern California. Mr. Kimball was the Chief Financial Officer and
Chief Operating Officer of Lanai Company, Inc., a subsidiary of a publicly-held
company which owns and manages the Island of Lanai, Hawaii, from 1994 until
1997. Mr. Kimball brings over 20 years of senior operations management and
finance experience from the information technology and customer service
industries. Mr. Kimball's business experience ranges from managing a diversified
public conglomerate with assets of $325 million and 1,100 employees to start-up
and emerging growth companies.
Jeffrey Chatfield, 37, has served as our Vice President of Investor
Relations since May 1998. He is also Vice President of Investor Relations of
CTGI. Mr. Chatfield served as a Vice President of Presidential Brokerage, a NASD
broker-dealer, in La Jolla, California from 1994 until May 1998.
Gerald C. Young III, 44, has served as our Vice President of Sales since
December 1997. From 1993 until 1996, Mr. Young was Chief Operating Officer of
The Financial Power Network, Inc., a nationally broadcast financial radio show.
In 1997, Mr. Young founded Corporate Identities, Inc., a firm specializing in
the creation, printing and publication of information for publicly-traded
companies.
29
<PAGE> 30
Neville Billimoria, 39, has served as our Vice President of Marketing and
Communications since September 1998. From 1988 until 1995, Mr. Billimoria was
President of Creative Marketing Directions, an advertising firm in San Diego,
which he sold to ARK Enterprises, an advertising and marketing firm, in June
1995. From 1995 until 1997, Mr. Billimoria was Vice President of Business
Development of ARK Enterprises in San Diego. From 1995 until 1998, Mr.
Billimoria served as Managing Director of Kensho, an Internet consultancy, in
San Diego. Mr. Billimoria supervises our external sales and marketing, internal
leadership development, and organizational alignment issues.
Steven J. Santamaria, 41, has served as a Director since February 1999. Mr.
Santamaria has over 18 years of progressive operations and senior management
experience in the communications and cable industry fields, including 13 years
with Telecommunications, Inc. (TCI), a subsidiary of AT&T. From 1993 through
1998, he served as Vice President and General Manager of TCI Denver, the
company's largest regional division.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the annualized base salary that we paid to
Gregory D. Writer, Jr., our former Chief Executive Officer from 1997 through
June, 1999. James H. Watson, Jr. became our Chief Executive Officer on June 29,
1999 and has not received any compensation for serving in such capacity. All
other compensation for our executives or directors has not exceeded $100,000 on
an annualized basis. Prior to 1997, we had not previously paid compensation to
executives, thus, information concerning cash compensation is unavailable for
fiscal year 1996 or previous years. We reimburse our officers and directors for
any reasonable out-of-pocket expenses incurred on our behalf.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS OPTIONS(2) COMPENSATION
--------------------------- ---- --------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gregory D. Writer, Jr. .......... 1996 0 0 0 0 0
Chief Executive Officer from 1997 $20,000 0 0 0 0
1996 until June 29, 1999 1998 0 0 0 0 0
1999 $45,000 0 0 100,000 0
James H. Watson, Jr. ............ 1996 0 0 0 0 0
Chairman and Chief Executive 1997 0 0 0 0 0
Officer since June 29, 1999 1998 0 0 0 0 0
1999 0 0 675,500 300,000 0
</TABLE>
- ---------------
(1) We issued these restricted shares pursuant to our Stock Acquisition
Agreement dated August 15, 1998 with SSP, the majority owner of which prior
to such acquisition was EI. As noted in our audited financial statements as
of December 31, 1998, no established "market" for our Common Stock exists as
described in Financial Accounting Standards Board 123 (Accounting for Stock
Based Compensation) or for establishing fair market value for the issuance
of the Common Stock. Accordingly, the Board of Directors authorized and
determined the fair market value of the restricted stock to be par value of
$.001 per share.
(2) These options were granted on January 10, 1999. The options vested in full
on the date of the grant. The Board of Directors determined the fair market
value of each option grant on the date of such grant to be $3.00 per share.
1999 NON-QUALIFIED STOCK OPTION PLAN
We do not have any pension or profit-sharing plans. No stock options were
issued in 1996, 1997 or 1998. In January 1999, we adopted a 1999 Non-Qualified
Stock Option Plan, pursuant to which we issued 675,000 options to purchase
Common Stock to certain employees. We had no incentive plan for employees or
executives in 1997 or 1998.
30
<PAGE> 31
COMPENSATION OF DIRECTORS
When traveling from out-of-town, members of the Board of Directors are
eligible for reimbursement for their travel expenses incurred in connection with
attendance at Board meetings and meetings of committees of the Board of
Directors. Non-employee directors will be paid $1,000 for their participation in
Board or Board committee meetings. Non-employee directors will also be eligible
for initial options granted upon becoming a member of the Board and annual
option grants so long as they remain on the Board. See "1999 Incentive Plan."
Pursuant to his Outside Director's Agreement, Mr. Steven J. Santamaria is
paid an annual base salary of 25,000 shares of Common Stock of 1st Net. No other
directors have received compensation for serving on our Board of Directors.
EMPLOYMENT AGREEMENTS
On April 19, 1999, Mr. Lawrence K. Kimball entered into an employment
agreement with us that ends on April 19, 2002. Mr. Kimball's employment
agreement provides for an annual base salary of $70,000 and grants him an option
to purchase 150,000 shares of our Common Stock, having a ten-year term, at $5.00
per share, with vesting contingent upon his continued employment, in equal
quarterly installments of 12,500 options. We may grant bonuses or increase his
base salary. In addition to his cash compensation, Mr. Kimball receives an
automobile allowance of $300 per month. Mr. Santamaria and Mr. Kimball each
receive additional benefits, including those generally provided to other
employees.
1999 INCENTIVE PLAN
We have adopted an equity incentive plan ("1999 Incentive Plan"). The 1999
Incentive Plan is designed to promote the success of our business by more
closely aligning the interests of employees, officers, directors and consultants
with shareholders through the use of equity-based incentives. The total number
of shares of Common Stock that may be granted or awarded under the 1999
Incentive Plan may not exceed 1,000,000, plus 10 percent of any increase in
outstanding shares of Common Stock that occurs after December 31, 1999
(including any increase as a result of the issuance of shares under this 1999
Incentive Plan).
The 1999 Incentive Plan provides for the granting of options, including
"incentive stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code, non-qualified stock options, stock appreciation rights,
restricted stock, stock bonuses, non-employee director options and other
stock-based awards (collectively "Awards"). All Awards will be evidenced by an
Award Agreement setting forth the terms and conditions applicable thereto. The
1999 Incentive Plan will be administered by a committee comprised of members of
the Board of the Directors ("Committee"). Eligibility criteria, the number of
participants and all other terms and conditions of the Plan will be determined
by the Committee. The option price payable for the shares of Common Stock
subject to each ISO shall not be less than 100 percent of the fair market value
of the Common Stock on the date such option is granted.
Pursuant to the 1999 Incentive Plan, non-employee directors are
automatically granted options to purchase 25,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the grant
date and thereafter non-employee directors will receive, on an annual basis, an
option to purchase 2,500 shares of Common Stock at the fair market value at the
time of such grant.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 1998, we entered into an Investment Banking Agreement with EI,
whereby EI provided $30,000 in consulting services to us, of which $15,000 is
included in the accompanying financial statements as offering costs. As of
December 31, 1997 and 1998, $12,500 and $6,162, respectively, are included in
accounts payable as a result of our activities with EI. EI advanced us
approximately $60,000 on an interest-free basis during 1997, of which we repaid
$25,000 during 1997. The remaining balance of $34,500 is included in the
accompanying financial statements as due to related parties as of December 31,
1997. This balance of the loan was repaid in full in June 1998.
31
<PAGE> 32
During the years ended December 31, 1998 and 1997, we subleased office
space from EI for total rent payments of $41,347 and $14,410, respectively.
On December 15, 1998, EI loaned us $5,400 on an interest-free basis, which
is part of the related party balance due of $44,000 as of December 31, 1998. The
remaining balance of $39,000 consists of a loan payable to CTGI of $24,000, and
loans payable to two other affiliates totaling $15,000.
On November 9, 1998, we entered into an Internet Web Site Development
Agreement with La Jolla Fresh Squeezed Coffee Company, a Washington corporation
("La Jolla Coffee"), by which we provide corporate due diligence and Web site
services to La Jolla Coffee. In exchange therefor, we received $30,000 and
approximately five percent of the issued and outstanding stock of La Jolla
Coffee, in addition to a stock option to purchase an additional three and three
tenths percent of La Jolla Coffee's outstanding shares. Mr. Gregory D. Writer,
Jr., our former Chief Executive Officer and Chairman, and Mr. Clifford Smith,
our President, are members of the Board of Directors of La Jolla Coffee.
In 1998, we had sales to related parties amounting to $622,156. In
addition, the accounts receivable balance of $134,467 is all due from related
parties, with approximately $119,000 attributable to SSP, which was acquired by
us in January 1999.
On November 5, 1997, we entered into an agreement to purchase eight
automobiles from LaForza Automobiles, Inc., a Nevada corporation ("LaForza"),
for which we paid $400,000. The vehicles were scheduled to be delivered to us by
August 30, 1998. Management had intended to resell the vehicles, but in November
1998 we renegotiated the terms of the purchase and received 200,000 shares of
LaForza Common Stock instead of the automobiles. The net market value of these
shares as of December 31, 1998 declined to $262,600 from their value of $400,000
as of December 31, 1997, and resulted in the recording of unrealized losses of
$137,400 in our financial statements. In 1998, we entered into a consulting
agreement with LaForza, whereby we provide internet consulting and Web page
design services to LaForza.
In January 1999, we borrowed $138,000 from Grey Mare, LLC, a Colorado
limited liability company ("Grey Mare") on an interest-free basis. Mr. Wilford
Purcell, the stepfather of Mr. Gregory D. Writer, Jr., our former Chief
Executive Officer and Chairman, is the sole owner of Grey Mare. We repaid this
loan in full on February 19, 1999.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
We are authorized to issue up to 40,000,000 shares of Common Stock, par
value $.001 per share. As of August 25, 1999, there were 6,154,700 shares of
Common Stock issued and outstanding. Holders of Common Stock are entitled to one
vote for each share held of record on each matter submitted to a vote of
shareholders.
Subject to the prior rights of any series of Preferred Stock which may from
time to time be outstanding, holders of Common Stock are entitled to ratably
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor and, upon the liquidation, dissolution, or
winding up of 1st Net Technologies, to share ratably in all assets remaining
after payment of liabilities and payment of accrued dividends and liquidation
preferences on the preferred stock, if any. Holders of Common Stock have no
preemptive rights or rights to convert their Common Stock into any other
securities. The outstanding Common Stock is validly authorized and issued,
fully-paid and nonassessable.
PREFERRED STOCK
We are authorized to issue up to 10,000,000 shares of Preferred Stock, par
value $.001 per share. The Preferred Stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by shareholders, and may include voting right
(including the right to vote as a series on particular matters), preferences as
to dividends and on liquidation, conversion rights, redemption rights, sinking
funds provisions and other rights, privileges and preferences. Although it
presently has no intention to do so, the Board of Directors, without shareholder
approval, could
32
<PAGE> 33
issue Preferred Stock with voting and conversion rights that could adversely
affect the voting power of the holders of Common Stock. This provision may be
deemed to have a potential anti-takeover effect and could delay or prevent a
change of control of 1st Net.
TRANSFER AGENT
Corporate Stock Transfer, Denver, Colorado, is our transfer agent and
registrar, the address of which is Republic Plaza, Suite 2350, 370 17th Street,
Denver, Colorado 80202.
33
<PAGE> 34
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
DIVIDEND POLICY
We intend to pay annual cash dividends on our Common Stock as we earn net
revenue. Future policy with respect to the payment of dividends on our Common
Stock will be determined by the Board of Directors based upon conditions then
existing, including our earnings and financial condition, capital requirements
and other relevant factors.
PRICE RANGE OF COMMON STOCK
Our Common Stock began trading on the OTC Bulletin Board under the symbol
of "FNTT" in November 1988. Prior to that time, no public trading market existed
for any of our securities.
The following table sets forth the range of high and low bid quotations per
share for our Common Stock for the periods indicated as reported by the OTC
Bulletin Board. Such market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
YEAR CALENDAR PERIOD HIGH LOW
- ---- --------------- ---- ----
<C> <S> <C> <C>
1998 Fourth Quarter................................. $ 2 5/8 $ 1/2
1999 First Quarter.................................. $10 1/2 $ 2 3/8
Second Quarter................................. $ 7 3/4 $ 5
</TABLE>
On August 18, 1999, the last sale price of the Common Stock as reported on
the OTC Bulletin Board was 3 15/16 per share. As of August 18, 1999 there were
approximately 1,300 holders of record of our Common Stock.
ITEM 2. LEGAL PROCEEDINGS.
The Commission is presently investigating the business affairs of SSP, In
the Matter of SSP Management, Inc. (D-2107). The Commission has expressly
instructed us not to construe the investigation as an indication by the
Commission or its staff that any violations of law have occurred nor that it be
considered a reflection upon any person, entity or security. We know of no other
material legal or administrative proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
We replaced our independent accounting firm, Cordovano & Harvey, P.C.,
Denver, Colorado, in February 1999. Cordovano & Harvey P.C.'s audit report on
our 1997 financial statements did not contain an adverse opinion or disclaimer
of opinion, or modification of the type required to be disclosed in this Item 3.
The Board of Directors approved the decision to change accountants. There have
been no disagreements with Cordovano & Harvey, P.C. and our management of the
type required to be reported under this Item 3 since the date of Cordovano &
Harvey, P.C.'s engagement.
We engaged the independent accounting firm of Bewley, Argy & Company,
Fountain Valley, California, in April 1999 to review and audit our 1998
financial statements. Bewley, Argy & Company resigned in July 1999. Bewley, Argy
& Company's comparative report on our 1997 financial statements and audit report
on our 1998 financial statements did not contain an adverse opinion or
disclaimer of opinion, or modification of the type required to be disclosed in
this Item 3. The Board of Directors approved the decision to change accountants.
There have been no disagreements with Bewley, Argy & Company and our management
of the type required to be reported under this Item 3 since the date of Bewley,
Argy & Company's engagement.
We engaged the independent accountancy corporation of Corbin & Wertz,
Irvine, California, in July 1999 to review and audit our upcoming year-end 1999
financial statements. They have not been asked by us to consult on matters of
the type required to be reported under this Item 3.
34
<PAGE> 35
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On November 18, 1996, Snow Eagle Investments, Inc., a Colorado corporation
and our predecessor-in-interest ("Snow Eagle"), issued 1,800,000 shares of
Common Stock in a private sale to Mr. Derek D. Writer, then President of Snow
Eagle and brother of our previous Chief Executive Officer, Mr. Gregory D.
Writer, Jr., in exchange for his past services related to his organization and
formation of Snow Eagle. This issuance was exempt from the registration
provisions of the Securities Act of 1933, as amended (the "Act"), by virtue of
Section 4(2) and Regulation D under the Act, as a transaction by the issuer not
involving any public offering.
In June 1997, we offered and privately sold 598,000 shares of Common Stock
at $0.25 per share for a total of $149,500. No underwriters were used in
connection with the issuance of these shares and no commissions were paid to any
person. No general forms of advertising were used in connection with the
issuance of the shares. This issuance was exempt from the registration
provisions of the Act by virtue of Section 4(2) and Regulation D under the Act.
On October 12, 1998, we offered and privately sold 450,000 shares of Common
Stock at $1.00 per share for a total of $450,000. No underwriters were used in
connection with the issuance of these shares and no commissions were paid to any
person. No general forms of advertising were used in connection with the
issuance of the shares. This issuance was exempt from the registration
provisions of the Act by virtue of Section 4(2) and Regulation D under the Act.
On October 28, 1997, we offered and privately sold 400,000 shares of Common
Stock at $1.00 per share for a total of $400,000 to a single investor. No
underwriters were used in connection with the issuance of these shares and no
commissions were paid to any person. No general forms of advertising were used
in connection with the issuance of the shares. This issuance was exempt from the
registration provisions of the Act by virtue of Section 4(2) and Regulation D
under the Act.
From December 1998 to March 1999, we offered and privately sold 472,500
shares of Series "A" Preferred Stock and 236,200 common stock purchase warrants,
as a unit, at $5.00 per unit for a total of $1,181,000. No underwriters were
used in connection with the issuance of these shares and no commissions were
paid to any person. No general forms of advertising were used in connection with
the issuance of the shares. This issuance was exempt from the registration
provisions of the Act by virtue of Section 4(2) and Regulation D under the Act.
On January 13, 1999, we acquired 100 percent of the issued and outstanding
stock of SSP in exchange for 1,000,000 shares of our Common Stock. Our shares
were issued to SSP's shareholders. This issuance was exempt from the
registration provisions of the Act by virtue of Section 4(2) and Regulation D
under the Act.
On January 22, 1999, we acquired 100 percent of the issued and outstanding
stock of Spirit 32 in exchange for 450,000 shares of our Common Stock. Our
shares were issued to Spirit 32's shareholders. This issuance was exempt from
the registration provisions of the Act by virtue of Section 4(2) and Regulation
D under the Act.
On August 5, 1999, we offered and privately sold 50,000 shares of Common
Stock at $.001 per share to NetSafety Corporation USA, Inc. ("NetSafety") in
exchange for NetSafety's execution of a licensing and distribution agreement
with us. The issuance of shares to NetSafety was exempt from the registration
provisions of the Act by virtue of Section 4(2) and Regulation D under the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles and Bylaws provide that we will indemnify to the fullest
extent permitted by the general laws of the State of Colorado our officers and
directors. The scope of indemnification includes indemnifying for expenses and
liabilities directors or officers may incur in defending, settling or satisfying
any civil or criminal action brought against them on account of their being or
having been directors or officers of 1st Net. We may indemnify officers or
directors if such person acted in good faith and in a manner reasonably believed
to be in the best interests of 1st Net and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct in question was
unlawful. In the event of a settlement, the indemnification herein shall apply
only
35
<PAGE> 36
when the Board of Directors approves such settlement and reimbursement as being
for the best interests of 1st Net. Indemnification does not extend to such
action where officers or directors are adjudged to have acted with gross
negligence or to have engaged in willful misconduct. Insofar as indemnification
for liabilities arising under the Securities Action of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (collectively, the "Acts"), may be
permitted to directors, officers or controlling persons pursuant to foregoing
provisions, we have been informed that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Acts and is,
therefore, unenforceable.
36
<PAGE> 37
PART III
ITEM 1. EXHIBITS AND FINANCIAL STATEMENTS
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Articles Of Amendment And Restatement Of 1st Net
Technologies, Inc. Filed On December 11, 1998
3.2 Amended And Restated Bylaws Of 1st Net Technologies, Inc.
Dated June 24, 1999
4.1 Specimen Of 1st Net Technologies, Inc.'s Common Stock
Certificate
4.2 1st Net Technologies, Inc.'s Series "A" Preferred Warrant
Agreement
4.3 Warrant Agreement By And Between 1st Net Technologies, Inc.
And Children's Technology Group Dated April 19, 1999
*4.4 Warrant Agreement Dated April 1, 1999 By And Between 1st Net
Technologies, Inc. And No Fear, Inc.
*4.5 Warrant Agreement Dated April 1, 1999 By And Between 1st Net
Technologies, Inc. And Eric Baker
4.6 1st Net Technologies, Inc.'s 1999 Incentive Stock Option
Plan
4.7 1st Net Technologies, Inc.'s 1999 Non-Qualified Stock Option
Plan Dated January 4, 1999
10.1 Investment Banking Agreement Dated As Of March 1, 1998 By
And Between 1st Net Technologies, Inc. And Entrepreneur
Investments, LLC
*10.2 Internet Marketing And Joint Venture Agreement By And
Between 1st Net Technologies, Inc. And Nicklebys.com, Inc.
Dated January 14, 1999
*10.3 Web Site Development, Service And Revenue Sharing Agreement
By And Between 1st Net Technologies, Inc. And No Fear, Inc.
Dated April 1, 1999
*10.4 Profit Sharing Agreement By And Between 1st Net
Technologies, Inc. And Netsol USA, Inc. Dated July 6, 1999
10.5 Stock Acquisition Agreement By And Between 1st Net
Technologies, Inc. And MC32, Inc. Dated As Of August 15,
1998
10.6 Stock Acquisition Agreement By And Between 1st Net
Technologies, Inc. And Spirit 32 Development Corporation
Dated As Of January 22, 1999
10.7 Stock Acquisition Agreement By And Between 1st Net
Technologies, Inc. And SSP Management Corporation Dated As
Of January 26, 1999
10.8 Technology License Agreement By And Between 1st Net
Technologies, Inc. And Children's Technology Group, Inc.
Dated As Of April 19, 1999
10.9 Technology License Agreement By And Between 1st Net
Technologies, Inc. And Children's Technology Group, Inc.
Dated As Of May 1, 1999
10.10 Employment Agreement By And Between 1st Net Technologies,
Inc. And Lawrence K. Kimball Dated April 19, 1999
10.11 Outside Director's Agreement By And Between 1st Net
Technologies, Inc. And Steven J. Santamaria Dated May 1,
1999
10.12 Standard Industrial/Commercial Multi-Tenant Lease By And
Between 1st Net Technologies, Inc. And Entrepreneur
Investments, LLC Dated June 1, 1998
10.13 Stock Option Agreement Dated January 10, 1999 By And Between
1st Net Technologies, Inc. And Entrepreneur Investments,
LLC, Gregory D. Writer, Jr., Clifford J. Smith And Jeffrey
Chatfield
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14 Consulting Agreement By And Between 1st Net Technologies,
Inc. And Mariah Communications, Inc. Dated As Of August 15,
1998
10.15 Internet Web Site Development Agreement Dated November 9,
1998 By And Between 1st Net Technologies, Inc. And La Jolla
Fresh Squeezed Coffee, Inc.
11 Statement Re: Computation Per Share Earnings
16.1 Letter From Cordovano & Harvey, P.C. Regarding Change In
Certifying Accountant
16.2 Letter From Bewley, Argy & Company Regarding Change In
Certifying Accountant
21 Subsidiaries Of 1st Net Technologies, Inc.
23.1 Consent Of Corbin & Wertz
24 Power Of Attorney
27 Financial Data Schedule
</TABLE>
- ---------------
* Confidential Treatment Requested. These exhibits omit certain confidential
information that has been filed separately with the Commission.
38
<PAGE> 39
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.
Dated: August 25, 1999 1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
/s/ JAMES H. WATSON, JR.
--------------------------------------
James H. Watson, Jr.,
Chairman and Chief Executive Officer
39
<PAGE> 40
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Twelve months ended December 31, 1998
Auditors' report.......................................... F-2
Consolidated balance sheets -- assets..................... F-3
Consolidated balance sheets -- liabilities and
shareholders' equity................................... F-3
Consolidated statements of operations..................... F-4
Consolidated statements of changes in shareholders'
equity................................................. F-5
Consolidated statements of cash flows..................... F-6
Notes to consolidated financial statements................ F-8
CONSOLIDATED BALANCE SHEET -- Year Ended June 30, 1999 and
1998...................................................... F-19
CONSOLIDATED BALANCE SHEET -- Year Ended June 30, 1999 and
December 31, 1998......................................... F-20
CONSOLIDATED STATEMENT OF OPERATIONS -- Year Ended June 30,
1999 and 1998............................................. F-21
CONSOLIDATED STATEMENT OF OPERATIONS -- Year Ended June 30,
1999 and December 31, 1998................................ F-22
CONSOLIDATED STATEMENT OF CASH FLOWS -- Year Ended June 30,
1999 and 1998............................................. F-23
CONSOLIDATED STATEMENT OF CASH FLOWS -- Year Ended June 30,
1999 and December 31, 1998................................ F-24
</TABLE>
F-1
<PAGE> 41
[BEWLEY, ARGY & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
1st Net Technologies, Inc.
11423 West Bernardo Court
San Diego, California 92127
We have audited the accompanying consolidated balance sheet of 1st Net
Technologies, Inc. (a Colorado corporation) and Subsidiary, as of December 31,
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test-basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
1st Net Technologies, Inc., and Subsidiary as of December 31, 1998, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The Company is affiliated with other companies in the same line of
business, all of which are controlled by a common control group with the ability
to influence the volume of business done by each company. As discussed in Note
3, the Company and its affiliates have engaged in significant transactions with
each other.
The Company has a relatively short history of operations, has experienced
losses in the year ended December 31, 1997 (as reported upon separately by other
auditors), and the twelve months ended December 31, 1998 as reported upon above.
As of December 31, 1998, the Company maintains an excess of $435,000 in retained
deficits. Therefore, the future profitability and viability of the Company will
be based in large part on the Company's ability to attract additional numbers of
web site users, and to secure profitable operating agreements with those users.
There can be no assurance that the Company will be able to operate profitably in
the future (see Note 1a) and accordingly, these consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
The financial statements for the year ended December 31, 1997 were audited
by the accounting firm of Cordovano and Harvey, P. C. (Cordovano), whose report
dated March 31, 1998 expressed an unqualified opinion on those statements. Those
financial statements, notes and other disclosures are included herein for
comparative purposes. Cordovano has not performed any audit procedures since the
date of that report.
/s/ BEWLEY, ARGY & COMPANY
--------------------------------------
Bewley, Argy & Company
Fountain Valley, California
May 21, 1999
F-2
<PAGE> 42
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash (Note 1c)............................................ $ 17,888 $ 2,997
Accounts Receivable, due from related parties, net of
allowance for doubtful accounts of $20,285 and $-0-
(Notes 1f & 3)......................................... 134,467 140
Marketable Securities (Note 1e)........................... 78,496 167,402
Investments (Note 3)...................................... 40,620 -0-
Prepaid Expenses.......................................... 10,186 50
Related Party Loans Receivable (Note 3)................... 30,226 -0-
--------- ---------
Total Current Assets.............................. 311,883 170,589
Restricted Securities (Note 3).............................. 262,600 400,000
Property and Equipment, at cost, net of accumulated
depreciation of $23,246 and $2,369 (Notes 1i & 5)......... 175,976 14,692
Intangible Assets, net of accumulated amortization of $9,323
and $3,000 (Notes 1i & 1j)................................ 13,000 17,000
Organization Costs, net of accumulated amortization of
$13,593 and $519 (Note 1i)................................ 11,270 3,932
Research and Development (Note 1i).......................... 28,491 -0-
--------- ---------
Total Assets...................................... $ 803,220 $ 606,213
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities.................. $ 187,781 $ 11,698
Accounts Payable, Related Party (Note 3).................. 6,162 12,500
Current Portion of Long Term Debt (Notes 1l & 6).......... 15,878 43,900
Due to Related Parties (Note 3)........................... 44,000 71,900
Demand Notes and Customer Deposits (Note 6)............... 10,000 -0-
Dividends Payable (Note 8)................................ 6,000 -0-
Deferred Revenues (Note 6)................................ 11,122 100,102
Income Taxes Payable (Notes 1k & 6)....................... 2,400 -0-
--------- ---------
Total Current Liabilities......................... 283,343 240,100
Long Term Debt, Net of Current (Note 1l).................... 26,620 -0-
Commitments and Contingencies (Note 6)...................... -- --
--------- ---------
Total Liabilities................................. 309,963 240,100
--------- ---------
Minority Interest in Subsidiary (Notes 1b & 2).............. (342) -0-
--------- ---------
Stockholders' Equity:
Preferred Stock, $ .001 Par Value; 10,000,000 shares
authorized:
Series A -- $2.50 participating, convertible, voting,
cumulative; 400,000 shares authorized; issued and
outstanding, 20,000 shares at December 31, 1998 and -0- at
December 31, 1997 (Notes 1b, & 8)......................... 50,000 -0-
Common Stock, $ .001 Par Value. Authorized 50,000,000
shares; issued and outstanding, 3,513,000 shares at
December 31, 1998 and 2,798,000 at December 31, 1997
(Notes 1b & 7)............................................ 3,513 2,798
Additional Paid-In Capital (Notes 1b, 7 & 8)................ 874,415 506,252
Retained (Deficit) (Note 1a)................................ (435,013) (142,937)
--------- ---------
Total Stockholders' Equity........................ 492,915 366,113
--------- ---------
Total Liabilities and Stockholders' Equity........ $ 803,220 $ 606,213
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 43
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED:
----------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
REVENUES (Notes 1a, 1f & 3)
Web Page Design........................................... $ 497,062 $ 19,923
Web Page Design in Exchange for Stock..................... 237,660 -0-
Internet Marketing Services............................... 97,000 -0-
Consulting and Internet Hosting........................... 810 26,057
Consulting in Exchange for Stock.......................... 90,480 95,368
Realized Gain/(Loss) on Stocks derived from earnings...... 28,177 -0-
Unrealized Gain/(Loss) on Stocks derived from earnings.... (11,613) -0-
Realized Gain/(Loss) on Stock Sales....................... 96,177 -0-
Other Service Income...................................... 6,893 -0-
---------- ---------
TOTAL REVENUES.................................... 1,042,646 141,348
---------- ---------
OPERATING EXPENSES
Salaries, Wages, Benefits and Payroll Taxes (Note 4)...... 496,190 158,510
Advertising and Promotional............................... 206,307 46,399
Bad Debts (Note 1f)....................................... 25,572 -0-
Interest.................................................. 2,930 -0-
Internet Access and Other Fees............................ 59,621 31,232
Insurance................................................. 6,390 -0-
Office and Administrative Costs........................... 34,333 -0-
Outside Services, Contractors and Referral Fees........... 211,889 -0-
Professional Fees......................................... 13,535 20,725
Rent, Paid to an Affiliate (Note 3)....................... 53,902 14,410
Telephones................................................ 26,792 8,717
Travel.................................................... 25,985 -0-
Depreciation and Amortization (Notes 1i & 1j)............. 27,457 5,888
Gain on Sale of Marketable Securities (Notes 1e & 3)...... -0- (34,981)
Other..................................................... 2,174 32,765
---------- ---------
TOTAL OPERATING EXPENSES.......................... 1,193,077 283,665
---------- ---------
NET (LOSS) FROM OPERATIONS........................ (150,431) (142,317)
OTHER INCOME (EXPENSE)
Unrealized Loss on Decline of Restricted Stock Investment
(Note 3)............................................... (137,400) -0-
Interest and Dividends.................................... 853 (620)
---------- ---------
NET (LOSS) BEFORE TAXES ON INCOME AND SHARE OF MINORITY
INTEREST IN LOSS OF SUBSIDIARY TAXES ON INCOME (Notes 1k &
6)........................................................ (286,978) (142,937)
Minimum State Corporate Tax............................ 1,600 -0-
Current Benefit........................................ (87,364) (47,104)
Deferred Expense....................................... 87,364 47,104
---------- ---------
NET (LOSS) BEFORE MINORITY INTEREST'S SHARE IN LOSS OF
SUBSIDIARY................................................ (288,578) (142,937)
Minority Interest in Undistributed Loss................ 2,502 -0-
---------- ---------
NET (LOSS).................................................. $ (286,076) $(142,937)
========== =========
EARNINGS PER SHARE (EPS) (Note 1n)
BASIC EPS (Note 1n)....................................... $ (.0904) $ (.0684)
========== =========
DILUTED EPS (Note 1n)..................................... $ (.0902) $ (.0684)
========== =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC EPS................................................. 3,165,500 2,090,333
========== =========
DILUTED EPS............................................... 3,170,500 2,090,333
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 44
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
PREFERRED COMMON
------------------------ ------------------------ ADDITIONAL TOTAL
NUMBER OF ($0.001 PAR) NUMBER OF ($0.001 PAR) PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES $ AMOUNT SHARES $ AMOUNT CAPITAL DEFICIT EQUITY
--------- ------------ --------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... -0- $ -0- 1,800,000 $1,800 $ -0- $ -0- $ 1,800
Shares Issued (Note 1b).......... -0- -0- 998,000 998 548,502 -- 549,500
Offering Costs................... -- -- -- -- (42,250) -- (42,250)
Net Loss December 31, 1997....... -- -- -- -- -- (142,937) (142,937)
------ ------- --------- ------ -------- --------- ---------
Balance at December 31, 1997..... -0- -0- 2,798,000 2,798 506,252 (142,937) 366,113
Shares Issued (Note 3)........... -- -- 265,000 265 -- -- 265
Reg. D Offerings:
Common Stock (Notes 1b & 7).... -0- -0- 450,000 450 449,550 -- 450,000
Preferred -- Series A (Note
8)........................... 20,000 50,000 -- -- -- -- 50,000
Offering Costs................. -- -- -- -- (81,387) -- (81,387)
Dividends on Preferred (Note
8)............................. -- -- -- -- -- (6,000) (6,000)
Net (Loss) December 31, 1998..... -- -- -- -- -- (286,076) (286,076)
------ ------- --------- ------ -------- --------- ---------
Balance at December 31, 1998..... 20,000 $50,000 3,513,000 $3,513 $874,415 $(435,013) $ 492,915
====== ======= ========= ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 45
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED:
---------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Increase (Decrease) In Cash And Cash Equivalents:
Cash Flows from OPERATING Activities:
Net (Loss)................................................ $(286,076) $(142,937)
--------- ---------
Adjustments to Reconcile Net (Loss) to Net Cash (Used) By
OPERATING Activities:
Transactions not requiring cash:
Depreciation and Amortization (Notes 1i, 1j & 5)..... 27,457 5,888
Issuance of Stock to Employees (Note 3).............. 265 -0-
Minority Interest in Subsidiary Acquisition (Notes 1b
& 2)................................................ 342 -0-
Provision for Doubtful Accounts (Note 1f)............ 20,285 -0-
Unrealized Loss on Marketable Securities (Note 1e)... 11,013 (34,981)
Changes in operating assets and liabilities net of
effects from purchase of Mariah:
(Increase) in Accounts Receivables, Marketable
Securities, and Other Current Assets................ (157,701) (167,592)
Increase in Accounts Payable and Accrued
Liabilities......................................... 29,320 240,100
--------- ---------
Total Adjustments.................................... (69,019) 43,415
--------- ---------
NET CASH (USED) BY OPERATING ACTIVITIES........... (355,095) (99,522)
--------- ---------
Cash Flows from INVESTING Activities:
Unrealized Loss and Deposit Paid for Auto Purchase (Note
3)..................................................... 137,400 (400,000)
Purchases of Property and Equipment (Notes 1i & 5)........ (127,224) (18,330)
Payments for Organizational Costs (Notes 1j & 5).......... (9,142) (2,651)
Payments for Intangible Assets (Notes 1j & 2)............. (10,000) (10,000)
Payments for Research and Development (Note 1i)........... (28,491) -0-
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES........... (37,457) (430,981)
--------- ---------
Cash Flows from FINANCING Activities:
Principal Payments on Capital Lease Obligations (Note
5)..................................................... (11,170) -0-
Proceeds from Issuance of Common Stock (Notes 1b, 2 &
7)..................................................... 450,000 549,500
Proceeds from Issuance of Preferred Stock (Notes 1b &
8)..................................................... 50,000 -0-
Costs Associated with Stock Offerings..................... (81,387) (16,000)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 407,443 533,500
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 14,891 2,997
Cash and cash equivalents at the beginning of the
year............................................ 2,997 -0-
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $ 17,888 $ 2,997
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 46
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED:
---------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest............................................... $ 2,930 $ -0-
========= =========
Income Taxes........................................... $ 1,600 $ -0-
========= =========
</TABLE>
Acquisition Note: In connection with the acquisition of 97.12% of the
common stock of Mariah Communications, Inc. (Mariah), the Company acquired
assets with a fair value of $34,821 (including cash of $1,766) and assumed
liabilities of $32,420, for consideration of granting exclusive proprietary
technology rights to IP Telephony Technology, with a book value of $75,000.
Leases Note: During 1998, the Company incurred a capital lease obligation
of $53,668 in connection with lease agreements to acquire equipment.
Related Party Note: During 1998 the Company received net $30,226 and repaid
$27,900 to related parties in relation to short term loans. In addition, as
discussed further in Note 3, the Company had sales of $622,156 with related
parties.
Non Cash Financing Note: As discussed further in Note 1b, the Company has
issued warrants with the preferred stock offering which are associated with the
$50,000 financing activity listed above.
Sales Note: During 1998, the Company recorded sales of $328,140 that were
paid in customers' stock.
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 47
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
1st Net Technologies, Inc. ("The Company"), was originally organized as
Snow Eagle Investments, Inc. under the laws of the State of Colorado, on May 14,
1990. In April 1997, the Company initiated operations with the purchase of
certain assets, and tradename of an internet shopping mall doing business as 1st
NetZing Mall (NetZing). Subsequent to the acquisition of NetZing, the Company
changed its name to 1st Net Technologies, Inc.
The Company is primarily in the Internet commerce and services business,
specializing in Internet services to publicly traded companies and high net
worth investors, offering a diverse range of goods and services. In 1998, those
services included "due diligence web sites", custom database systems management,
investment opportunity profiling, information resourcing, and developing and
supporting a new paradigm of technological development to control and monitor
information, telephony, and video to Internet consumers based upon content.
On August 15, 1998 the Company acquired a controlling interest in Mariah
Communications, Inc. (Mariah) (formerly, MC32, Inc.). (See Note 2). Accordingly,
the accompanying consolidated financial statements of the Company include the
results of operations, financial position and cash flows of Mariah. This
majority owned subsidiary is in a related Internet commerce activity, developing
Internet protocol telephony technologies, wherein voice is converted into data
and then reassembled once received after transmission on the Internet.
Subsequent to December 31, 1998, the Company acquired three additional
related entities as follows: 1) SSP Management Corp. (SSP), an entity which
provides internet public relations and internet newsletters, was purchased in
exchange for 1,000,000 common shares in the Company. 2) The Children's
Technology Group, Inc. (CTG), (formerly Tummybusters, Inc.), was purchased by
the Company in exchange for the exclusive licensing and marketing rights to the
Crayon Crawler Web Browser suite of modules. 3) Spirit 32 Development
Corporation (SP32), (formerly Renaissance Financial Clearing Corporation), an
entity that provides Internet related research and development services, was
purchased in exchange for 450,000 common shares in the Company. All three
acquired entities had shareholders in common with the Company, or with other
family members of the Company's management. (See also Notes 2 & 3).
The accompanying financial statements of the Company have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
incurred net losses of $429,013 during 1997 and 1998 resulting in a retained
deficit of $435,013 after dividends. In view of this matter, realization of a
portion of the assets in the accompanying financial statement is dependent upon
continued operations of the Company and management believes that actions
presently being taken and current revenues being generated will provide the
opportunity for the Company to continue as a going concern.
(b) Capitalization
The Company was initially capitalized by the issuance of 1,800,000 shares
of its common stock, at $0.001 per share, totaling $1,800, to an officer (whom
has subsequently resigned), in exchange for services related to organizing the
Company. In June, 1997 the Company circulated a self written confidential
offering memorandum, resulting in the issuance of 598,000 common shares, for a
total of $149,500, less offering costs of $42,250. On October 28, 1997, an
additional 400,000 common shares were issued under Regulation D, Rule 504 of the
Securities Act of 1933 and California Code 25102(f) to a single investor for
$400,000.
F-8
<PAGE> 48
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
On October 12, 1998, the Company issued an additional 450,000 common shares
under Regulation D, Rule 504 to investors for $450,000, less offering costs of
$81,387. As of December 31, 1998, the Company circulated an additional self
written confidential offering memorandum under Regulation D, Rules 501 through
508 of the Securities Act of 1933 and California Code 25102(f), resulting in the
issuance of 20,000 shares of Series A Preferred Stock, for a total of $50,000.
This offering was subscribed in full by March 11, 1999 resulting in an aggregate
issuance of 472,400 shares of Series A Preferred Stock and 236,200 warrants,
totaling $1,181,000, less offering costs of approximately $120,000. (See also
Notes 6 & 8).
Mariah was capitalized by a self written confidential offering memorandum
under Regulation D, Rule 504 of the Securities Act of 1933 and California Code
25102(f), resulting in the issuance of 118,600 common shares for a total of
$118,700, less costs of $20,000. Majority control was acquired by the Company on
August 15, 1998, with the issue of 4,000,000 of its common shares in exchange
for the proprietary rights to the Mariah IP telephony technology. The aggregate
cost of developing these rights at August 15, 1998 was $75,000. (See also Note
2).
(c) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents. There were no cash equivalents as of
December 31, 1998 and 1997.
(d) Principles of Consolidation and Basis of Accounting
The accompanying consolidated financial statements include the accounts of
the Company and of its majority owned subsidiary, Mariah. The acquisition has
been reported as a purchase business combination. Inter-company transactions and
balances have been eliminated in consolidation. All transactions are recorded on
the accrual basis, at historical cost.
(e) Marketable Securities & Investments
Marketable securities consists of equity securities, or the rights to
obtain equity securities (options), in common stock traded in major market
listings, and for stock in some companies who are traded over-the-counter. All
equity securities are considered "trading" under the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Accordingly, unrealized gains and losses on the
equity securities are reflected in operations. The Company also owns restricted
stocks in several companies which are recorded at nominal fair value amounts or
on the equity method.
(f) Revenues and Accounts Receivable
Consulting and service revenues are recorded upon billing of the completed
contract for services. Web page development revenues are recorded in accordance
with AICPA Statement of Position 97-2. Accounts receivable are recorded at
realizable value, net of reasonable and adequate reserves for potential
uncollectible amounts. The entire balance of receivables as of December 31, 1998
is due from related parties.
(g) Related Parties
On February 23, 1999, the Financial Accounting Standards Board (FASB)
issued a news release proposing a new Statement updating FASB Statement 94, that
would require a controlling entity to
F-9
<PAGE> 49
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
consolidate all entities that it controls, unless control is temporary, even
when control exists in forms other than a majority voting interest.
The proposed Statement would be effective for financial statements for
annual periods beginning after December 15, 1999, although earlier application
is encouraged. The Company has not yet elected to adopt application of this
standard and the affect of such accounting treatment is indeterminable. The
application of this standard could have a material impact on the user's
conclusions as to the Company's financial position and results of operations and
cash flows. As reported in the auditors' opinion, the Company is affiliated with
other companies in the same line of business, all of which are controlled by a
common control group, with the ability to influence the volume of business done
by each company. See also, Note 3 for further discussion on related parties.
The balance of related party loans receivable are from various related
entities, is interest free and has no fixed terms of repayment. (See also Note
3).
(h) Deposits and Other Assets
This balance consists primarily of equipment and premises security
deposits.
(i) Property and Equipment, Research and Development, Organizational
Expenditures and Trademarks
Property and equipment is stated at cost and is depreciated using the
straight line method over their estimated useful lives, currently five years,
with a mid-year convention in the year of acquisition. In accordance with
FASB -- 86 and AICPA Statement of Position 98-1 requirements, the Company has
established the technological feasibility of their internet web site directory,
and accordingly all costs incurred for the planning, product design, detail
program design and establishing technical feasibility are capitalized as
research and development, and are amortized upon enhancement completion on a
project by project basis, using the straight line method, over their expected
useful lives. Additionally, periodic evaluations of unamortized research and
development costs are made to determine the net realizable value on the
Company's balance sheet. Any resulting write downs are charged to periodic
operations. Trademarks are amortized using the straight line method, over five
years. Organizational expenditures for the Company were paid as completed,
totaling $15,916, as of December 31, 1998, and will be amortized over a period
of five years. Betterment's and improvements are capitalized and depreciated
over their estimated useful lives, while repairs and maintenance costs are
expensed when incurred.
(j) Intangible Assets
Intangible assets, resulting from the differences between acquisition
purchase price and the fair value (or net book value, in the case of related
parties) of net assets acquired are being amortized using the straight line
method, over 15 years. Amortization expense for the years ended December 31,
1998 and 1997 were $9,323 and $3,519, respectively.
(k) Income Taxes
The Company has applied the Financial Accounting Standards Board Statement
109, Accounting for Income Taxes (SFAS 109), to all operations since inception,
for all periods disclosed in this financial examination, and all other
disclosures of information for periods prior to acquisitions of the operating
subsidiary, Mariah.
SFAS 109 "Accounting for Income Taxes" requires the liability method in
accounting for income taxes. Deferred tax assets and liabilities arise from the
difference between the tax basis of an asset or liability and its
F-10
<PAGE> 50
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
reported amount on the financial statements. Deferred tax amounts are determined
by using the tax rates expected to be in effect when the taxes will actually be
paid or refunds received, as provided under currently enacted laws. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the tax payable
or refundable, respectively, for the period, plus or minus the change during the
period, in deferred tax assets and liabilities. The Company has experienced
operating losses during its period of existence, and future profitability cannot
be assured, resulting in reserves for the valuation allowance of the entire
amount of the determined deferred tax assets. (See also Note 6).
(l) Long-Term Debt
Long-term debt of $26,620 as of December 31, 1998 represents the amount of
capital lease obligations due in periods beyond December 31, 1999, and is,
accordingly, stated net of the current portion of $15,878.
(m) Transactions in Capital Stock
All securities issued by the Company and Mariah have not been registered
under the Securities Act of 1933, as amended. They may not be sold, offered for
sale, transferred, pledged or hypothecated, in the absence of a registration
statement in effect with respect to the securities under such act, or an opinion
of counsel or other evidence satisfactory to the Company that such registration
is not required, or unless sold pursuant to Rule 144 under such act. The
Company's free trading stock is currently involved in limited trading on the
OTC: Bulletin Board under the symbol FNTT. The trading price at December 31,
1998 was $3.25 and has been consistently trading at slightly above $5.00 in
limited transactions, as of and before the date of this report. This activity
does not however illustrate an established "market" for the Company's stock as
described in FASB 123 (Accounting for Stock Based Compensation) or for
establishing fair value in the acquisitions involving issuance of the Company's
stock.
(n) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share" (SFAS 128). SFAS
128 specifies the computation, presentation, and disclosure requirements of
earnings per share and supersedes Accounting Principles Board Opinion 5,
"Earnings Per Share". SFAS 128 requires dual presentation of basic and, where
applicable, diluted earnings per share. Basic earnings per share, which excludes
the impact of common stock equivalents, replaces primary earnings per share.
Diluted earnings per share which utilizes the average market price per share or
ending market price per share when applying the treasury stock method in
determining common stock equivalents, replaces fully-diluted earnings per share.
SFAS 128 is effective for the Company in 1998 and 1997. However, there were no
common stock equivalents during the year ended December 31, 1997 and, therefore,
there is no effect on the earnings per share presented for that year, due to the
Company's adoption of SFAS 128. In the year ended December 31, 1998, however,
this adoption is effective in the presentation of Diluted earnings per share for
that period. Basic earnings per share have been computed using the weighted
average number of common shares and common share equivalents outstanding.
Diluted earnings per share were calculated using the weighted number of common
shares and common share equivalents, including all options and warrants as if
exercised at the beginning of the periods.
F-11
<PAGE> 51
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
(2) ACQUISITIONS
Acquisition of 1st NetZing Mall
On April 7, 1997, the Company acquired certain assets which included the
tradename, trademarks, clients and programming code of an internet shopping mall
known as 1st NetZing Mall, for $10,000 in cash and a promissory note payable to
the seller for $10,000, for a total purchase price of $20,000. At December 31,
1997, the promissory note was paid in full. The transaction was recorded as a
purchase in accordance with Accounting Principles Board Opinion No. 16. Upon
determining the fair value of tangible and intangible assets acquired, the full
purchase price was allocated to the acquisition of the tradename, trademarks,
and technology associated with the internet shopping mall. The $20,000 was
recorded as an intangible asset, and is being amortized over five years, on a
straight-line basis.
Acquisition of Mariah
On August 15, 1998, Mariah's board of director's approved the issuance of
4,000,000 shares of common stock of Mariah, to 1st Net Technologies
(representing 100.00% of the outstanding common stock as of December 31, 1998),
in a business combination accounted for as a purchase, in accordance with the
terms of Accounting Principles Board Opinion No. 16, with an effective date of
December 31, 1998. The price paid was $75,000 (the net book value of the
technology rights). The results of operations of Mariah are included in the
accompanying consolidated financial statements since the date of acquisition.
The total net book value (approximated to equal fair value) of the net assets of
Mariah at December 31, 1998, amounted to $11,799. The excess purchase price was
accordingly allocated to goodwill, with a subsequent reduction in full due to
the Company's interest in Mariah's losses. As of December 31, 1998 Mariah
incurred net losses of $86,901 and as a result, the Company recorded a reduction
of Mariah's non-current assets acquired on a prorated basis by $9,398. (See also
Notes 1b & 1j).
The following is a summary of the financial position of the Company and
Mariah at December 31, 1998, without the consolidating and eliminating
adjustments:
<TABLE>
<CAPTION>
1ST NET MARIAH COMBINED
-------- ------- --------
<S> <C> <C> <C>
Current assets...................................... $323,257 $ 1,766 $325,023
Property and equipment, net......................... 168,470 14,753 183,223
Other assets........................................ 302,191 27,700 329,891
-------- ------- --------
$793,918 $44,219 $838,137
======== ======= ========
Current liabilities................................. $274,381 $32,420 $306,801
Long Term Debt...................................... 26,620 -0- 26,620
Shareholders' equity................................ 492,917 11,799 504,716
-------- ------- --------
$793,918 $44,219 $838,137
======== ======= ========
</TABLE>
Included in consolidated results of operations for the year ended December
31, 1998 are the following results of the previously separate companies for the
period from August 16, 1998 to December 31, 1998:
<TABLE>
<CAPTION>
1ST NET MARIAH CONSOLIDATED
---------- -------- ------------
<S> <C> <C> <C>
Net sales....................................... $1,042,646 $ -0- $1,042,646
========== ======== ==========
Net income (Loss)............................... $ (199,175) $(86,901) $ (286,076)
========== ======== ==========
</TABLE>
F-12
<PAGE> 52
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
Acquisition of SSP Management Corp.
On January 13, 1999, the Company acquired a 100% interest in SSP for
1,000,000 shares and relief of debt between the two companies. As discussed in
Note 3, the former majority shareholder in SSP, Entrepreneur Investments, LLC
(EI), is a controlling shareholder in the Company and, accordingly, the
acquisition was recorded at net book value.
Acquisition of Spirit 32 Development Corporation
On January 22, 1999, the Company purchased all of the issued and
outstanding stock of Spirit 32 Development Corporation in exchange for 450,000
shares of the Company's common stock. The acquisition was between related
parties and, accordingly, the business combination has been recorded as a
purchase at net fair values.
Acquisition of The Children's Technology Group
On April 19, 1999, the Company announced the sale of exclusive licensing
and marketing rights for the Crayon Crawler Web Browser suite and the Next
Generation Web Browser to the Children's Technology Group (CTG) for $400,000
cash, 5% royalty on sales and an option to purchase 4,000,000 shares of CTG
bringing the Company's ownership percentage in CTG to approximately 86% on May
1, 1999 when the options were exercised. The transaction is being recorded as a
purchase, in accordance with Accounting Principles Board Opinion No. 16.
The following pro forma information illustrates the Company's unaudited
financial position as of December 31, 1998 as if the three acquisitions in 1999
had occurred on December 31, 1998, for consolidated balance sheet purposes, and
as of January 1, 1998 for consolidated income statement purposes. The pro forma
information also illustrates the completion of the Reg. D offering for the
preferred stock (see Note 1b), since that offering was essential in completing
the acquisitions. There were minor adjustments necessary for depreciation,
amortization and interest, for comparison purposes. The pro forma statements may
not be indicative of the results that would have occurred if the acquisition had
been effective on the date indicated, or of the results that may be obtained in
the future.
UNAUDITED PRO FORMA CONSOLIDATED AND CONDENSED BALANCE SHEET AS OF 12/31/98
<TABLE>
<S> <C>
Current assets.............................................. $1,426,032
Property and equipment, net................................. 230,777
Other assets................................................ 301,188
----------
$1,957,997
==========
Current liabilities......................................... $ 242,789
Long Term Debt.............................................. 26,620
Minority Interest........................................... 233,308
Shareholders' equity........................................ 1,455,280
----------
$1,957,997
==========
</TABLE>
F-13
<PAGE> 53
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
UNAUDITED PRO FORMA CONSOLIDATED, CONDENSED AND
COMBINED RESULTS OF OPERATIONS AS OF 12/31/98
<TABLE>
<S> <C>
Sales....................................................... $1,319,733
==========
Net (Loss).................................................. $ (347,611)
==========
Net (Loss) per common share**............................... $ (.05764)
==========
Net (Loss) per common share***.............................. $ (.05345)
==========
</TABLE>
- ---------------
** After giving affect to recapitalization, 1999 stock issues and conversion of
preferred shares.
*** Also including dilution of outstanding warrants.
(3) RELATED PARTY TRANSACTIONS AND SIGNIFICANT CUSTOMERS
During the period ended December 31, 1997, the Company entered into an
agreement with Entrepreneur Investments, Inc. (EI), whereby EI would provide
$30,000 in consulting services to the Company, of which $15,000 is included in
the accompanying financial statements as offering costs. As of December 31, 1997
and 1998, $12,500 and $6,162 respectively, are included in accounts payable as a
result of trade activities with EI. EI advanced the Company approximately
$60,000 during 1997, of which the Company repaid $25,500 during 1997. The
remaining balance of $34,500 is included in the accompanying financial
statements as due to related parties as of December 31, 1997. This loan was
repaid in full by June of 1998.
Further, in 1997 the Company entered into an agreement with an employee to
sell to the employee certain investments the Company holds in marketable
securities. At December 31, 1997 the securities were not delivered to the
employee, and the amount received for the securities, $25,000, was recorded as a
current liability, due to related parties. This liability was paid in full by
June 15, 1998.
During the period ended December 31, 1997, an officer advanced the Company
a total of $3,900, of which, $1,500 and $2,400 was repaid in 1997 and 1998,
respectively. The December 31, 1997 balance outstanding of $2,400 was included
in the accompanying financial statements as due to related parties.
In 1997, the Company issued a note payable to a shareholder. The note was
due on demand and included interest at an annual rate of 12%. The amount
outstanding on the note at December 31, 1997 was $10,000 and was recorded in due
to related parties. This loan was repaid in full during 1998.
On November 5, 1997, the Company entered into an agreement to purchase
eight automobiles from LaForza Automobiles, Inc. ("LaForza") (formerly Celebrity
Networks, Inc.) for which the Company paid $400,000. The vehicles were to be
delivered to the Company beginning no later than March 30, 1998, with final
delivery no later than August 30, 1998. Management had intended to resell the
vehicles, but in 1998, the Company renegotiated the terms of the purchase, and
received 200,000 shares of LaForza common stock instead of the automobiles. The
net market value of these shares as of December 31, 1998 has declined to
$262,600 from their value of $400,000 as of December 31, 1997, and has resulted
in the recording of unrealized losses of $137,400 in the accompanying financial
statements. In addition to this stock investment, in 1997 the Company entered
into a consulting agreement with LaForza, whereby the Company would provide
internet consulting and web page design services to LaForza. (See also Note 6).
On December 15, 1998, EI loaned the Company $5,000 which is part of the due
to related party balance of $44,000 as of December 31, 1998. The remaining
balance of $39,000 consists of a loan payable to CTG of $24,000, which was later
acquired (see Note 2), and loans payable to two other affiliates totaling
$15,000. In addition, during the years ended December 31, 1998 and 1997, the
Company subleased office space from affiliates, for total rent payments of
$41,347 and $14,410.
F-14
<PAGE> 54
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
In 1998, the Company had sales to related parties amounting to $622,156. In
addition, the accounts receivable balance of $134,467 is all due from related
parties, with approximately $119,000 attributable to SSP, which was acquired
subsequent to December 31, 1998. (See also Note 2).
The Company issued 265,000 shares of common stock to employees during 1998
as bonuses for the 1997 year. Since the stock is restricted for a one year
period and there is no established market for the shares, the issuance of shares
was recorded at par for a total of $265. The Company issued 595,300 additional
shares of common stock to management and key employees during 1999, as
incentives and bonuses for the 1998 year. These shares issued are likewise
restricted for a one year period, with no established market for trading and,
accordingly, the issuance of such shares were recorded at par.
EI is the largest percentage owner in the Company (see Note 4) and also
owns a majority interest in Probook, Inc. EI also has 1,500,000 options in the
stock of Mariah and the sole shareholder of EI serves on the board of Mariah.
The Company and/or EI also has officers or directors in common with various
other entities.
In 1998, sales to one customer, SSP, which was subsequently acquired,
accounted for approximately 42% of the Company's total revenues. In 1997, sales
to one customer amounted to 53% of the Company's total revenues. Further, in
1998 and 1997, approximately 31% and 67%, respectively, of the Company's revenue
was in the form of common stock received as payment for services. During the
year ended December 31, 1997, the Company received approximately $109,243 in
cash for the sale of the securities. The excess of the proceeds received for the
stock, over the Company's recognized revenue originally recorded for such stock,
totaled $13,875, and is included as a gain in sale of marketable securities.
During the year ended December 31, 1998, the Company received approximately
$410,140 in cash for the sale of securities. The excess of proceeds received for
the stock over the Company's recognized revenue for which stock was the payment,
totaled $28,177 and is listed separately under revenues on the statement of
operations.
(4) CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following is a list of the officers and directors of the Company, along
with all other shareholders owning directly or indirectly at least 5% of the
Company's shares as of December 31, 1998. There were no salaries greater than
$100,000 paid to any one employee during the 1998 year.
<TABLE>
<CAPTION>
SHAREHOLDER/POSITION/TITLE SHARES HELD OWNERSHIP
-------------------------- ----------- ---------
<S> <C> <C>
Gregory D. Writer Jr. -- CEO and Chairman of the Board...... -0- 0.0%
Clifford J. Smith -- President.............................. 50,000 1.4
Grey Mare, Inc./Mary E. Writer -- Secretary and Treasurer... 163,000 4.6
Jeffrey Chatfield -- V.P. Investor Relations................ -0- 0.0
Gerald Young -- V.P. Sales and Marketing.................... -0- 0.0
Alex Ramia -- V.P. Network and Systems Operations........... -0- 0.0
EI/James H. Watson Jr. -- Director.......................... 1,600,000 45.5
Cede & Co. -- Investor...................................... 778,200 22.2
Mark Lair -- Investor....................................... 400,000 11.4
--------- -----
Total listed...................................... 2,991,200 85.1%
========= =====
Total shares authorized, issued and outstanding... 3,513,000 100.0%
========= =====
</TABLE>
F-15
<PAGE> 55
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31,
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Office Furniture and Fixtures............................... $ 5,641 $ 3,701
Leasehold Improvements...................................... 22,954 -0-
Radio Equipment............................................. 4,178 -0-
Office Equipment -- Capitalized Leases...................... 53,668 -0-
Computer Equipment and Peripherals.......................... 112,781 13,360
-------- -------
Total.................................................. 199,222 17,061
Less Accumulated Depreciation.......................... (23,246) (2,369)
-------- -------
Net Property and Equipment........................ $175,976 $14,692
======== =======
</TABLE>
(6) LIABILITIES, COMMITMENTS AND CONTINGENCIES, SUBSEQUENT EVENTS, AND OFF
BALANCE SHEET RISK
Demand Notes Payable and Customer Deposits
Demand notes, non-related parties, consisted of the following at December
31
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Notes payable(2), 12%, unsecured............................ $ -0- $35,000
Notes payable(2), no stated interest, unsecured............. 5,000 8,900
Customer Deposits........................................... 5,000 -0-
------- -------
Total Demand Notes Payable and Customer
Deposits........................................ $10,000 $43,900
======= =======
</TABLE>
Deferred Revenues
On November 5, 1997, the Company received, in advance, payment for an
eighteen month consulting contract with LaForza, beginning August 13, 1997.
Payment was in the form of an option, fully exercisable at $.50 per share, to
purchase 150,000 free-trading shares of LaForza Automobiles, Inc. During the
period August 13, 1997 through December 31, 1997, the Company exercised 50,000
of the options, for which it sold the shares for approximately $56,745. After
further contract negotiations, the remaining options were exercised in 1998. The
LaForza common stock is thinly traded, over-the-counter. The determination of
the value of the options, in management's opinion, was more readily determinable
than the value of the services to be provided. Therefore, based on the cash
proceeds from the sale of the common stock received from the exercise of the
options, the 150,000 options have been valued at $133,470. During the years
ended December 31, 1998 and 1997, approximately sixty-seven and twenty-five
percent of the consulting contract was completed for each year, respectively.
Accordingly, the Company has recorded revenue of $89,425 and $33,368,
respectively for those years, and has deferred the remaining $11,122 until the
earnings process has been completed.
Income Taxes
As of December 31, 1998, the Company had income taxes payable to the State
of California Franchise Tax Board totaling $2,400.
At December 31, 1998 and 1997 deferred taxes consisted of a net tax assets
due to operating loss carryforwards of $371,187 and $47,104, respectively, which
were fully offset by valuation allowances since there is no assurance of
recovery. The net operating loss carryforwards will expire beginning in 2012.
F-16
<PAGE> 56
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
A reconciliation of the U. S. statutory federal income tax rate to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
U.S. federal statutory graduated rate....................... 34.00% 26.08%
State income tax rate, net of federal benefit............... 9.30% 6.87%
Net operating loss for which no tax benefit is currently
available................................................. (43.30)% (32.95)%
------ ------
-0- -0-
====== ======
</TABLE>
Commitments and Contingencies
The future minimum annual aggregate rental payments required under both
capital and operating leases that have initial or remaining non-cancelable lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
<S> <C>
1999........................................................ $164,705
2000........................................................ 146,979
2001........................................................ 139,493
2002........................................................ 129,247
2003........................................................ 100,058
Thereafter.................................................. -0-
--------
Total....................................................... $680,482
========
</TABLE>
The Company is not currently involved in any litigation.
Subsequent Events
The three 1999 acquisitions and the completion of the preferred stock
offering have been discussed in Notes 1b & 2, and are illustrated in the pro
forma information. The pro forma information does not reflect any asset for
1,000,000 restricted common shares in Nicklebys.com, Inc. that were obtained in
1999 for services rendered.
Additionally, the Company has signed various operating and employment
agreements granting restrictive shares, stock options and warrants totaling
1,592,400 as of the date of this report.
Off Balance Sheet Risk
As of December 31, 1998, the Company maintained no cash accounts in excess
of the $100,000 federally insured limits. Additionally, the Company is primarily
involved in Internet services, for which the approaching year 2000 computer
dilemma may have significant and unknown affects. Due to the limited operating
history of the Company, there is no assurance that the Company will be able to
raise sufficient equity capital or generate profits to sustain its existence.
The Company could also be affected by the inability to establish a market
for their shares of stock. The Company has many related parties and could be
subject to a conflict of interest with the directors. Last, the Company has
issued shares to employees and principal founders for no cash consideration, and
may issue additional shares of common stock or preferred stock in the future,
resulting in the dilution in the underlying book value and earnings per share.
F-17
<PAGE> 57
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998 AND 1997
(7) COMMON STOCK
The Company is authorized to issue 50,000,000 common shares with a $0.001
par value. Each common share is entitled to one vote and there are no other
preferences. No dividends have been paid by the Company since inception.
(8) PREFERRED STOCK
The Company is authorized to issue 10,000,000, $0.001 par value preferred
shares, with varying voting rights and other preferences. As of December 31,
1998, the Company had issued 20,000 shares of its Series A -- $2.50
participating, convertible, voting, cumulative preferred stock. The Series A
preferred stock is not subject to discretionary redemption by the Company, has
equal voting to common shares, and is automatically converted into common shares
when the Company's stock price reaches $5.00. This threshold was achieved
subsequent to the balance sheet date, and all of the preferred shares as of the
date of the audit report have been converted into common. The preferred stock
offering was sold in $5.00 units. Each unit consisting of two shares of the
Series A, preferred stocks, and one warrant to purchase one share of common
stock of the Company at $5.00 per share, exercisable immediately, and expiring
upon the one year anniversary date of the closing of an underwritten public
offering. If not expired or exercised prior thereto, the warrants automatically
shall expire on October 31, 2002. As of December 31, 1998, preferred dividends
at $.30 per share were accrued, resulting in dividends payable of $6,000.
F-18
<PAGE> 58
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1999 1998
----------- --------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and Marketable Securities............................ $ 780,921 $340,696
Other Current Assets...................................... 1,635,105 418,541
---------- --------
Total Current Assets.............................. 2,416,026 759,237
Other Assets................................................ 770,737 112,534
---------- --------
Total Assets...................................... $3,186,763 $871,771
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities......................................... $ 516,950 $100,850
Other Liabilities........................................... 227,840
Total Liabilities................................. 744,790 100,850
Stockholder's Equity:
Common Stock, $.001 par value; 40,000,000 shares
authorized, issued and outstanding as of June 30....... 5,581 2,798
Preferred Stock, $.001 par value; 10,000,000 shares
authorized, issued and outstanding as of June 30....... -- --
Additional Paid-In Capital................................ 3,435,983 739,502
Retained Earnings......................................... (999,591) 28,621
---------- --------
Total Stockholder's Equity........................ 2,441,972 770,921
---------- --------
Total Liabilities and Stockholder's Equity........ $3,186,763 $871,771
========== ========
</TABLE>
F-19
<PAGE> 59
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and Marketable Securities............................ $ 780,921 $ 96,384
Other Current Assets...................................... 1,635,105 215,499
Total Current Assets........................................ 2,416,026 311,883
Other Assets................................................ 770,737 491,337
---------- ---------
Total Assets...................................... $3,186,763 $ 803,220
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities......................................... $ 516,950 $ 283,343
Other Liabilities........................................... 227,840 26,962
Total Liabilities........................................... 744,790 310,305
Stockholder's Equity:
Common Stock, $.001 par value; 40,000,000 shares
authorized, issued and outstanding as of June 30....... 5,581 3,513
Preferred Stock, $.001 par value; 10,000,000 shares
authorized, issued and outstanding as of June 30....... -- 50,000
Additional Paid-In Capital................................ 3,435,983 874,415
Retained Earnings......................................... (999,591) (435,013)
---------- ---------
Total Stockholder's Equity........................ 2,441,972 492,915
---------- ---------
Total Liabilities and Stockholder's Equity........ $3,186,763 $ 803,220
========== =========
</TABLE>
F-20
<PAGE> 60
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1999 1998
----------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $1,703,125 $ 623,090
Operating Expenses.......................................... 1,988,483 435,716
Net Income (Loss) from Operations........................... (285,358) 187,374
Other Income (Expense)...................................... 49,603 5,016
Net Income (Loss)........................................... (235,755) 192,390
Earnings Per Share (EPS)
Basic earnings (loss) per share........................... $ (0.0383) $ 0.0688
Diluted earnings (loss) per share......................... $ (0.0272) $ 0.0688
Basic Shares Outstanding.................................... 6,154,700 2,798,000
Diluted Shares Outstanding.................................. 8,663,100 2,798,000
</TABLE>
F-21
<PAGE> 61
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $1,703,125 $1,042,646
Operating Expenses.......................................... 1,988,483 1,193,077
Net Income (Loss) from Operations........................... (285,358) (150,431)
Other Income (Expense)...................................... 49,603 (135,645)
Net Income (Loss)........................................... (235,755) (286,076)
Earnings Per Share (EPS)
Basic earnings (loss) per share........................... $ (0.038) $ (0.090)
Diluted earnings (loss) per share......................... $ (0.027) $ (0.090)
Basic Shares Outstanding.................................... 6,154,700 3,165,500
Diluted Shares Outstanding.................................. 8,663,100 3,170,500
</TABLE>
F-22
<PAGE> 62
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1999 1998
----------- ---------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income.................................................. $ (235,755) $ 192,390
Adjustments to Reconcile net income to net cash provided by
operating activities:
Depreciation and Amortization............................. 69,276
Changes in Accounts Receivable............................ 445 (30,050)
Changes in Other Assets................................... (1,771,900) (59,781)
Changes in Trade Payables and Other Liabilities........... 434,485 (139,250)
NET CASH PROVIDED BY OPERATING ACTIVITIES......... (1,503,449) (36,691)
Cash Flows from Investing Activities:
Additions to Property and Equipment....................... (247,154) (76,916)
Other Additions...........................................
NET CASH USED IN INVESTING ACTIVITIES............. (247,154) (76,916)
Cash Flows from Financing Activities:
Principal Payments on Capital Lease Obligations...........
Proceeds from Issuing Common Stock........................ 2,563,636 212,418
Proceeds from Issuing Preferred Stock..................... (50,000)
NET CASH USED IN FINANCING ACTIVITIES............. 2,513,636 212,418
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 763,033 98,811
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 17,888 2,997
CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 780,921 $ 101,808
</TABLE>
F-23
<PAGE> 63
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income.................................................. $ (235,755) $(286,076)
Adjustments to Reconcile net income to net cash provided by
operating activities:
Depreciation and Amortization............................. 69,276 27,457
Changes in Accounts Receivable............................ 445 (157,701)
Changes in Other Assets................................... (1,771,900) 31,995
Changes in Trade Payables and Other Liabilities........... 434,485 29,230
NET CASH PROVIDED BY OPERATING ACTIVITIES......... (1,503,449) (355,095)
Cash Flows from Investing Activities:
Additions to Property and Equipment....................... (247,154) (127,224)
Other Additions........................................... -- 89,767
NET CASH USED IN INVESTING ACTIVITIES............. (247,154) (37,457)
Cash Flows from Financing Activities:
Principal Payments on Capital Lease Obligations........... -- (11,170)
Proceeds from Issuing Common Stock........................ 2,563,636 450,000
Proceeds from Issuing Preferred Stock..................... (50,000) (31,387)
NET CASH USED IN FINANCING ACTIVITIES............. 2,513,636 407,443
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 763,033 14,891
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 17,888 2,997
CASH AND CASH EQUIVALENTS, END OF YEAR............ 780,921 17,888
</TABLE>
F-24
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
1ST NET TECHNOLOGIES, INC.
1st Net Technologies, Inc., a Colorado corporation, having its
principal office at 11423 West Bernardo Court, San Diego, California 92127
(which is hereinafter called the "Corporation"), hereby certifies to the
Department of Corporations of Colorado that:
FIRST: 1ST NET TECHNOLOGIES, INC., a Colorado corporation (the
"Corporation"), desires to amend and restate its Articles of Incorporation (the
"Articles") as currently in effect which proposed amendment and restraint has
been approved by a majority of the directors and shareholders of the
Corporation.
SECOND:The Articles are hereby amended and restated, in full, to read as
follows:
ARTICLE I
THE UNDERSIGNED, Jason Howard, Esq., whose address is 11423 West
Bernardo Court, San Diego, California 92127, being at least 18 years of age,
acting as incorporator, is hereby forming a corporation under the General
Corporation Laws of the State of Colorado.
ARTICLE II
The name of the Corporation shall be 1ST NET TECHNOLOGIES, INC.
ARTICLE III
The purposes for which the Corporation is formed and the business and
objects to be carried on and promoted by it are to engage in any lawful act or
activity.
<PAGE> 2
ARTICLE IV
The address of the resident agent of the Corporation in the State of
Colorado is James Watson, 1st Net Technologies, Inc., 1869 West Littleton
Boulevard, Littleton, Colorado 80120.
ARTICLE V
A. CLASSES AND NUMBER OF SHARES. The total number of shares of stock of
all classes which the Corporation shall have authority to issue is 50,000,000
shares of which (i) 40,000,000 shares are Common Stock, par value $.001 per
share ("Common Stock"), and (ii) 10,000,000 shares are Preferred Stock, par
value $.001 per share ("Preferred Stock"). The Corporation has authority to
issue 1,000,000 shares of Series A Preferred Stock. The aggregate par value of
all authorized shares of stock having par value is $50,000.
B. ABILITY TO RECLASSIFY. The Board of Directors may classify and
reclassify any unissued shares of any class of capital stock by establishing or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock. Subject to the
terms and conditions of any outstanding capital stock, the power of the Board of
Directors to classify and reclassify any of the shares of capital stock shall
include, without limitation, subject to the provisions of the Charter, authority
to classify or reclassify any unissued shares of such stock into a class or
classes of stock that have a priority as to distributions and upon liquidation
and to divide and classify shares of any class into one or more series of such
class by determining, fixing or altering one or more of the following:
(1) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided, however, that,
unless otherwise prohibited by the terms of such or any other class or series,
the number of shares of any class or series may be decreased by the Board of
Directors in connection with any classification or reclassification of unissued
shares and the number of shares of such class or series may be increased by the
Board of Directors in connection with any such classification or
reclassification and any shares of a class or series which have been redeemed,
purchased, otherwise acquired or converted into shares of Common Stock or any
other class or series shall become part of the authorized capital stock and be
subject to classification and reclassification as provided in this subparagraph.
2
<PAGE> 3
(2) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on shares of
such class or series, whether any such dividends shall rank senior or junior to
or on a parity with the dividends payable on any other class or series of stock
and the status of any such dividends as cumulative, cumulative to a limited
extent or non-cumulative and as participating or non- participating.
(3) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law and, if so, the
terms of such voting rights.
(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions thereof,
including provision for adjustment of the conversion or exchange rate in such
events or at such times as the Board of Directors shall determine.
(5) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable and the
amount per share payable in case of redemption, which amount may vary under
different conditions and different redemption dates and whether or not there
shall be any sinking fund or purchase account in respect thereof and, if so, the
terms thereof.
(6) The rights of the holders of shares of such class or series
upon the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary depending
upon whether such liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates, and whether such
rights shall rank senior or junior to or on a parity with such rights of any
other class or series of stock.
(7) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the payment of such
dividends or making of distributions on, or the acquisitions of, or the use of
moneys for purchase or redemption of any stock of the Corporation, or upon any
other action of the Corporation, including action under this Subsidiary-
paragraph and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions including
restrictions on transferability, and qualifications of shares of
3
<PAGE> 4
such class or series, not inconsistent with law and the charter of the
Corporation.
The terms of any capital stock classified or reclassified pursuant to
the powers of the Board of Directors as set forth herein shall be set forth in a
subsequent amendment to these articles filed for record with the Department of
Corporations of Colorado prior to the issuance of any such capital stock (any
such articles defined herein as "Articles Supplementary").
C. VOTING RIGHTS.
(1) COMMON. Each share of Common Stock shall have one vote.
(2) PREFERRED. Each share of Preferred Stock shall have one vote.
D. TERMS OF COMMON STOCK. The Common Stock shall be subject to the
express terms of the Preferred Stock and any series thereof. Except as provided
herein, each share of Common Stock shall be equal to every other share of Common
Stock.
(1) DIVIDEND RIGHTS. Subject to the provisions of law and any
preferences of any class of Preferred Stock, dividends, including dividends
payable in shares of another class of the Corporation's stock, may be paid on
the Common Stock of the Corporation at such time and in such amounts as the
Board of Directors may deem advisable.
(2) LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of the Common Stock shall be entitled, after payment or provision
for payment of the debts and other liabilities of the Corporation and the amount
to which the holders of any class of Preferred Stock having a preference on
distribution in liquidation, dissolution or winding up of the Corporation shall
be entitled, together with the holders of any other class of Preferred Stock not
having a preference on distributions in the liquidation, dissolution or winding
up of the Corporation, to share ratably in the remaining net assets of the
Corporation.
(3) REDEMPTION. The Common and Preferred Stock are not subject to
redemption, except as may be provided by applicable laws.
4
<PAGE> 5
(4) RESTRICTIONS ON OWNERSHIP AND TRANSFER.
(a) DEFINITIONS.
Except as provided below, capitalized terms used herein shall have the same
meanings as contained in the Colorado General Corporation Law. For purposes of
these Articles, the following terms shall have the following meanings:
"BENEFICIAL OWNERSHIP" shall mean ownership of Common Stock or
Preferred Stock by a Person directly, beneficially or as a result of
being treated as an actual or constructive owner of such Stock. The
terms "Beneficial Owner," "Beneficially Owns," "Beneficially Owned" and
"Beneficially Owning" shall have the correlative meanings.
"CAPITAL STOCK" shall mean shares of stock that are Common Stock
or Preferred Stock.
"IRS" means the United States Internal Revenue Service.
"MARKET PRICE" shall mean the last reported sales price of the
Common Stock or Preferred Stock reported on the trading day immediately
preceding the relevant date as reported on any exchange or quotation
system over which the Common Stock or Preferred Stock may be traded, or
if the Common Stock or Preferred Stock is not then traded over any
exchange or quotation system, then the market price of the Common Stock
or Preferred Stock on the relevant date as determined in good faith by
the Board of Directors of the Corporation.
"OFFERING PRICE" shall mean the initial offering sales price of
the Common Stock on the date of the Public Offering.
"PERSON" shall mean an individual, corporation, partnership,
estate, limited liability company, unincorporated organization, joint
venture, state or a political subdivision thereof, governmental agency,
trust (including a trust qualified under Section 401(a) or l(c) (17) of
the Code), a portion of a trust permanently set aside for or to be
issued exclusively for the purposes described in Section 642(c) of the
Code, association, private foundation within the meaning of Section
509(a)
5
<PAGE> 6
of the Code, joint stock company or other entity, and also includes a
group as that term is used for purposes of Section 13 (d) (3) of the
Securities Exchange Act of 1934, as amended, but does not include an
Underwriter that participates in a public offering of the Common Stock,
Preferred Stock.
"PUBLIC OFFERING" shall mean the initial public sale of Common
Stock pursuant to the Corporation's effective registration statement for
such Common Stock filed under the Securities Act of 1933, as amended,
which is underwritten with total equity of the Corporation at the
closing of such public offering of not less than $5,000,000.
"TRANSFER" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Common Stock or Preferred Stock,
including (i) the granting of any option or entering into any agreement
for the sale, transfer or other disposition of Common Stock or Preferred
Stock or (ii) the sale, transfer, assignment or other disposition of any
securities (or rights convertible into or exchangeable for Common Stock
or Preferred Stock), whether voluntary or involuntary, whether of record
or beneficially (including but not limited to transfers of interests in
other entities which result in changes in Beneficial Ownership of Common
Stock or Preferred Stock), whether by operation of law or otherwise and
whether the result of a transaction entered into through the facilities
of the American Stock Exchange, the New York Stock Exchange or such
other stock exchange on which the Common Stock or Preferred Stock is
then listed.
"UNDERWRITER" shall mean a securities firm or other similar
entity in its capacity as a party to an underwriting agreement with the
Corporation entered into with the intent of such firm or other entity of
acquiring securities of the Corporation for resale.
(b) OWNERS REQUIRED TO PROVIDE INFORMATION. Each Person who
is a Beneficial Owner of an interest in the Common Stock or Preferred Stock and
each Person (including the stockholder of record) who is holding Common Stock or
Preferred Stock for a Beneficial Owner of an interest in the Common Stock or
Preferred Stock shall provide to the Corporation such information that the
Corporation may request, in good faith, in order to determine its actual
stockholders.
6
<PAGE> 7
(c) AMBIGUITY. In the case of an ambiguity in the
application of any of the provisions of these Amended Articles, including any
definition contained herein, the Board of Directors shall have the power to
determine the application of the provisions hereof with respect to any situation
based on the facts known to it.
(5) LEGEND. Each certificate for Common Stock shall bear the
following legend:
The Corporation is authorized to issue two classes of capital
stock which are designated as Common Stock and Preferred Stock. The
Board of Directors is authorized to determine the preferences,
limitations and relative rights of the Preferred Stock before the
issuance of any Preferred Stock. The Corporation will furnish, without
charge, to any stockholder making a written request therefor, a copy of
the Corporation's Articles and a written statement of the designations,
and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption applicable to each class of stock. Requests for
such written statement may be directed to 1st Net Technologies, Inc. at
its principal executive offices, Attention: Secretary.
E. TERMS OF PREFERRED STOCK. The Preferred Stock shall be divided into
series. The Board of Directors of the Corporation is expressly authorized,
subject to limitations prescribed by law, to provide for the issuance, in one or
more series, of all or any of the shares of the Preferred Stock, and by filing a
certificate pursuant to the applicable law of the State of Colorado to establish
for each such series the number of its shares, the voting powers, full or
limited, of the shares of such series (or that such shares shall have no voting
powers), and the designations, preferences and relative, participating, optional
or other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof. Except as provided herein, the Board of
Directors is also expressly authorized (unless forbidden in the Articles
Supplementary establishing the series) to increase or decrease (but not below
the number of shares of the series then outstanding) the number of shares of any
series subsequent to the issuance of shares of that series. In case the number
of shares of any such series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the
7
<PAGE> 8
adoption of the resolution originally fixing the number of shares of such
series.
The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock, without the vote of the holders of the Preferred Stock, or of any
series thereof, unless a vote of any such holders is required pursuant to the
Articles Supplementary establishing any series of Preferred Stock.
Subject to the foregoing, the Preferred Stock shall be designated
"Series A Preferred Stock," "Series B Preferred Stock," "Series C Preferred
Stock," "Series D Preferred Stock," "Series E Preferred Stock" and "Series F
Preferred Stock."
(1) RIGHTS, PREFERENCES AND RESTRICTIONS OF SERIES A PREFERRED
STOCK. The Series A Preferred Stock shall have the voting power, preferences and
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, as stated above in this Article V and as
follows:
(a) DIVIDEND PROVISIONS. The holders of shares of the
Series A Preferred Stock shall be entitled to receive an annual, cumulative
dividend of $.20 per share, out of any assets legally available therefor,
concurrent with and equal to any declaration or payment of any dividend or other
distribution on any series of Preferred Stock established and issued subsequent
to the Series A Preferred Stock and the Common Stock of the Corporation, which
shall be mandatory for each fiscal year in which such share is not converted
into one share of Common Stock. This amount shall be proportionately adjusted
for recapitalizations, combinations, splits, reverse splits, subdivisions and
the like, and shall be paid to the extent assets are legally available therefor
and any amounts for which assets are not legally available shall be paid
promptly as assets become legally available therefor. Dividends with respect to
Series A Preferred Stock shall be cumulative and, in the discretion of the Board
of Directors, may be payable in shares of Common or Series A Preferred Stock.
Dividends which are declared and payable for any period less than one full year
shall be computed on the basis of a 360-day year with equal 30-day months. No
dividends shall accrue in a fiscal year with respect to a share of Series A
Preferred Stock unless such share is outstanding on the last day of such fiscal
year.
8
<PAGE> 9
(b) LIQUIDATION PREFERENCE.
(i) In the event of:
(A) any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary, or
(B) any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation) which will result in the Corporation's Stockholders immediately
prior to such transaction not holding (by virtue of such shares or securities
issued solely with respect thereto) at least 50 percent of the voting power of
the surviving or continuing entity, or a sale of all or substantially all of the
assets of the Corporation, unless the Corporation's stockholders immediately
prior to such sale will, as a result of such sale, hold (by virtue of securities
issued as consideration for the Corporation's sale) at least 50 percent of the
voting power of the purchasing entity, the holders of Series A Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of any series of Preferred Stock
established and issued subsequent to the Series A Preferred Stock and the Common
Stock by reason of their ownership thereof, an amount per share equal to the sum
of (i) $2.50 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") and (ii) an amount equal to all declared but
unpaid dividends on each such share of Series A Preferred Stock, which amount
may be adjusted for any stock splits, stock dividends or other
recapitalizations. If upon the occurrence of such liquidation or similar event
the assets and funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the product
of the liquidation preference of each such share and the number of such shares
owned by each such holder; in such event, the holders of the Common Stock shall
receive nothing.
(ii) Upon the completion of the distribution
required by subparagraphs F(1)(b)(i)(A) or (B) of this Article V above, if
assets remain in the Corporation, subject to the liquidation preference, if any,
of any other series of Preferred Stock, the remaining assets shall be paid in
equal amounts on all outstanding shares of Preferred and Common Stock.
9
<PAGE> 10
(c) REDEMPTION. Except as expressly provided in this Article V,
the Series A Preferred Stock shall not be redeemable.
(d) MANDATORY CONVERSION. The holders of Series A Preferred Stock
shall be subject to mandatory conversion as follows (the "Conversion"):
Each share of Series A Preferred Stock automatically converts
into one share of common stock upon the earlier to occur of (i) the closing of
the Public Offering or (ii) the date upon which the public stock price per share
of Common Stock is $3.00 or higher, which target price shall be proportionately
adjusted for recapitalizations, combinations, splits, reverse splits,
subdivisions and the like.
In the case of the circumstances described in clause (i) above,
the Conversion shall be conditioned upon the closing of the sale of securities
pursuant to such Public Offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Series A Preferred
Stock shall not be deemed to have their Series A Preferred Stock converted until
the closing of such Public Offering.
(ii) NO FRACTIONAL SHARES AND CERTIFICATE AS TO CONVERSION
ADJUSTMENT.
(A) No fractional shares shall be issued upon
conversion of the Series A Preferred Stock and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share.
(B) Upon the occurrence of each conversion the
Corporation, at its own expense, shall promptly compute such conversion
adjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
and showing in detail the facts upon which such adjustment is based. The
Corporation shall, upon the written request at any time of any holder of shares
of Series A Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (x) such adjustment, (y) the conversion ratio for
such shares at such time and (z) the number of shares of Common Stock which at
such time would be received upon the conversion of such shares of Series A
Preferred Stock.
10
<PAGE> 11
(e) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of such series of Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of
Series A Preferred Stock in addition to such other remedies as shall be
available to the holder of such series of Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(2) NOTICES. Any notice required by the provisions of this Section F of
this Article V to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
(3) STOCK SPLITS OR SUBDIVISIONS. In the event the Corporation should at
any time or from time to time after the effective date hereof fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock
11
<PAGE> 12
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the conversion ratio of the Series A Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be increased in
proportion to such increase of outstanding shares.
(4) COMBINATIONS. If the number of shares of Common Stock outstanding at
any time after the effective date hereof is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the conversion ratio for the Series A Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(5) NO IMPAIRMENT. The Corporation will not, by amendment of its Charter
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section F and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(6) STATUS OF CONVERTED OR REDEEMED STOCK. Once shares of Series A
Preferred Stock are converted or redeemed in accordance herewith, the shares so
converted or redeemed shall be canceled and shall not be issuable by the
Corporation, and the Charter of the Corporation shall be appropriately amended
to effect the corresponding reduction in the Corporation's authorized capital
stock.
(7) NO PREEMPTIVE RIGHTS. Nothing herein shall be construed to grant the
holders of Series A Preferred Stock any preemptive rights.
(8) LEGEND. Each certificate for Series A Preferred Stock shall bear the
following legend:
12
<PAGE> 13
The Corporation is authorized to issue two classes of capital
stock which are designated as Common Stock and Preferred Stock. The
Board of Directors is authorized to determine the preferences,
limitations and relative rights of the Preferred Stock before the
issuance of any Preferred Stock. The Corporation will furnish, without
charge, to any stockholder making a written request therefor, a copy of
the Corporation's Charter and a written statement of the designations,
and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption applicable to each class of stock. Requests for
such written statement may be directed to 1st Net Technologies, Inc. at
its principal executive offices, Attention: Secretary.
G. SETTLEMENT. Nothing in this Article V shall preclude the settlement
of any transaction entered into through facilities of the American Stock
Exchange, the New York Stock Exchange or such other stock exchange on which the
Corporation's Common Stock or Preferred Stock may be listed.
H. ISSUANCE OF RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY. Subject
to the rights of the holders of any series of Preferred Stock, including Series
A Preferred Stock, and subject to the rights of the original stockholders of the
Corporation pursuant to any stockholders' agreement executed by such original
stockholders prior to the Public Offering, the Board of Directors is hereby
authorized to create and to authorize and direct the issuance (on either a pro
rata or a non-pro rata basis) by the Corporation of rights, options and warrants
for the purchase of shares of Capital Stock, other securities of the
Corporation, or shares or other securities of any successor in interest of the
Corporation (a "successor"), at such times, in such amounts, to such persons,
for such consideration (if any), with such form and content (including without
limitation the consideration for which any shares of Capital Stock, other
securities of the Corporation, or shares or other securities of any Successor
are to be issued) and upon such terms and conditions as it may, from time to
time, determine, subject only to the restrictions, limitations, conditions and
requirements imposed by the Colorado General Corporation Law, other applicable
laws and the Corporation's Charter.
I. PREEMPTIVE RIGHTS. Except as may be provided by the Board of
Directors in authorizing the issuance of shares of
13
<PAGE> 14
Preferred Stock herein and as set forth in Articles Supplementary creating such
other series of Preferred Stock, no holder of shares of stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any additional shares of stock of the Corporation or any other security of the
Corporation which it may issue or sell.
J. AUTHORIZED SHARES OF COMMON AND PREFERRED STOCK. The authorized
number of shares of Common Stock and Preferred Stock may, without a class or
series vote, be increased or decreased from time to time by the affirmative vote
of the holders of a majority of the combined voting power of the
then-outstanding shares of Capital Stock of the Corporation that pursuant to the
Charter are entitled to vote generally in the election of directors of the
Corporation, voting together as a single class.
ARTICLE VI
A. NUMBER. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be five, which number may be
increased or decreased pursuant to the Bylaws of the Corporation; provided,
however, that the number of directors shall neither be less than three nor
greater than eleven.
B. CLASSIFICATION. The directors of the Corporation, other than those
who may be elected by the holders of any series of Preferred Stock, shall be
divided, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, with the initial term of
office of the Class I directors to expire at the 1999 annual meeting of
stockholders, the initial term of office of the Class II directors to expire at
the 2000 annual meeting of stockholders and the initial term of office of the
Class III directors to expire at the 2001 annual meeting of stockholders.
Members of each class shall hold office until their successors are elected and
qualified. At each succeeding annual meeting of stockholders of the Corporation,
the successors of the class of directors whose term expires at that meeting
shall be elected by a plurality vote of all votes cast at such meeting to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election.
The following person shall serve as a Class I director until the 2000
annual meeting of stockholders:
14
<PAGE> 15
Clifford J. Smith
The following person shall serve as Class II directors until the 2001
annual meeting of stockholders:
Mary E. Writer
The following persons shall serve as Class III directors until the 2002
annual meeting of stockholders:
Gregory D. Writer, Jr.
James H. Watson, Jr.
C. WRITTEN BALLOT. Unless and except to the extent that the Bylaws of
the Corporation shall so require, the election of directors of the Corporation
need not be by written ballot.
D. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of 66-2/3 percent of the then-outstanding
shares of stock entitled to vote generally in the election of directors ("Voting
Stock"), voting together as a single class.
E. VACANCIES. Subject to the rights of the holders of any series of
Preferred Stock then-outstanding, newly-created directorships resulting from any
increase in the authorized number of directors or any vacancies on the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office, or other causes, shall be filled by a majority vote of the
stockholders or directors then in office. A director so chosen by the
stockholders shall hold office for the balance of the term then remaining. A
director so chosen by the remaining directors shall hold office until the next
annual meeting of stockholders, at which time the stockholders shall elect a
director to hold office for the balance of the term then remaining. No decrease
in the number of directors constituting the Board of Directors shall affect the
tenure of office of any director.
F. STOCK ISSUANCES. The Board of Directors is hereby empowered to
authorize the issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, or securities convertible into shares of
its stock of any class or classes, whether now or hereafter authorized, for such
consideration as may be deemed advisable by the Board of Directors and without
any action by the stockholders.
15
<PAGE> 16
ARTICLE VII
The Corporation reserves the right at any time and from time to time to
make any amendment to its Articles, now or hereafter authorized by law,
including any amendment altering the terms or contract rights, as expressly set
forth in its Articles, of any shares of outstanding stock. Any amendment to the
Corporation's Articles shall be valid only if such amendment shall have been
approved by the holders of 51 percent of the outstanding Voting Stock, voting
together as a single class. All rights and powers conferred by the Corporation's
Articles on stockholders, directors and officers are granted subject to this
reservation.
ARTICLE VIII
The Corporation shall indemnify (A) its directors and officers, whether
serving the Corporation or at its request any other entity, to the fullest
extent required or permitted by the General Laws of the State of Colorado now or
hereafter in force, including the advance of expenses under the procedures and
to the fullest extent permitted by law and (B) other employees and agents to
such extent as shall be authorized by the Board of Directors or the
Corporation's Bylaws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such bylaws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
Articles of the Corporation or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.
ARTICLE IX
To the fullest extent permitted by Colorado statutory or decisional law,
as amended or interpreted, no director or officer of the Corporation shall be
personally liable to the Corporation or its stockholders for money damages. No
amendment of the Articles of the Corporation or repeal of any of its provisions
shall limit or eliminate the limitation on liability provided to directors and
officers hereunder with respect to any act or omission occurring prior to such
amendment or repeal.
16
<PAGE> 17
ARTICLE X
With respect to any proposed merger, acquisition, business combination
or other transaction or proposal, a director of the Corporation, in determining
what is in the best interests of the Corporation, shall consider the interests
of the stockholders of the Corporation and, in his or her discretion, may
consider (i) the interests of the Corporation's employees, suppliers, creditors
and customers, (ii) the economy of the nation, (iii) community and societal
interests and (iv) the long-term as well as short-term interests of the
Corporation and its stockholders, including the possibility that these interests
may be best served by the continued independence of the Corporation. Pursuant to
this provision, the Board of Directors may consider numerous judgmental or
subjective factors affecting a proposal, including certain nonfinancial matters,
and on the basis of these considerations may oppose a business combination or
other transaction which, as an exclusively financial matter, might be attractive
to some, or a majority, of the Corporation's stockholders.
ARTICLE XI
The Corporation hereby expressly elects not to be governed by the
provisions of the anti-takeover and control share acquisition sections of the
Colorado General Corporation Law.
ARTICLE XII
In carrying on its business, or for the purpose of attaining or
furthering any of its objects, the Corporation shall have all of the rights,
powers and privileges granted to corporations by the laws of the State of
Colorado, as well as the power to do any and all acts and things that a natural
person or partnership could do as now or hereafter authorized by law, either
alone or in partnership or conjunction with others.
Any director or officer individually, or any firm of which any director
or officer may be a member, or any corporation or association of which any
director or officer may be a director or officer or in which any director or
officer may be interested as the holder of any amount of its capital stock or
otherwise, may be a party to, or may be pecuniarily or otherwise interested in,
any contract or transaction of the Corporation, and, in the absence of fraud, no
contract or other transaction shall be thereby affected or invalidated;
provided, however, that (a) such fact shall have been disclosed or shall have
been known to the Board of Directors or the committee thereof that approved such
contract or transaction and such contract or transaction shall have been
approved or ratified by the affirmative vote of a majority of the disinterested
directors, or (b) such fact shall have been disclosed or shall have been known
to the stockholders entitled to vote, and such contract or transaction shall
have been approved or
17
<PAGE> 18
rectified by a majority of the votes cast by the stockholders entitled to vote,
other than the votes of shares owned of record or beneficially by the interested
director or corporation, firm or other entity, or (c) the contract or
transaction is fair and reasonable to the Corporation. Any director of the
Corporation who is also a director or officer of, or interested in, such other
corporation or association, or who, or the firm of which he or she is a member,
is so interested, may be counted in determining the existence of a quorum at any
meeting of the Board of Directors of the Corporation which shall authorize any
such contract or transaction, with like force and effect as if he or she were
not such director or officer of such other corporation or association or were
not so interested or were not a member of a firm so interested.
Except as otherwise provided in the Corporation's Articles or the Bylaws
of the Corporation, as amended from time to time, the business of the
Corporation shall be managed by its Board of Directors. The Board of Directors
shall have and may exercise all the rights, powers and privileges of the
Corporation except only for those that are by law, these Articles of
Incorporation or the Bylaws of the Corporation, conferred upon or reserved to
the stockholders. Additionally, the Board of Directors is hereby specifically
authorized and empowered from time to time in its discretion:
To borrow and raise money, without limit and upon any terms, for
any corporate purpose; and, subject to applicable law, to authorize the
creation, issuance, assumption, or guaranty of bonds, debentures, notes
or other evidences of indebtedness for money so borrowed, to include
therein such provisions as to redeemability, convertibility or
otherwise, as the Board of Directors, in its sole discretion,
determines, and to secure the payment of principal, interest or sinking
fund in respect thereof by mortgage upon, or the pledge of, or the
conveyance or assignment in trust of, all or any part of the properties,
assets, and goodwill of the Corporation then owned or thereafter
acquired;
To make, alter, amend, change, add to or repeal the Bylaws of the
Corporation in accordance with the terms of the Bylaws adopted by the
Board of Directors; and
18
<PAGE> 19
To the extent permitted by law, to declare and pay dividends or
other distributions to the stockholders from time to time out of the
earnings, earned surplus, paid-in surplus or capital of the Corporation,
notwithstanding that such declaration may result in the reduction of the
capital of the Corporation. In connection with any dividends or other
distributions upon the Common Stock, the Corporation need not reserve
any amount from such dividend or other distributions to satisfy any
preferential rights of any stockholder.
Notwithstanding any provision of law requiring the authorization of any
action by a greater proportion than a majority of the total number of shares of
all classes of capital stock or of the total number of shares of any class of
capital stock, such action shall be valid and effective if authorized by the
affirmative vote of the holders of a majority of the total number of shares of
all classes outstanding and entitled to vote thereon, except as otherwise
provided in the Articles. Any action required or permitted to be taken by the
Stockholders of the Corporation may be effected at a duly called annual or
special meeting of the stockholders or by any consent in writing.
ARTICLE XIII
The duration of the Corporation shall be perpetual.
THIRD: The amendment to and restatement of the Articles of the
Corporation as hereinabove set forth have been duly authorized and approved by a
majority of the Board of Directors and approved by the stockholders of the
Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation
in the State of Colorado is as set forth in Article IV of the foregoing
amendment and restatement of the Articles.
FIFTH: The name and address of the Corporation's current resident agent
is as set forth in Article IV of the foregoing amendment and restatement of the
Articles.
SIXTH: The number of directors of the Corporation and the names of those
currently in office are as follows:
Gregory D. Writer, Jr.
Clifford J. Smith
Mary E. Writer
James H. Watson, Jr.
19
<PAGE> 20
SEVENTH: The foregoing amendments increase the authorized capital stock
of the Corporation as set forth in subparagraph A of Article V of the foregoing
amendment and restatement of the Articles.
IN WITNESS WHEREOF, 1ST NET TECHNOLOGIES, INC. has caused these presents
to be signed in its name and on its behalf by its President and Chief Executive
Officer and witnessed by its Secretary on October 15, 1998.
/s/ GREGORY D. WRITER, JR.
-----------------------------------
Gregory D. Writer, Jr.
Chief Executive Officer
/s/ CLIFFORD J. SMITH
-----------------------------------
Clifford J. Smith
President
The undersigned, Chief Executive Officer of 1ST NET TECHNOLOGIES, INC.
who executed on behalf of the Corporation the foregoing Articles of Amendment
and Restatement of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Articles of Amendment
and Restatement to be the corporate act of said Corporation and hereby certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the authorization and approval thereof
are true in all material respects under penalties of perjury.
/s/ GREGORY D. WRITER, JR.
-----------------------------------
Gregory D. Writer, Jr.
Chief Executive Officer
20
<PAGE> 21
The undersigned, James H. Watson, Jr., hereby consents to serve as the
initial agent for service of process in Colorado of 1st NET TECHNOLOGIES, INC.
/s/ JAMES H. WATSON, JR.
-----------------------------------
James H. Watson, Jr.
21
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
1ST NET TECHNOLOGIES, INC.
(A Colorado Corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1 OFFICES.........................................................................................1
1.1 PRINCIPAL EXECUTIVE OFFICE.........................................................1
1.2 OTHER OFFICES......................................................................1
2 MEETINGS OF SHAREHOLDERS........................................................................1
2.1 PLACE OF MEETINGS..................................................................1
2.2 ANNUAL MEETING.....................................................................1
2.3 SPECIAL MEETINGS...................................................................1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS...................................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.......................................2
2.6 QUORUM.............................................................................3
2.7 ADJOURNED MEETING AND NOTICE THEREOF...............................................3
2.8 VOTING.............................................................................3
2.9 VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS...............................4
2.10 ACTION WITHOUT A MEETING...........................................................5
2.11 PROXIES............................................................................6
2.12 INSPECTORS OF ELECTION.............................................................6
3 DIRECTORS.......................................................................................7
3.1 POWERS.............................................................................7
3.2 NUMBER AND QUALIFICATION OF DIRECTORS..............................................8
3.2 NUMBER AND QUALIFICATION OF DIRECTORS..............................................8
3.3 ELECTION AND TERM OF OFFICE........................................................8
3.4 VACANCIES..........................................................................9
3.5 PLACE OF MEETING...................................................................9
3.6 ORGANIZATION MEETING...............................................................9
3.7 OTHER REGULAR MEETINGS............................................................10
3.8 SPECIAL MEETINGS..................................................................10
3.9 ACTION WITHOUT MEETING............................................................10
3.10 ACTION AT A MEETING: QUORUM AND REQUIRED VOTE....................................10
3.11 VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS..............................11
3.12 ADJOURNMENT.......................................................................11
3.13 FEES AND COMPENSATION.............................................................11
3.14 COMMITTEES OF DIRECTORS...........................................................11
3.15 INTERESTED DIRECTORS..............................................................12
4 OFFICERS.......................................................................................13
4.1 OFFICERS..........................................................................13
4.2 ELECTION..........................................................................13
4.3 SUBORDINATE OFFICERS..............................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.4 REMOVAL...........................................................................14
4.5 RESIGNATION.......................................................................14
4.6 VACANCIES.........................................................................14
4.7 CHAIRMAN OF THE BOARD.............................................................14
4.8 PRESIDENT.........................................................................14
4.9 VICE PRESIDENTS...................................................................15
4.10 SECRETARY.........................................................................15
4.11 CHIEF FINANCIAL OFFICER...........................................................15
5 INDEMNIFICATION................................................................................16
5.1 DEFINITIONS.......................................................................16
5.2 ACTIONS GENERALLY -- STANDARD OF CONDUCT..........................................16
5.3 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION -- STANDARD OF CONDUCT..............16
5.4 SUCCESSFUL DEFENSE ON THE MERITS -- INDEMNIFICATION FOR EXPENSES..................17
5.5 DETERMINING SATISFACTION OF STANDARD OF CONDUCT...................................17
5.6 ADVANCEMENT OF EXPENSES...........................................................17
5.7 NONEXCLUSIVE RIGHT TO INDEMNIFICATION.............................................18
5.8 CONFLICT WITH ARTICLES, BYLAWS OR CONDITION OF SETTLEMENT.........................18
5.9 POWER TO MAINTAIN INSURANCE.......................................................18
5.10 FIDUCIARY OF EMPLOYEE BENEFIT PLAN................................................19
6 RECORDS AND REPORTS............................................................................19
6.1 MAINTENANCE OF BOOKS AND RECORDS OF ACCOUNT, MINUTES OF MEETINGS
AND SHAREHOLDER RECORD............................................................19
6.2 INSPECTION OF SHAREHOLDERS........................................................19
6.3 MAINTENANCE AND INSPECTION OF BYLAWS..............................................20
6.4 INSPECTION BY DIRECTORS...........................................................20
6.5 ANNUAL AND OTHER REPORTS..........................................................20
6.6 FINANCIAL STATEMENTS..............................................................21
6.7 ANNUAL STATEMENT OF GENERAL INFORMATION...........................................21
7 MISCELLANEOUS..................................................................................22
7.1 RECORD DATE.......................................................................22
7.2 CHECKS, DRAFTS, AND OTHER INSTRUMENTS.............................................23
7.3 EXECUTING CORPORATE CONTRACTS AND INSTRUMENTS.....................................23
7.4 CERTIFICATE FOR SHARES............................................................24
7.5 REPRESENTATION OF SHARES OF OTHER CORPORATIONS....................................25
7.6 REGISTRARS AND TRANSFER AGENTS....................................................25
7.7 S CORPORATION ELECTION............................................................25
7.8 FISCAL YEAR.......................................................................25
7.9 CONSTRUCTION AND DEFINITIONS......................................................25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
8 AMENDMENTS.....................................................................................26
8.1 POWER OF THE SHAREHOLDERS.........................................................26
8.2 POWER OF DIRECTORS................................................................26
CERTIFICATE OF SECRETARY.......................................................................................27
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED BYLAWS OF
1ST NET TECHNOLOGIES, INC.
(A Colorado Corporation)
ARTICLE 1
OFFICES
1.1 Principal Executive Office. The principal executive office of the
Corporation is hereby fixed at 11423 West Bernardo Court, San Diego, California
92127. The board of directors is hereby granted full power and authority to
change the principal executive office to any location within or outside the
State of Colorado.
1.2 Registered Offices. The registered office of the corporation
required by the Colorado Business Corporation Act Section 7-105-101 to be
maintained in Colorado may be, but need not be, identical with the principal
office, and the address of the registered office may be changed from time to
time by the board of directors. The Corporation additionally may have other
business offices at such other places, both within and outside the State of
Colorado as the board of directors from time to time may determine or the
business of the Corporation may reasonably require.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
2.1 Place of Meetings. Meetings of shareholders shall be held at the
principal executive office of the Corporation, or at such other place within or
outside the State of Colorado which may be designated either by the board of
directors or by the written consent of all persons entitled to vote thereat and
not present at the meeting, given either before or after the meeting and filed
with the secretary of the Corporation.
2.2 Annual Meeting. The annual meeting of shareholders shall be held on
such date and at such time during the month of August in each year as may be
fixed from year to year by the board of directors. At such meeting, directors
shall be elected, reports of the affairs of the Corporation shall be considered,
and any other business within the powers of the shareholders may be transacted.
<PAGE> 6
2.3 Special Meetings. Special meetings of the shareholders, for the
purpose of taking any action permitted by the shareholders under the Colorado
Business Corporation Law and the articles of incorporation of the Corporation,
may be called at any time by the board of directors, the chairman of the board,
the president or by written demand, stating the purpose or purposes for which it
is to be held, signed and dated by the holders of shares entitled to cast not
less than 10 percent of the votes entitled to be cast at the meeting. Upon
request in writing that a special meeting of shareholders be called for any
proper purpose, directed to the chairman of the board, president, vice president
or secretary by any person (other than the board) entitled to call a special
meeting of shareholders, the officer forthwith shall cause notice to be given to
shareholders entitled to vote that a meeting will be held at a time requested by
the person or persons calling the meeting, not less than 35 nor more than 60
days after receipt of the request. Such notice shall be in accordance with the
provisions of Sections 2.4 and 2.5 of this Article 2. If such notice is not
given within 20 days after receipt of the request, the person or persons
requesting the meeting may give the notice. Only business within the purpose or
purposes described in the notice of the meeting required by Colorado Business
Corporation Act section 7-107-105(3) may be conducted at a special shareholders'
meeting.
2.4 Notice of Shareholders' Meetings. Whenever shareholders are
required or permitted to take action at a meeting, a written notice of the
meeting shall be given not less than 10 (or, if sent by third-class mail, or, if
the number of shares is to be increased, 30) nor more than 60 days before the
date of the meeting to each Shareholder entitled to vote thereat (unless
required otherwise by statute). The notice shall state the place, date and hour
of the meeting and (a) in the case of a special meeting, the general nature of
the business to be transacted, and no other business may be transacted; or (b)
in the case of the annual meeting, those matters which the board of directors,
at the time of the mailing of the notice, intends to present for action by the
shareholders. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by the board, if any, for election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a director has a direct or
indirect financial interest, pursuant to Section 7-108-501 of the Colorado
Business Corporation Act; (ii) an amendment of the articles of incorporation,
pursuant to Section 7-110-103(4) or 7-110-107(3) of that Law; (iii) a merger or
share exchange, pursuant to Section 7-111-103 of that Law; or (iv) a
2
<PAGE> 7
voluntary dissolution of the Corporation, pursuant to Section 7-114-102(4) of
that Law, the notice shall also state the general nature of that proposal.
2.5 Manner of Giving Notice; Affidavit of Notice. Written notice of a
shareholders' meeting or any report shall be given either personally or by
first-class mail or telegraphic or other means of written communication, charges
prepaid, addressed to the shareholder at the address of such shareholder
appearing on the books of the Corporation or given by the shareholder to the
Corporation for the purpose of notice. If no such address appears on the
Corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other means of
written communication to the Corporation's principal executive office, or if
published at least once in a newspaper of general circulation in the county in
which the principal executive office is located. The notice or report shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication. An
affidavit of the mailing or other means of giving any notice or report in
accordance with this Section 2.5 shall be executed by the secretary, assistant
secretary or any transfer agent of the Corporation giving the notice, and shall
be filed and maintained in the minutes book of the Corporation. Such affidavit
shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to a shareholder at the address
of such shareholder appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available for the shareholder
upon written demand of the shareholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of the notice
or report to all other shareholders.
2.6 Quorum. The presence of a majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum for the
transaction of business at a meeting of the shareholders. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
3
<PAGE> 8
2.7 Adjourned Meeting and Notice Thereof. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of a majority of the shares, represented either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at such meeting, except as provided in Section 2.6 above.
When a shareholders' meeting, either annual or special, is
adjourned to another time or place, unless otherwise set forth herein or
provided in the Colorado Business Corporation Act, notice of the adjourned
meeting need not be given if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the reconvened meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than 120 days or if, after
adjournment, a new record date is fixed for the reconvened meeting, a notice of
the reconvened meeting shall be given to each shareholder of record entitled to
vote at the meeting.
2.8 Voting. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section
7.1.1 below, subject to the provisions of Sections 7-107-202 and 7-107-204,
inclusive, of the Colorado Business Corporation Act (relating to voting of
shares held by a fiduciary, in the name of a corporation, or in joint
ownership). Except as otherwise set forth in the articles of incorporation of
the Corporation or in Section 7-108-104 of the Colorado Business Corporation Act
(relating to the voting of shares at any election of directors), each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote of shareholders. Such vote may be voice vote or by
ballot; provided, however, that all elections for directors must be by ballot
upon demand made by a shareholder at any election and before the voting begins.
Any holder of shares entitled to vote on any matter may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or vote
them against the proposal, other than elections to office, but, if the
shareholder fails to specify the number of shares such shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares such shareholder is entitled to vote. Subject
to the provisions of Section 2.6 above, if a quorum is present, except with
respect to election of directors, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the Colorado Business Corporation Act or the articles of
incorporation. Subject to the requirements of the next sentence, every
shareholder entitled to vote at any election for directors may cumulate such
shareholder's
4
<PAGE> 9
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which such shareholder's
shares are entitled, or to distribute such shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit. No shareholder
shall be entitled to cumulative votes unless the name of the candidate or
candidates for whom such votes would be cast has been placed in nomination prior
to the voting and any shareholder has given notice at the meeting, prior to the
voting, of the shareholders' intention to cumulate the shareholder's votes. If
any one shareholder has given such notice, all shareholders may cumulate their
votes for candidates in nomination. In any election of directors, the candidates
receiving the highest number of affirmative votes of the shares entitled to be
voted for them, up to the number of directors to be elected by such shares,
shall be elected.
2.9 Validation of Defectively Called or Noticed Meetings. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, signs a written
waiver of notice, or a consent to the holding of such meeting, or an approval of
the minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting. Attendance
of a person at a meeting shall constitute a waiver of notice and presence at
such meeting, except when the person objects, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, and except that attendance at a meeting is not a waiver of any right
to object to the consideration of matters required by the Colorado Business
Corporation Act to be included in the notice but not so included, if such
objection is expressly made at the meeting.
2.10 Action Without a Meeting. Except with respect to the election of
Directors as hereinafter provided or as otherwise provided in the articles of
incorporation, any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by all of the
shareholders entitled to vote thereon. Unless the consents of all shareholders
entitled to vote have been solicited in writing, notices shall be given in the
manner as provided in Section 2.5 of Article 2 of these bylaws as follows:
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2.10.1 At least ten (10) days before consummation of the
action authorized by shareholder approval, notice shall be given of shareholder
approval of (i) a contract or other transaction with an interested Director,
(ii) indemnification of an agent of the Corporation, (iii) a merger, exchange or
sale of assets, or reorganization as defined in Article 111 of the Colorado
Business Corporations Act, or (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, if any; and
2.10.2 Promptly with respect to any other corporate action
approved by shareholders without a meeting by less than unanimous written
consent, to those shareholders entitled to vote who have not consented in
writing. Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the Corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the Corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the Corporation.
Notwithstanding anything to the contrary set forth herein, directors may not be
elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors; provided that, in the event a
vacancy on the board of directors exists, other than a vacancy created by
removal, and has not been filled by the directors, a director may be elected at
any time without prior notice by the written consent of a majority of the
outstanding shares entitled to vote for the election of directors.
2.11 Proxies. Every person entitled to vote shares may authorize
another person or persons to act by proxy with respect to such shares. Any proxy
purporting to be executed in accordance with the provisions of this Section 2.11
shall be presumptively valid. No proxy shall be valid after the expiration of
eleven months from the date thereof unless otherwise provided in the proxy.
Every proxy shall continue in full force and effect until revoked by the person
executing it prior to the vote pursuant thereto, except as otherwise provided in
Section 7-107-203 of the Colorado Business Corporation Act. Such revocation may
be effected by a writing delivered to the Corporation stating that the proxy is
revoked, or by a subsequent proxy executed by the person executing the prior
proxy and presented to the meeting, or as to any meeting by attendance at such
meeting and voting in person by the person executing the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmarked dates on the envelopes in which they are mailed.
The revocability of a proxy which states on its face
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that it is irrevocable shall be governed by the provisions of Sections
7-107-203(7) and 7-107-203(8) of the Colorado Business Corporation Act.
2.12 Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the chairman of any such meeting of
shareholders may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
or refuse) at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies,
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, determine
the result, and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously as
is practical. If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of election
is prima facie evidence of the facts stated therein.
ARTICLE 3
DIRECTORS
3.1 Powers. Subject to limitations of the articles of incorporation
and of the Colorado Business Corporation Act relating to action required to be
approved by the shareholders, or by the outstanding shares, or by a less than
majority vote of a class or series of preferred shares, and subject to the
duties of directors as prescribed by the bylaws, the business and affairs of the
Corporation shall be managed by, and all corporate powers shall be exercised by
or under the direction of, the board of directors. The board of directors may
delegate the management of day-to-day
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operation of the business of the Corporation to a management company or other
person provided that the business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised under the ultimate direction
of the board. Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have the
following powers, to wit:
3.1.1 To select and remove all the officers, agents and employees
of the Corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the articles of incorporation or the bylaws, fix
their compensation and require from them security for faithful service.
3.1.2 To conduct, manage and control the affairs and business of
the Corporation, and to make such rules and regulations therefor not
inconsistent with law, or with the articles of incorporation or the bylaws, as
they may deem best.
3.1.2 To change the principal executive office and principal
office for the transaction of the business of the Corporation from one location
to another as provided in Article 1, Section 1.1, hereof; to fix and locate from
time to time one or more subsidiary offices of the Corporation within or without
the State of Colorado, as provided in Article 1, Section 1.2, hereof; to
designate any place within or without the State of Colorado for the holding of
any shareholders' meeting or meetings; and to adopt, make and use a corporate
seal, and to prescribe the forms of certificates of stock, and to alter the form
of such seal and of such certificates from time to time, as in their judgment
they may deem best, provided such seal and such certificates shall at all times
comply with the provisions of law.
3.1.4 To authorize the issue of shares of stock of the
Corporation from time to time, upon such terms and for such consideration as may
be lawful.
3.1.5 To borrow money and incur indebtedness for the purposes of
the Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
3.1.6 To designate an executive and other committees in
accordance with Section 3.14 of this Article 3.
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3.2 Number and Qualification of Directors. The number of directors of
the Corporation shall be three until changed by amendment of the articles of
incorporation or by a bylaw amending this Section 3.2, duly adopted by a
majority of the outstanding shares entitled to vote; provided that a proposal to
reduce the authorized number of directors to a number less than three cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of action by written consent, are equal to more than
16-2/3 percent of the outstanding shares entitled to vote.
3.3 Election and Term of Office. The directors shall be elected at
each annual meeting of shareholders; provided that, if any such annual meeting
is not held or the directors are not elected thereat, the directors may be
elected at any special meeting of shareholders held for that purpose. All
directors shall hold office until the expiration of the term for which elected
and until their respective successors are elected and qualified, subject to the
Colorado Business Corporation Act and the provisions of these bylaws with
respect to removal of directors and vacancies on the board.
3.4 Vacancies. A vacancy in the board of directors shall be deemed to
exist in case of the death, resignation or removal of any director, if a
director has been declared of unsound mind by order of court or convicted of a
felony, if the authorized number of directors is increased, or if the
shareholders fail, at any annual or special meeting of shareholders at which any
director or directors are elected, to elect the full authorized number of
directors to be voted for at that meeting.
Unless otherwise provided in the articles of incorporation or
herein, except for a vacancy created by the removal of a director, vacancies on
the board may be filled by approval of a majority of the directors present at a
meeting duly held at which a quorum is present or, if the number of directors
then in office is less than a quorum, by a majority of the directors then in
office, or by a sole remaining director. A vacancy in the board of directors
created by the removal of a director by the vote or written consent of the
shareholders or by court order may only be filled by the vote of a majority of
the shares entitled to vote represented at a duly held meeting at which a quorum
is present, or by the written consent of the holders of a majority of the
outstanding shares. Each director so elected shall hold office until his
successor is elected at an annual or a special meeting of the shareholders.
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The shareholders may elect a director at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent shall require the consent of a majority of the outstanding shares
entitled to vote.
Any director may resign effective upon giving written notice to
the chairman of the board, the president, the secretary or the board of
directors of the Corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.5 Place of Meeting. All meetings of the board of directors shall be
held at any place within or without the State of California which has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, designated from time to time by resolution of the board. In the
absence of such designation, meetings shall be held at the principal executive
office of the Corporation.
3.6 Organization Meeting. Immediately following each annual meeting
of shareholders, the board of directors shall hold a regular meeting at the
place of such annual meeting or at such other place as shall be fixed by the
board of directors, for the purpose of organization, election of officers, and
the transaction of other business. Call and notice of such meetings are hereby
dispensed with.
3.7 Other Regular Meetings. Other regular meetings of the board of
directors shall be held without call on such dates and at such times as may be
fixed from time to time by the board; provided, however, that should the day of
the meeting fall upon a legal holiday, then the meeting shall be held at the
same time on the next day thereafter ensuing which is a full business day.
Notice of all such regular meetings of the board of directors is hereby
dispensed with.
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3.8 Special Meetings. Special meetings of the board of directors for
any purpose or purposes may be called at any time by the chairman of the board,
the president, any vice president, the secretary or by any two directors.
Special meetings of the board shall be held upon four days'
notice by mail or 48 hours' notice delivered personally or by telephone or
telegraph. Written notice of the time and place of special meetings shall be
delivered personally to each director or communicated to each director by
telephone, telegraph or mail, charges prepaid, addressed to him at his address
as it is shown upon the records of the Corporation or, if it is not so shown on
such records or is not readily ascertainable, at the place at which the meetings
of the directors are regularly held. Any such notice shall state the date, place
and hour of the special meeting, but need not specify the purpose thereof.
3.9 Action Without Meeting. Any action required or permitted to be
taken by the board may be taken without a meeting, if all members of the board
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the board. Such action by written consent shall have the same force and
effect as a unanimous vote of such directors.
3.10 Action at a Meeting: Quorum and Required Vote. A majority of the
authorized number of directors constitutes a quorum of the board for the
transaction of business, except as hereinafter provided. Every act or decision
done or made by a majority of the directors present at a meeting duly held at
which a quorum is present is the act of the board of directors, unless a greater
number, or the same number after disqualifying one or more directors from
voting, is required by law, by the articles of incorporation, or by these
bylaws. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting. Members of the board may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another. Participation in a meeting
as permitted in the preceding sentence constitutes presence in person at such
meeting.
3.11 Validation of Defectively Called or Noticed Meetings. The
transactions of any meeting of the board of directors, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present and if, either before or
after the meeting,
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each of the directors not present or who, though present, has prior to the
meeting or at its commencement protested the lack of proper notice to such
director, signs a written waiver of notice or a consent to holding such meeting
or an approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
3.12 Adjournment. A majority of the directors present at any meeting,
whether or not a quorum is present, may adjourn the meeting to another time and
place. If any meeting is reconvened for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
reconvened meeting to the directors who were not present at the time of
adjournment. Otherwise, notice of the time and place of holding a reconvened
meeting need not be given to absent directors if the time and place is fixed at
the meeting adjourned.
3.13 Fees and Compensation. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by resolution of the board. This
Section 3.13 shall not be construed to preclude any director from serving the
Corporation in any other capacity as an officer, agent, employee or otherwise,
and receiving compensation for these services.
3.14 Committees of Directors.
3.14.1 Formation and Powers of Committees. The board of directors
may, by resolution adopted by a majority of the authorized number of directors,
designate an executive and other committees, each consisting of two or more
directors, to serve at the pleasure of the board. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of any committee requires the vote of a majority of the authorized
number of directors. Any such committee, to the extent provided in the
resolution of the board, shall have all the authority of the board, except with
respect to:
a. The approval of any action which, under the Colorado
Business Corporation Act, also requires shareholders' approval or approval of
the outstanding shares;
b. The filling of vacancies on the board of directors or
in any committee;
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c. The fixing of compensation of the directors for serving
on the board or on any committee;
d. The amendment or repeal of bylaws or the adoption of
new bylaws;
e. The amendment or repeal of any resolution of the board
of directors which by its express terms is not so amendable or repealable;
f. A distribution to the shareholders of the Corporation,
except at a rate, in a periodic amount or within a price range determined by the
board of directors; or
g. The appointment of other committees of the board of
directors or the members thereof.
3.14.2 Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of this Article 3, Sections 3.5 (place of meetings), 3.7 (regular
meetings), 3.8 (special meetings), 3.9 (action without meeting), 3.10 (action at
meeting), 3.11 (validation of defectively called or noticed meetings), and 3.12
(adjournment), with such changes in the context of these bylaws as are necessary
to substitute the committee and its members for the board of directors and its
members, except that:
a. Written notice of the time and place of special
meetings of any committee shall be delivered personally to each committee member
or communicated to each committee member by telephone or telegraph at least 24
hours prior to the time of the holding of the meeting, such telegraphing or
delivery, personally or by telephone; and
b. Notice of special meetings of any committee also shall
be given to all alternate committee members, who shall have the right to attend
all meetings of the committee.
The board of directors may adopt rules for the governance of any
committee not inconsistent with the provisions of these bylaws.
3.15 Interested Directors. No contract or other transaction
between the Corporation and one or more of its directors, or between the
Corporation and any other corporation, firm or association in which one or more
of its directors has a financial interest, is void or voidable because such
director or directors or such other corporation, firm or association are parties
or because the director or directors are present at the
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meeting of the board or a committee thereof, which authorizes, approves or
ratifies the contract or transaction if (a) the material facts as to the
transaction and as to such director's interest are fully disclosed or known to
the shareholders, and such contract or transaction is approved or ratified by
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting of shareholders at which a quorum is present (which shares
voting affirmatively also constitute at least a majority of the required quorum)
or by the written consent of shareholders, in good faith, with the shares owned
by the interested director or directors not being entitled to vote thereon; or
(b) the material facts as to the transaction and as to such director's interest
are fully disclosed or known to the board or committee, and the board or
committee authorizes, approves or ratifies the contract or transaction in good
faith by a vote sufficient without counting the vote of the interested director
or directors, and the contract or transaction is just and reasonable as to the
Corporation at the time it is authorized, approved or ratified; or (c) as to
contracts or transactions not approved as provided in clauses (a) or (b) above,
the contract or transaction was just and reasonable as to the Corporation at the
time it was authorized, approved or ratified. A mere common directorship does
not constitute a material financial interest within the meaning of this Section
3.15. A director is not interested within the meaning of this Section 3.15 in a
resolution fixing the compensation of another director as a director, officer or
employee of the Corporation, notwithstanding that the first director also is
receiving compensation from the Corporation. Interested or common directors may
be counted in determining the presence of a quorum at a meeting of the board or
a committee thereof which authorizes, approves or ratifies a contract or
transaction.
ARTICLE 4
OFFICERS
4.1 Officers. The officers of the Corporation shall be a
president, a secretary and a chief financial officer. The Corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 4.3 of this Article 4. Any number of offices may
be held by the same person.
4.2 Election. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 4.3 or
Section 4.6 of this Article 4, shall be chosen an-
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nually by the board and serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment. Each shall hold
his office until he shall resign or shall be removed or otherwise disqualified
to serve, or his successor shall be duly elected and qualified.
4.3 Subordinate Officers. The board of directors may appoint,
and may empower the president to appoint, such other 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 are provided in the bylaws or as
the board of directors may from time to time determine.
4.4 Removal. Any officer may be removed, with or without cause
or notice, by the board of directors, at any regular or special meeting thereof,
or, except in case of an officer chosen by the board of directors, by any
officer upon whom such power of removal may be conferred by the board of
directors (subject, in each case, to the rights, if any, of an officer under any
contract of employment).
4.5 Resignation. Any officer may resign at any time by giving
written notice to the board of directors or to the president, or to the
secretary of the Corporation, without prejudice to the rights, if any, of the
Corporation under any contract to which such officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
4.6 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the bylaws for regular appointments to such office.
4.7 Chairman of the Board. The board of directors may elect a
chairman who shall preside, if present, at all meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition be
the general manager and the chief executive officer of the Corporation, and
shall have the powers and duties as set forth in Section 4.8 of this Article.
4.8 President. Subject to such supervisory powers, if any, as
may be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the
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general manager and the chief executive officer of the Corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and officers of the Corporation. He shall
preside at all meetings of the shareholders and, in the absence of the chairman
of the board, or if there is none, at all meetings of the board of directors. He
shall be ex officio a member of all the standing committees, including the
executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws.
4.9 Vice Presidents. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, the vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws.
4.10 Secretary. The secretary shall record or cause to be
recorded, and shall keep or cause to be kept, at the principal executive office
and such other place as the board of directors may order, a book of minutes of
actions taken at all meetings of directors and shareholders, with the time and
place of holding, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof. The secretary shall keep, or cause to be
kept, at the principal executive office or at the office of the Corporation's
transfer agent, a share register or a duplicate share register, showing the
names of the shareholders and their addresses, the number and classes of shares
held by each, the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation. The secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the board of directors required by the
bylaws or by law to be given, and he shall keep the seal of the Corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or the bylaws.
4.11 Chief Financial Officer. The chief financial officer (who
also may be called the treasurer) shall keep and maintain, or cause to be kept
and maintained, adequate and correct accounts of
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the properties and business transactions of the Corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
surplus and shares. The books of account shall at all reasonable times be open
to inspection by any director. The chief financial officer shall deposit all
moneys and other valuables in the name and to the credit of the Corporation with
such depositories 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 chief financial officer 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 the
bylaws.
ARTICLE 5
INDEMNIFICATION
5.1 Definitions. For purposes of this Article 5, "agent" means
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another domestic or foreign corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a domestic or foreign corporation which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any other expenses of establishing a right to
indemnification under Section 5.4 or 5.5.
5.2 Actions Generally -- Standard of Conduct. The Corporation
shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any proceeding (other than an action by or in the right of
the Corporation to procure a judgment in its favor) by reason of the fact that
such person is or was an agent of the Corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
Corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
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
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in a manner which the person reasonably believed to be in the best interests of
the Corporation, or that the person had reasonable cause to believe that the
person's conduct was unlawful.
5.3 Actions by or in the Right of the Corporation -- Standard of
Conduct. The Corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that such person is or was an agent of the
Corporation, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action, if such person acted
in good faith and in a manner such person believed to be in the best interests
of the Corporation and its shareholders.
No indemnification shall be made under this Section 5.3 for
any of the following:
5.3.1 In respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Corporation in the
performance of such person's duty to the Corporation and its shareholders,
unless and only to the extent that the court in which such proceeding is or was
pending shall determine upon application that, in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
expenses, and then only to the extent that the court shall determine.
5.3.2 Of amounts paid in settling or otherwise disposing of
a pending action without court approval.
5.3.3 Of expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval.
5.4 Successful Defense on the Merits -- Indemnification for
Expenses. To the extent that an agent of the Corporation has been successful on
the merits in defense of any proceeding referred to in Sections 5.2 or 5.3 or in
defense of any claim, issue or matter therein, the agent shall be indemnified
against expenses actually and reasonably incurred by the agent in connection
therewith.
5.5 Determining Satisfaction of Standard of Conduct. Except as
provided in Section 5.4, any indemnification under this Article 5 shall be made
by the Corporation only if authorized in the specific case, upon a determination
that indemnification of
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<PAGE> 23
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 5.2 or 5.3, by any of the
following:
5.5.1 A majority vote of a quorum consisting of directors
who are not parties to such proceeding.
5.5.2 If such a quorum of directors is not obtainable, by
independent counsel in a written opinion.
5.5.3 Approval of the shareholders, with the shares owned
by the person to be indemnified not being entitled to vote thereon.
5.5.4 The court in which such proceeding is or was pending
upon application made by the Corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
Corporation.
5.6 Advancement of Expenses. Expenses incurred in defending any
proceeding may be advanced by the Corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of the agent to
repay such amount, if it shall be determined ultimately that the agent is not
entitled to be indemnified as authorized in this Article 5.
5.7 Nonexclusive Right to Indemnification. The indemnification
provided by this Article 5 shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise, both as to action
in an official capacity and as to action in another capacity, while holding such
office, to the extent such additional rights to indemnification are authorized
in the articles of incorporation of the Corporation. The rights to indemnity
hereunder shall continue as to a person who has ceased to be a director,
officer, employee or agent, and shall inure to the benefit of the heirs,
executors and administrators of the person. Nothing contained in this Article 5
shall affect any right to indemnification to which persons other than such
directors and officers may be entitled by contract or otherwise.
5.8 Conflict With Articles, Bylaws or Condition of Settlement.
No indemnification or advance shall be made under this Article 5, except as
provided in Section 5.4 or 5.5, in any circumstance where it appears:
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<PAGE> 24
5.8.1 That it would be inconsistent with a provision of the
articles of incorporation, bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or other amounts
were paid, which prohibits or otherwise limits indemnification.
5.8.2 That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
5.9 Power to Maintain Insurance. The Corporation shall have
power to purchase and maintain insurance on behalf of any agent of the
Corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such, whether or not the
Corporation would have the power to indemnify the agent against such liability
under the provisions of this Article 5. The fact that the Corporation owns all
or a portion of the shares of the company issuing a policy of insurance shall
not render this Section 5.9 inapplicable if either of the following conditions
are satisfied: (a) if authorized in the articles of the Corporation, any policy
issued is limited to the extent provided by Section 7-109-109 of the Colorado
Business Corporation Act; or (b)(i) the company issuing the insurance policy is
organized, licensed and operated in a manner that complies with the insurance
laws and regulations applicable to its jurisdiction of organization, (ii) the
company issuing the policy provides procedures for processing claims that do not
permit that company to be subject to the direct control of the Corporation, and
(iii) the policy issued provides for some manner of risk sharing between the
issuer and purchaser of the policy, on one hand, and some unaffiliated person or
persons, on the other, such as by providing for more than one unaffiliated owner
of the company issuing the policy or by providing that a portion of the coverage
furnished will be obtained from some unaffiliated insurer or reinsurer.
5.10 Fiduciary of Employee Benefit Plan. This Article 5 does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in such person's capacity as such, even
though such person may also be an agent of the Corporation. The Corporation
shall have power to indemnify such a trustee, investment manager or other
fiduciary to the extent permitted by Section 7-109-107 of the Colorado Business
Corporation .
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ARTICLE 6
RECORDS AND REPORTS
6.1 Maintenance of Books and Records of Account, Minutes of
Meetings and Shareholder Record. The Corporation shall keep adequate and correct
books and records of account and shall keep minutes of the proceedings of its
shareholders, board and committees of the board, and shall keep at its principal
executive office, or at the office of its transfer agent or registrar, a record
of the names and addresses of all shareholders and the number and class of
shares held by each shareholder. Such minutes shall be kept in written form.
Such other books and records shall be kept either in written form or in any
other form capable of being converted into written form.
6.2 Inspection of Shareholders.
6.2.1 A shareholder or shareholders holding at least 5
percent in the aggregate of the outstanding voting shares of the Corporation
shall have the absolute right to do either or both of the following: (i) inspect
and copy the record of shareholders' names and addresses and shareholdings
during usual business hours, on five days' prior written demand upon the
Corporation, or (ii) obtain from the transfer agent for the Corporation, upon
written demand and upon the tender of the transfer agent's usual charges for
this service, a list of the names and addresses of shareholders who are entitled
to vote for the election of directors and their shareholdings, as of the most
recent record date for which a list has been compiled or as of a specified date
later than the date of demand. This list shall be made available within five
business days after the date the demand is received, or the specified later date
as of which the list is to be compiled. The record of shareholders shall also be
open to inspection and copying by any shareholder or holder of a voting trust
certificate, at any time during usual business hours, upon written demand on the
Corporation, for a purpose reasonably related to the holder's interests as a
shareholder or holder of a voting trust certificate. Any inspection and copying
under this Section may be made in person or by an agent or attorney of the
shareholder or holder of a voting trust certificate making the demand.
6.2.2 The accounting books and records, and minutes of
proceedings of the shareholders, the board of directors and committees of the
board shall be kept at the principal executive office of the Corporation, or at
such other place or places as designated by the board of directors. The minutes
shall be kept in written form, and the accounting books and records shall be
kept either in written form or in a form capable of being con-
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<PAGE> 26
verted into written form. The minutes and accounting shall be open to inspection
upon the written demand of any shareholder or as the holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection by a shareholder or holder of a
voting trust certificate may be made in person or by agent or attorney, and the
right of inspection includes the right to copy and make extracts. These rights
of inspection shall extend to the records of each subsidiary of the Corporation.
6.3 Maintenance and Inspection of Bylaws. The Corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of Colorado, at its registered office in Colorado, the original
or a copy of these bylaws as amended to date, which shall be open to inspection
by the shareholders at all reasonable times during office hours. If the
principal executive office of the Corporation is outside the State of Colorado
and the Corporation has no principal business office in this state, the
secretary shall, upon the written request of any shareholder, furnish to such
shareholder a copy of the bylaws as amended to date.
6.4 Inspection by Directors. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and to inspect the physical properties of the
Corporation and each of its subsidiary corporations, domestic or foreign. This
inspection by a director may be made in person or by agent or attorney, and the
right of inspection includes the right to copy and make extracts.
6.5 Annual and Other Reports. Because there are fewer than 100
shareholders of record of the Corporation, the requirement of an annual report
to shareholders is hereby expressly waived, but nothing herein shall be
interpreted as prohibiting the board of directors from issuing annual or other
periodic reports to the shareholders of the Corporation as it considers
necessary or appropriate in its sole discretion.
6.6 Financial Statements. If no annual report for the last
fiscal year has been sent to shareholders, the Corporation shall, upon written
request of any shareholder made more than 120 days
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<PAGE> 27
after the close of that fiscal year, deliver or mail to the person making the
request, within 30 days after receipt of the request, a balance sheet as of the
end of that fiscal year and an income statement and statement of changes in
financial position for that fiscal year. A shareholder or shareholders holding
at least 5 percent of the outstanding shares of any class of the Corporation may
make a written request to the Corporation for an income statement of the
Corporation for the three-month, six-month or nine-month period of the current
fiscal year ending more than 30 days prior to the date of the request and a
balance sheet of the Corporation as of the end of the period and, in addition,
if no annual report for the last fiscal year has been sent to shareholders, a
balance sheet as of the end of that fiscal year and an income statement and
statement of changes in financial position for that fiscal year. The statements
shall be delivered or mailed to the person making the request within 30 days
after receipt of the request. A copy of the statements shall be kept on file in
the principal office of the Corporation for twelve months and shall be exhibited
at all reasonable times to any shareholder demanding an examination of the
statements, or a copy shall be mailed to the shareholder. The quarterly income
statements and balance sheets referred to in this Section 6.6 shall be
accompanied by the report thereon, if any, of any independent accountants
engaged by the Corporation or the certificate of an authorized officer of the
Corporation that the financial statements were prepared without audit from the
books and records from the Corporation.
6.7 Corporate Report To Secretary Of State. The Corporation
shall file with the Secretary of State a corporate report that sets forth (a)
the corporate name of the Corporation; (b) the state or country under whose law
it is incorporated; (c) the street address of its registered office and the name
of its registered agent at that office; (d) the street address of its principal
office; and (e) the names and addresses of its directors and principal officers.
The Corporate Reports shall be made on a form delivered by the Secretary of
State, who shall deliver a copy thereof to the Corporation in the second
calendar year succeeding the calendar year in which the Corporation is
incorporated and thereafter every two years. The Corporate Report shall be filed
with the Secretary of State for filing no later than the end of the second
calendar month following the calendar month in which the copy of the Corporate
Report is delivered by the Secretary of State.
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ARTICLE 7
MISCELLANEOUS
7.1 Record Date.
7.1.1 For Shareholder Notice, Voting and Giving Consents.
For purposes of determining shareholders entitled to notice of any meeting or to
vote, or entitled to give consent to corporate action without a meeting, the
board of directors may fix, in advance, a record date, which shall not be more
than 60 days nor fewer than 10 days prior to the date of any such meeting, nor
more than 60 days before any such action without a meeting. Only shareholders of
record at the close of business on the record date are entitled to notice and to
vote, or to give consents, as the case may be, notwithstanding any transfer of
any shares on the books of the Corporation after the record date, except as
otherwise provided in the articles of incorporation or in the Colorado Business
Corporation Act. The determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the board fixes a new record date for the adjourned meeting;
provided that the board shall fix a new record date if the meeting is adjourned
for more than 45 days from the date set forth the original meeting. If the board
of directors does not so fix a record date:
a. The record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
b. The record date for determining shareholders
entitled to give consent to corporate action in writing without a meeting, when
no prior action by the board has been taken, shall be the day on which the first
written consent is given or, when prior action of the board has been taken,
shall be at the close of business on the day on which the board adopts the
resolution relating to that action, or the 60th day before the date of such
other action, whichever is later.
7.1.2 For Purposes Other than Notice, Voting and Giving
Consents. For purposes of determining the shareholders entitled to receive any
report, to receive payment of any dividend or other distribution or allotment of
any rights, or entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent taken without a
meeting), the board of directors may fix, in advance, a record
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<PAGE> 29
date, which shall not be more than 60 days prior to any such action. Only
shareholders of record at the close of business on the record date are entitled
to receive the report, dividend, distribution, or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date so fixed, except as
otherwise provided in the articles of incorporation or in the Colorado Business
Corporation Act. If the board of directors does not so fix a record date, the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the 60th day before the date of that action, whichever is later.
7.2 Checks, Drafts, and Other Instruments. All checks, drafts or
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the Corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
7.3 Executing Corporate Contracts and Instruments. Subject to
the provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, agreement, share certificate, conveyance, or other instrument in
writing, and any assignment or endorsements thereof, executed or entered into
between the Corporation and any other person, when signed by the chairman of the
board, the president or any vice president, and the secretary, any assistant
secretary, the chief financial officer or any assistant treasurer of the
Corporation, shall be valid and binding on the Corporation in the absence of
actual knowledge on the part of the other person that the signing officers had
no authority to execute the same. Any such instruments may be signed by any
other person or persons and in such manner as from time to time shall be
determined by the board and, unless so authorized by the board, no other
officer, agent, or employee shall have any power or authority to bind the
Corporation by any contract or engagement, or to pledge its credit or to render
it liable for any purpose or amount.
7.4 Certificate for Shares. Every holder of shares in the
Corporation shall be entitled to have a certificate signed in the name of the
Corporation by the chairman or vice chairman of the board or the president or a
vice president, and by the chief financial officer or an assistant treasurer or
the secretary or any assistant secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose fac-
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simile 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 an
officer, transfer agent or registrar at the date of issue.
Any such certificate shall also contain such legend or other
statement as may be required by the Colorado Business Corporation Act, the
Corporate Securities Law of 1968, as amended, the federal securities laws, and
any agreement between the Corporation and the issuee thereof.
Certificates for shares may be issued prior to full payment
under such restrictions and for such purposes as the board of directors or the
bylaws may provide; provided, however, that any such certificate so issued prior
to full payment shall state on the face thereof the amount remaining unpaid and
the terms of payment thereof.
No new certificates for shares shall be issued in lieu of an
old certificate unless the latter is surrendered and cancelled at the same time;
provided, however, that the board of directors may authorize the issuance of a
new share certificate or a new certificate for any other security in the place
of any certificate theretofore issued by the corporation and alleged to be lost,
stolen or destroyed in the event that (a) the request for the issuance of the
new certificate is made within a reasonable time after the holder of the old
certificate has notice of its loss, destruction or theft and prior to the
receipt of notice by the Corporation that the older certificate has been
acquired by a bona fide purchaser or holder in due course; and (b) the owner of
the old certificate (or the owner's legal representative) gives to the
Corporation an indemnity bond (or other adequate security) sufficient to
indemnify the Corporation against any claim that may be made against it
(including any expense or liability) on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate, and
satisfies any other reasonable requirements imposed by the board. In the event
of the issuance of a new certificate, the rights and liabilities of the
Corporation and the holders of the old and new certificates shall be governed by
the provisions of the Uniform Commercial Code.
7.5 Representation of Shares of Other Corporations. The
president or any vice president, and the secretary or any assistant secretary of
the Corporation are authorized to vote, represent and exercise on behalf of the
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the Corporation. The authority herein
granted to said officers to vote or represent on behalf of the
26
<PAGE> 31
Corporation any and all shares held by the Corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
7.6 Registrars and Transfer Agents. The board of directors may
appoint one or more registrars of transfers, which shall be incorporated banks
or trust companies, either domestic or foreign, and one or more transfer agents
or transfer clerks, who shall be appointed at such times and places as the board
of directors shall determine, in its sole discretion.
7.7 S Corporation Election. If the Corporation has elected to be
taxed pursuant to the provisions of the Internal Revenue Code pertaining to S
corporations, then the Corporation, any shareholder and any person to whom any
of its shares are transferred shall not do any act or take any course of conduct
which shall have the effect of terminating such election without the prior vote
of at least 66-2/3 percent of the outstanding shares of the Corporation or the
written consent of the persons entitled to vote such shares.
7.8 Fiscal Year. The fiscal year of the Corporation shall be
determined by the board of directors, and having been so determined, is subject
to change from time to time as the board of directors shall determine.
7.9 Construction and Definitions. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the California General Corporation Law shall govern the
construction of these bylaws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.
ARTICLE 8
AMENDMENTS
8.1 Power of the Shareholders. Except as otherwise provided by
law or by the articles of incorporation, new bylaws may be adopted or these
bylaws may be amended or repealed by the approval of the outstanding shares
entitled to vote.
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<PAGE> 32
8.2 Power of Directors. Subject to the right of shareholders as
provided in Section 8.1 of this Article 8 to adopt, amend or repeal bylaws, new
bylaws may be adopted, or these bylaws may be amended or repealed by the
approval of the board of directors; provided, however, that the board of
directors may adopt a bylaw or amendment thereof changing the authorized number
of directors only for the purpose of fixing the exact number of directors within
the limits specified in the articles of incorporation or in Section 3.2 of
Article 3 of these bylaws.
----------------- * * * -----------------
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CERTIFICATE OF SECRETARY
I, Mary Writes, do hereby certify as follows:
1 I am the duly elected and acting Secretary of 1st Net
Technologies, Inc., Colorado corporation (the "Corporation").
2 The foregoing bylaws, consisting of twenty-eight pages, are the
true and correct Bylaws of the Corporation as adopted by the board of directors
on May 1, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name this
24th day of June, 1999.
/s/ MARY WRITER
---------------------------------
Secretary
29
<PAGE> 1
EXHIBIT 4.1
1ST NET
TECHNOLOGIES
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
AUTHORIZED: 50,000,000 COMMON SHARES $.001 PAR VALUE PER SHARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
--------------------
CUSIP 33581Q 10 0
THIS CERTIFIES THAT
IS THE OWNER OF
SPECIMEN
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK .001 PAR VALUE OF
1ST NET TECHNOLOGIES, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by
the facsimile signatures of its duly authorized officers and to be sealed with
the facsimile seal of the Corporation.
Dated:
/s/ [SIGNATURE ILLEGIBLE] CORPORATE SEAL /s/ [SIGNATURE ILLEGIBLE]
SECRETARY 1ST NET TECHNOLOGIES INC. PRESIDENT
COLORADO
COUNTERSIGNED:
CORPORATE STOCK TRANSFER, INC.
370-17TH STREET, SUITE 2350, DENVER, COLORADO 80302
By:
-------------------------------------------------
Transfer Agent and Registrar Authorized Officer
<PAGE> 1
EXHIBIT 4.2
CONFIDENTIAL CONFIDENTIAL
SERIES "A" PREFERRED STOCK AND WARRANT
SUBSCRIPTION AGREEMENT
1ST NET TECHNOLOGIES, INC.
CONVERTIBLE, PARTICIPATING, NON-VOTING, CUMULATIVE
SERIES "A" PREFERRED STOCK
AND COMMON STOCK PURCHASE WARRANTS
200,000 UNITS
$ 5.00 PER UNIT
(MINIMUM SUBSCRIPTION OF 1,000 UNITS )
1st Net Technologies, Inc.
11423 West Bernardo Court
San Diego, California 92127
Attention: President
This Subscription Agreement (this "Agreement") is made by and among 1st
Net Technologies, Inc., a Colorado corporation (the "Company"), and the
undersigned prospective purchaser who is subscribing hereby for the Company's
units (the "Units"), each consisting of two shares of Series A Preferred Stock
and one Common Stock Purchase Warrant, pursuant to that certain Confidential
Private Placement Memorandum (the "Memorandum") of the Company dated September
30, 1998 (together with all exhibits, supplements and amendments thereto
collectively, the "Memorandum"), distributed to a limited number of selected
persons in connection with the offering (the "Offering") of such Units.
In consideration of the Company's agreement to sell the Units to the
undersigned and to admit the undersigned as a shareholder of the Company (a
"Shareholder") upon the terms and conditions set forth herein and in the
Memorandum and to cause the Units to be issued to the undersigned upon the terms
and conditions summarized in the Memorandum, the undersigned agrees and
represents as follows:
5
<PAGE> 2
A. SUBSCRIPTION
1. The undersigned hereby subscribes for and agrees to purchase the
number of Units indicated on the signature page hereto at a purchase price of
$5.00 per Unit. Simultaneously with the execution of this Agreement, the
undersigned is paying the amount set forth on the signature page below (the
"Payment") in full payment for the Units subscribed for hereby, in the form of a
cashier's check personal checks, business checks, or money order payable to "1st
Net Technologies, Inc."
2. The undersigned understands that the Payment will be held by the
Company until the subscription is accepted or rejected and, if rejected, the
Payment will not earn interest from the date of receipt until the date of its
return to the prospective investor. The Payment (or, in the case of rejection of
a portion of the undersigned's subscription, the part of the Payment relating to
such rejected portion) will be returned promptly, without interest, on the basis
described in the Memorandum, if the undersigned's subscription is rejected in
whole or in part. Any interest earned on the Payment will be paid to the Company
to the extent the undersigned's subscription is accepted by the Company. The
Payment will be transferred to the Company's bank account on the date on which
the undersigned becomes a Shareholder.
3. The undersigned hereby acknowledges receipt of a copy of the
Memorandum and accepts and agrees to be bound by the Memorandum and this
Agreement upon the acceptance by the Company of the undersigned's subscription
for Units.
B. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
1. The Units are being purchased for his own account not for the
account of any other person, and not with a view to distribution, assignment or
resale to others, or to fractionalization in whole or in part. No other person
has or will have a direct or indirect beneficial interest in the Units. The
undersigned will not sell, hypothecate or otherwise transfer the shares or
warrants comprising the Units unless (a) the Units are registered under the
Securities Act of 1933, as amended (the "Act"), and any applicable state
securities law, or (b) in the opinion of counsel, with which counsel to the
Company agrees, an exemption from the registration requirements of the Act and
such state laws is available.
6
<PAGE> 3
2. The undersigned has been furnished with and has carefully read
the Memorandum, and is familiar with and understands the terms of the Offering.
In evaluating the suitability of an investment in the Company, the undersigned
has not relied upon any representations or other information (whether oral or
written) from the Company or any other person or entity whatsoever other than as
set forth in the Memorandum. With respect to tax and other economic
considerations involved in this investment, the undersigned is not relying on
the Company. The undersigned has carefully considered and has, to the extent the
undersigned believes such discussion necessary, discussed with the undersigned's
professional legal, tax, accounting and financial advisors the suitability of an
investment in the Company for the undersigned's particular tax and financial
situation and has determined that the Units being subscribed for by the
undersigned are a suitable investment for the undersigned.
3. The Company has made available to the undersigned all documents
and information that the undersigned has requested relating to an investment in
the Company.
4. The undersigned has been fully informed to its complete
satisfaction concerning the organizational aspects, business, operations,
finances and all other matters the undersigned considered significant for the
purpose of making an investment decision with respect to the Company. The
undersigned recognizes that investment in the Company involves substantial
risks, including loss of the entire amount of such investment, and has taken
into account and understands all of the risk factors related to the purchase of
the Units including, but not limited to, those set forth under the caption "Risk
Factors" in the Memorandum.
5. If this Agreement is executed and delivered on behalf of a
partnership, corporation, trust or estate or retirement plan: (i) such
partnership, corporation, trust or estate or retirement plan has been duly
authorized and is duly qualified (a) to executive and deliver this Agreement and
all other instruments executed and delivered on behalf of such partnership,
corporation, trust or estate or retirement plan or by use of a power of attorney
in connection with the purchase of the Units, (b) to delegate authority pursuant
to a power of attorney, and (c) to purchase and hold such Units; (ii) the
signature of the party signing on behalf of such partnership, corporation, trust
or estate or retirement plan has been duly authorized and is binding upon such
partnership, corporation, trust or estate or retirement plan; and (iii) such
partnership, corporation or trust has not been formed for the specific purpose
of acquiring the Units, unless each beneficial owner of such entity is an
accredited investor ("Accredited Investor") within the meaning of Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") or is a "qualified
person" ("Qualified Person") as such term is defined under California
Corporations Code Section 25102(n)(2)(E) ("25102(n)") and has submitted
information substantiating such qualification and residency in the State of
California.
7
<PAGE> 4
6. The undersigned is either an Accredited Investor or a Qualified
Person resident in the State of California who, either alone or with his
purchaser representative, has such knowledge and experience in financial or
business matters that he is sufficiently capable of evaluating the merits and
risks of this proposed investment. If a Qualified Person, (i) the investor's
subscription in the Units hereby does not exceed the investor's net worth (i.e.,
total assets in excess of total liabilities, exclusive of his or her home, home
furnishings and automobiles) either alone or together with his or her spouse and
(ii) the undersigned's net worth, together with his or her spouse, is at least
(a) $500,000 or (b) $250,000 and annual income in the preceding tax year of at
least $100,000 (and reasonably anticipated similar income in the present year.
The undersigned's net worth or annual income is such that the loss of the
undersigned's entire investment, or its unavailability, will not result in
serious harm or detriment to the undersigned.
7. The undersigned shall indemnify and hold harmless the Company
and any officer, director or control person of any such entity 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, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made by the undersigned to the Company concerning the undersigned or the
undersigned's financial position in connection with the Offering or sale of any
of the Units including, without limitation, any such misrepresentation,
misstatement or omission contained in the Questionnaire submitted by the
undersigned, against losses, liabilities and expenses for which the Company, or
any officer, director or control person of any such entity, has not otherwise
been reimbursed (including attorneys' fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by such person or entity in
connection with such action, suit or proceeding.
C. UNDERSTANDINGS
The undersigned understands, acknowledges and agrees with the Company as
follows:
1. This Subscription may be rejected, in whole or in part, by the
Company in its sole and absolute discretion, at any time, notwithstanding prior
receipt by the undersigned of notice of acceptance of the undersigned's
Subscription.
2. This Subscription is and shall be irrevocable, except that the
undersigned shall have no obligations hereunder in the event that this
Subscription is rejected in full or part for any reason.
3. No Federal or state agency has made any finding or determination
as to the accuracy or adequacy of the Memorandum or as to the fairness of the
terms of this Offering for investment, nor any recommendation or endorsement of
the Units.
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<PAGE> 5
4. The offer and sale of the Units is intended to be exempt from
registration under the Act by virtue of section 4(2) of the Act and the
provisions of Regulation D. Except as set forth in Section D below, the Company
is under no obligation to register the Units on behalf of the undersigned or to
assist the undersigned in complying with any exemption from registration.
5. There is no public or other market for the Units or the Common
Stock of the Company and no public or other market is expected to develop in the
foreseeable future. There can be no assurance that the undersigned will be able
to sell or dispose of the shares of Series A Preferred Stock or the Warrants
subscribed for hereby or the Common Stock into which such shares and warrants
may be converted. In order not to jeopardize the Offering's exempt status under
section 4(2) of the Act and Regulation D, the transferee will be required to
fulfill the investor suitability requirements thereunder.
6. All assumptions, projections, estimates and forecasts set forth
in the Memorandum have been included therein for purposes of illustration only,
and no assurance is given that actual results will correspond with the results
contemplated by the various assumptions set forth therein.
7. The undersigned acknowledges that the information contained in
the Memorandum is confidential and non-public and agrees that all such
information shall be kept in confidence by the undersigned and neither used by
the undersigned to the undersigned's personal benefit (other than in connection
with this Subscription) nor disclosed to any third party for any reason;
provided, however, that this obligation shall not apply to any such information
which (i) is part of the public knowledge or literature and readily accessible
at the date hereof; (ii) becomes part of the public knowledge or literature and
readily accessible by publication (except as a result of a breach of this
provision); or (iii) is received from third parties (except third parties who
disclose such information in violation of any confidentiality agreements
including, without limitation, any Subscription Agreement that they may have
entered into with the Company).
8. The Units are being issued in reliance upon the truth and
accuracy of the representations made herein and the information contained in the
Questionnaire.
9. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THE UNITS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE> 6
10. THE UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
11. FOR CALIFORNIA RESIDENTS ONLY, IT IS UNLAWFUL TO CONSUMMATE A
SALE OR TRANSFER OF THE UNITS, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
12. FOR FLORIDA RESIDENTS ONLY, THE UNITS HAVE NOT BEEN REGISTERED
UNDER THE FLORIDA SECURITIES ACT AND WILL BE OFFERED AND SOLD PURSUANT TO AN
EXEMPTION UNDER SECTION 517.061 OF SUCH ACT. ALL FLORIDA RESIDENTS SHALL HAVE
THE PRIVILEGE OF VOIDING THE PURCHASE OF ANY UNITS WITHIN THREE DAYS AFTER THE
FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT
OF THE ISSUER OR AN ESCROW AGENT, OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF
THAT ESCROW AGENT, OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE
IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.
D. MISCELLANEOUS
1. Capitalized terms used in this Agreement, if not otherwise
defined herein, shall have the respective meanings attributed to such terms in
the Memorandum. All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, impersonal, singular or plural as
the identity of the person or persons may require.
2. Neither this Agreement nor any provisions hereof shall be
waived, modified, changed, discharged, terminated, revoked or cancelled except
by an instrument in writing signed by the party against whom any change,
discharge or termination is sought.
3. Failure of the Company to exercise any right or remedy under
this Agreement or any other agreement between the company and the undersigned,
or delay by the Company in exercising such right or remedy, will not operate as
a waiver thereof. No waiver by the Company will be effective unless and until it
is in writing and signed by an authorized officer of the Company.
4. This Agreement shall be enforced, governed and construed in all
respects in accordance
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<PAGE> 7
with the laws of the State of California, as such laws are applied by California
courts to agreements entered into and to be performed in California by and
between residents of California, and shall be binding upon the undersigned, the
undersigned's heirs, estate, legal representatives, successors and assigns and
shall inure to the benefit of the Company, its successors and assigns. If any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
E. EXECUTION OF AGREEMENT BY POWER OF ATTORNEY
THE UNDERSIGNED ACKNOWLEDGES THAT THE UNDERSIGNED HAS SIGNED THIS
AGREEMENT ON THE UNDERSIGNED'S OWN BEHALF, AND NOT BY POWER OF ATTORNEY, UNLESS
SUCH POWER OF ATTORNEY EXPRESSLY PROVIDES FOR THE FURTHER DELEGATION OF SUCH
POWER OF ATTORNEY BY THE HOLDER THEREOF, AND IN SUCH EVENT, THE UNDERSIGNED
REPRESENTS THAT ATTACHED HERETO IS A TRUE AND COMPLETE COPY OF SUCH POWER OF
ATTORNEY.
F. SIGNATURE
The signature page to this Agreement is contained as part of the
applicable Subscription Package, entitled "Prospective Investor Signature Page."
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<PAGE> 1
EXHIBIT 4.3
WARRANT AGREEMENT
BY AND AMONG
1ST NET TECHNOLOGIES, INC.
AND
TUMMY BUSTERS, INC.,
d.b.a.
CHILDREN'S TECHNOLOGY GROUP
Dated as of April 19, 1999
<PAGE> 2
TUMMY BUSTERS, INC.
WARRANT AGREEMENT
WARRANT TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER APRIL 19, 2002
This certifies that 1st Net Technologies, Inc. ("1st Net"), or any
party to whom this Warrant is assigned (1st Net and such assignee hereinafter
collectively "Holder"), is entitled to subscribe for and purchase 4,000,000
shares (as constituted on the date of issuance hereof) of the fully paid and
nonassessable Common Stock, no par value (the "Common Stock"), of Tummy Busters,
Inc., a Nevada corporation doing business as "Children's Technology Group" (the
"Corporation"), subject to the provisions and upon the terms and conditions
hereinafter set forth. The purchase price of each such share shall be $0.10 per
share, as adjusted herein (the "Warrant Price"). The number and character of
such shares of Common Stock are subject to downward adjustment as provided
below, and the term "Common Stock" shall mean, unless the context otherwise
requires, the stock and other securities and property at the time receivable
upon the exercise of this Warrant. The term "Warrant" as used herein shall
include this Warrant and any warrant(s) delivered in substitution or exchange
therefor as provided herein.
1. CONSIDERATION; APPOINTMENT OF NEW MANAGEMENT. As consideration for
the issuance of this Warrant, the parties shall have entered into that certain
Technology License Agreement of even date herewith a true and correct copy of
which is attached hereto as Exhibit "A" (by which 1st Net grants the Corporation
an exclusive license and marketing rights to the "Crayon Crawler" web browser
and community software program), and the Corporation shall have paid 1st Net
pursuant thereto cash consideration in the amount of $400,000. As further
consideration, concurrently with the execution and delivery hereof the
Corporation (i) shall have entered into that certain additional Technology
License Agreement with 1st Net a true and correct copy of which is attached
hereto as Exhibit "B" (by which the Corporation grants an exclusive license to
1st Net for r-site.com) and (ii) shall hereby remove the existing officers and
directors of the Corporation and appoint (a) Messrs. Gregory D. Writer, Jr.,
Lawrence K. Kimball and James H. Watson, Jr., and Ms. Martha Kreutz, as members
of the Board of Directors, and (b) Mr. Gregory D. Writer as Chairman, Chief
Executive Officer, and President, Mr. Jeffrey Chatfield as Vice President,
Investor Relations, Mr. Lawrence K. Kimball as Chief Financial Officer and
Treasurer, and Ms. Sharon Ramia as Secretary, of the Corporation.
2. METHOD OF EXERCISE; PAYMENT. The purchase right represented by this
Warrant may be exercised by Holder, in whole or in part, by the surrender of
this
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<PAGE> 3
Warrant (with the subscription form attached hereto duly executed) at the
original office of the Corporation located at 11423 West Bernardo Court, San
Diego, California 92127 and by the payment to the Corporation, by certified or
cashier's check, of an amount equal to the aggregate Warrant Price of the shares
of Common Stock being purchased. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within thirty (30) days of the surrender
of this Warrant (with the subscription form attached hereto duly executed) and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the aggregate purchase price of shares with respect to which this
Warrant shall not then have been exercised shall also be issued to Holder within
such time. A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock issuable
upon such exercise shall be treated for all purposes as the holder of such
shares of record as of the close of business on such date.
3. STOCK FULLY PAID; RESERVATION OF SHARES. The Corporation covenants
and agrees that all securities which may be issued by the Corporation upon the
exercise of the rights represented by this Warrant in accordance with its terms
will, upon issuance, be fully paid and nonassessable and free from all taxes,
liens and charges of the Corporation with respect to the issue thereof. The
Corporation further covenants and agrees that, during the period within which
the rights represented by this Warrant may be exercised, the Corporation will at
all times have authorized and reserved for issuance a sufficient number of
shares of its Common Stock or other securities as would be required in the event
of the full exercise of the rights represented by this Warrant. The Corporation
will not, by amendment of its Articles of Incorporation or through
reorganization, consolidation, merger, dissolution, issue or sale of securities,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against dilution or other impairment.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The applicable
Warrant price from time to time in effect and the number of shares of Common
Stock receivable upon exercise of this Warrant shall be subject to downward
adjustment from time to time after the date hereof as follows:
4.1 ADJUSTMENT TO WARRANT PRICE FOR CERTAIN DILUTING ISSUES.
4.1.1. SPECIAL DEFINITIONS. For purposes of this Article 4, the
following definitions shall apply:
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<PAGE> 4
(1) `ADDITIONAL SHARES OF COMMON STOCK' shall mean all
shares of Common Stock issued (or, pursuant to
Section 4.1.3, deemed to be issued) by the
Corporation after the Original Issue Date, other than
shares of Common Stock issued or issuable:
(A) to officers, directors or bona fide employees of,
or consultants to, the Corporation pursuant to
stock option or stock purchase plans or
agreements on terms approved by the Board of
Directors;
(B) upon exercise of this Warrant; or
(C) for which adjustment of the Warrant Price is made
pursuant to Section 4.2.
(2) `BUSINESS DAY' means any day other than a Saturday,
Sunday, or a day on which banking institutions in the
State of New York are authorized or obligated to be
closed by law or by executive order.
(3) `COMMON STOCK MARKET PRICE' of one share of Common
Stock at any date shall be deemed to be, if the
shares of the Corporation are publicly-traded, the
average of the daily closing prices for the five (5)
consecutive Business Days ending two (2) Business
Days before the day in question (as adjusted for any
stock dividend, split, combination or
reclassification). The closing price for each day
shall be the last reported sales price or, in case no
such reported sales take place on such day, the last
reported bid price, in either case on the principal
national securities exchange on which the Common
Stock is listed or admitted to trading or the last
reported sales price on the National Market System
("NMS") of the National Association of Securities
Dealers Automatic Quotation System ("NASDAQ"), or if
the Common Stock is not included in the NMS, the
average of the reported last closing bid and asked
prices on NASDAQ, or if not listed or admitted to
trading on any national securities exchange or
NASDAQ, the average reported bid price as furnished
by The National Quotation Bureau, Incorporated (or
the equivalent recognized source of quotations), all
as adjusted. If the Shares of the Corporation are not
publicly-traded, the Common Stock Market Price shall
be deemed $0.10 per share. The sale of Common Stock
in a bona fide underwritten public offering shall be
deemed a sale of Common Stock at the Common Stock
Market price, notwithstanding the immediately
preceding sentence.
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<PAGE> 5
(4) `CONVERTIBLE SECURITIES' shall mean any evidences of
indebtedness, shares (other than Common Stock or this
Warrant) or other securities convertible into or
exchangeable for Common Stock.
(5) `OPTIONS' shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(6) `ORIGINAL ISSUE DATE' shall mean April 19, 1999, the
date on which this Warrant was first issued.
4.1.2 NO DOWNWARD ADJUSTMENT OF WARRANT PRICE. No decrease in
the Warrant Price shall be made in respect of the
issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is
less than the lower of the Warrant Price or the Common
Stock Market Price in effect on the date of, and
immediately prior to, such issue. No increase in the
Warrant Price shall be made in respect of the issuance of
Additional Shares of Common Stock.
4.1.3. DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Corporation at any time or from time to time
after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then
entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard
to any provisions contained therein designed to protect
against dilution) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed
to be Additional Shares of Common Stock issued as of the
time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section
4.1.5 hereof) of such Additional Shares of Common Stock
would be less than the lower of the Warrant Price or the
Common Stock Market Price in effect on the date of and
immediately prior to such issue, or such record date, as
the case may be, and provided further that in any case in
which Additional Shares of Common Stock are deemed to be
issued:
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<PAGE> 6
(1) no further adjustments in the Warrant Price shall be
made upon the subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible
Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the
Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Warrant Price computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase
or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under
such Convertible Securities (provided, however, that no
such adjustment of the Warrant Price shall affect Common
Stock previously issued upon exercise of the Warrant);
and
(3) no readjustment pursuant to clause (2) above shall
have the effect of increasing the Warrant Price.
4.1.4 DOWNWARD ADJUSTMENT OF WARRANT PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the
Corporation, at any time after the Original Issue Date
shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued
pursuant to Section 4.1.3) without consideration or for a
consideration per share less than the lower of the
Warrant Price or the Common Stock Market price in effect
on the date of and immediately prior to such issue, then
and in such event, the Warrant Price shall be reduced,
concurrently with such issue, to a price (calculated to
the nearest cent) equal to the quotient obtained by
dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock
outstanding immediately prior to such issuance,
multiplied by the lower of the Warrant Price or the
Common Stock Market price in effect on the date of
and immediately prior to such issue, plus
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<PAGE> 7
(y) the consideration received by the Corporation
upon such issuance;
by
(B) the total number of shares of Common Stock
outstanding immediately after the issuance of such Common
Stock, and
(C) in the event the Common Stock Market Price in effect
on the date of and immediately prior to such issue is
lower than the Warrant Price in effect on the date of and
immediately prior to such issue, then by multiplying the
resulting quotient by a fraction, the numerator of which
shall be the Warrant Price in effect on the date of and
immediately prior to such issue and the denominator of
which shall be the Common Stock Market Price in effect on
the date of and immediately prior to such issue.
The Warrant Price adjusted as provided above may be similarly
readjusted upward (but not above the initial Warrant Price to reflect
the issuance of shares of Common Stock for a consideration per share
greater than the lower of the Warrant Price or the Common Stock Market
Price in effect on the date of and immediately prior to such issue.
In the event of any adjustment of the Warrant Price as provided
in this Section 4.1.4, then and in each such case Holder, upon the
exercise hereof, shall be entitled to receive, in lieu of the shares of
Common Stock theretofore receivable upon the exercise of this Warrant,
a number of shares of Common Stock determined by (a) dividing the
Warrant Price prior to the adjustment by the adjusted Warrant Price,
and (b) multiplying the resultant quotient by the total number of
shares of Common Stock called for by the face of this Warrant.
4.1.5 DETERMINATION OF CONSIDERATION. For purposes of this
Section 4.1, the consideration received by the
Corporation for the issue of any Additional Shares of
Common Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the
Corporation excluding amounts paid or payable for
accrued interest or accrued dividends;
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<PAGE> 8
(B) insofar as it consists of property other than
cash, be computed at the fair market value thereof at
the time of such issue, as determined in good faith
by the Board; and
(C) in the event Additional Shares of Common Stock
are issued together with other shares or securities
or other assets of the Corporation for consideration
which covers both, be the proportion of such
consideration so received, computed as provided in
clauses (A) and (B) above, as determined in good
faith by the Board.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional
Shares of Common Stock deemed to have been issued
pursuant to Section 4.1.3, relating to Options and
Convertible Securities, shall be determined by
dividing:
4.2 ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon exercise of this Warrant shall be changed into the
same or a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in Section 4.2), the Warrant
Price then in effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that this
Warrant shall be exercisable into, in lieu of the number of shares of Common
Stock which the holders would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon exercise of this Warrant immediately before that change.
4.4 CERTIFICATES AS TO ADJUSTMENT. Upon the occurrence of each
adjustment or readjustment of the Warrant Price pursuant to this Article 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause independent public
accountants selected by the Corporation to verify such computation and prepare
and furnish to Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of Holder, furnish or cause to be furnished to such Holder, a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Warrant Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the exercise of the Warrant.
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<PAGE> 9
4.5 NOTICES OF RECORD DATE. In the event that the Corporation shall
propose at any time: (i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus; (ii)
to offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; (iv) to merge or consolidate
with or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; or (v) to
enter into any transaction or series of transactions within any three month
period pursuant to an agreement to which the Corporation is a party in which
greater than fifty percent (50%) of the Corporation's voting securities (on
as-converted-to-Common Stock basis) shall be transferred;
Then, in connection with each such event, the Corporation shall send to the
Holder: (1) at least twenty (20) days' prior written notice of the date on which
a record shall be taken for such dividend, distribution or subscription rights
(and specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (iii), (iv) and (v) above; and (2) in the case of the matters
referred to in (iii), (iv) and (v) above, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon the occurrence of
such event).
5. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder, but in lieu of a
fractional share upon complete exercise hereof, Holder may purchase a whole
share at the then effective Warrant Price.
6. DISSOLUTION OR LIQUIDATION. In case the Corporation shall, at any
time prior to the expiration of this Warrant and prior to the exercise hereof,
dissolve, liquidate or wind up its affairs, Holder shall be entitled, upon the
exercise hereof, to receive in lieu of the shares of the Corporation's Common
Stock which it would have been entitled to receive, the same kind and amount of
assets as would have been issued, distributed or paid to it upon any such
dissolution, liquidation or winding up with respect to such shares of the
Corporation's Common Stock, had it been the holder of record of such shares of
Common Stock or other securities receivable upon the exercise of this Warrant on
the record date for the determination of those entitled to receive any such
liquidating distribution or, if no record is taken, upon the date of such
liquidating distribution. If any such distribution. If any such dissolution,
liquidation or winding up results in a cash distribution or distribution of
property which the Corporation's Board of Directors determines in good faith to
have a cash value in excess of the Warrant Price provided by this Warrant, as it
may be adjusted, then
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<PAGE> 10
Holder may, at its option, exercise this Warrant without making payment of the
aggregate Warrant Price and, in such case, the Corporation upon the distribution
to Holder shall, in making settlement to Holder, deduct from the amount payable
to Holder an amount equal to such aggregate Warrant Price.
7. TERM. This Warrant may be exercised in whole or in part at any
time and from time to time on or after April 19, 1999 and shall terminate on
April 19, 2002.
8. NO SHAREHOLDER RIGHTS. No Holder hereof, solely by virtue hereof,
shall be entitled to any rights of a shareholder of the Corporation.
9. TRANSFER AND EXCHANGE.
9.1 TRANSFER. This Warrant is transferable on the books of the
Corporation at its principal office by the registered holder hereof upon
surrender of this Warrant properly endorsed. Upon such surrender, the
Corporation shall issue and deliver to the transferee a new Warrant or Warrants
representing the Warrants so transferred. Upon any partial transfer, the
Corporation shall issue and deliver to Holder a new Warrant or Warrants with
respect to the Warrants not so transferred.
9.1 EXCHANGE. This Warrant is exchangeable at the principal office of
the Corporation for Warrants to purchase the same aggregate number of shares of
Common Stock purchasable hereunder, each new Warrant to represent the right to
purchase such number of shares as Holder shall designate at the time of such
exchange.
9.2 SECURITIES ACTION OF 1933. The Holder, by acceptance hereof,
agrees that this Warrant and the shares of the Common Stock issued or issuable
upon exercise of this Warrant may not be offered or sold except in compliance
with the Securities Action of 1933, as amended (the "1933 Act"), and then only
against receipt of an agreement of such person to whom such offer of sale is
made to comply with the provisions of this Article 9 with respect to any resale
or other disposition of such securities. The Holder consents to the
Corporation's making a notation on its records in order to implement such
restrictions on transferability.
10. LOSS OR MUTILATION. Upon receipt by the Corporation of evidence
satisfactory to it (in the exercise of reasonable discretion) of the ownership
of and the loss, theft, destruction or mutilation of this Warrant and (in the
case of loss, theft, or destruction) of indemnity satisfactory to it (in the
exercise of reasonable discretion), and (in the case of mutilation) upon
surrender and cancellation thereof, the Corporation will execute and deliver in
lieu hereof a new Warrant.
11. GOVERNMENTAL APPROVALS. The Corporation will from time to time
use its best efforts to take all action which may be necessary to obtain and
keep
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<PAGE> 11
effective any and all permits, consents and approvals of governmental
agencies and authorities and securities act filings under federal and state
laws, which may be or become requisite in connection with the issuance, sale and
delivery of this Warrant, and the issuance, sale and delivery of the Common
Stock or other securities issued or deliverable upon exercise of this Warrant.
12. SUCCESSORS. All the covenants and provisions of this Warrant
shall bind and inure to the benefit of Holder and the Corporation and their
respective successors and assigns.
13. NOTICES. All notices and other communications given pursuant to
this Warrant shall be in writing and shall be deemed to have been given when
personally delivered or when mailed by prepaid registered, certified or express
mail, return receipt requested. Notices should be addressed as follows:
(a) If to Holder, then to:
With a copy (which shall not constitute notice) to:
(b) If to the Corporation, then to:
With a copy (which shall not constitute notice) to:
Such addresses for notices may be changed by any party by notice to the other
party pursuant to this Article 13.
14. AMENDMENT. This Warrant may be amended only by instrument in
writing signed by the Corporation and Holder.
15. CONSTRUCTION OF WARRANT. This Warrant shall be construed as a
whole and in accordance with its fair meaning. A reference in this Warrant to
any section shall be deemed to include a reference to every section the number
of which begins with the number of the section to which reference is made. This
Warrant has been negotiated by the parties hereto and the language hereof shall
not be construed for or against any party.
16. LAW GOVERNING. This Warrant is executed, delivered and to be
performed in the State of California and shall be construed and enforced in
accordance with and governed by the laws of such State without regard to the
conflicts of law provisions of such State.
11
<PAGE> 12
Dated as of April 19, 1999
1ST NET TECHNOLOGIES, INC., TUMMY BUSTER, INC.,
a Colorado corporation a Nevada corporation
/s/ GREGORY D. WRITER, JR. /s/ LAWRENCE K. KIMBALL
- ------------------------------ --------------------------
Gregory D. Writer, Jr., Lawrence K. Kimball
Chief Executive Officer Chief Financial Officer
12
<PAGE> 13
SUBSCRIPTION FORM
(TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant and purchased ________ of the number of shares of Common Stock of
_________________, purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
Dated: _________________, 199___
----------------------------------
(Signature of Registered Owner)
----------------------------------
(Street Address)
----------------------------------
(City) (State) (Zip)
13
<PAGE> 14
ISSUE OF A NEW WARRANTY
(TO BE EXECUTED ONLY UPON PARTIAL EXERCISE,
EXCHANGE OR PARTIAL TRANSFER OF WARRANT)
Please issue ______ (number) Warrants, each representing the right to purchase
_____ shares of Common Stock of ___________, to the registered holder hereof.
Dated: ____________, 199___
--------------------------------
(Signature of Registered Owner)
14
<PAGE> 15
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the Warrant, with respect to the number of
shares of Common Stock set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
----------------------------------------------------------------------
and does hereby irrevocably constitute and appoint ________________ as
Attorney-in-fact to make such transfer on the books of _______________________,
maintained for the purpose, with full power of substitution in the premises.
Dated: ________________, 199___
_____________________________________
(Signature)
15
<PAGE> 1
EXHIBIT 4.4
Confidential treatment requested under 5 U.S.C. Section 552(b)(4) that provides
an exemption from public disclosure of confidential financial information.
* indicates omitted material that is the subject of a confidential treatment
request that is filed separately with the Commission.
1ST NET TECHNOLOGIES, INC.
WARRANT
NO TRANSFER, SALE, PLEDGE, HYPOTHECATION, ENCUMBRANCE OR OTHER DISPOSITION OF
THESE WARRANTS OR THE SHARES OF COMMON STOCK OF THE COMPANY ACQUIRED HEREBY
SHALL OCCUR UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (OR,
IF APPLICABLE, A SUCCESSOR LAW THERETO) UNLESS AND UNTIL THE COMPANY HAS BEEN
PRESENTED WITH SATISFACTORY EVIDENCE THAT THESE WARRANTS OR SUCH SHARES OF
COMMON STOCK WILL BE TRANSFERRED IN A TRANSACTION EXEMPT FROM SUCH REGISTRATION
AND UNTIL ANY APPLICABLE CONDITIONS CONTAINED IN THE WARRANT HAVE BEEN
FULFILLED. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE,
AGREES TO BE BOUND BY THE PROVISIONS HEREOF.
No. V-1
WARRANT TO PURCHASE UP TO 7,500 SHARES OF COMMON STOCK
EXERCISABLE COMMENCING 9:00 A.M., SAN DIEGO TIME,
ON APRIL 1, 1999, AND ENDING ON THE EARLIER TO
OCCUR OF (I) 5:00 P.M., SAN DIEGO TIME, ON MARCH 31, 2001,
OR (II) IMMEDIATELY AFTER THE EFFECTIVE DATE OF A
PUBLIC OFFERING OF THE COMMON STOCK OF
1ST NET TECHNOLOGIES, INC.; PROVIDED, HOWEVER, THAT
THIS WARRANT SHALL NOT EXPIRE BEFORE MARCH 31, 2000
1ST NET TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
[*]
This Warrant may be exercised at any time and from time to time, in
whole or in part, at the option of the Holder, commencing 9:00 a.m., San Diego
<PAGE> 2
time, on April 1, 1999, until the earlier to occur of (i) 5:00 p.m., San Diego
time, March 31, 2001, or (ii) immediately after the effective date of a public
offering of the common stock of 1st Net Technologies, Inc.; provided, however,
that this Warrant shall not expire before March 31, 2000 (the "Expiration
Date"). Upon the purchase of fewer than all of the Warrant Shares, there shall
be issued to the Holder a new Warrant exercisable for the number of Warrant
Shares for which this Warrant has not been exercised or surrendered as payment.
Prior to the Expiration Date, the Holder shall be entitled to exchange this
Warrant, without charge, for another Warrant or Warrants exercisable for the
same aggregate number of Warrant Shares.
Prior to the Expiration Date, subject to any applicable laws restricting
transferability and to any restriction on transferability that may appear on
this Warrant, the Holder shall be entitled to transfer this Warrant upon
delivery thereof, duly endorsed by the Holder or its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer, a new Warrant or Warrants exercisable for the same
aggregate number of Warrant Shares will be issued by the Company, without
charge, in accordance with instructions in the form of assignment.
This Warrant is issued under and in accordance with that certain Web
Site Development, Service and Revenue Sharing Agreement by and between the
parties dated as of April 1, 1999 and, except as otherwise provided in this
Warrant, is subject to the terms and provisions contained therein. No fractional
shares will be issued upon the exercise of a Warrant. Instead, the Company shall
pay the value of such fractional share to the Holder in cash.
THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS AND NOT THE LAW PERTAINING TO CHOICE OR CONFLICT OF LAWS, OF THE
STATE OF CALIFORNIA.
In witness whereof, the Company has caused this Warrant to be duly
executed.
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
By: /s/ GREGORY D. WRITER, JR.
-------------------------------------
Gregory D. Writer, Jr.,
Chief Executive Officer
2
<PAGE> 3
ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers unto the
Assignee named below, all of the rights of the undersigned represented by the
within Warrant, with respect to the number of shares of Common Stock set forth
below:
<TABLE>
<CAPTION>
Name Number of Shares Taxpayer
of Assignee Address of Common Stock Identification No.
- ----------- ------- --------------- ------------------
<S> <C> <C> <C>
</TABLE>
and does hereby irrevocably authorize the Company to make such transfer on the
Warrant Register maintained at the principal office of the Company and, if
applicable, to issue to the undersigned a Warrant for the portion of such
Warrant not so sold, assigned or transferred.
Dated:__________________ _____________________________________
Signature
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant).
<PAGE> 4
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant to
purchase _____ shares of Common Stock, acknowledges that it will not dispose of
such shares except in compliance with Section 3(b) of the Warrant Agreement and
the Securities Act of 1933, as amended, and requests that Certificates for such
shares be issued and delivered as follows:
Issue to: ___________________________________________________________
(Name)
___________________________________________________________
(Address, including Zip Code)
___________________________________________________________
(Tax Identification Number)
Deliver to: ___________________________________________________________
(Name)
___________________________________________________________
(Address, including Zip Code)
In full payment of the aggregate purchase price with respect to the
number of shares being purchased upon exercise of this Warrant, the
undersigned hereby (check applicable payment method): (i) ? tenders
payment of $________ by cashier's check payable to the order of 1st Net
Technologies, Inc., or (ii) ? hereby surrenders to the Company, Warrants
to purchase ______ shares of Common Stock. If the Warrant is exercised
hereby (and, if applicable, surrendered to purchase shares of Common
Stock) so as to purchase fewer than all the shares of Common Stock that
may be purchased pursuant to this Warrant, the undersigned requests that
a new Warrant representing the number of full shares for which the
Warrant has not been exercised or surrendered be issued and delivered as
set forth below.
Name of Warrant Holder or Assignee:
_____________________________________
(Please Print)
Address:
___________________________________________________________
___________________________________________________________
Signature Dated
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant).
<PAGE> 1
EXHIBIT 4.5
Confidential treatment requested under 5 U.S.C. Section 552(b)(4) that provides
an exemption from public disclosure of confidential financial information.
* indicates omitted material that is the subject of a confidential treatment
request that is filed separately with the Commission.
1ST TECHNOLOGIES, INC.
WARRANT
NO TRANSFER, SALE, PLEDGE, HYPOTHECATION, ENCUMBRANCE OR OTHER DISPOSITION OF
THESE WARRANTS OR THE SHARES OF COMMON STOCK OF THE COMPANY ACQUIRED HEREBY
SHALL OCCUR UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (OR,
IF APPLICABLE, A SUCCESSOR LAW THERETO) UNLESS AND UNTIL THE COMPANY HAS BEEN
PRESENTED WITH SATISFACTORY EVIDENCE THAT THESE WARRANTS OR SUCH SHARES OF
COMMON STOCK WILL BE TRANSFERRED IN A TRANSACTION EXEMPT FROM SUCH
REGISTRATION AND UNTIL ANY APPLICABLE CONDITIONS CONTAINED IN THE WARRANT HAVE
BEEN FULFILLED. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY THE PROVISIONS HEREOF.
No. V-1
WARRANT TO PURCHASE UP TO 67,500 SHARES OF COMMON STOCK
EXERCISABLE COMMENCING 9:00 A.M., SAN DIEGO TIME,
ON APRIL 1, 1999, AND ENDING ON THE EARLIER TO
OCCUR OF (I) 5:00 P.M., SAN DIEGO TIME, ON MARCH 31, 2001
OR (II) IMMEDIATELY AFTER THE EFFECTIVE DATE OF A
PUBLIC OFFERING OF THE COMMON STOCK OF
1ST NET TECHNOLOGIES, INC.; PROVIDED, HOWEVER, THAT
THIS WARRANT SHALL NOT EXPIRE BEFORE MARCH 31, 2000
1ST NET TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
[*]
This Warrant may be exercised at any time and from time to time, in whole
or in part, at the option of the Holder, commencing 9:00 a.m., San Diego
<PAGE> 2
time, on April 1, 1999, until the earlier to occur of (i) 5:00 p.m., San Diego
time, March 31, 2001, or (ii) immediately after the effective date of a public
offering of the common stock of 1st Net Technologies, Inc.; provided, however,
that this Warrant shall not expire before March 31, 2000 (the "Expiration
Date"). Upon the purchase of fewer than all of the Warrant Shares, there shall
be issued to the Holder a new Warrant exercisable for the number of Warrant
Shares for which this Warrant has not been exercised or surrendered as payment.
Prior to the Expiration Date, the Holder shall be entitled to exchange this
Warrant, without charge, for another Warrant or Warrants exercisable for the
same aggregate number of Warrant Shares.
Prior to the Expiration Date, subject to any applicable laws restricting
transferability and to any restriction on transferability that may appear on
this Warrant, the Holder shall be entitled to transfer this Warrant upon
delivery thereof, duly endorsed by the Holder or its duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment
or authority to transfer, a new Warrant or Warrants exercisable for the same
aggregate number of Warrant Shares will be issued by the Company, without
charge, in accordance with instructions in the form of assignment.
This Warrant is issued under and in accordance with that certain Web Site
Development, Service and Revenue Sharing Agreement by and between the Company
and No Fear, Inc. dated as of April 1, 1999 and, except as otherwise provided
in this Warrant, is subject to the terms and provisions contained therein. No
fractional shares will be issued upon the exercise of a Warrant. Instead, the
Company shall pay the value of such fractional share to the Holder in cash.
THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS AND NOT THE LAW PERTAINING TO CHOICE OR CONFLICT OF LAWS, OF THE
STATE OF CALIFORNIA.
In witness whereof, the Company has caused this Warrant to be duly
executed.
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
By: /s/ GREGORY D. WRITER, JR.
-------------------------------------
Gregory D. Writer, Jr.
Chief Executive Officer
2
<PAGE> 3
ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers unto the
Assignee named below all of the rights of the undersigned represented by the
within Warrant, with respect to the number of shares of Common Stock set forth
below:
<TABLE>
<CAPTION>
Name Number of Shares Taxpayer
of Assignee Address of Common Stock Identification Number
- ----------- ------- --------------- ---------------------
<S> <C> <C> <C>
</TABLE>
and does hereby irrevocably authorize the Company to make such transfer on the
Warrant Register maintained at the principal office of the Company and, if
applicable, to issue to the undersigned a Warrant for the portion of such
Warrant not so sold, assigned or transferred.
Dated:_____________ _________________________________________
Signature
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant).
<PAGE> 4
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant to
purchase ____ shares of Common Stock, acknowledges that it will not dispose of
such shares except in compliance with Section 3(b) of the Warrant Agreement and
the Securities Act of 1933, as amended, and requests that Certificates for such
shares be issued and delivered as follows:
Issue to: _____________________________________________________
(Name)
_____________________________________________________
(Address, including Zip Code)
_____________________________________________________
(Tax Identification Number)
Deliver to: _____________________________________________________
(Name)
_____________________________________________________
(Address, including Zip Code)
In full payment of the aggregate purchase price with respect to the
number of shares being purchased upon exercise of this Warrant, the
undersigned hereby (check applicable payment method): (i) tenders
payment of $_________ by cashier's check payable to the order of 1st
Technologies, Inc. or (ii) hereby surrenders to the Company, Warrants to
purchase _____ shares of Common Stock. If the Warrant is exercised
hereby (and, if applicable, surrendered to purchase shares of Common
Stock) so as to purchase fewer than all the shares of Common Stock that
may be purchased pursuant to this Warrant, the undersigned requests that
a new Warrant representing the number of full shares for which the
Warrant has not been exercised or surrendered be issued and delivered as
set forth below.
Name of Warrant holder or Assignee:
_________________________________
(Please Print)
Address:
_______________________________________________________
_______________________________________________________
Signature Dated
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
<PAGE> 1
EXHIBIT 4.6
1ST NET TECHNOLOGIES, INC.
1999 STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. THE PLAN ......................................................................1
1.1 Purpose .....................................................................1
1.2 Administration ..............................................................1
1.3 Participation................................................................2
1.4 Shares Subject to the Plan ..................................................2
1.5 Grant of Awards..............................................................3
1.6 Exercise of Awards...........................................................3
1.7 Payment Forms................................................................4
1.8 Cashless Exercises ..........................................................4
1.9 Award Period ................................................................4
1.10 No Transferability; Limited Exception to Transfer Restrictions ..............4
2. OPTIONS ......................................................................5
2.1 Grants ......................................................................5
2.2 Option Price ................................................................6
2.3 Option Period................................................................6
2.4 Exercise of Options..........................................................6
2.5 Limitations on Grant of ISOs.................................................6
2.6 Limits on 10% Holders........................................................7
2.7 Option Repricing/Cancellation and Regrant/Waiver of Restrictions ............7
2.8 Options and Rights in Substitution for Stock
Options Granted by Other Corporations .......................................7
2.9 Vesting Periods..............................................................7
3. STOCK APPRECIATION RIGHTS ......................................................8
3.1 Grants ......................................................................8
3.2 Exercise of Stock Appreciation Rights........................................8
3.3 Payment......................................................................8
3.4 Limited Stock Appreciation Rights............................................9
4. RESTRICTED STOCK AWARDS ........................................................9
4.1 Grants ......................................................................9
4.2 Restrictions & Rights.......................................................10
4.3 Return to the Corporation...................................................10
5. STOCK BONUSES, OTHER CASH OR STOCK PERFORMANCE-BASED
AWARDS, DEFERRED PAYMENTS AND DIVIDEND EQUIVALENT RIGHTS ......................10
5.1 Grants of Stock Bonuses.....................................................10
5.2 Other Performance-Based Awards .............................................10
5.3 Deferred Payments...........................................................12
5.4 Dividend Equivalent Rights .................................................12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6. STOCK UNITS....................................................................12
6.1 Grants 12
6.2 Other Provisions ...........................................................12
7. NON-EMPLOYEE DIRECTOR OPTIONS..................................................13
7.1 Participation...............................................................13
7.2 Option Grants...............................................................13
7.3 Option Price ...............................................................13
7.4 Option Period and Exercisability ...........................................14
7.5 Termination of Directorship.................................................14
7.6 Adjustments; Acceleration; Termination .....................................14
8. OTHER PROVISIONS...............................................................15
8.1 Rights of Eligible Persons, Participants and Beneficiaries..................15
8.2 Adjustments; Acceleration; Possible Early Termination of Awards.............15
8.3 Termination of Employment...................................................17
8.4 Compliance With Laws .......................................................18
8.5 Tax Withholding.............................................................18
8.6 Amendment, Termination and Suspension.......................................19
8.7 Privileges of Stock Ownership...............................................20
8.8 Effective Date of the Plan .................................................20
8.9 Term of the Plan ...........................................................20
8.10 Governing Law/Construction/Severability.....................................20
8.11 Captions....................................................................21
8.12 Non-Exclusivity of Plan.....................................................21
9. DEFINITIONS ...................................................................21
9.1 Definitions.................................................................21
</TABLE>
<PAGE> 4
1ST NET TECHNOLOGIES, INC.
1999 STOCK INCENTIVE PLAN
1. THE PLAN.
1.1 PURPOSE. The purpose of this 1st Net Technologies, Inc. 1999
Stock Incentive Plan (the "Plan") is to promote the success of the Company by
providing equity incentives to attract, motivate and retain key personnel and to
attract, motivate and retain experienced and knowledgeable non-employee
directors. Capitalized terms are defined in Article 9.
1.2 ADMINISTRATION.
1.2.1 COMMITTEE. This Plan shall be administered by and all
awards to Eligible Persons shall be authorized by the Committee, acting by a
majority vote or by written consent of its members. The Committee may delegate
ministerial, non-discretionary functions to third parties, including officers or
employees of the Company.
1.2.2 POWERS OF COMMITTEE. Subject to the express provisions
of this Plan, the Committee shall have the authority:
(a) to determine from among those persons eligible
the particular Eligible Persons who will receive Awards;
(b) to grant Awards to Eligible Persons, determine
the price at which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and determine the
other specific terms and conditions of such Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which such
Awards shall become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of termination
or reversion of such Awards;
(c) to approve the forms of Award Agreements (which
need not be identical either as to type of award or among Participants);
(d) to construe and interpret this Plan and any
agreements defining the rights and obligations of the Corporation and
Participants under this Plan, further define the terms used in this Plan, and
prescribe, amend and rescind rules and regulations relating to the
administration of this Plan;
(e) to cancel, modify, or waive the Corporation's
rights with respect to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Persons, subject to any required consent
under Section 8.6;
(f) to accelerate or extend the exercisability or
extend the term of any or all such outstanding Awards within the maximum term of
Awards under Section 1.9;
<PAGE> 5
(g) to determine the effect, in any, on a
Participant's rights during or following a leave of absence; and
(h) to make all other determinations and take such
other action as contemplated by this Plan or as may be necessary or advisable
for the administration of this Plan and the effectuation of its purposes.
Notwithstanding the foregoing, the provisions of Article 7 relating to
Non-Employee Director Awards shall be automatic (except as provided therein)
and, to the maximum extent possible, self-effectuating.
1.2.3 BINDING DETERMINATIONS; RELIANCE. Any action taken by,
or inaction of, the Corporation, the Board or the Committee relating to or
pursuant to this Plan shall be within the absolute discretion of that entity or
body and shall be conclusive and binding upon all persons. No member of the
Board or Committee, or officer of the Corporation or any Subsidiary, shall be
liable for any such action or inaction. In making any determination or not
taking any action under this Plan, the Committee or the Board, as the case may
be, may obtain and may rely upon the advice of counsel, accountants and other
experts or professional advisors to the Company and such determination shall be
conclusive.
1.2.4 COMMITTEE MEMBERSHIP. Subject to the requirements of the
definition of Committee contained in Article 9, the Board may, at any time (a)
change the number of members of the Committee, (b) remove from membership on the
Committee all or any of its members, (c) fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise, or (d) change or
assume the administration of this Plan.
1.2.5 AWARDS TO COMMITTEE MEMBERS. Any Award issued to a
member of the Committee (other than under Article 7) shall be subject to
approval or ratification by the Board.
1.3 PARTICIPATION. Awards other than under Article 7 may be granted
by the Committee only to those persons that the Committee determines to be
Eligible Persons. An Eligible Person who has been granted an Award may, if
otherwise eligible, be granted additional Awards.
1.4 SHARES SUBJECT TO THE PLAN.
1.4.1 SHARES. Subject to the provisions of Section 8.2, the
capital stock that may be delivered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock and any shares of its Common
Stock held as treasury shares. The Shares may be delivered for any lawful
consideration.
2
<PAGE> 6
(a) AGGREGATE LIMIT. The maximum number of Shares
that may be delivered pursuant to Awards granted to Eligible Persons under this
Plan shall not exceed 1,000,000 plus 10% of any increase in outstanding Shares
that occurs after December 31, 1999 (including any increase as a result of the
issuance of Shares under this Plan). The limit in the foregoing sentence shall
not contract if Shares are reacquired by the Corporation after an increase has
been made, but neither shall the limit increase if such reacquired Shares are
reissued.
(b) ISO LIMIT. The maximum number of Shares that may
be delivered pursuant to ISOs granted to Eligible Persons under this Plan shall
not exceed 1,000,000 Shares.
(c) INDIVIDUAL LIMIT. The maximum number of Shares
subject to those Options, Stock Appreciation Rights and other Awards payable in
Shares or alternatively in Shares or cash that are granted during any calendar
year to any one individual shall be limited to 200,000.
(d) ADJUSTMENT. Each of the foregoing specific Share
limits in this Section 1.4.1 shall be subject to adjustment as contemplated by
Section 1.4.2 and Section 8.2.
1.4.2 CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. If
any Option, Stock Appreciation Right, or other right to acquire Shares under or
receive cash or Shares in respect of an Award lapses or terminates without
having been exercised in full, or any Shares subject to a Restricted Stock Award
or other Award do not vest or are not delivered, the unpurchased, unvested or
undelivered Shares will again be available for purposes of this Plan. The
foregoing sentence does not apply to any Shares withheld under Section 8.5.
1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan,
the Committee shall determine the Eligible Persons to whom Awards will be
granted, the number of Shares subject to each Award, the price (if any) to be
paid for the Shares or the Award and, in addition to matters addressed in
Section 1.2.2, the specific objectives, goals and performance criteria that
further define the terms of any performance-based award. Each Award shall be
evidenced by an Award Agreement signed by the Corporation and, if required by
the Committee, by the Participant. The Award Agreement shall set forth or may
incorporate by reference the material terms and conditions of the Award
established by the Committee consistent with the specific provisions of this
Plan. Unless a later date is specified by the Committee in the applicable Award
Agreement, the grant of an Award is made on the Award Date.
1.6 EXERCISE OF AWARDS. An exercisable Award will be deemed to be
exercised when the Secretary of the Corporation receives an executed Exercise
Agreement from the Participant, together with payment of any required Purchase
Price in accordance with Section 1.7, 1.8, or 7.3, as the case may be. Awards of
Shares are exercisable only for and payable only in whole shares. Fractional
shares will be disregarded for all purposes under this Plan.
3
<PAGE> 7
1.7 PAYMENT FORMS. The Purchase Price of each Award (if any) must be
paid in full at the time of each purchase in one or a combination of the
following methods, to the extent authorized by the Committee or set forth in the
Award Agreement: (a) cash or cashier's check payable to the Corporation, (b) if
the Committee approves, a Note, or (c) by Shares already owned by the
Participant, subject to any conditions (including holding periods) that the
Committee may impose. Any Shares delivered that were initially acquired upon
exercise of an Award must have been owned by the Participant at least six months
as of the date of delivery. Shares used to satisfy the Purchase Price or (if
authorized by the Committee) applicable tax withholding will be valued at their
Fair Market Value on the exercise or purchase date.
1.8 CASHLESS EXERCISES. Award Agreements may also provide that an
Option or similar right may be exercised and payment can be made by delivering a
properly executed exercise notice to the Corporation, together with irrevocable
instructions to a bank or broker to promptly deliver to the Corporation the
amount of sale proceeds necessary to pay the Purchase Price and, unless
otherwise provided by the Committee, any applicable tax withholding under
Section 8.5. The date of exercise will be deemed to be the date the Corporation
receives the proceeds.
1.9 AWARD PERIOD. Any Option, Stock Appreciation Right, or similar
right shall expire and other Awards shall either vest or be forfeited not more
than 10 years after the date of grant; provided, however, that any right to
payment of cash or delivery of stock that has vested pursuant to an Award may be
delayed until a future date if specifically authorized by the Committee in
writing.
1.10 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER
RESTRICTIONS.
1.10.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise
expressly provided in (or pursuant to) this Section 1.10, by applicable law and
by the Award Agreement, as the same may be amended, (i) all Awards are
non-transferable and shall not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge; Awards
shall be exercised only by the Participant; and (ii) amounts payable or shares
issuable pursuant to an Award shall be delivered only to (or for the account of)
the Participant.
1.10.2 EXCEPTIONS. The Committee may permit Awards to be
exercised by and paid to certain persons or entities related to the Participant,
including but not limited to members of the Participant's family, charitable
institutions, or trusts or other entities whose beneficiaries or beneficial
owners are members of the Participant's immediate family and/or charitable
institutions, or to such other persons or entities as may be approved by the
Committee, pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer shall be subject to the condition that the
Committee receive evidence satisfactory to it that the transfer is being made
for estate and/or tax planning purposes on a gratuitous or donative basis and
without consideration (other than nominal consideration). Notwithstanding the
foregoing, ISOs and Restricted Stock Awards shall be subject to any and all
additional transfer restrictions under the Code.
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1.10.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise
and transfer restrictions in Section 1.10.1 shall not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive
benefits in the event of the Participant's death or, if the Participant has
died, transfers to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the laws of
descent and distribution,
(c) if the Participant has suffered a disability,
permitted transfers or exercises on behalf of the Participant by his or her
legal representative, or
(d) the authorization by the Committee of "cashless
exercise" procedures with third parties who provide financing for the purpose of
(or who otherwise facilitate) the exercise of Awards consistent with applicable
laws and the express authorization of the Committee.
2. OPTIONS.
2.1 GRANTS. One or more Options may be granted under this Section 2
to any Eligible Person. Each Option granted shall be designated by the Committee
as either a NQSO or an ISO, and such intent will be indicated in the Award
Agreement. ISOs may be granted only to Eligible Persons who are employed by the
Corporation or a corporation that is a "parent" or "subsidiary" corporation
within the meaning of Sections 424(e) and 424(f) of the Code, respectively.
2.1.1 TIME OF INITIAL AWARD. Persons who are employees of the
Corporation as of the Effective Date of the Plan shall be granted, without
further action, Options to purchase shares of Common Stock according to the
following schedule:
(a) employees with more than 90, but less than 365,
days of service shall be granted an Option to purchase 2,000 shares of Common
Stock,
(b) employees with more than 365 days of service
shall be granted an Option to purchase 10,000 shares of Common Stock,
(c) employees with the title of Manager (or
equivalent position) shall be granted an Option to purchase 20,000 shares of
Common Stock,
(d) employees with the title of Director of a
department or division (or equivalent position) shall be granted an Option to
purchase 40,000 shares of Common Stock, and
(e) employees who are executive officers and/or
members of the Board of Directors shall be granted an Option to purchase 60,000
shares of Common Stock.
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Thereafter, subject to the restrictions contained in this Section 2 and
the Plan, any person who becomes an employee of the Corporation shall be
granted, without further action, an Option to purchase shares of Common Stock
according to the schedule set forth in this Section 2.1.1. The Committee shall
determine, in its sole and absolute discretion, an employee's Option level
(2.1.1(a)-(e)).
2.2 OPTION PRICE. The Purchase Price per Share covered by each
Option shall be determined by the Committee at the time of the Award. In the
case of ISOs, the Purchase Price per Share must be at least 100% (110% in the
case of persons described in Section 2.6) of the Fair Market Value of the Shares
on the Award Date and in all cases shall not be less than the minimum
consideration required under applicable law. In the case of NQSOs, the Purchase
Price per Share must be at least 50% of the Fair Market Value of the Shares on
the Award Date and in all cases shall not be less than the minimum consideration
required under applicable law.
2.3 OPTION PERIOD. Subject to Section 1.9, each Option will expire
on a date determined by the Committee, but not later than 10 years after the
Award Date, and will be subject to earlier termination as set forth in this Plan
or the Award Agreement.
2.4 EXERCISE OF OPTIONS. Subject to Section 2.9, an Option may
become exercisable, in whole or in part, on the date or dates specified in the
Award Agreement and thereafter will remain exercisable until the earlier of the
expiration or termination of the Option, or as otherwise set forth in this Plan
or the related Award Agreement. At least 100 Shares must be purchased at one
time unless the number purchased is the total number at the time available for
purchase under the Option.
2.5 LIMITATIONS ON GRANT OF ISOs.
2.5.1 $100,000 LIMIT. To the extent that the aggregate "Fair
Market Value" of stock with respect to which incentive stock options first
become exercisable by a Participant in any calendar year exceeds $100,000,
taking into account both Common Stock subject to ISOs under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as NQSOs. For this purpose, the "Fair Market Value" of
the stock subject to options shall be determined as of the date the options were
awarded. In reducing the number of options treated as incentive stock options to
meet the $100,000 limit, the most recently granted options shall be reduced
first. To the extent a reduction of simultaneously granted options is necessary
to meet the $100,000 limit, the Committee may, in the manner and to the extent
permitted by law, designate which Shares are to be treated as shares acquired
pursuant to the exercise of an ISO.
2.5.2 OTHER CODE LIMITS. ISOs may only be granted to employees
of the Corporation or a Subsidiary that satisfies the other eligibility
requirements of the Code and shall include such other terms and conditions as
from time to time are required in order that the Option be an "incentive stock
option" as defined in Section 422 of the Code.
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2.6 LIMITS ON 10% HOLDERS. No ISO may be granted to any person who,
at the time the Option is granted, owns (or is deemed to own under Section
424(d) of the Code) Shares possessing more than 10% of the total combined voting
power of all classes of stock of the Corporation, unless the Purchase Price of
such Option is at least 110% of the Fair Market Value of the stock subject to
the Option and such Option by its terms is not exercisable after the expiration
of five years from the date such Option is granted.
2.7 OPTION REPRICING/CANCELLATION AND REGRANT WAIVER OF
RESTRICTIONS. Subject to Section 1.4 and Section 8.6 and the specific
limitations on Awards contained in this Plan, the Committee from time to time
may authorize, generally or in specific cases only, for the benefit of any
Eligible Person any adjustment in the exercise or purchase price, the vesting
schedule, the number of shares subject to, the restrictions upon or the term of,
an Award granted under this Article 2 by cancellation of an outstanding Award
and a subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such amendment or
other action may result among other changes in an exercise or purchase price
which is higher or lower than the exercise or purchase price of the original or
prior Award, provide for a greater or lesser number of shares subject to the
Award, or provide for a longer or shorter vesting or exercise period.
2.8 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY
OTHER CORPORATIONS. Options and Stock Appreciation Rights may be granted to
Eligible Persons under this Plan in substitution for employee stock options
granted by other entities to persons who are or who will become Eligible Persons
in respect of the Company, in connection with a distribution, merger or
reorganization by or with the granting entity or an affiliated entity, or the
acquisition by the Company, directly or indirectly, of all or a substantial part
of the stock or assets of the other entity.
2.9 VESTING PERIODS.
2.9.1 Unless the Award Agreement executed by an Optionee
expressly otherwise provides, and except as set forth herein, the right to
exercise an Option granted hereunder will be subject to the following vesting
periods, subject to the Optionee continuing to be an Eligible Person and the
occurrence of any other event, including the passage of time, that would result
in the cancellation or termination of the Option:
(a) No portion of the Option will be exercisable
prior to the first anniversary of the Award Date.
(b) The Option will become exercisable on a
cumulative basis as to thirty-three percent (33%) of the total Option Award on
the first anniversary of the Award Date and thereafter quarterly, every three
months after the lapse of the first anniversary, as to eight and thirty-three
hundredths percent (8.33%) of the total Option Award until the third anniversary
of the Award Date at which time the Option will become fully exercisable,
subject to any restrictions contained herein.
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3. STOCK APPRECIATION RIGHTS.
3.1 GRANTS. In its discretion, the Committee may grant Stock
Appreciation Rights to any Eligible Person either concurrently with the grant of
another Award or in respect of an outstanding Award, in whole or in part, or
independently of any other Award. A Stock Appreciation Right granted
concurrently with the grant of another Award may extend to all or a portion of
the Shares covered by the related Award. A Stock Appreciation Right will entitle
the Participant to holds the related Award, upon exercise of the Stock
Appreciation Right and surrender of the related Award, or portion thereof, to
receive payment of an amount determined pursuant to Section 3.3. Any Stock
Appreciation Right granted in connection with an ISO shall contain such terms as
may be required to comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder, unless the holder otherwise agrees.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
3.2.1 EXERCISABILITY. Unless the Award Agreement or the
Committee provides otherwise, a Stock Appreciation Right related to another
Award shall be exercisable only at such time or times, and to the extent, that
the related Award is exercisable.
3.2.2 EFFECT ON AVAILABLE SHARES. Unless the Committee
otherwise provides, to the extent that a Stock Appreciation Right is exercised,
the number of Shares theretofore subject to a related Award shall be charged
against the maximum number of Shares that may be issued pursuant to Awards. The
number of Shares subject to the Stock Appreciation Right and the related Award
will also be reduced by such number of shares. If a Stock Appreciation Right
granted concurrently with an Award extends to fewer than all the Shares covered
by the related Award, and if a portion of the related Award is subsequently
exercised, the number of Shares subject to the unexercised Stock Appreciation
Right will be reduced only to the extent that the remaining number of Shares
covered by such related Award is less than the remaining number of Shares
subject to the Stock Appreciation Right.
3.2.3 INDEPENDENT STOCK APPRECIATION RIGHT. A Stock
Appreciation Right granted independently of any other Award shall be exercisable
pursuant to the terms of the applicable Award Agreement.
3.3 PAYMENT.
3.3.1 AMOUNT. Unless the Committee otherwise provides, upon
exercise of a Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant shall be entitled to
receive payment of an amount determined by multiplying:
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(a) the difference obtained by subtracting the
Purchase Price per share of Common Stock under the related Award (if applicable)
or the initial base price or share value specified in the Award from the Fair
Market Value of a share of Common Stock on the date of exercise of the Stock
Appreciation Right, by
(b) the number of Shares with respect to which the
Stock Appreciation Right shall have been exercised.
3.3.2 FORM OF PAYMENT. The Committee, in its sole discretion,
shall determine the form in which payment shall be made of the amount determined
under paragraph (a) above, either solely in cash, solely in Shares (valued at
Fair Market Value on the date of exercise of the Stock Appreciation Right), or
partly in Shares and partly in cash, on a current or deferred basis as may be
authorized by the Committee, consistent with the terms of this Plan. If the
Committee permits the Participant to elect to receive cash or Shares (or a
combination thereof) on such exercise, or to use Shares to pay any applicable
withholding taxes payable, any such election shall be subject to such conditions
as the Committee may impose.
3.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to
any Eligible Person Stock Appreciation Rights exercisable only upon or in
respect of a change in control or any other specified event ("Limited SARs") and
such Limited SARs may relate to or operate in tandem or combination with or
substitution for Options, other Stock Appreciation Rights or other Awards (or
any combination thereof), and may be payable in cash or shares based on the
spread between the base price of the Stock Appreciation Right and a price based
upon the Fair Market Value of the Shares during a specified period or at a
specified time within a specified period before, after or including the date of
such event.
4. RESTRICTED STOCK AWARDS.
4.1 GRANTS. The Committee may, in its discretion, grant one or more
Restricted Stock Awards to any Eligible Person. Each Restricted Stock Award
Agreement shall specify the number of Shares to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not less than
the minimum lawful consideration under applicable state law) by the Participant,
the extent (if any) to which and the time (if ever) at which the Participant
shall be entitled to dividends, voting and other rights in respect of the shares
prior to vesting, and the restrictions (which may be based on performance
criteria, passage of time or other factors or any combination thereof) imposed
on such shares and the conditions of release or lapse of such restrictions. Such
restrictions shall not lapse earlier than six months after the Award Date,
except to the extent the Committee may otherwise provide. Stock certificates
evidencing shares of Restricted Stock pending the lapse of the restrictions
("Restricted Shares") shall bear a legend making appropriate reference to the
restrictions imposed hereunder and shall be held by the Corporation or by a
third party designated by the Committee until the restrictions on such shares
shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award and Section 1.9. Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further assurance and
documents as the
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Committee may require to enforce the restrictions.
4.2 RESTRICTIONS AND RIGHTS.
4.2.1 PRE-VESTING RESTRAINTS. Except as provided in Sections
4.1 and 1.10, restricted shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until the restrictions on such shares have
lapsed and the shares have become vested.
4.2.2 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in
the applicable Award Agreement, a Participant receiving a Restricted Stock Award
shall be entitled to cash dividends and voting rights for all Shares issued even
though they are not vested, provided that such rights shall terminate
immediately as to any Restricted Shares that cease to be eligible for vesting.
4.2.3 CASH PAYMENTS. If the Participant shall have paid cash
or other property in respect of the Restricted Stock Award, the Award Agreement
shall specify whether and to what extent such cash or other property shall be
returned (with or without an earnings factor) as to any restricted Shares that
cease to be eligible for vesting.
4.3 RETURN TO THE CORPORATION. Unless the Committee otherwise
expressly provides, restricted shares that remain subject to restrictions at the
time of termination of employment or are subject to other conditions to vesting
that have not been satisfied by the time specified in the applicable Award
Agreement shall not vest and shall be returned to the Corporation as therein
provided.
5. STOCK BONUSES, OTHER CASH OR STOCK PERFORMANCE-BASED AWARDS, DEFERRED
PAYMENTS AND DIVIDEND EQUIVALENT RIGHTS.
5.1 GRANTS OF STOCK BONUSES. The Committee may grant a Stock Bonus
to any Eligible Person to reward exceptional or special services, contributions
or achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the Committee.
The number of shares so awarded shall be determined by the Committee. The Award
may be granted independently or in lieu of a cash bonus. Notwithstanding Section
1.9 and anything contained in Section 5.2 to the contrary, Awards pursuant to
this Section 5.1 for past service need not include any minimum vesting
requirement.
5.2 OTHER PERFORMANCE-BASED AWARDS.
5.2.1 GENERAL PROVISIONS. Without limiting the generality of
the foregoing, and in addition to qualifying awards granted under other
provisions of this Plan (i.e., Options or Stock Appreciation Rights granted with
an exercise price not less than Fair Market Value at the applicable date of
grant for Section 162(m) purposes to Eligible Persons who are either salaried
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employees or officers ("PRESUMPTIVELY QUALIFYING AWARDS"), other cash or
stock-related performance-based awards, including "performance-based" awards
within the meaning of Section 162(m) ("PERFORMANCE-BASED AWARDS"), whether in
the form of restricted stock, performance stock, phantom stock, stock units, or
Dividend Equivalent Rights, or other rights, whether or not related to stock
values or appreciation, and whether payable in cash, Common Stock, or a
combination thereof, may be granted under this Plan. If the Award other than a
Presumptively Qualifying Award is intended as performance-based compensation
under Section 162(m) and is not entitled to the benefits of Section 1.162-27(f)
of the regulations thereunder, the vesting or payment thereof shall be based on
the performance of the Company on a consolidated, segment, subsidiary, or
division basis with reference to one or more of the following business criteria
(the "criterion"): funds from operations, EBITDA, stock appreciation, total
stockholder return, net earnings (before or after taxes), cash flow, return on
equity or on assets or on net investment, or cost containment or reduction. To
the extent so defined, these terms are used as applied under generally accepted
accounting principles and in the Company's financial reporting. To qualify
Awards as performance-based under Section 162(m), the applicable business
criteria and specific performance goal or goals ("targets") must be established
and approved by the Committee during the first 90 days of the year (or before
one-quarter of the performance measurement period has elapsed, if such period
exceeds one year) and while the performance relating to such targets remains
substantially uncertain within the meaning thereof. The applicable performance
measurement period may not be less than one nor (except as provided in Section
1.9) more than 10 years. The Committee is not, however, limited to the grant of
this type of performance-based awards.
5.2.2 MAXIMUM AWARD. Grants or awards under this Section 5.2
may be paid in cash or Shares or any combination thereof. In no event shall
grants of stock-related Awards made in any calendar year to any Eligible
Employee under this Plan relate to more than 100,000 Shares. In no event shall
grants to any Eligible Employee under this Plan of Awards payable only in cash
and not related to stock provide for payment of more than $1,000,000.
5.2.3 COMMITTEE CERTIFICATION. Except as otherwise permitted
to qualify as performance-based compensation under Section 162(m), before any
Performance-Based Award under this Section 5.2 is paid, the Committee must
certify that the performance standard, target(s), and the other material terms
of the Performance-Based Award were in fact satisfied.
5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have
discretion to determine the restrictions or other limitations of the individual
Awards under this Section 5.2, including the authority to reduce Awards, to
determine payout schedules and the extent of vesting or to pay no Awards, in its
sole discretion, if the Committee preserves such authority at the time of grant
by language to this effect in its authorizing resolutions or otherwise. The
Committee may provide that in the event a Participant terminates employment or
service for any one or more reasons during any year, the Participant shall
forfeit all rights to any Award for that year.
5.2.5 ADJUSTMENTS FOR MATERIAL CHANGES. Performance goals or
other features of an Award under this Section 5.2 may provide that they (a)
shall be adjusted to reflect a
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change in corporate capitalization, a corporate transaction (such as a
reorganization, combination, separation, or merger) or a complete or partial
corporate liquidation, or (b) shall be calculated either without regard for or
to reflect any change in accounting policies or practices affecting the Company
and/or the business criteria or performance goals or targets, or (c) shall be
adjusted for any other circumstances or event, or (d) any combination of (a)
through (c), but only to the extent in each case that such adjustment or
determination in respect of Performance-Based Awards would be consistent with
the requirements of Section 162(m) to qualify as performance-based compensation.
5.3 DEFERRED PAYMENTS. The Committee may authorize for the benefit
of any Eligible Person the deferral of any payment of cash or shares that may
become due or of cash otherwise payable under this Plan, and provide for the
crediting of benefits thereon based upon such deferment, at the election or at
the request of such Participant, subject to the other terms of this Plan. Such
deferral shall be subject to such further conditions, restrictions or
requirements as the Committee may impose, subject to any then vested rights of
Participants.
5.4 DIVIDEND EQUIVALENT RIGHTS. In its discretion, the Committee may
grant to any Eligible Person Dividend Equivalent Rights concurrently with the
grant of any Option, Restricted Stock, Stock Unit, or other stock-based Award,
on such terms as set forth by the Committee in the Award Agreement. Dividend
Equivalent Rights shall be based on all or part of the amount of dividends
declared on Shares and shall be credited as of the dividend payment dates,
during the period between the date of grant (or such later date as the Committee
may set) and the date the stock-based Award is exercised or expires (or such
earlier date as the Committee may set), as determined by the Committee. Dividend
Equivalent Rights shall be payable in cash or Shares, or (to the extent
permitted by law) may be subject to such conditions, not inconsistent with
Section 162(m) (in the case of Options or Stock Appreciation Rights, or other
Awards intended to satisfy its conditions with respect to deductibility), as may
be determined by the Committee.
6. STOCK UNITS.
6.1 GRANTS. Subject to such rules and procedures as the Committee
may establish from time to time, the Committee may, in its discretion, authorize
a Stock Unit Award or the crediting of Stock Units pursuant to the terms of this
Plan and any applicable deferred compensation plan maintained by the
Corporation, permit an Eligible Person to irrevocably elect to defer or receive
in Stock Units all or a portion of any Award hereunder, or may grant Stock Units
in lieu of, in exchange for, in respect of, or in addition to any other Award
under this Plan or any other stock option plan or deferred compensation plan of
the Corporation. The specific terms, conditions and provisions relating to each
Stock Unit grant or election, including the form of payment to be made at or
following the vesting thereof, shall be set forth in or pursuant to the
applicable deferred stock Award Agreement and the applicable deferred
compensation plan of the Company, in form substantially as approved by the
Committee.
6.2 OTHER PROVISIONS. The Committee shall determine, among other
terms of a Stock Unit grant or Award, the form of payment of Stock Units,
whether in cash, Shares, or other
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consideration (including any other Award) or any combination thereof, the
valuation of the Stock Units or any non-cash payment for the purpose of the
Award, and the applicable vesting and payout provisions of the Stock Units. The
Committee in the applicable Award Agreement or the relevant deferred
compensation plan of the Company may permit the Participant to elect the form
and time of payout of the vested Stock Units on such conditions or subject to
such procedures as the Committee may impose, and may permit Stock Unit offsets
or other provision for payment of any applicable taxes that may be due on the
crediting, vesting or payment in respect of the Stock Units.
7. NON-EMPLOYEE DIRECTOR OPTIONS.
7.1 PARTICIPATION. Awards under this Article 7 shall be made only to
Non-Employee Directors and shall be evidenced by Award Agreements substantially
in the form of Exhibit A hereto.
7.2 OPTION GRANTS.
7.2.1 TIME OF INITIAL AWARD. Persons who are Non-Employee
Directors in office at or immediately after the filing of a registration
statement relating to registration of the Corporation's Common Stock pursuant to
Section 12(g) of the Securities Exchange Act of 1934 shall be granted without
further action a NQSO to purchase 25,000 shares of Common Stock at an exercise
price equal to the Fair Market Value of the Common Stock on the Award Date (the
"Initial Options"). Thereafter, subject to Section 7.2.3, if any person who is
not, immediately prior to his or her appointment or election, an officer or
employee of the Company shall become a Non-Employee Director of the Corporation,
there shall be granted automatically to such person (without any action by the
Board or Committee) a NQSO, the Award Date of which shall be the date such
person takes office, to purchase 25,000 shares of Common Stock, unless the Board
otherwise provides in advance of such appointment or election.
7.2.2 SUBSEQUENT ANNUAL AWARDS. Subject to Section 7.2.3 and
provided that the Non-Employee Director is then continuing in office, each
Non-Employee Director shall be granted automatically (without any action by the
Committee or the Board) a NQSO to purchase 2,500 shares of Common Stock
immediately following each annual stockholders meeting during the term of this
Plan. The Award Date of each such NQSO shall be the date of the related annual
stockholders meeting.
7.2.3 MAXIMUM NUMBER OF OPTIONS/SHARES. Grants pursuant to
this Section 7.2 that would otherwise exceed the maximum number of shares under
Section 1.4.1(a) shall be prorated within such limitation.
7.3 OPTION PRICE. The purchase price per share of the Common Stock
covered by each Option granted pursuant to Section 7.2 hereof shall be 100
percent of the Fair Market Value of the Common Stock on the Award Date. The
exercise price of any Option granted under this Article
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7 shall be paid in full at the time of each purchase in cash or by check or in
Shares valued at their Fair Market Value on the date of exercise of the Option,
or partly in such Shares and partly in cash, PROVIDED THAT any Shares used in
payment shall have been owned by the Participant at least six months prior to
the date of exercise unless the Board otherwise permits. In addition, an Option
granted under this Article 7 may be exercised and payment can be made in
accordance with the cashless exercise provisions contained in Section 1.8.
7.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under this
Article 7 and all rights or obligations thereunder shall expire ten years after
the Award Date and shall be subject to earlier termination as provided below.
Each Option granted under Section 7.2 shall first become exercisable at the rate
of 25% per annum commencing on the first anniversary of the Award Date, with the
additional vesting only on each of the next three anniversaries thereof, subject
to Sections 7.5 and 7.6.
7.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's
services as a member of the Board terminate for any reason other than upon or
because of an Event, any portion of an Option granted pursuant to this Article 7
which is not then exercisable shall terminate. Subject to Section 7.6, any
portion of the Option which is then exercisable may be exercised for one year
after the termination of service in the case of a termination because of death,
Total Disability, or Retirement, or for three months after the date of
termination of service in all other cases, and shall then terminate, but in no
event may the Option be exercised after the expiration of the stated ten-year
term of the Option. If a Non-Employee Director's services as a member of the
Board terminate upon or because of an Event, an Option granted pursuant to this
Article 7 and then held by such Participant may (as provided in or pursuant to
Section 7.6) immediately become and, subject to Section 7.6, remain exercisable
for three months after the date of such termination or until the expiration of
the stated term of the Option, whichever first occurs, and shall then terminate.
7.6 ADJUSTMENTS; ACCELERATION; TERMINATION. Options granted under
this Article 7 will be subject to adjustments, acceleration, and termination as
provided in Section 8.2, but only to the extent that such adjustment and any
Board or Committee action in respect thereof in the case of an Event is effected
pursuant to the terms of a reorganization agreement approved by the stockholders
of the Corporation or is otherwise consistent with adjustments to Options held
by persons other than executive officers or directors of the Corporation (or, if
there are none, consistent in respect of the underlying Shares, with the effect
on or rights offered to stockholders generally). To the extent that any Option
granted under this Article 7 is not exercised prior to a dissolution of the
Corporation or a merger or other corporate event that the Corporation does not
survive, and no provision is (or consistent with the provisions of this Plan can
be) made for the assumption, conversion, substitution or exchange of the Option,
the Option will terminate upon the occurrence of the event. The Participant,
however, shall be entitled to the benefits of any alternative settlement of the
Option in such circumstances, as contemplated by Section 8.2.
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8. OTHER PROVISIONS.
8.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
8.1.1 NO BINDING COMMITMENT. Status as an Eligible Person
shall not be construed as a commitment that any Award will be made under this
Plan to any Eligible Person or to Eligible Persons generally.
8.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan
(or any documents relating to this Plan or to any Award) shall confer upon any
Eligible Person or other Participant any right to continue in the employ or
other service of the Company or constitute any contract or agreement of
employment or other service, nor shall interfere in any way with the right of
the Company to change such person's compensation or other benefits or to
terminate the services or employment of such person, with or without cause, but
nothing in this Plan or any document related hereto shall adversely affect any
independent contractual right of such person without his or her consent thereto.
8.1.3 PLAN NOT FUNDED. Awards payable under this Plan shall be
payable in shares or from the general assets of the Corporation, and (except as
provided in Section 1.4) no special or separate reserve, fund or deposit shall
be made to assure payment of such Awards. No Participant, Beneficiary or other
person shall have any right, title or interest in any fund or in any specific
asset (including Shares, except as expressly otherwise provided) of the Company
by reason of any Award. Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Company and any
Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive payment pursuant to any
Award hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
8.2 ADJUSTMENTS; ACCELERATION; POSSIBLE EARLY TERMINATION OF AWARDS.
8.2.1 ADJUSTMENTS. If the outstanding Shares are changed into
or exchanged for cash or a different number or kind of shares or securities of
the Corporation or of another issuer, or if additional Shares or new or
different securities are distributed with respect to the outstanding Shares,
through a reorganization or merger to which the Corporation is a party, or
through a combination, consolidation, spin off, recapitalization,
reclassification, stock split, stock dividend, reverse stock split, stock
consolidation or other capital change or adjustment, an appropriate adjustment
will be made in the number and kind of Shares or other consideration that is
subject to or may be delivered under this Plan and pursuant to outstanding
Awards, the Purchase Price of outstanding Awards, performance criteria under
outstanding Awards (subject to Section 5.2 and 8.10.3) and the numerical share
limits set forth in Section 1.4, 5.2.2 and Article 7.
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In any of such events, the Committee may take such action sufficiently
prior to such event if necessary or deemed appropriate to permit the
Participants to realize the benefits intended to be conveyed with respect to the
underlying shares on substantially the same terms as are available to
stockholders generally.
8.2.2 ACCELERATION OF AWARDS UPON CERTAIN EVENTS. Subject to
the exceptions noted below, (i) each Option and Stock Appreciation Right shall
become immediately exercisable, (ii) each Restricted Stock Award shall
immediately vest free of restrictions, (iii) each Award under Article 5 shall
become payable to the Participant, and (iv) the number of Shares covered by each
Stock Unit Account shall be issued to the Participant:
(a) immediately prior to the occurrence of an Event,
unless the Committee determines prior to such Event that, upon its occurrence,
there shall be no acceleration of benefits under Awards or determines that only
certain or limited benefits under Awards shall be accelerated and the extent to
which they shall be accelerated, and/or establishes a different time in respect
of such Event for such acceleration; or
(b) immediately prior to the termination by the
Company of a Participant's employment or services for any reason other than for
Cause (1) within two years after the occurrence of an Event with respect to
which vesting has not been accelerated pursuant to Section 8.2.2(a), or (2)
within 90 days prior to an Event and in express contemplation of the Event.
The Committee may override the limitations on acceleration in this
Section 8.2.2 by express provision in the Award Agreement and may accord any
Eligible Person a right to refuse any acceleration, whether pursuant to the
Award Agreement or otherwise, in such circumstances as the Committee may
approve. Any acceleration of Awards shall comply with applicable regulatory
requirements, including without limitation Section 422 of the Code. Any
discretion with respect to these events shall be limited to the extent required
by applicable accounting requirements in the case of a transaction intended to
be accounted for as a pooling of interests transaction.
8.2.3 POSSIBLE EARLY TERMINATION OF AWARDS. If any Option or
other right to acquire Common Stock under this Plan (except as provided under
Article 7 with respect to Non-Employee Director Awards) has been fully
accelerated pursuant to Section 8.2.2 but is not exercised prior to (a) a
dissolution of the Corporation, or (b) an event described in Section 8.2.1 that
the Corporation does not survive, or (c) the consummation of an event described
in Section 8.2.1 involving an Event approved by the Board, such Option or right
shall thereupon terminate, subject to any provision that has been expressly made
by the Committee or the Board (through a plan of reorganization approved by the
Board or otherwise) for the survival, substitution, assumption, exchange or
alternative settlement of the Option or right.
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8.3 TERMINATION OF EMPLOYMENT.
8.3.1 OPTIONS.
(a) Any Option, to the extent not exercised, will
terminate and become null and void upon a Participant's termination of
employment or services with the Company, except as set forth in this Section 8.3
or otherwise expressly provided in the Award Agreement. All Options shall be
subject to earlier termination under Section 2.3, and any and all rights under
an Option, to the extent not exercised or vested, will expire immediately upon a
Participant's termination of employment or services with the Company for Cause.
The Committee shall be the sole judge of Cause.
(b) Unless otherwise expressly provided in the Award
Agreement, a Participant will have the following time periods to exercise
Options to the extent they are exercisable on the date of the Participant's
termination of employment or services with the Company:
(1) If the Participant's employment or
services with the Company terminates by any reason other than death, Total
Disability or Cause, the Participant will have 90 days after the date of such
termination to exercise any Option;
(2) If the Participant's employment or
services with the Company is terminated for Cause, the Option shall lapse
immediately upon such termination.
(3) If the Participant's employment or
services with the Company terminates by reason of Total Disability, or if the
Participant suffers a Total Disability within 90 days after a termination of
service described in Section 8.3.1(b)(1), the Participant or the Participant's
Personal Representative, as the case may be, will have 180 days after the date
of Total Disability (or, if earlier, date of termination), to exercise any
Option;
(4) If the Participant dies while employed
by or while performing services to the Company, or within 90 days after a
termination of service described in Section 8.3,1(b)(1) or 8.3.1(b)(3) above,
the Participant's Beneficiary may exercise, at any time within 180 days after
the date of the Participant's death (or, if earlier date of termination) any
Option.
8.3.2 STOCK APPRECIATION RIGHTS. Each Stock Appreciation Right
granted concurrently with an Award will have the same termination provisions and
exercisability periods as the related Award. The termination provisions and
exercisability periods of any Stock Appreciation Right granted independent of an
Award will be established by the Committee.
8.3.3 RESTRICTED STOCK AWARDS AND AWARDS UNDER ARTICLE 5. If a
Participant's employment or services terminates for any reason, (a) Shares
subject to the Participant's Restricted Stock Award will be terminated in
accordance with the related Award Agreement to the extent such Shares have not
become vested on the date of such termination; and (b)
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any Award granted to the Participant under Article 5 will be terminated in
accordance with the related Award Agreement to the extent such Award has not
become vested or payable on the date of such termination.
8.3.4 STOCK UNITS. Each Deferred Stock Alternative Exercise
Agreement or other Award Agreement in respect of Stock Units shall include the
applicable benefit distribution and termination provisions for the grant or
Award and shall specify the form of payment and may incorporate (to the extent
applicable) any terms of this Plan, another Award and/or any other deferred
compensation plan under which it is governed.
8.3.5 ADJUSTMENTS TO EXERCISABLE PORTION. Notwithstanding the
foregoing, if a Participant's employment or services with the Company terminates
for any reason other than for Cause, the Committee may increase the portion of a
Participant's Award exercisable to the Participant, or Participant's Beneficiary
or Personal Representative, as the case may be, and extend the applicable
periods of exercise, upon such terms as the Committee determines.
8.3.6 EFFECT OF CESSATION OF SUBSIDIARY STATUS. If an entity
ceases to be a Subsidiary, such action will be deemed for purposes of this Plan
to be a termination of services or employment of each Eligible Person of that
entity who does not continue as an Eligible Person of the Corporation or another
Subsidiary.
8.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of
Awards under this Plan and the offer, issuance and delivery of Shares and/or the
payment of money or other benefits under this Plan or under Awards granted
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
law and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the judgment of the Committee,
be necessary or advisable in connection therewith. Any securities delivered
under this Plan shall be subject to such restrictions, and the person acquiring
such securities shall, if requested by the Corporation, provide such assurances
and representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
8.5 TAX WITHHOLDING.
8.5.1 CASH OR SHARES. Upon any exercise, vesting, or payment
of any Award or upon the disposition of Shares acquired pursuant to the exercise
of an ISO prior to satisfaction of the holding period requirements of Section
422 of the Code, the Corporation shall have the right at its option to (i)
require the Participant (or Personal Representative or Beneficiary, as the case
may be) to pay or provide for payment in cash or by cashier's check payable to
the Corporation of the amount of any taxes which the Company may be required to
withhold with respect to such Award event or payment or (ii) deduct from any
amount payable in cash the amount of any taxes which the Company may be required
to withhold with respect to such cash payment. In any case where a tax is
required to be withheld in connection with the delivery of Shares under this
Plan, the Committee
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may, in its sole discretion and at the time of the Award or thereafter, either
require the Participant or grant to the Participant the right to elect, pursuant
to such rules and subject to such conditions as the Committee may establish, to
have the Corporation reduce the number of shares to be delivered by (or
otherwise reacquire) the appropriate number of shares valued at their then Fair
Market Value, to satisfy such withholding obligation.
8.5.2 TAX LOANS. The Corporation may, in its discretion and to
the extent permitted by law, authorize a loan to an Eligible Person in the
amount of any taxes which the Company may be required to withhold with respect
to Shares received (or disposed of, as the case may be) pursuant to a
transaction described in Section 8.5.1. Such a loan shall be for a term, at a
rate of interest and pursuant to such other terms and conditions as the
Corporation, under applicable law, may establish and such loan need not comply
with the provisions of a "Loan" defined in Section 9.1.
8.6 AMENDMENT, TERMINATION AND SUSPENSION.
8.6.1 AMENDMENT, TERMINATION AND SUSPENSION. The Board may, at
any time, terminate or, from time to time, amend, modify or suspend this Plan,
in whole or in part. No Awards may be granted during any suspension of this Plan
or after termination of this Plan, but the Committee shall retain jurisdiction
as to Awards then outstanding in accordance with the terms of this Plan.
8.6.2 STOCKHOLDER APPROVAL. Any amendment that would (i)
materially increase the benefits accruing to Participants under this Plan, (ii)
materially increase the aggregate number of securities that may be issued under
this Plan, or (iii) materially modify the requirements as to eligibility for
participation in this Plan, shall be subject to stockholder approval to the
extent then required by Section 422 of the Code or applicable law, or deemed
necessary or advisable by the Board.
8.6.3 AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under but subject to the express limits of this Plan,
the Committee by agreement or resolution may waive conditions of or limitations
on Awards to Eligible Persons that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and may make other
changes to the terms and conditions of Awards that do not affect in any manner
materially adverse to the Participant, his or her rights and benefits under an
Award.
8.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No
amendment, suspension or termination of this Plan or change of or affecting any
outstanding Award shall, without written consent of the Participant, affect in
any manner materially adverse to the Participant any rights or benefits of the
Participant or obligations of the Corporation under any Award granted under this
Plan prior to the effective date of such change. Changes contemplated by Section
8.2 shall not be deemed to constitute changes or amendments for purposes of this
Section 8.6.
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8.7 PRIVILEGES OF STOCK OWNERSHIP. A Participant will not be
entitled to the privilege of stock ownership as to any Shares not actually
issued to the Participant. No adjustment will be made for dividends or other
rights as a stockholder for which a record date is prior to the date of issue.
8.8 EFFECTIVE DATE OF THE PLAN. This Plan was duly authorized and
adopted by the Board on August 13, 1999. Until such time as this Plan is
approved by the holders of the outstanding voting stock of the Corporation, in
accordance with applicable law, any ISO's granted shall be granted upon the
conditions that the ISO's so granted: (i) shall not be exercisable prior to such
approval and (ii) shall become null and void ab initio if such shareholder
approval is not obtained.
8.9 TERM OF THE PLAN. Except as permitted by Section 1.9, no Award
shall be granted under this Plan after August 1, 2009 (the "termination date").
Unless otherwise expressly provided in this Plan or in an applicable Award
Agreement, any Award granted prior to the termination date may extend beyond
such date, and all authority of the Committee with respect to Awards hereunder,
including the authority to amend an Award or defer payment of a vested Award,
shall continue during any suspension of this Plan and in respect of Awards
outstanding on the termination date.
8.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
8.10.1 CHOICE OF LAW. This Plan, the Awards, all documents
evidencing Awards and all other related documents shall be governed by, and
construed in accordance with the laws of the state of incorporation of the
Corporation.
8.10.2 SEVERABILITY. If any provision shall be held by a court
of competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue in effect.
8.10.3 PLAN CONSTRUCTION.
(a) It is the intent of the Corporation that
transactions in and affecting Awards in the case of an Eligible Person or
Participant who is or may be subject to Section 16 of the Exchange Act (a
"SECTION 16 PERSON") satisfy any then applicable requirements of Rule 16b-3 so
that such persons (unless they otherwise agree) will be entitled to the benefits
of Rule 16b-3 or other exemptive rules under Section 16 of the Exchange Act in
respect of those transactions and will not be subjected to avoidable liability
thereunder. If any provision of this Plan or of any Award would otherwise
frustrate or conflict with the intent expressed above, that provision to the
extent practicable shall be interpreted so as to avoid such conflict. If the
conflict remains irreconcilable, the Committee may disregard the provision if it
concludes that to do so furthers the interest of the Corporation and is
consistent with the purposes of this Plan as to such persons in the
circumstances.
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(b) It is the further intent of the Company that
Options or Stock Appreciation Rights with an exercise or base price not less
than Fair Market Value on the date of grant and performance awards under Section
5.2 of this Plan that are granted to or held by a Section 16 Person shall
qualify as performance-based compensation under Section 162(m), and this Plan
shall be interpreted consistent with such intent.
8.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference.
8.12 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan shall limit or be
deemed to limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common Stock,
under any other plan or authority.
9. DEFINITIONS.
9.1 DEFINITIONS.
"AWARD" means an award of any Option (which may be designated as a NQSO
or an ISO and which may include as an incident thereto Stock Units), Stock
Appreciation Right, Stock Unit, Restricted Stock, Stock Bonus, Deferred Stock
Alternative, Performance-Based Award, Dividend Equivalent Rights, or deferred
payment right, or any combination thereof, whether alternative or cumulative,
authorized by and granted under this Plan.
"AWARD AGREEMENT" means a written agreement, approved by the Committee,
setting forth the terms of an Award.
"AWARD DATE" means the date upon which the Committee takes the action
granting an Award or such later date as the Committee designates as the Award
Date at the time of the Award or, in the case of Awards under Article 7, the
applicable date set forth therein.
"BENEFICIARY" means the person, persons, trust, or trusts designated by
a Participant or, in the absence of a designation, entitled by will or the laws
of descent and distribution to receive the benefits specified in the Award
Agreement and under this Plan in the event of a Participant's death, and shall
mean the Participant's executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.
"BOARD" means the Board of Directors of the Corporation.
"CAUSE" means a determination by the Committee that the Participant: (a)
has committed a material breach of the Participant's duties and responsibilities
(other than as a result of incapacity due to a Total Disability); or (b) has
been convicted of a felony, or entered a plea of guilty or nolo contendre with
respect to such a crime; or (c) has violated any fiduciary duty or duty of
loyalty owed to the Company; or (d) has been generally incompetent or grossly
negligent in the discharge of the
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Participant's duties and responsibilities; or (e) has violated in any material
respect any of the Company's established employment policies in effect from time
to time.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the Compensation Committee appointed by the Board and
consisting of two or more Board members or such greater number as may be
required under applicable law. In the absence of such appointment, the Board
shall be the Committee. Each of the members of the Committee, in respect of any
decision at a time when the Eligible Person affected by the decision may be (or,
in the Committee's judgment is likely to become) subject to Section 162(m),
shall be an "outside director" within the meaning of Section 162(m) if the
subject Award is intended as a performance-based award for purposes of that
section. In acting on any transaction with or for the benefit of a Section 16
Person, each acting member of the Committee shall be a "non-employee director"
within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act,
unless the Committee's action is approved or ratified by the Board in advance of
the effective time of the action.
"COMMON STOCK" means the Common Stock of the Corporation.
"COMPANY" means, collectively, the Corporation and its Subsidiaries or
the Corporation or any Subsidiary, as the context requires.
"CORPORATION" means 1st Net Technologies, Inc., a Colorado corporation,
and its successors.
"DEFERRED STOCK ALTERNATIVE" mean a deferred payment alternative payable
in Shares or cash or other consideration, as determined by the Committee, based
on the number of Stock Units credited to a Participant's Stock Unit Account.
"DIVIDEND EQUIVALENT RIGHT" means a right authorized under Section 5.4
of this Plan.
"ELIGIBLE PERSON" means (subject to applicable limits under the Code in
the case of ISOs) (a) an officer, director, or employee of the Company, or (b)
any Non-Employee Director or any individual consultant or advisor who renders or
has rendered BONA FIDE services (other than services in connection with the
offering or sale of securities of the Company in a capital raising transaction)
to the Company, and who is selected to participate in this Plan by the
Committee. A non-employee agent providing BONA FIDE services to the Company
(other than as an eligible advisor or consultant) may also be selected by the
Committee as an Eligible Person if such agent's participation in this Plan would
not adversely affect (x) the Corporation's eligibility to use Form S-8 to
register under the Securities Act the offer and sale of shares issuable under
this Plan by the
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Corporation or (y) the Corporation's compliance with any other applicable laws.
"EVENT" means any of the following:
(a) the dissolution or liquidation of the Corporation;
(b) approval by the stockholders of the Corporation of an
agreement to merge or consolidate, or otherwise reorganize, with or into one or
more entities that are not Subsidiaries, as a result of which 50% or more of the
outstanding voting securities of either the surviving or resulting entity or its
parent, as the case may be, immediately after the reorganization are not and
will not be, owned, directly or indirectly, by stockholders of the Corporation
immediately before such reorganization (assuming for purposes of such
determination that there is no change in the record ownership of the
Corporation's securities from the record date for such approval until such
reorganization and that such record owners hold no securities of the other
parties to such reorganization);
(c) approval by the stockholders of the Corporation of the
sale of substantially all of the Corporation's business and/or assets as an
entirety to a person or entity that is not a Subsidiary;
(d) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act but excluding (1) any person described in and
satisfying the conditions of Rule 13d-1(b)(1) thereunder, and (2) any person or
entity (including any successor) that is a beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of more than 20% of the Corporation as of August
1, 1999), becomes the beneficial owner, directly or indirectly, of securities of
the Corporation representing more than 50% of the combined voting power of the
Corporation's then outstanding securities entitled to then vote generally in the
election of directors of the Corporation; or
(e) during any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the Board and
(without duplication in the case of successors) persons whose election or
nomination for election by the Corporation's stockholders was approved by a vote
of at least three-fourths of the Board members then still in office cease to
constitute as least a majority of the Board.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
"EXERCISE AGREEMENT" means a written agreement, approved by the
Committee, setting forth the terms for the exercise of an Award.
"FAIR MARKET VALUE" on any date shall mean:
(a) if the Shares are publicly traded: (1) if the Shares are
listed or admitted to
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trade on a national securities exchange, the closing price of the Shares on the
Composite Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the Shares are so listed
or admitted to trade, on such date, or, if there is no trading of the Shares on
such date, then the closing price of the Shares as quoted on such Composite Tape
on the next preceding date on which there was trading in such Shares; (2) if the
Shares are not listed or admitted to trade on a national securities exchange,
the last price for the Shares on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ National
Market Reporting System or a similar organization if the NASD is no longer
reporting such information; (3) if the Shares are not listed or admitted to
trade on a national securities exchange and are not reported on the National
Market Reporting System, the mean between the bid and asked price for the Shares
on such date, as furnished by the NASD or a similar organization; or
(b) if the Shares are NOT publicly traded or the NASD or a
similar organization does not furnish the mean between the bid and asked prices
for the Shares on such date, the fair market value of a Share as determined by
the Committee in good faith. Any determination as to fair market value made
pursuant to this Plan shall be determined without regard to any restriction
other than a restriction which, by its terms, will never lapse, and shall be
conclusive and binding on all persons.
"ISO" means an Option which is intended, as evidenced by its
designation, as an incentive stock option within the meaning of Section 422 of
the Code, the award of which contains such provisions and is made under such
circumstances and to such persons as may be necessary to comply with that
section.
"NQSO" means an Option that is designated as a nonqualified stock option
and shall include any Option intended to be an ISO that fails to meet the
applicable legal requirements thereof. Any Option granted hereunder that is not
designated as an incentive stock option shall be deemed to be designated a
nonqualified stock option under this Plan and not an incentive stock option
under the Code.
"NON-EMPLOYEE DIRECTOR" means a member of the Board of Directors of the
Corporation who is not an officer or employee of the Company.
"NON-EMPLOYEE DIRECTOR PARTICIPANT" means a Non-Employee Director who
holds an outstanding Award under the provisions of Article 7.
"NOTE" means a promissory note approved by the Committee evidencing a
loan from the Corporation to the Eligible Person of an amount equal to the
Purchase Price of an Award. Any Note shall be subject to the following terms:
(a) The principal of the Note shall not exceed the amount
required to be paid to
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the Corporation upon the exercise or receipt of such Award, and the note shall
be delivered directly to the Corporation in consideration of such exercise or
receipt.
(b) The term of the Note, including extensions, shall not
exceed ten (10) years.
(c) The Note shall provide for full recourse to the
Participant.
(d) The Note shall bear interest at a rate determined by the
Committee, but not less than the interest rate necessary to avoid the imputation
of interest under the Code.
(e) The unpaid balance of the Note shall become due and
payable on the tenth day after the termination of employment or service of a
Participant; provided, however, that if a sale of such shares would cause such
Participant to incur liability under Section 16(b) of the Exchange Act, the
unpaid balance shall become due and payable on the 10th business day after the
first day on which a sale of such shares could have been made without incurring
such liability assuming for these purposes that there are no other transactions
(or deemed transactions in securities of this Corporation) by the Participant
subsequent to such termination.
(f) If required by the Committee or by applicable law, the
Note shall be secured by a pledge of any Shares or Awards financed thereby (and
other collateral if required by the Committee).
(g) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall conform with
applicable rules and regulations of the Commission and the Federal Reserve
Board, as then in effect.
"OPTION" means an option to purchase Shares granted under this Plan. The
Committee shall designate any Option granted to any Eligible Person as a NQSO or
an ISO.
"PARTICIPANT" means an Eligible Person who has been granted an Award
under this Plan and a Non-Employee Director Participant who has been granted an
Award under Article 7 of this Plan.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the
disability or incompetence of a Participant, shall have acquired on behalf of
the Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive the benefits under this Plan and who shall have become the
legal representative of the Participant.
"PURCHASE PRICE" means the exercise or purchase price, if any, payable
by the Participant to the Corporation upon exercise of an Award in accordance
with the applicable Award Agreement, Exercise Agreement, and the terms of this
Plan; provided, however, that such exercise price shall not be less than the
minimum lawful consideration required under applicable state law.
"RESTRICTED STOCK" means Shares awarded to a Participant under this
Plan, subject to
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payment of such consideration, if any, and such conditions on vesting (which may
include, among others, the passage of time, specified performance objectives or
other factors) and such transfer and other restrictions as are established in or
pursuant to this Plan and the related Award Agreement, for so long as such
Shares remain unvested under the terms of the applicable Award Agreement.
"RESTRICTED STOCK AWARD" means an Award of Restricted Stock made
pursuant to Article 4.
"RETIREMENT" means retirement from employment by, or providing services
to, the Corporation or any Subsidiary which occurs, in the case of employees, at
or after the Company's normal retirement age and in accordance with the
retirement policies of the Company then in effect or, in the case of a
Non-Employee Director, a retirement or resignation as a director after age 65 or
after at least 15 years of service as a director.
"RULE 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant
to the Exchange Act, as amended from time to time.
"SECTION 16 PERSON" means a person subject to Section 16(a) of the
Exchange Act.
"SECTION 162(m)" means Section 162(m) of the Code.
"SECURITIES ACT" means the Securities Act of 1933, as amended form time
to time.
"SHARES" means shares of the Corporation's Common Stock.
"STOCK APPRECIATION RIGHT" means a right authorized under this Plan to
receive a number of Shares or an amount of cash, or a combination of Shares and
cash, the aggregate amount of or value of which is determined by reference to a
change in the Fair Market Value of the Common Stock.
"STOCK BONUS" means an Award of Shares granted under this Plan for no
consideration other than past services and without restriction other than such
transfer or other restrictions as the Committee may deem advisable to assure
compliance with law.
"STOCK UNIT" means a non-voting unit of measurement which is deemed for
bookkeeping purposes to be equivalent to one outstanding share of the
Corporation's Common Stock (subject to adjustment) solely for purposes of this
Plan.
"STOCK UNIT ACCOUNT" means the bookkeeping account maintained by the
Corporation on behalf of each Participant who is credited with Stock Units in
accordance with Article 6, which account may be payable in cash, Shares and/or
other consideration, as the Committee may determine.
"SUBSIDIARY" means any corporation or other entity a majority or more of
whose
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outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"TOTAL DISABILITY" means a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions, or conditions as the Committee by rule may include.
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EXHIBIT A
1ST NET TECHNOLOGIES, INC.
ELIGIBLE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the _____ day of _____________, ____, between
1st Net Technologies, Inc. a Colorado corporation (the "Corporation"), and
________________ (the "Director").
W I T N E S S E T H
WHEREAS, the Corporation has adopted and the stockholders of the
Corporation have approved the 1st Net Technologies, Inc. 1999 Stock Incentive
Plan, as amended (the "Plan").
WHEREAS, pursuant to Article 7 of the Plan, the Corporation has granted
an option (the "Option") to the Director upon the terms and conditions evidenced
hereby, as required by the Plan, which Option is not an incentive stock option
within the meaning of Section 422 of the Code.
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by the Director, the Corporation and the Director agree to the terms
and conditions set forth herein as required by the terms of the Plan.
1. OPTION GRANT. This Agreement evidences the grant to the
Director, as of ___________, ____ (the "Option Date"), of an Option to purchase
an aggregate of _____ shares of Common Stock, par value _____ per share, under
Section 7.2 of the Plan, subject to the terms and conditions and to adjustment
as set forth herein or in the Plan.
2. EXERCISE PRICE. The Option entitles the Director to purchase
(subject to the terms of Sections 3 through 5 below and to the extent
exercisable) all or any part of the Option shares at a price per share of
$_______, which amount represents the Fair Market Value of the shares on the
Option Date.
3. OPTION EXERCISABILITY AND TERM. The Option shall first become
and remain exercisable as to 25% of the Option shares on the first anniversary
of the Option Date, and as to an additional 25% of the Option shares on each of
the next three anniversaries of that date, in each case subject to adjustment,
acceleration, and termination under Section 7.6 of the Plan. The Option shall
terminate ____________, ____, unless earlier terminated in accordance with the
terms of the Plan.
<PAGE> 32
4. SERVICE AND EFFECT OF TERMINATION OF SERVICE. The Director
agrees to serve as a director in accordance with the provisions of the
Corporation's Certificate of Incorporation, bylaws and applicable law. If the
Director's services as a member of the Board shall terminate, this Option shall
terminate at the times and to the extent set forth in Section 7.5 of the Plan.
5. GENERAL TERMS. The Option and this Agreement are subject to, and
the Corporation and the Director agree to be bound by, the provisions of the
Plan that apply to the Option. Such provisions are incorporated herein by this
reference. The Director acknowledges receiving a copy of the Plan and reading
its applicable provisions. Capitalized terms not otherwise defined herein shall
have the meaning assigned to such terms in the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
1ST NET TECHNOLOGIES, INC.
(a Colorado corporation)
By:
-------------------------------------
Title:
----------------------------------
Optionee Director
- ----------------------------------------
(Signature)
- ----------------------------------------
(Print Name)
- ----------------------------------------
(Address)
- ----------------------------------------
(City, State, Zip Code)
<PAGE> 33
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Stock Option
Agreement by 1st Net Technologies, Inc., I, ____________________________, the
spouse of the Director therein named, do hereby agree to be bound by all of the
terms and provisions thereof and of the Plan.
DATED: __________________, 19__.
- ----------------------------------------
(Signature of Spouse)
<PAGE> 1
EXHIBIT 4.7
1ST NET TECHNOLOGIES, INC.
1999 NONQUALIFIED STOCK OPTION PLAN
1. PURPOSE: This Non-Qualified Stock Option Plan (the "Plan") is
intended to serve as an incentive to and to encourage stock ownership by certain
directors, officers, employees of, and certain persons rendering service to, 1st
Net Technologies, Inc., a Colorado corporation (the "Corporation"), so that they
may acquire or increase their proprietary interest in the success of the
Corporation, and to encourage them to remain in the Corporation's service.
2. ADMINISTRATION: The Plan shall be administered by the
Compensation Committee appointed by the Corporation's Board of Directors (the
"Committee"). The Committee shall consist of not less than two (2) members who
shall be appointed by, and serve at the pleasure of, the Corporation's Board of
Directors. The Board of Directors may from time to time remove members from, or
add members to, the Committee. Vacancies on the Committee, however caused, shall
be filled only by the Board of Directors. The Committee shall select one of its
members as Chairman, and shall hold meetings at such times and places as it may
determine. Acts by a majority of the Committee in a meeting at which a quorum is
present and acts approved in writing by a majority of the members of the
Committee shall be the valid acts of the Committee. No member of the Committee
shall vote on any matter concerning his or her own participation in the Plan,
except that the Board of Directors as a whole may act on options granted to
directors.
The Committee shall be authorized to grant options under the Plan to
such directors, officers, employees of, and other persons rendering service to,
the Corporation, or any parent or subsidiary corporation of the Corporation, as
defined for purposes of Internal Revenue Code Section 422A ("Parent" or
"Subsidiary"), at such times and in such amounts as it may decide.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. No member of the Committee or Board of
Directors shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
3. ELIGIBILITY
3.1 GENERAL: Any person who performs services of special
importance to the Corporation, or any Parent or Subsidiary thereof, relating to
the Corporation's management, operation or development shall be eligible to
receive options under the Plan. The selection of options recipients shall be
within the sole and absolute discretion of the Committee or the Board of
Directors.
3.2 TERMINATION OF ELIGIBILITY: Except as determined by the
Corporation's Board of Directors, any option granted hereunder shall expire if,
for any reason other than his or her death, the optionee (i) ceases to be
employed by the Corporation, or a Parent or Subsidiary thereof; (ii) is no
longer a member of the Corporation's Board of Directors; or (iii) no longer
performs services for the Corporation as an independent contractor. Except as
determined by the Corporation's Board of Directors, the expiration of the option
will take effect at the earliest of the following times: four (4) months from
the date of the occurrence causing termination of eligibility (twelve (12)
months if the
<PAGE> 2
optionee's eligibility ceases because of his or her disability), or upon the
date the option expires by its terms. During such four-month period, the option
may be exercised in accordance with its terms, but only in respect of the number
of shares for which the right to exercise has accrued on the date of termination
of employment, or status as a director or independent contractor. The Committee
shall decide whether an authorized leave of absence for any reason shall
constitute termination of eligibility for purposes of this Section 3.2. This
determination shall be subject to review and approval by the Board of Directors.
3.3 DEATH OF OPTIONEE AND TRANSFER OF OPTION: If the
optionee dies while eligible to participate in the Plan, or within four (4)
months after the termination of his or her eligibility, and shall not have fully
exercised the option, the option may be exercised at any time within twelve (12)
months after the optionee's death by the optionee's executors or administrators
or by any person or persons who acquired the option directly from the optionee
by bequest or inheritance. However, no option shall be exercisable after it
expires; and options may be exercised only to the extent that the optionee's
right to exercise the option had accrued at the time of his or her death and had
not been previously exercised.
No option shall be transferable by the optionee otherwise than by will
or the laws of intestate succession.
4. IDENTIFICATION OF STOCK: The stock subject to the options shall
be shares of the Corporation's authorized but unissued or acquired or reacquired
Common Stock (the "Stock"). The aggregate number of shares subject to
outstanding options shall not exceed 5,000,000 shares of Stock (subject to
adjustment as provided in Section 5.6). If any option granted hereunder shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for purposes of this
Plan.
5. TERMS AND CONDITIONS OF OPTIONS: Except as determined by the
Corporation's Board of Directors, any option granted pursuant to the Plan shall
be evidenced by an agreement in such form as the Committee shall from time to
time determine, which agreement shall comply with and be subject to the
following terms and conditions:
5.1 NUMBER OF SHARES: Each option shall state the number of
shares to which it pertains.
5.2 OPTION EXERCISE PRICE: Each option shall state the
option price, which shall be not less than 100 percent of the fair market value
of the Stock subject to the option on the date of granting the option, unless
otherwise determined at the Committee's or Board of Directors' discretion.
5.3 METHOD OF EXERCISE: An option shall be exercised by
written notice to the Corporation stating the number of shares with respect to
which the option is being exercised and designating a time for the delivery
thereof, which shall be at least fifteen (15) days after notice is
2
<PAGE> 3
given unless an earlier date was mutually agreed upon. At the time specified in
the notice, the Corporation shall deliver to the optionee at the Corporation's
principal office, or other appropriate place the Committee determines, a
certificate(s) for such shares of previously authorized but unissued shares or
acquired or reacquired shares of Stock as the Corporation may elect.
Notwithstanding the foregoing, the Corporation may postpone delivery of any
certificate(s) after notice of exercise for any reasonable period required to
comply with any applicable listing requirements of any national or other
securities exchange. In the event an option shall be exercisable by any person
other than the optionee, the required notice under this Section 5.3 shall be
accompanied by appropriate proof of such person's right to exercise the option.
5.4 MEDIUM AND TIME PAYMENT: The option price shall be
payable in full upon the exercise of the option by certified or bank cashier's
check, a promissory note of the optionee acceptable to the corporation, or any
equivalent form of payment acceptable to the Corporation.
5.5 TERM OF OPTION: The term of an option granted hereunder
shall be determined by the Committee at the time of grant, but shall not exceed
10 years from the date of the grant. In no event shall any option be exercisable
after the expiration of its term.
5.6 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION: Subject to
any required stockholder action, the number of shares of stock covered by each
outstanding option and the price per share in each such option shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Corporation resulting from: (i) a subdivision or
consolidation of shares; (ii) the payment of a stock dividend (but only on the
Stock); (iii) any other increase or decrease in the number of such shares
effected without receipt of consideration by the Corporation; (iv) or, as to
Stock issued other than pursuant to a stock option granted to a director,
officer, employee of a person rendering services as an independent contractor to
the Corporation or any Parent or Subsidiary, any increase or decrease in the
number of shares made for per share consideration less than the option price of
such option. Any fraction of a share subject to option that would otherwise
result from an adjustment pursuant to this subparagraph shall be rounded
downward to the next full number of shares without other compensation or
consideration to the holder of the option.
Subject to any required stockholder action, if the Corporation shall be
the surviving corporation in any merger or consolidation, each outstanding
option shall pertain and apply to the securities to which a holder of the number
of shares of Stock subject to the option would have been entitled. The
Corporation's Board of Directors may grant each optionee the right to exercise
his or her option in whole or in part immediately prior to the Corporation's
dissolution or liquidation, or merger or consolidation in which the corporation
is not the surviving corporation. If the Corporation is consolidated with or
merged into any other corporation, or if the Corporation sells or transfers all
or substantially all of its assets, or if any other similar event affecting
shares of Stock of the Corporation should occur, and if the exercisability of
the options is not accelerated by the Board of Directors and the acquiring
Corporation assumes the Corporation's obligations under the options granted
under this Plan, then each optionee shall be entitled thereafter to purchase
shares of stock
3
<PAGE> 4
and other securities and property in the kind and amount, and at the price,
which the optionee would have been entitled had his or her option been exercised
prior to such event. The Corporation shall make lawful provision therefore as
part of any such transaction.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, they shall be made by the Committee, whose
determinations shall be final, binding and conclusive.
The grant of an option pursuant to the Plan shall not affect in any way
the Corporation's right or power to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure,or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
Whenever the Corporation takes any action resulting in any adjustment
provided for in this Section 5.6, the Corporation shall forthwith deliver notice
of the action to optionee. The notice shall set forth the number of shares
subject to this Option and the purchase price thereof resulting from the
adjustment.
5.7 RIGHTS AS A STOCKHOLDER: An optionee or a transferee of
an option shall have no rights as a stockholder with respect to any shares
underlying his or her option until the date the optionee is issued a certificate
for such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 5.6 above.
5.8 MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS: Subject
to the terms and conditions and within the limitations of the Plan, the
Committee may modify, extend or renew outstanding options granted under the
Plan, or accept the surrender of outstanding options (to the extent not
theretofore exercised) and authorize the granting of new option in substitution
therefore (to the extent not theretofore exercised).
5.9 OTHER PROVISIONS: The option agreements authorized under
the Plan shall contain such other provisions, including without limitation,
restrictions upon the exercise of the option, as the Committee and the Board of
Directors of the Corporation shall deem advisable. The Committee and the Board
of Directors may expressly require that all or any portion of an option granted
hereunder not be exercisable until a specified period of time has passed or some
other event has occurred. The Committee and the Board of Directors may allow the
Corporation to loan money to an optionee in an amount sufficient for such
optionee to purchase the shares underlying his or her option upon the exercise
of same.
6. TERM OF PLAN: Options may be granted pursuant to the Plan from
time to time within a period of 10 years from the date the Plan is adopted by
the Corporation's Board of Directors or is approved by the Corporation's
stockholders, whichever occurs earlier. Termination of the Plan shall not affect
any option previously granted.
7. AMENDMENT OF THE PLAN: To the extent permitted by law and
4
<PAGE> 5
subject to any required approval by the Corporation's stockholders, the Board of
Directors may suspend or discontinue the Plan or revise or amend it in any way
with respect to any shares not subject to options at that time.
8. APPLICATION OF FUNDS: The proceeds received by the Corporation
from the sale of Stock pursuant to options may be used for general corporate
purposes.
9. NO OBLIGATION TO EXERCISE OPTION: The granting of an option
shall impose no obligation upon the optionee to exercise such option.
10. APPROVAL OF STOCKHOLDERS: The Plan shall not take effect until
approved by the holders of a majority of the outstanding shares of Common Stock
of the Corporation and by the Board of Directors or its Executive Committee.
11. SECURITIES LAWS COMPLIANCE: Notwithstanding anything contained
herein, the Corporation shall not be obligated to grant any option under this
Plan, or to sell or issue any share pursuant to any option agreement executed
pursuant to the Plan, unless the grant or sale is effectively registered or
exempt from registration under the Securities Act of 1933, as amended, and is
qualified or exempt from qualification under the California Corporate Securities
Law of 1968, as amended.
As adopted by the Board of Directors on January 4, 1999.
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
----------------------------------------
Gregory D. Writer, Jr., Director
----------------------------------------
Mary Writer, Director
----------------------------------------
James Watson, Jr., Director
----------------------------------------
Clifford Smith., Director
5
<PAGE> 1
EXHIBIT 10.1
INVESTMENT BANKING AGREEMENT
THIS INVESTMENT BANKING AGREEMENT (this "Agreement") is entered into as
of the 1st day of March 1998 (the "Effective Date") by and between 1ST NET
TECHNOLOGIES, INC., a Colorado company ("Company"), on the one hand, and
ENTREPRENEUR INVESTMENTS, LLC, a Colorado limited liability company ("EI"), on
the other hand, with reference to the facts set forth in the Recitals below:
R E C I T A L S
A. COMPANY. Company requires expertise in the area of investment
banking to support its business and growth. Company now desires to engage an
advisor to assist it in sourcing of equity capital through investment from
private investors.
B. EI. EI is an unlicensed private investment banking firm involved
in the private solicitation, and sale of securities. EI has substantial contacts
among certain members of the investment community, and has substantial
investment banking expertise. EI now desires to act as an independent contractor
to Company in order to provide investment banking and advisory services
concerning the procurement of equity capital for Company.
C. PURPOSE. In order to facilitate the funding of Company's capital
needs, the parties desire to enter into this Agreement upon the terms and
conditions set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, the adequacy of which is hereby expressly acknowledged, and
subject to the terms and conditions set forth herein, the parties hereby agree
as follows:
1. APPOINTMENT OF AGENT.
1.1 AGENCY. On the basis of the representations, warranties
and covenants contained herein, and subject to the terms and conditions herein
set forth, Company hereby appoints EI as its non-exclusive agent for the purpose
of identifying a purchaser (or purchasers) and selling the Company's equity
securities on a "best efforts" basis. Company has initially engaged EI hereby
for purposes of raising on a best efforts basis up to $1,000,000 for Company
pursuant to a Regulation D, Rule 504 private offering.
1.2 BEST EFFORTS. EI accepts such agency and shall use its
best efforts to secure equity investment from private investors.
1.3 NO FIRM COMMITMENT. Company and EI agree that there is
no "firm commitment" on the part of EI to purchase or to sell any of the
Company's equity.
1
<PAGE> 2
1.4 ADDITIONAL SERVICES. EI shall additionally provide the
following services to Company:
1.4.1 ADVICE AND COUNSEL. EI shall provide advice and
counsel to Company regarding its strategic business and financial plans, as well
as strategies for negotiations (and direct negotiation, as requested) with
prospective (a) lenders and investors, (b) mergers, acquisition or joint venture
candidates, and (c) corporate partners or other participants in financial or
investment-related transactions.
1.4.2 INTRODUCTIONS TO SECURITIES COMMUNITY. EI shall
facilitate communications between Company and EI's national network of
investors, investment professionals, and broker-dealers. Specifically, EI shall
utilize its contacts in the securities brokerage community to assist Company in
possibly establishing relationships with securities dealers and shall provide
the most recent corporate information concerning Company to interested
securities dealers on a continuous and regular basis. EI expressly acknowledges
and understands that this function is consistent with Company's objective of
establishing a nationwide network of securities dealers who have an interest in
Company.
1.4.3 MARKET-MAKING INTELLIGENCE. EI is a venture and
private, unlicensed market-maker in various securities and has access through
its facilities and personnel to proprietary industry information. EI shall react
to sensitive market information on a timely basis and provide Company with
advice, counsel and proprietary intelligence (including but not limited to
information on price, volume and identification of potential market-makers,
placement agents and investors) in a timely manner. Company expressly
acknowledges that this information may be available from other sources but that
EI may provide it in a more timely manner or with significant value-added
interpretation of such information. Notwithstanding, no information shall be
provided to Company with respect to the activities of any other present or
former client of EI or its principals without such client's express prior
consent.
1.4.4 DUE DILIGENCE. EI shall undertake extensive due
diligence with respect to all proposed financial transactions of Company for
which EI is the procuring broker, including the investigation and advice
concerning possible terms of any securities transaction which may relate
(without limitation) to the valuation of the price of securities, dividend and
liquidation preferences, management control and voting issues, and securities
redemption.
1.4.5 OPTIONAL DUTIES. The parties may mutually agree
upon additional duties which EI may provide for additional compensation to be
paid by Company. Such additional agreement(s) and additional compensation shall
be attached hereto as Exhibit "A" and thereby made a part hereof.
1.4.6 BEST EFFORTS. EI shall devote such time and best
efforts as may be reasonably necessary to perform its services. EI is not
responsible for the performance of any services which may be rendered hereunder
without Company's timely provision of necessary
2
<PAGE> 3
information to EI. EI cannot guarantee results on behalf of Company, but shall
pursue all avenues available to it through its network of investment contacts.
At such time as an interest is expressed in Company, EI shall notify Company and
advise it as to the source and proposed terms and conditions of such interest.
Company expressly authorizes EI to negotiate on its behalf during the term of
its agency hereunder; provided, however, that the acceptance and consummation of
any transaction is subject to Company's acceptance of the terms and conditions
of the investment. Company expressly understands and agrees that a portion of
the compensation to be paid to EI hereunder is to ensure EI's availability to
assist Company with possible corporate financial or securities transactions
during the term hereof on an as-needed basis.
2. COMPENSATION TO EI. As compensation for the services of EI
hereunder, Company shall pay to EI the following non-refundable fee:
2.1 FEE. Company shall pay EI an initial fee of $30,000 for
activities necessary for EI to provide the services herein. This fee shall be
deemed in arrears if EI does not receive a stock certificate by the 60th
business day after the Effective Date.
2.2 NO SUCCESS FEE. The Company shall not be obligated to
pay EI a success fee from the gross proceeds from the issuance and sale of any
common or preferred stock or convertible securities of Company the buyer of
which was referenced to Company by EI.
2.3 NO EXPENSE REIMBURSEMENT. Company shall not be
responsible for reimbursement of EI's expenses, actually incurred in connection
with their services under this Agreement.
3. COVENANTS AND REPRESENTATIONS OF EI.
3.1 COMPLIANCE. EI shall comply with all rules and
regulations applicable to it in connection with the offer and sale of Companies'
securities and shall provide to all offerees and purchasers any and all
disclosure materials prepared by Company and provided to EI in accordance with
such rules and regulations.
3.2 CONFIDENTIALITY. EI shall keep confidential all material
non-public information provided to it by Company, except as required by law.
3.3 MATERIALS. EI shall use only the disclosure memorandum
prepared by Company and such other documents as Company may approve in writing
prior to their use, in connection with the offer and sale of Company's
securities. EI shall not furnish to a prospective investor who has expressed an
interest in purchasing equity any documents other than those referred to in the
preceding sentence, and shall not make any representations to a prospective
investor concerning Company or its business operations or financial condition,
past, present or future, other than as set forth in the documents referred to in
the preceding sentence. In the event EI furnishes any document
3
<PAGE> 4
approved by Company to a prospective investor and such prospective investor
elects not to purchase equity, EI shall attempt to obtain from such prospective
investor such documents and all copies thereof.
3.4 LITIGATION. There is not now pending or, to the
knowledge of EI, threatened against EI any action or proceeding of which EI has
been advised, either in any court of competent jurisdiction, before the SEC or
any state securities commissioner, nor has EI been named as a "cause" in any
action or proceeding.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY.
In order to induce EI to enter into this Agreement, Company
represents and warrants to EI that:
4.1 FORMATION. Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Colorado, with corporate power and authority to own its properties and
conduct its businesses as they are presently being carried on.
4.2 VIOLATIONS OF CONTRACTS. Company is not in violation of
its Articles of Incorporation or Bylaws or in default of the performance of any
obligation, agreement and consideration contained in any lease agreement or in
any note or any other evidence of indebtedness or in any material contract or
loan agreement of Company or any of its subsidiaries. The execution and delivery
of this Agreement, the fulfillment of the terms set forth herein and in the
consummation of the transactions contemplated hereby will not conflict with or
constitute a breach of, or default under, the Articles of Incorporation or
Bylaws of Company, any agreement, indenture or other instrument by which Company
is bound, or any law, administrative regulation or court decree.
4.3 AUTHORITY. Company has full legal right, power and
authority to enter into this Agreement, and this Agreement has been duly and
validly executed and delivered by Company and constitutes the valid and legal
binding agreement of Company enforceable in accordance with its terms.
4.4 VALID ISSUANCE OF SECURITIES. All of the outstanding
securities of Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
4.5 LITIGATION. There is no litigation or governmental
proceeding pending or threatened against or involving Company not previously to
EI which might adversely affect Company.
4.6 DISCLOSURE DOCUMENTS AND AGREEMENTS. Prior to the sale
of any securities or entering into any commitment for such sale, Company shall
prepare all necessary agreements and related transaction documents with regard
to such proposed issuance. The documents shall contain, among other things,
appropriate limitations on the manner of offering and sale of securities,
4
<PAGE> 5
representations, warranties, covenants, opinions of counsel, letters of
independent public accountants (if appropriate) and closing conditions, all with
accurate factual representations.
5. INDEMNIFICATION. Company shall indemnify and hold harmless EI,
and each person, if any, who controls EI, against any and all loss, liability,
claim, damage and expense whatsoever caused by any untrue statement or alleged
untrue statement of a material fact contained in the disclosure documents (as
from time to time amended and supplemented), or caused by the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such loss, liability, claim, damage or expense caused by any such untrue
statement or omission or alleged untrue statement or omission is based upon
information furnished to Company by EI expressly for use in the disclosure
documents or the result primarily of the recklessness or bad faith of EI. If any
action is brought against EI in respect of which indemnity may be sought under
this Section 5, EI shall promptly notify Company in writing of the institution
of such action, and Company shall immediately assume the defense of such action.
6. MISCELLANEOUS.
6.1 EXCLUSIVITY. This Agreement has been and is made solely
for the benefit of EI and Company and the controlling persons, directors and
officers referred to herein, and their respective successors and assigns and no
other person shall acquire or have any right under or by virtue of this
Agreement.
6.2 CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
reference to principles of conflicts of law.
6.3 LEGAL FEES. If any legal action or arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful party or parties shall be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which they shall be
entitled.
6.4 AUTHORIZATION. EI is authorized to: (i) contact
directors, officers, accountants, counsel or other key personnel; (ii) visit
Company facilities and corporate offices; and (iii) perform any other
investigative activity which EI deems appropriate. In accordance with the
federal Privacy Act, Freedom of Information Act and the Fair Credit Reporting
Act and other applicable laws, Company hereby authorizes EI and its agents to
obtain information from third parties concerning Company, and hereby waives any
rights concerning such information which may be obtained.
[SIGNATURES ON FOLLOWING PAGE]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the Effective Date.
ENTREPRENEUR INVESTMENTS, LLC,
a Colorado limited liability company
/s/ JAMES WATSON, JR.
----------------------------------------
James Watson, Jr.,
Managing General Partner
1ST NET TECHNOLOGIES, INC,
a Colorado corporation
/s/ GREGORY D. WRITER, JR.
----------------------------------------
Gregory D. Writer, Jr.,
Chief Executive Officer
6
<PAGE> 1
EXHIBIT 10.2
Confidential treatment requested under 5 U.S.C. Section 552(b)(4) that provides
an exemption from public disclosure of confidential financial information.
* indicates omitted material that is the subject of a confidential treatment
request that is filed separately with the Commission.
INTERNET MARKETING
&
JOINT VENTURE AGREEMENT
THIS AGREEMENT made and entered into on this 14th day of January, 1999, by and
between 1st NET Technologies, Inc., a Colorado Corporation, having offices at
11423 West Bernardo Court, San Diego, California 92127 (hereafter referred to as
1st NET) and Nicklebys.com, Inc., a Colorado Corporation, (hereafter referred to
as N.C.I.) having its principal office at 1422 Delgany Street, Suite 12, Denver,
CO, 80202
WITNESSETH:
WHEREAS, 1stNET & N.C.I. are desirous of entering into this Agreement
whereby 1stNET will provide Internet marketing, web site design,
maintenance, hosting and public relations services for N.C.I. as an
independent contractor; and
WHEREAS, the parties hereto desire to enter into an Agreement which will
define their rights and responsibilities toward each other.
NOW, THEREFORE, in consideration of the mutual covenants and conditions herein
contained, the parties hereto agree as follows:
1 1stNET shall at all times act as an independent contractor in the
transaction of its business and shall conduct its activities in accordance
with the recognized practices of the industry. Nothing contained in this
Agreement shall be construed to create the relationship of employer and
employee between N.C.I. and 1stNET.
2 This Agreement shall commence on the date hereof and shall remain in full
force and effect from the date of it's commencement until cancelled by the
parties for any of the following reasons:
a) If either entity that is a party to this Agreement shall be sold, merged
and/or acquired by an outside group or entity whereby the existing
management and/or Board of Directors are no longer in control of the affairs
of the surviving Company.
b) Dishonesty related to any act or actions by either party
c) Violation of any rule or regulation of any regulatory agency by either
party
d) Any other neglect, act or omission detrimental to the business of affairs
of either party
3 To the best of its abilities, 1st NET shall perform the services as outlined
in the paragraph below:
The focus and purpose of 1st NET's Internet Services is to create an
effective presence on the Internet for its client companies. Through a
structured program, designed to be all encompassing, 1st NET and its
clients can accomplish this goal. There are three main areas on which we
focus: 1) The dissemination and presentation of all pertinent corporate
information, 2) The comprehensive marketing of the client's web site
content in an effective method, and 3) The development and maintenance of
a structured, user database.
<PAGE> 2
4 1stNET shall be responsible for the payment of all expenses and taxes or
other liabilities, which 1stNET incurs due to the receipt of any
compensation as a result of this Agreement.
5 1stNET shall be free to exercise its own judgment as to the time, place and
manner of its actual marketing and public relations activities related to
this Agreement. N.C.I. acknowledges that 1stNET is engaged in other business
activities and that it will continue such activities during the term of this
Agreement. 1stNET shall not be restricted from engaging in other business
activities during the term of this Agreement.
6 Neither during the term of this Agreement nor thereafter shall 1stNET use
any information acquired by them in a manner adverse to the interests of
N.C.I. or do any act to damage the goodwill of N.C.I. 1stNET shall supply to
N.C.I., upon request, all sources of information and shall not make an
untrue statements or misrepresentations, nor fail to state any material fact
to N.C.I. 1stNET shall indemnify and hold N.C.I. harmless from the claim of
any client or company due to any allegation of fraud or misrepresentation
from any and all damages related thereto. This provision shall survive the
termination of this Agreement.
7 1stNET understands and agrees that in performance of its duties hereunder
they will have certain confidential and proprietary information
("information") concerning N.C.I., some of which are confidential,
proprietary and may be trade secrets of N.C.I. 1stNET agrees to hold all of
such information within its own organization and shall not, without the
prior written consent of an authorized officer of N.C.I. utilize,
communicate, or otherwise disclose said information, or any part thereof, to
any third party in any manner.
8 [*]
9 Monthly fees may be increased to fulfill the requirements of N.C.I. as
mutually agreed upon by both parties.
10 In the event that any claim, lawsuit or controversy arises or is brought
against N.C.I. or 1stNET as a result of any action or inaction of 1stNET or
N.C.I., the expenses incurred, including reasonable attorney's fees shall be
borne by the losing party.
11 This Agreement shall supersede all former agreements, which may have existed
between the parties hereto, whether oral or written. Neither party may
assign this contract nor any payment nor benefits to which the parties may
become entitled, without prior written consent.
12 This Agreement shall be deemed a California contract and governed by the
laws thereof. Any provision of this Agreement prohibited by the laws of any
state shall, as to such state, be ineffectual only to the extent of such
prohibition and shall not invalidate the remaining provisions of this
Agreement.
<PAGE> 3
13 Any controversy or claim arising out of or relating to this contract, or the
breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
IN WITNESS HEREOF, the parties hereto have executed this document as of the date
and year written below.
FOR: NICKLEBY'S.COM
BY: /s/ Bruce Capra Date:
----------------------------- ---------------------
Bruce Capra, CEO
Nicklebys.com, Inc.
FOR: 1ST NET TECHNOLOGIES, INC.
BY: /s/ Cliff Smith Date:
----------------------------- ---------------------
Cliff Smith, President
1st Net Technologies, Inc.
<PAGE> 1
EXHIBIT 10.3
Confidential treatment requested under 5 U.S.C. Section 552(b)(4) that provides
an exemption from public disclosure of confidential financial information.
* indicates omitted material that is the subject of a confidential treatment
request that is filed separately with the Commission.
WEB SITE DEVELOPMENT, SERVICE
AND
REVENUE SHARING AGREEMENT
THIS WEB SITE DEVELOPMENT, SERVICE AND REVENUE SHARING AGREEMENT (the
"Agreement"), is entered as of April 1, 1999, by and between 1st NET
TECHNOLOGIES, INC., a Colorado corporation ("1st NET"), and NO FEAR, INC., a
California corporation ("NO FEAR").
BACKGROUND RECITALS
A. 1st NET is in the business of providing electronic commerce ("e-commerce")
consultation and implementation services to businesses desiring to market
products or information over the Internet.
B. 1st NET's services range from the original conceptual planning of e-commerce
solutions for its customers through the design, development, testing, and
ongoing commercial operation of its customer's e-commerce operations using the
resources of the Internet and a custom World Wide Web site tailored to a
customer's e-commerce needs.
C. NO FEAR desires to contract with 1st NET to design, develop and install a Web
Site for NO FEAR, and to provide the following services that are required to
make the Web Site developed by 1st NET for NO FEAR operational for the duration
of this Agreement:
(1) Host and maintain the Web Site developed by 1st NET for NO FEAR;
(2) Maintain the Code and ongoing technical operation of the NO FEAR Web
Site;
(3) Update the Content and information contained on the NO FEAR Web Site
from time to time as required to reflect changing NO FEAR Web Products, prices
and terms of sales;
(4) Maintain a current inventory status on the NO FEAR Web Site to
reduce the chance of orders being placed for out of stock NO FEAR Web Products;
(5) Accept on-line electronic orders from Purchasers for NO FEAR Web
Products placed through the NO FEAR Web Site;
(6) Provide purchaser and NO FEAR Web Product order fulfillment
information to NO FEAR as it is received through the NO FEAR Web Site;
(7) Notify Purchasers when NO FEAR Web Products are shipped and process
electronic payments for merchandise purchased through the NO FEAR Web Site on
behalf of NO FEAR;
(8) Arrange for the electronic transmission of net order proceeds to NO
FEAR; and
(9) Forward comments and service requests from Purchasers and other Web
Site users to NO FEAR for action and response.
D. NO FEAR commits to support the NO FEAR Web Site and its e-commerce presence
on the Internet during the term of this Agreement by:
<PAGE> 2
(1) Making certain styles of NO FEAR's brand name products as NO FEAR
Web Products available for purchase through the Web Site;
(2) Advertising and promoting the NO FEAR Web Products offered on the NO
FEAR Web Site and the availability of the NO FEAR Web Products for direct
purchase over the Internet at the NO FEAR Web Site in NO FEAR's print,
electronic and other advertising;
(3) Providing 1st NET with such information regarding the NO FEAR Web
Products, pricing and terms of sale as 1st NET requires to maintain the Web Site
on an ongoing basis;
(4) Providing 1st NET with ongoing NO FEAR Web Product inventory
information so that NO FEAR Web Products which are not available can be removed
from the NO FEAR Web Site or the anticipated availability dates can be posted on
the NO FEAR Web Site;
(5) Filling orders for NO FEAR Web Products promptly when they are in
inventory;
(6) Providing 1st NET with ongoing status information on all pending
orders to enable 1st NET to provide the order status information to Purchasers
who have placed orders for NO FEAR Web Products through the NO FEAR Web Site;
(7) Promptly notifying 1st NET after NO FEAR Web Products are shipped by
NO FEAR, so 1st NET can notify the Purchaser and conclude the processing of
Purchaser's payment; and
(8) Providing Purchaser support services and facilities to handle
comments and service requests by Purchasers, NO FEAR Web Products returns, and
Purchaser refunds.
E. This Agreement sets forth the terms and conditions applicable to the range of
services to be provided by each party and each party's obligations to the other.
NOW THEREFORE, in consideration of the mutual covenants herein contained and for
other valuable consideration, the parties agree as follows:
1.0 DEFINITIONS.
1.1 "CGI" means a "Common Gateway Interface" that is a standard for
running external programs under a WWW HTTP server. External programs are known
as "gateways" because they provide an interface between an external source of
information and the server.
1.2 "Code" means a set of instructions (in human readable or binary form
or both) conforming to a specified protocol that will cause a specified computer
to function in the manner intended by the programmer. Code may include HTML,
CGI, Java applets, Active X, VRML, C++, as well as graphics and sound files.
1.3 "Content" means the NO FEAR Web Product descriptions, pricing,
terms, conditions and other information provided by NO FEAR.
1.4 "Deliverables" means all of the Code and other materials developed
or modified by 1st NET for the NO FEAR Web Site pursuant to this Agreement, but
does not include any third-party software or other materials unless they are
specifically identified for inclusion as part of the Deliverables.
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<PAGE> 3
1.5 "1st NET Products" means the products or merchandise of 1st NET or
any affiliates of 1st NET which are approved by NO FEAR for sale using the
resources provided by the NO FEAR Web Site, as provided in Section 5.1 hereof.
1.6 "1st NET Net Sales" means the gross price at which the 1st NET
Products are sold through the NO FEAR Web Site or a NO FEAR Web Browser, less
the following items of expense to the extent to which they are paid or allowed
and included in the gross price, trade or quantity discounts, credits or refunds
for returned or rejected 1st NET Products, handling and/or delivery charges, and
sales taxes, use taxes or turnover taxes on the sales price of the 1st NET
Products.
1.7 "1st NET Subcontractor" means any third party subcontractor hired by
or otherwise working through 1st NET.
1.8 "Home Page" means the top level or initial Web Page in a collection
of linked Web Pages making up a Web Site.
1.9 "Host" or "Hosting" means to place and provide access to a Web Site
on a Web Server in such a manner that it can be viewed by third parties over the
Internet.
1.10 "Initial Period" shall mean the period commencing on the Start Date
and ending on the last day of the twelfth (12th) month after the month which
includes the Start Date.
1.11 "Internet" means the world-wide network of networks of computers,
which provides electronic mail and WWW access in addition to other specialized
communication services.
1.12 "NO FEAR Net Sales" means the gross price at which the NO FEAR Web
Products are sold through the NO FEAR Web Site, less the following items of
expense to the extent to which they are paid or allowed and included in the
gross price: trade or quantity discounts, credits or refunds for returned or
rejected NO FEAR Web Products, handling and/or delivery charges, and sales
taxes, use taxes or turnover taxes on the sales price of the NO FEAR Web
Products.
1.13 "NO FEAR Web Browser" means a Web Browser custom designed by 1st
NET to incorporate the NO FEAR trademark and various extreme sports themes.
1.14 "NO FEAR Web Product(s)" means those certain styles of NO FEAR's
products which are made available by NO FEAR for purchase and sale through the
NO FEAR Web Site.
1.15 "NO FEAR Web Site" means the Web Site designed, developed and
installed by 1st NET for NO FEAR pursuant to this Agreement and accepted by NO
FEAR.
1.16 "Purchaser(s)" means the individuals or entities placing orders for
NO FEAR Web Products through the facilities provided by the NO FEAR Web Site.
1.17 "Start Date" means the date that the NO FEAR Web Site is accessible
to Internet users and is fully operational as provided in the Section 2.4
hereof.
1.18 "3P Advertising" means the advertising of third parties which are
approved by NO FEAR for display on the NO FEAR Web Site, as provided in Section
5.1 hereof.
1.19 "URL" means a Uniform Resource Locator and is an address recognized
by the Internet at which a Web Server, Web Page or other information may be
found.
3
<PAGE> 4
1.20 "Web Browser" means the software designed to allow interactive
access to the WWW (and in some cases to other Internet resources as well),
including, but not limited to, Netscape Navigator and Microsoft Internet
Explorer.
1.21 "Web Page" means the Code that permits a document, image or other
data to be accessible over the Internet using a Web Browser.
1.22 "Web Server" means a computer or computers on which one or more Web
Sites are located and made accessible to Internet users.
1.23 "Web Site" means a series of interconnected Web Pages that are
seamlessly interrelated to each other and are under common control.
1.24 "WWW" means all of the URL's that are accessible to a typical
computer user with unrestricted access to the Internet and a standard Web
Browser.
2.0 DESIGN, DEVELOPMENT AND INSTALLATION OF NO FEAR WEB SITE.
2.1 Initial Meetings. Representatives of 1st NET and NO FEAR shall meet
as often as reasonably necessary for 1st NET to understand NO FEAR's business,
marketing processes and objectives with respect to the NO FEAR Web Site and
e-commerce, and to develop a realistic time table for design, development and
installation of the NO FEAR Web Site.
2.2 Agreement on Use of 1st NET Subcontractors and 1st NET
Identification on the NO FEAR Web Site. By no later than April 30, 1999, 1st NET
and NO FEAR shall agree upon (i) whether any 1st NET Subcontractors will be
retained by 1st NET to design, develop and/or operate the NO FEAR Web Site, (ii)
if 1st NET Subcontractors are to be retained by 1st NET, the specific 1st NET
Subcontractors to be retained by 1st NET, and (iii) the manner and extent to
which 1st NET will be permitted to identify itself on the NO FEAR Web Site as
the developer and host of the NO FEAR Web Site. If 1st NET and NO FEAR are
unable to agree upon whether 1st NET Subcontractors are to be retained, the
specific 1st NET Subcontractors to be retained, or the manner and extent to
which 1st NET will be permitted to identify itself on the NO FEAR Web Site, by
April 30, 1999, then either party shall have the right to immediately terminate
this Agreement by giving written notice to the other party that it elects to
terminate the Agreement pursuant to this Section 2.2.
2.3 Design and Development of the NO FEAR Web Site. Based upon 1st NET's
understanding of NO FEAR's business, marketing processes and e-commerce
objectives, 1st NET shall, at is sole expense, directly and/or through 1st NET
Subcontractors, design and develop the NO FEAR Web Site which will reasonably
implement NO FEAR's Web Site and e-commerce objectives. Representatives of 1st
NET and NO FEAR will keep in regular contact with each other during the design
and development process in order to ensure that the NO FEAR Web Site will be
consistent with NO FEAR's Web Site and e-commerce objectives.
2.4 Testing of Web Site. As soon as possible after 1st NET develops the
NO FEAR Web Site, the NO FEAR Web Site, including its constituent Web Pages and
e-commerce functionality, will be made available for testing. NO FEAR, together
with 1st NET, shall examine and test the NO FEAR Web Site, its constituent Web
Pages and e-commerce functionality. 1st NET shall assist NO FEAR with any tests
to be performed on the NO FEAR Web Site to confirm that the NO FEAR Web Site
reasonably meets NO FEAR's Web Site and e-commerce objectives.
4
<PAGE> 5
2.5 Installation of the NO FEAR Web Site and Transfer of Rights. Once
the NO FEAR Web Site has been accepted by NO FEAR, 1st NET shall, at is sole
expense, install the NO FEAR Web Site on the Host Web Server agreed upon by NO
FEAR, and the NO FEAR Web Site will be accessible to Internet users at the URL
agreed upon by NO FEAR. In order to avoid any misunderstanding or confusion, the
parties agree the acceptance of the NO FEAR Web Site by NO FEAR shall be in
writing, and the Start Date shall be agreed upon between NO FEAR and 1st NET in
writing. On the start Date, to the extent provided in Section 6.3 hereof, NO
FEAR will become the owner of all of 1st NET's interest in the NO FEAR Web Site
and its constituent Web Pages, including the Internet marketing plan and
e-commerce plan developed by 1st NET for NO FEAR.
2.6 Consideration. Except as provided in Section 4.1 hereof, NO FEAR
shall have no obligation to pay any compensation or other consideration to 1st
NET for its services in designing, developing, installing and hosting the NO
FEAR Web Site, or for the transfer and assignment of 1st NET's interest in the
NO FEAR Web Site to NO FEAR.
3.0 HOSTING AND NO FEAR WEB SITE MAINTENANCE SERVICES TO BE PROVIDED BY 1ST NET.
1st NET will provide the following hosting and Web Site maintenance services to
NO FEAR for the duration of this Agreement.
3.1 Hosting the NO FEAR Web Site. 1st NET will Host and maintain the NO
FEAR Web Site developed by 1st NET for NO FEAR.
3.1.1 The NO FEAR Web Site may be placed on 1st NET's own Web
Server(s), or 1st NET may arrange to have the NO FEAR Web Site co-hosted on one
or more third party Web Servers depending on the level of traffic on the NO FEAR
Web Site, the changing options available for connecting to the Internet, and
other technical considerations, subject to approval by NO FEAR.
3.1.2 The Web Server(s) will initially provide an Internet
connection for the NO FEAR Web Site with a bandwidth that is approved by NO
FEAR. The bandwidth of the Internet connection may be adjusted from time to time
as reasonably determined by 1st NET to adequately handle the level of traffic on
the NO FEAR Web Site and maintain a reasonable average server response time to
Purchasers viewing the NO FEAR Web Site over the Internet.
3.1.3 1st NET will use its reasonable best efforts to minimize
the amount of time that the NO FEAR Web Site is offline and unavailable to
potential Purchasers. However, NO FEAR understands the Web Servers will go
offline from time to time for maintenance, and that they are subject to service
disruptions by power, telecommunications and equipment providers.
3.2. Maintain Underlying Code. 1st NET will maintain the Code and
ongoing technical functionality of the NO FEAR Web Site.
3.2.1 1st NET will correct any malfunctions that develop or are
discovered in the Code underlying the NO FEAR Web Site that prevent the NO FEAR
Web Site from providing NO FEAR Web Product information to potential Purchasers,
accepting orders for NO FEAR Web Products, providing order fulfillment
information to NO FEAR, communicating order status information to Purchasers,
charging Purchaser credit cards and remitting net order proceeds to NO FEAR in a
smooth and orderly fashion.
3.2.2 1st NET will update and improve the code underlying the NO
FEAR Web Site from time to time to improve its performance and take advantage of
new technical functionality that becomes available.
5
<PAGE> 6
3.3 UPDATED CONTENT. 1st NET will receive new and modified information
regarding the NO FEAR Web Products, pricing changes, terms and conditions of
sale, and other information provided by NO FEAR in certain defined formats and
use that information to update the Content of the NO FEAR Web Site from time to
time.
3.3.1 NO FEAR will provide NO FEAR Web Product and other Content
information intended for the NO FEAR Web Site in Flat ASCII database format or
such other format as mutually agreed upon. Text files will be provided in
Microsoft Word rich text format or in such other format as mutually agreed upon,
and graphic images will be provided in Graphics Interchange Format ("GIF") or in
JPEG format. All such digital data shall be delivered electronically in
accordance with 1st NET's data transmission procedures in effect from time to
time.
3.3.2 1st NET may edit, reformat, crop, compress or otherwise
modify NO FEAR image data in order to reduce file sizes as necessary to speed
data transmission to Purchasers.
3.3.3 New and revised NO FEAR Content will be posted to a
password protected proof NO FEAR Web Site each time the Content is modified by
1st NET, and NO FEAR will be notified by e-mail that the proof NO FEAR Web Site
has been updated. NO FEAR will promptly review the proof NO FEAR Web Site and
verify that the Content is correct and then notify 1st NET by e-mail that the
Content on the proof NO FEAR Web Site has been approved for posting live to the
Internet.
3.3.4 Once 1st NET is notified that the proof NO FEAR Web Site
has been approved, the proof NO FEAR Web Site will be promptly brought up as the
live NO FEAR Web Site on the Internet.
3.4 INVENTORY CONTROL. 1st NET will endeavor to maintain an accurate
running inventory count on the NO FEAR Web Site.
3.4.1 1st NET will process ongoing adjustments to the inventory
of NO FEAR Web Products and back order status information as it is received from
NO FEAR for each NO FEAR Web Product offered on the NO FEAR Web Site throughout
the term of this Agreement. The data will be provided to 1st NET in such format
and on such basis as mutually agreed upon between NO FEAR and 1st NET.
3.4.2 Provided that NO FEAR supplies 1st NET with accurate
inventory information, 1st NET will endeavor to maintain an accurate running
inventory of the NO FEAR Web Products on the NO FEAR Web Site and notify
interested prospective Purchasers when a NO FEAR Web Product, size or color is
out of stock, discontinued or backordered. 1st NET will also endeavor to inform
potential Purchasers if out of inventory NO FEAR Web Products have been
reordered and if so, when they are expected to be back in inventory.
3.4.3 The parties will use their reasonable efforts to avoid
Purchaser disappointment resulting from accepting orders for the NO FEAR Web
Products which are not available or without notifying the Purchaser at the time
the order is placed, that delivery will be delayed.
3.5 ORDER ACCEPTANCE. 1st NET will accept on-line electronic orders from
Purchasers for NO FEAR Web Products placed through the NO FEAR Web Site for
delivery within the United States. 1st NET may not accept orders for delivery
outside the United States without NO FEAR's prior written consent.
6
<PAGE> 7
3.5.1 When a Purchaser desires to order the NO FEAR Web Products
offered on the NO FEAR Web Site, 1st NET will collect the product
identification, size, color and other required product information from the
Purchaser and verify that the desired NO FEAR Web Products are in inventory.
3.5.2 If the desired NO FEAR Web Products are in inventory, 1st
NET will request and collect the required Purchaser delivery and credit card
information, determine the total amount of the purchase price, including
shipping, handling and applicable taxes, then electronically verify that the
Purchaser's credit card account is valid and obtain the credit card company's
authorization to charge the total cost of the purchase to the Purchaser's
account.
3.5.3 Once the NO FEAR Web Product inventory and Purchaser credit
card status have been verified, 1st NET will accept the Purchaser's order on
behalf of NO FEAR.
3.6 PRODUCT ORDER AND SHIPPING INFORMATION. As orders for NO FEAR Web
Products are received and accepted through the NO FEAR Web Site, 1st NET will
electronically provide NO FEAR's warehouse and shipping facility with order
information. NO FEAR will use its reasonable efforts to ship NO FEAR Web
Products which are available within a reasonably prompt period after the order
is accepted and provide 1st NET with electronic confirmation of each NO FEAR Web
Product shipment, together with the common carrier's shipment tracking number.
3.7 CHARGING CREDIT CARDS AND NOTIFYING PURCHASERS. As 1st NET receives
notification of NO FEAR Web Product shipments from NO FEAR, 1st NET will
promptly charge each Purchaser's credit card account for the total purchase
price of the NO FEAR Web Products shipped, and will notify each Purchaser by
e-mail within one (1) business day after receiving such notification from NO
FEAR, that his or her account has been charged, and provide them with the
shipment tracking number.
3.7.1 All credit card charges will be made through or under NO
FEAR's merchant accounts. 1st NET will be acting as NO FEAR's authorized agent
in charging each Purchaser's credit card on behalf of NO FEAR. 1st NET will only
use NO FEAR's merchant accounts to charge purchases of NO FEAR Web Products made
through the NO FEAR Web Site.
3.7.2 1st NET will charge each Purchaser's credit card account
for the purchase price of the NO FEAR Web Products shipped by NO FEAR, together
with applicable taxes, shipping and handling charges, within one (1) business
day after receiving electronic notification from NO FEAR that the Purchaser's NO
FEAR Web Product order has been shipped. The purchase price of NO FEAR Web
Products which are backordered will not be charged to Purchaser's credit card
until they are actually shipped.
3.7.3 If for any reason NO FEAR makes a partial shipment of a
Purchaser's order, 1st NET will notify the Purchaser of the NO FEAR Web Products
shipped, the NO FEAR Web Products that are backordered or discontinued, and the
adjusted amount charged to the Purchaser's credit card account for the partial
shipment.
3.7.4 When 1st NET receives the confirmation of delivery
information from the carrier, 1st NET will notify the Purchaser that the carrier
has confirmed delivery.
3.7.5 1st NET will also provide the Purchaser with an electronic
means of canceling any orders that are not shipped within thirty days after the
order is placed.
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<PAGE> 8
3.7.6 The parties will use their reasonable efforts to keep each
Purchaser fully informed of the status of each order and shipment.
3.8 PURCHASER COMMUNICATIONS. 1st NET will provide and maintain a
Purchaser comment and service request e-mail template on the NO FEAR Web Site,
and will promptly forward all Purchaser comments and service requests to NO FEAR
for action and response. 1st NET will route NO FEAR's responsive e-mail messages
back to the Purchaser if requested.
4.0 NO FEAR OBLIGATIONS AND COMMITMENTS. NO FEAR understands that the Internet
is a new and rapidly evolving marketing channel. The long-term success of the NO
FEAR Web Site and NO FEAR's e-commerce venture will require continuing close
cooperation between NO FEAR and 1st NET throughout the term of this Agreement.
NO FEAR will use its reasonable efforts to supports its e-commerce presence on
the Internet.
4.1 [*]
4.1.1 Commissions shall be payable on the twentieth (20th) day of
each month for NO FEAR Net Sales of NO FEAR Web Products shipped during the
preceding month, and shall be accompanied by a statement which sets forth the
gross sales of NO FEAR Web Products, an itemization of deductions therefrom in
arriving at the amount of the NO FEAR Net Sales, and the rate(s) used in
calculating the amount of the commission. If 1st NET does not receive the
commissions due on the 20th day of a month by the 30th day of such month (the
"Late Commissions"), 1st NET shall give written notice (the "LC Notice") to NO
FEAR that the Late Commissions have not been received by 1st NET. If 1st NET
does not receive the Late Commissions within thirty (30) days after the LC
Notice has been received by NO FEAR, then, in addition to any other remedies
that 1st NET may have under applicable law, 1st NET shall have the right to
cease providing the services necessary for the NO FEAR Web Site to be accessible
to Internet users.
4.1.2 In the event of a termination of this Agreement under
Sections 12.1, 12.3 or 12.4 hereof, NO FEAR shall continue to pay to 1st NET
commissions in accordance with this Section 4.1 on NO FEAR Net Sales pursuant to
orders for NO FEAR Web Site which were accepted by 1st NET and submitted to NO
FEAR prior to the effective termination date of this Agreement and which are
shipped by NO FEAR on or after the effective termination date.
4.1.3 [*]
8
<PAGE> 9
4.2 PRODUCT AVAILABILITY AND INFORMATION. NO FEAR shall determine which
styles of its products will be made available for purchase over the Internet
through the NO FEAR Web Site developed and maintained by 1st NET. The
determination by NO FEAR of the NO FEAR Web Products available for purchase
through the NO FEAR Web Site will be sufficiently broad to give a reasonable
prospect for NO FEAR Net Sales of at least $1,000,000, $2,000,000 and $3,000,000
during the Initial Period, the 12 month period following the Initial Period, and
second 12 month period following the Initial Period, respectively.
4.2.1 NO FEAR will provide 1st NET with marketing oriented
information, descriptions, prices and illustrations for each of the NO FEAR Web
Products as they are made available to the public. NO FEAR will also provide
additional selected text and graphic material to add visual interest to the NO
FEAR Web Site on an ongoing basis.
4.2.2 All of the text and graphic information provided by NO FEAR
will be in such format as mutually agreed upon. Initially, graphic images will
be provided only in GIF or in JPEG formats. 1st NET may designate additional or
alternative data formats from time to time as the technology utilized in the
development and maintenance of the NO FEAR Web Site evolves.
4.3 TERMS OF SALE AND WARRANTY INFORMATION. In addition to the marketing
oriented information described above, NO FEAR will provide 1st NET with its
complete terms and conditions of sale, including any warranty, exchange, return
and other customer service policies and procedures for inclusion on the NO FEAR
Web Site as required by law.
4.4 ADVERTISING THE WEB SITE. NO FEAR will use its reasonable efforts to
advertise the NO FEAR Web Site through NO FEAR's advertising channels in a
manner which will increase the exposure of the NO FEAR Web Site to potential
Internet users and which is consistent with NO FEAR's financial resources and
business needs.
4.4.1 NO FEAR will include the URL of the NO FEAR Web Site and an
invitation to visit the NO FEAR Web Site in such of its print, electronic and
other advertising as it determines.
4.4.2 The advertising of the NO FEAR Web Site will be phased in
an existing inventories of hang tags and other marketing materials are used.
4.5 MAINTAIN AND RESERVE INVENTORY. Since accepting orders for NO FEAR
Web Products which are not available is likely to cause Purchaser frustration
and ill will, and because it will impose substantial overhead costs for
Purchaser notification and follow-up, NO FEAR shall provide 1st NET with ongoing
NO FEAR Web Product inventory information.
4.5.1 NO FEAR will provide 1st NET with direct electronic access
to applicable information regarding the NO FEAR Web Products in NO FEAR's
inventory control system in order to enable 1st NET to continually update the NO
FEAR Web Product inventory information on the NO FEAR Web Site.
4.5.2 NO FEAR will provide 1st NET with information about
anticipated inventory shortages, NO FEAR Web Product phase outs, and new NO FEAR
Web Product announcements in a reasonably prompt manner so that NO FEAR Web
Products which are not available can be removed from the NO FEAR Web Site,
anticipated date of re-supply can be posted when the NO FEAR Web Products are
backordered, and new NO FEAR Web Products can be promptly added to the NO FEAR
Web Site as soon as they become available.
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4.6 PROMPT PRODUCT DELIVERY. NO FEAR will use its reasonable efforts to
fill all orders for NO FEAR Web Products submitted to NO FEAR through the NO
FEAR Web Site promptly and to ensure that the correct NO FEAR Web Products and
quantities are shipped to the designated delivery address.
4.7 SHIPPING INFORMATION. NO FEAR will promptly provide 1st NET with
electronic notice when each Purchaser order is shipped by NO FEAR, including the
date of shipment, the common carrier used, and the carrier's tracking number, so
that 1st NET can (i) conclude the Purchaser charge process, (ii) notify the
Purchaser that the NO FEAR Web Products have been shipped, and (iii) provide the
Purchaser with the carrier's tracking number.
4.8 PURCHASE SUPPORT SERVICES. NO FEAR will provide reasonable Purchaser
support services and facilities to handle complaints by Purchasers, NO FEAR Web
Product returns, Purchaser refunds, and other Purchaser service requests.
4.9 NO FEAR APPROVALS. Requests for approvals required to be obtained
from NO FEAR pursuant to this Agreement shall be sent to Eric Baker or such
other person as may be designated by NO FEAR in writing to 1st NET.
5.0 SALE OF 1ST NET PRODUCTS AND THIRD PARTY ADVERTISING; PAYMENT OF
COMMISSIONS; ISSUANCE OF 1ST NET-NO FEAR WARRANTS.
5.1 SALE OF OTHER PRODUCTS AND SERVICES. In the event that 1st NET
desires to (i) have 1st NET Products sold through the NO FEAR Web Site or a NO
FEAR Web Browser, or (ii) have 3P Advertising placed on the NO FEAR Web Site,
1st NET shall make a detailed written proposal to NO FEAR and shall obtain NO
FEAR's prior written approval before selling the 1st NET Products through the NO
FEAR Web Site or a NO FEAR Web Browser, or permitting 3P Advertising to be
placed on the NO FEAR Web Site. 1st NET shall be fully responsible for all
aspects of selling and fulfilling the sale of 1st NET Products sold through the
NO FEAR Web Site or a NO FEAR Web Browser, and for placement of 3P Advertising
on the NO FEAR Web Site.
5.2 [This portion of the Agreement has been omitted and filed separately
with the Securities and Exchange Commission.]
5.3 GRANT OF 1ST NET-NO FEAR WARRANTS. As material consideration for NO
FEAR entering into this Agreement, concurrent with the execution of this
Agreement, 1st NET and NO FEAR
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shall enter into a Warrant Agreement, the form of which is attached hereto,
pursuant to which 1st NET shall issue warrants to NO FEAR (the "1st NET-NO FEAR
Warrants") to purchase 75,000 shares of the common stock of 1st NET at $3.50 per
share. The 1st NET-NO FEAR Warrants shall expire on the earlier of (i) March 31,
2001, or (ii) immediately following the date of the public offering on 1st NET's
common stock, provided, however, that the expiration date shall not be prior to
April 1, 2000. 1st NET agrees, without cost to NO FEAR, to have the shares of
the common stock of 1st NET which were issued to NO FEAR upon exercise of the
1st NET-NO FEAR Warrants, or which will be issued to NO FEAR upon exercise of
the 1st NET-NO FEAR Warrants, registered as part of the public offering of 1st
NET's common stock with the view that such shares of 1st NET's common stock
shall be freely tradable by NO FEAR.
6.0 OWNERSHIP OF COPYRIGHTS AND MATERIALS.
6.1 OWNERSHIP OF COPYRIGHTS. The NO FEAR Web Site and e-commerce
capability developed by 1st NET under this Agreement may contain copyrighted
materials provided by NO FEAR or licensed from one or more third parties in
addition to original materials developed by 1st NET. It may also contain NO FEAR
or third party materials that have been modified by 1st NET. As a result, the
copyrights and derivative copyrights in the Code used to develop the Web Pages
and the NO FEAR Web Site may belong to a combination of 1st NET, NO FEAR, and/or
other third parties.
6.1.1 1st NET assumes the responsibility for obtaining any third
party copyright licenses that may be required to use the materials for 1st NET
employs in the NO FEAR Web Site and its constituent Web Pages unless those
materials are specified or supplied by NO FEAR. When 1st NET obtains a license
to use copyrighted material on the NO FEAR Web Site, 1st NET will inform NO FEAR
in writing that such material is licensed from third parties and of the terms
and scope of the license. NO FEAR shall abide by the terms of any such third
party license, and shall not knowingly allow the use of the licensed materials
beyond the scope of the license obtained by 1st NET without first obtaining any
required supplemental licenses from the copyright owners.
6.1.2 NO FEAR assumes the responsibility for obtaining any
copyright authorizations that may be required to use the materials specified or
supplied by NO FEAR to 1st NET for inclusion in the NO FEAR Web Site.
6.2 1ST NET'S ORIGINAL CONTRIBUTIONS. Except as provided in Section 6.3,
the copyrights in 1st NET's original contributions to the Internet marketing and
e-commerce plan, the code, or any other copyrightable material developed by 1st
NET, excluding therefrom any materials in which NO FEAR has copyrights,
trademarks, or other intellectual property rights, shall belong to 1st NET from
the moment the materials are created, and NO FEAR shall have no right to copy,
use or display those materials except as provided in this Agreement. The
copyrights in any materials that were not developed by 1st NET shall remain with
the copyright owner of them.
6.3 TRANSFER OF RIGHTS TO NO FEAR. Except as provided in the next
sentence, on the Start Date, 1st NET hereby assigns and transfers all of its
right, title and interests in the NO FEAR Web Site to NO FEAR, including any
copyrights it owns in the Deliverables, the Internet marketing and e-commerce
plan, and the NO FEAR Web Site and its constituent Web Pages. This assignment
shall not include (i) any copyrights that belong to a third party, but will
include all of 1st NET's interest in the derivative copyrights of any
preexisting materials owned by a third party that 1st NET modifies or transforms
for use in connection with the NO FEAR Web Site, unless those rights are
required to be assigned to the third party licensor under the terms of the
license to the underlying work, (ii) any copyrights, trademarks or other
intellectual property rights that were developed by 1st NET prior to the date of
this Agreement and which are owned by 1st NET, (iii) any proprietary
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technology developed by 1st NET on or after the date of this Agreement which is
used in connection with NO FEAR Web Site but is not unique to the NO FEAR Web
Site or the Deliverables, and (iv) any copyrights, trademarks or other
intellectual property rights that are developed using the collaborative efforts
of NO FEAR and 1st NET and are jointly owned by NO FEAR and 1st NET
(collectively, the "Nonassigned Rights"). On the Start Date, with respect to the
Nonassigned Rights described in items (i), (ii) and (iii) above, 1st NET hereby
grants to NO FEAR a non-exclusive royalty-free license in perpetuity to use the
Nonassigned Rights in connection with the NO FEAR Web Site. With respect to the
Nonassigned Rights described in item (iv) above, each of NO FEAR and 1st NET
shall have the non-exclusive right to use such jointly owned Nonassigned Rights.
6.3.1 Within thirty (30) days after the Start Date, 1st NET will
execute a formal written assignment to NO FEAR of all of 1st NET's right, title
and interests in the NO FEAR Web Site, including any copyrights in the
Deliverables, the Internet marketing and e-commerce plan, and the NO FEAR Web
Site and its constituent Web Pages developed by 1st NET.
6.3.2 If the Web Site developed by 1st NET for NO FEAR pursuant
to this Agreement is not accepted by NO FEAR, and there is no Start Date, 1st
NET shall retain ownership of its copyrights, and NO FEAR shall have no right to
copy, use, display or modify the Internet marketing and e-commerce plan, the Web
Site or its constituent Web Pages developed by 1st NET.
6.4 NO FEAR'S COPYRIGHTS. NO FEAR's copyrights, trademarks or other
intellectual property rights in Content provided by NO FEAR, or any other
material developed by NO FEAR, shall belong to NO FEAR and 1st NET shall have no
right to copy, use or display such Content or materials except for the purpose
of developing and maintaining the NO FEAR Web Site.
7.0 DATA SECURITY CONSIDERATIONS. 1st NET will initially use the Microsoft
Internet Security Framework for transactional security when collecting order and
credit card information from Purchasers and transmitting data and instructions
to banking institutions. Provided that 1st NET uses the Microsoft Internet
Security Framework or another industry standard security system approved by NO
FEAR, 1st NET shall have no responsibility or liability for any failures or
inadequacies of the security system employed.
8.0 WARRANTY AND DISCLAIMER OF LIABILITY.
8.1 FUNCTIONALITY. 1st NET warrants that the NO FEAR Web Site and its
constituent Web Pages developed by 1st NET will provide the basic functionality
described in this Agreement. If a material nonconformity appears or is
discovered during the term of this Agreement and NO FEAR communicates this fact
with details to 1st NET in writing, 1st NET will use its reasonable efforts to
correct the non-conforming functionality within a reasonable time as NO FEAR's
sole and exclusive remedy.
8.2 WARRANTY EXCLUSIONS. 1st NET does not warrant that the NO FEAR Web
Site will meet NO FEAR's needs, the performance of data communication lines
accessing the Web Server, the Internet, the Web Server itself, nor the
performance of any aspect of the NO FEAR Web Site or its constituent Web Pages
that are not under 1st NET's direct control. Without limiting the generality of
the foregoing, 1st NET is not responsible for problems in the interaction of the
Web Pages with Web Browsers or versions of Web Browsers that the NO FEAR Web
Site was not designed for. NO
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WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.
This is a commercial and not personal or family transaction.
9.0 WARRANTY OF TITLE, NON-VIOLATION OF LAW, AND INDEMNIFICATION BY NO FEAR.
9.1 NO FEAR WARRANTIES. NO FEAR warrants, to its knowledge, that any
materials NO FEAR specifies and the Content it provides to 1st NET for use or
inclusion in the NO FEAR Web Site or the constituent Web Pages under this
Agreement will not infringe any patent, copyright, trademark or trade secret of
another within the United States, and will not violate any right of publicity or
privacy, be libelous or obscene, nor will any information, recipe, formula or
instruction contained in the materials be injurious to others within the United
States.
9.2 NO FEAR INDEMNIFICATION. NO FEAR shall defend, indemnify and hold
1st NET harmless against any claims based on an allegation that (i) any
materials specified or Content provided by NO FEAR to 1st NET, except to the
extent that 1st NET or any 1st NET Subcontractor has modified such materials or
Content, or (ii) any NO FEAR p or information provided or sold using the
e-commerce facilities of the NO FEAR Web Site violates any warranty in Section
8.1
9.3 INDEMNIFICATION LIMITATIONS. NO FEAR shall have no liability under
this indemnity to the extent that any infringement or other injury is
established to have resulted from the use of materials, Content, or information
specified or provided by 1st NET, any material, Content, or enhancement,
improvement or development of the NO FEAR Web Site and its constituent Web Pages
performed by 1st NET or any 1st NET Subcontractor. NO FEAR's only liability
hereunder shall be for that portion of an infringement or injury caused by NO
FEAR, but not for any infringement or injury caused by 1st NET or others.
9.4 NOTICE OF CLAIMS. 1st NET shall promptly notify NO FEAR when it
learns of the existence of any claim, demand, or other matter to which NO Fear's
indemnification obligations may apply, and shall allow NO FEAR to defend the
same at its own expense and with counsel of its own selection. 1st NET shall at
all times also have the right to fully participate in the defense at its own
expense. If the claim is one that cannot by its nature be defended solely by NO
FEAR, then 1st NET shall make available all information and assistance that NO
FEAR may reasonably request at NO FEAR's expense. Subject to NO FEAR's
indemnification obligations to 1st NET as set forth in Section 9.2 hereof, NO
FEAR shall have the absolute right to settle any claim, demand or other matter
on such terms as it shall determine.
9.5 POSSIBLE ACTIONS. Should any materials specified or Content provided
by NO FEAR to 1st NET for use in the NO FEAR Web Site or constituent Web Pages,
or any NO FEAR Web Product or information provided or sold through the NO FEAR
Web Site become or, in NO FEAR's opinion, be likely to become the subject of a
claim of infringement of a patent, trademark, trade secret or copyright, or that
they are likely to become the basis of a claim alleging the violation of the
right of publicity or privacy, that the material is libelous or obscene, that it
was injurious to others, or otherwise violates an applicable law, rule or
regulation NO FEAR may:
9.5.1 If possible, procure for itself, at no cost to 1st NET, the
right to continue to use, display or provide the materials in question;
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9.5.2 Request 1st NET's assistance, which will be provided by 1st
NET without cost, with the replacement or modification of the NO FEAR Web Site
or constituent Web Pages to correct or eliminate the potential problem; or
9.5.3 Request 1st NET's assistance, which will be provided by 1st
NET without cost, with the removal of the offending material from the NO FEAR
Web Site or discontinuance of the sale or distribution of any NO FEAR Web
Products or information offered on the NO FEAR Web Site.
10.0 WARRANTY OF TITLE, NON-VIOLATION OF LAW, AND INDEMNIFICATION BY 1ST NET.
10.1 1ST NET WARRANTIES. 1st NET warrants that, except for materials
that are specified or Content that is provided to 1st NET by NO FEAR, the Code
employed by 1st NET in the NO FEAR Web Site and its constituent Web Pages, and
any materials provided by 1st NET or any 1st NET Subcontractor for use or
inclusion in the NO FEAR Web Site and its constituent Web Pages, will not
infringe any patent, copyright, trademark or trade secret of another within the
United States, and will not violate any right of publicity or privacy, be
libelous or obscene, nor will any information, recipe, formula or instruction
contained in the materials be injurious to others within the United States.
10.2 1ST NET INDEMNIFICATION. 1st NET shall defend, indemnify and hold
NO FEAR harmless against any claims based on an allegations that any materials
developed or supplied by 1st NET, or supplied by NO FEAR and modified by 1st NET
or by any 1st NET Subcontractor, infringe any patent, copyright, trademark or
trade secrets belonging to a third party and from any claims alleging a
violation of the right of publicity or privacy, that the material is libelous or
obscene, or that it was injurious to others.
10.3 INDEMNIFICATION LIMITATIONS. 1st NET shall have no liability under
this indemnity to the extent that any infringement or other injury is
established to have resulted from the use of materials, Content or information
specified or provided by NO FEAR, any material, Content or information not
supplied or modified by 1st NET or by any 1st NET Subcontractor, or from any
material modification, editing, revision, enhancement, improvement or
development of the NO FEAR Web Site and its constituent Web Pages not actually
performed by 1st NET or by any 1st NET Subcontractor. 1st NET's only liability
hereunder shall be for that portion of an infringement or injury caused by 1st
NET or by any 1st NET Subcontractor, but not for any infringement or injury
caused by NO FEAR or other third parties other than 1st NET Subcontractors.
10.4 NOTICE OF CLAIMS. NO FEAR shall promptly notify 1st NET of the
existence of any claim, demand or other matter to which 1st NET's
indemnification obligations may apply, and shall allow 1st NET to defend the
same at its own expense and with counsel of its own selection. NO FEAR shall at
all times also have the right to fully participate in the defense at its own
expense. If the claim is one that cannot by its nature be defended solely by 1st
NET, then NO FEAR shall make available all information and assistance that 1st
NET may reasonably request at 1st NET's expense. 1st NET agrees that it shall
have no authority to settle any claim, demand or other matter which may in any
manner affect NO FEAR's trademarks or other intellectual property rights without
NO FEAR's prior written consent.
10.5 POSSIBLE ACTIONS. Should any components of the NO FEAR Web Site or
constituent Web Pages, for which 1st NET is responsible, become, or in 1st NET's
opinion, be likely to become, the subject of a claim of infringement of a
patent, trademark, trade secret or copyright, or that they are likely to become
the basis of a claim alleging the violation of the right of publicity or
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privacy, that the material is libelous or obscene, or that they were injurious
to others, 1st NET may do any one of the following at 1st NET's option:
10.5.1 Procure for NO FEAR, at no cost to NO FEAR, the right to
continue to use the NO FEAR Web Site or constituent Web Pages;
10.5.2 Replace or modify the NO FEAR Web Site or constituent Web
Pages, at no cost to NO FEAR, to correct or eliminate the potential problem,
provided that the same function is performed by the replacement of NO FEAR Web
Site or constituent Web Pages;
10.5.3 Or if the right to continue using the material cannot be
obtained or the material cannot be replaced or modified at reasonable cost,
remove, at no cost to NO FEAR, the offending material from the NO FEAR Web Site.
11.0 REMOVAL OF DISPUTED MATERIAL.
11.1 FORWARDING OF COMPLAINTS. In the event that 1st NET receives a
written complaint alleging that any aspect of the NO FEAR Web Site, its
constituent Web Pages, the NO FEAR Web Products, the 1st NET Products, 3P
Advertising or information distributed through the NO FEAR Web Site is injurious
to another, infringes or otherwise violates any third parties' right, or any law
or regulation, 1st NET will promptly forward a copy of the complaint to NO FEAR.
If NO FEAR receives such a complaint, it will promptly forward a copy of the
complaint to 1st NET.
11.2 RIGHTS TO REMOVE DISPUTED MATERIAL. Either NO FEAR or 1st NET shall
have the right to remove, or require 1st NET to remove, any disputed material
from the NO FEAR Web Site, or cease selling or distributing any products,
advertising or information through the NO FEAR Web Site pending the resolution
of any dispute over the Content of the NO FEAR Web Site or the NO FEAR Web
Products or information. The removal may take place at any time after the party
initiating the removal has received or given notice of a written complaint. The
party initiating the removal of disputed material, products, advertising or
information shall promptly notify the other party of its action. Neither party
shall have any liability to the other for the removal of any material from the
NO FEAR Web Site under the provisions of this Section 11.2. In the event that
1st NET shall desire to exercise its right to remove disputed material from the
NO FEAR Web Site, 1st NET shall first notify NO FEAR in writing that it desires
to remove disputed material from the NO FEAR Web Site, which notice shall
describe the disputed material and specify the reasons for such proposed
removal. If, within ten (10) days after receipt of such notice, NO FEAR notifies
1st NET in writing that it has determined that such disputed material should not
be removed, and agrees to indemnify 1st NET against any liability arising from
such determination, 1st NET shall not remove the disputed material.
12.0 TERM AND TERMINATION.
12.1 TERM. This Agreement shall begin and become effective from April 1,
1999 and shall continue for an initial term of thirty-six (36) months after the
month which includes the Start Date. Thereafter, the Agreement will
automatically be renewed for successive twelve (12) month terms unless one party
notifies the other three (3) months prior to any renewal term that it desires to
terminate this Agreement.
12.2 LATE START DATE. If the Start Date does not occur by September 1,
1999 for any reason, each party shall have the right to immediately terminate
this Agreement by giving the other party written notice of its election to
terminate this Agreement.
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12.3 DISCRETIONARY TERMINATION. Notwithstanding the normal term of this
Agreement set forth in Section 12.1, within thirty (30) days after the end of
the Initial Period, each party shall have the right to terminate this Agreement
for any reason by giving the other party written notice of its election to
terminate this Agreement, which notice shall specify the effective termination
date which shall be at least thirty (30) days after the date of such written
notice.
12.4 TERMINATION UPON MATERIAL BREACH. Notwithstanding the normal term
of this Agreement set forth in Section 12.1, either party shall have the right
to terminate this Agreement if the other party defaults in any of its material
obligations under this Agreement, unless within thirty (30) days after written
notice of such default the other party remedies the default.
12.5 LIABILITY LIMITATIONS. Neither party to this Agreement shall be
liable by reason of the termination of this Agreement to the other for
compensation, reimbursement or damages on account of any loss of prospective
profits on anticipated sales or on account of expenditures, investments, leases
or other commitments relating to the business or goodwill of either party,
notwithstanding any law to the contrary.
13.0 CONFIDENTIALITY.
13.1 NO FEAR CONFIDENTIAL INFORMATION. This Agreement, any confidential
NO FEAR business information provided to 1st NET in writing that is clearly
marked confidential at the time of disclosure, and the pricing, terms and
conditions under which 1st NET is willing to provide its services under this
Agreement, shall be kept confidential for a period of two (2) years following
the termination of this Agreement.
13.2 PURCHASER DATA. During the course of its performance under this
Agreement, 1st NET will collect data and information about Purchasers visiting
the NO FEAR Web Site, and shall provide such data and information to NO FEAR,
and make such data and information accessible to NO FEAR on a current basis. The
privacy of individual Purchaser will be maintained in accordance with the
privacy policies set forth on the NO FEAR Web Site. 1st NET will also be free to
retain, evaluate and freely utilize such data and information for its own
purposes.
13.3 EXCLUSIONS. Confidential information shall not include any
information which is already known to the recipient at the time of disclosure
through lawful channels of communication; or is or becomes publicly known
through no wrongful act of the recipient; or is rightfully received from a third
party without a similar restriction and without breach of this Agreement; or is
independently developed by the recipient without breach of this Agreement; or is
furnished to a third party by the disclosing party without a similar restriction
on the third parties' rights; or is approved for release by written
authorization of the disclosing party.
14.0 GENERAL CONDITIONS.
14.1 RELATIONSHIP OF THE PARTIES. No party hereto is an agent or
representative of the other, and no party shall be liable for or bound by any
representation, act or omission whatsoever of the other party. This Agreement
shall in no way constitute the parties hereto, partners or joint venturers. This
Agreement is not for the benefit of any third party.
14.2 FORCE MAJEURE. Nonperformance of either party shall be excused to
the extent that performance is rendered impossible by strike, fire, flood,
governmental acts or orders or restrictions, failure of suppliers or
contractors, or any other reason where failure to perform is beyond the control
and not caused by the negligence of the non-performing party.
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14.3 NOTICES. All notices, demands, requests, consents, statements,
satisfactions, waivers, designations, refusals, confirmations, denials and other
communications that may be required or otherwise provided for or contemplated
hereunder shall be in writing and shall be deemed to be properly given and
received (i) upon delivery, if delivered in person or by facsimile transmission
with receipt acknowledged, (ii) one (1) business day after having been deposited
for overnight delivery with Federal Express or another comparable overnight
courier service, or (iii) three (3) business days after having been deposited in
any post office or mail depository regularly maintained by the U.S. Postal
Service or the official governmental postal service in the Territory, as the
case may be, and sent by registered or certified mail (or its equivalent in the
Territory), postage prepaid, addressed as follows:
If to NO FEAR: If to 1st NET:
2251 Faraday Avenue 11423 West Bernardo Court
Carlsbad, California 92008 San Diego, California 92127
Attention: Calvin Lau Attention: Gregory D. Writer, Jr.
Fax: (760) 931-0391 Fax: (619) 674-4443
or to such other person or persons at such address or addresses as may be
designated by written notice to the other parties hereunder.
14.4 SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
14.5 BINDING EFFECT, BENEFITS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, successors
and assigns; provided, however, that nothing in this Agreement shall be
construed to confer any rights, remedies, obligations or liabilities on any
person other than the parties hereto or their respective heirs, successors and
assigns.
14.6 TITLE AND CAPTIONS. Section headings are for convenience only and
shall not be considered in the interpretation of this Agreement.
14.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document. The parties additionally
acknowledge and agree that this Agreement may be executed and delivered by
facsimile. At such time as each of the parties has a facsimile copy of this
Agreement, and/or counterparts thereof, containing the signatures of all of the
parties, this Agreement shall be treated as having been fully executed and
delivered for all purposes.
14.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter herein and
merges all prior discussions between them. No modification of or amendment to
this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing and signed by both parties to this Agreement.
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14.9 GOVERNING LAW. This Agreement shall in all respects be interpreted,
construed in accordance with, and governed by the internal laws of the State of
California, without regard to the rules of conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
1ST NET TECHNOLOGIES, INC. NO FEAR, INC.
a Colorado corporation a California corporation
By: /s/ GREGORY D. WRITERS, JR. By: /s/ MARK SIMO
-------------------------------- --------------------------------
Gregory D. Writers, Jr. Mark Simo,
Chief Executive Officer Chief Executive Officer
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EXHIBIT 10.4
Confidential treatment requested under 5 U.S.C. Section 552(b)(4) that provides
an exemption from public disclosure of confidential financial information.
* indicates omitted material that is the subject of a confidential treatment
request that is filed separately with the Commission.
PROFIT SHARE AGREEMENT
This profit share agreement is entered as of 6th July 1999 between NETSOL USA,
INC., a Nevada Corporation. (NETSOL) and 1ST NET TECHNOLOGIES INC., a Colorado
corporation (1st NET).
BACKGROUND RECITALS
A. 1st NET is in the business of providing electronic commerce ("e-commerce")
consultation and implementation services to businesses desiring to market
products or information over the Internet.
B. 1st NET's services range from the original conceptual planning of e-commerce
solutions for its customers through the design, development, testing,
marketing and ongoing commercial operation of its customer's e-commerce
operations using the resources of the Internet and a custom World Wide Web site
tailored to a customer's e-commerce needs.
C. NETSOL contracts with 1st NET to design, develop and install a Web Site, and
to provide the following services that are required to make the Web Site
operational for the duration of this Agreement:
(1) Host and maintain the Web Site for NETSOL.
(2) Maintain the Code and ongoing technical operation of the Web Site.
(3) Update the content and information contained on the Web Site from time to
time as required to reflect changing products, prices and terms of sale.
(4) Execute marketing and commercial activities as agreed by written
instruction from NETSOL.
(5) Accept on-line electronic orders from purchasers products placed through
the Web Site.
(6) Provide Purchaser and NETSOL Web Product order fulfillment and marketing
information to NETSOL as it's received through the Web Site.
(7) Forward comments and service requests from Purchasers and other Web Site
users to NETSOL for action and response.
D. NETSOL and 1st NET commits to support the Web Site and its e-commerce
presence on the Internet during the term of this Agreement by.
Providing 1st NET with ongoing status information on all pending orders to
enable 1st NET to provide the order status information to Purchasers who have
placed orders for NETSOL Web Products through the Web Site:
<PAGE> 2
E. This Agreement sets forth the terms and conditions applicable to the range
of services to be provided by each party and each party's obligations to the
other.
NOW THEREFORE, in consideration of the mutual covenants herein contained and
for other valuable consideration, the parties agree as follows:
2.0 DESIGN, DEVELOPMENT, MARKETING AND INSTALLATION OF NETSOL WEB SITE.
2.1 Initial Meetings. Representatives of 1st NET and NETSOL shall meet as
often as possible for 1st NET to understand NETSOL'S business, marketing
processes and objectives with respect to the NETSOL Web Site and e-commerce,
and to develop a realistic time table for design, development, marketing and
installation of the Web Site.
2.2 Design and Development of the Web Site. Based upon 1st NET's understanding
of NETSOL'S business, marketing processes and e-commerce objectives, 1st NET
shall, at its sole expense, directly design and develop the NETSOL Web Site
which will reasonably implement the Web Site and e-commerce objectives.
Representatives of 1st NET and NETSOL will keep in regular contact with each
other during the design and development process in order to ensure that the
NETSOL Net Web Site will be consistent with Web Site and e-commerce objectives.
2.4 Testing of Web Site. As soon as possible after 1st NET develops the Web
Site, including its constituent Web Pages and e-commerce functionality will be
made available for testing. NETSOL, together with 1st NET, shall examine and
test the NETSOL Web Site, its constituent Web Pages and e-commerce
functionality. 1st NET shall proceed with any tests to be performed on the Web
Site to confirm that the Web Site reasonably meets all Web Site and e-commerce
objectives.
2.5 Consideration. Except as provided in Section 4.1 hereof, NETSOL shall have
no obligation to pay any compensation or other consideration to 1st NET for its
services in designing, developing, installing and hosting the Web Site.
3.0 HOSTING AND WEB SITE MAINTENANCE SERVICES TO BE PROVIDED BY 1st NET.
1st NET will provide the following hosting and Web Site maintenance services to
NETSOL for the duration of this Agreement.
3.1 Hosting the NETSOL Web Site. 1st NET will be responsible for hosting and
maintaining the Web Site developed by 1st NET for NETSOL predominantly for the
North American Market.
3.1.1 The Web Site may be placed on 1st NET's own Web Site(s), or 1st NET may
arrange to have the Web Site co-hosted on one or more third party Web Servers
depending on the level of traffic on the Web Site, the changing options
available for connecting to the Internet, and other technical considerations,
subject to approval by both parties.
<PAGE> 3
3.1.2. 1st NET will use its reasonable best efforts to minimize the amount of
time that the Web Site is offline and unavailable to potential Purchasers.
However, NETSOL understands the Web Servers will go offline from time to time
for Maintenance, and that they are subject to service disruptions by power,
telecommunications and equipment providers.
3.2. Maintain Underlying Code. 1st NET will maintain the Code and ongoing
technical functionality of the Web Site.
3.2.1. 1st NET will correct any malfunctions that develop or are discovered in
the Code underlying the Web Site that prevent the Web Site from providing
NETSOL Web Product information to potential Purchasers, accepting orders for
NETSOL Web Products, providing order fulfillment, customer enquiry and visitor
information to NETSOL, and communicating order status information to Purchasers
in a smooth and orderly fashion.
3.3. Updated Content. 1st NET will receive new and modified information
regarding the NETSOL Web products, pricing changes, terms and conditions of
sale, and other information provided by NETSOL in certain defined formats and
use that information to update the Content of the Web Site from time to time.
3.3.1. 1st NET may edit, reformat, crop, compress or otherwise modify NETSOL
image data in order to reduce file sizes as necessary to speed data
transmission to Purchasers.
3.4 1st NET will process ongoing adjustments to the inventory of NETSOL Web
Products and back order status information as it is received from NETSOL for
each NETSOL Web Product offered on the Web Site throughout the term of this
Agreement. The data will be provided to 1st NET in such format and on such
basis as mutually agreed upon between NETSOL and 1st NET.
3.4.2 The parties will use their reasonable efforts to avoid Purchaser
disappointment resulting from accepting orders for the NETSOL Web Products which
are not available or without notifying the Purchaser at the time the order is
placed, that delivery will be delayed.
3.5. Order Acceptance. 1st NET will accept on-line electronic orders from
Purchaser for NETSOL Web Products placed through the Web Site for delivery
within or outside the United States. Notwithstanding the right of NETSOL to
situate other servers locally for other regions of the world.
3.6. Product Order and Shipping Information. As orders for NETSOL Web Products
are received and accepted through the Web Site, 1st NET will electronically
provide NETSOL's with order information. NETSOL will use its reasonable efforts
to ship NETSOL Web Products which are available within a reasonably prompt
period after the order is accepted and provide 1st NET with electronic
confirmation of each NETSOL Web Product shipment.
<PAGE> 4
4.0 NETSOL OBLIGATIONS AND COMMITMENTS
NETSOL understands that the Internet is a new and rapidly evolving marketing
channel. The long-term success of the Web Site and NETSOL's e-commerce venture
will require continuing close co-operation between NETSOL and 1st NET
throughout the term of this Agreement. NETSOL will use its reasonable efforts
to support its e-commerce presence on the Internet.
4.1 [*]
4.1.1. Commissions shall be payable on the twentieth (20th) day of each month
for Net Sales of NETSOL Web Products shipped during the preceding month, and
shall be accompanied by a statement which sets forth the gross sales of NETSOL
Web Products, an itemization of deductions therefrom in arriving at the amount
of the NETSOL Net Sales, and the rates used in calculating the amount of the
commission. If 1st NET does not receive the commissions due on the 20th day of a
month by the 30th day of such month (the "Late Commissions"), 1st NET shall give
written notice (the "LC Notice") to NETSOL that the Late Commissions have not
been received by 1st NET. If 1st NET does not receive the Late Commissions
within thirty (30) days after the LC Notice has been received by NETSOL, then,
in addition to any other remedies that 1st NET may have under applicable law,
1st NET shall have the right to cease providing the services necessary for the
NETSOL 1st Net Web Site to be accessible to Internet users.
4.1.2. In the event of a termination of this Agreement by NETSOL pursuant to
Section 12.1 hereof if the cumulative commissions payable to 1st NET on the
NETSOL Net Sales of NETSOL Web Products sold through the MIRAGE/1st NET Web
Site during the Initial Period is less than the agreed costs incurred by 1st
NET at time of termination, then 1st NET shall be entitled to an additional
amount equal to the difference between that sum and the cumulative amount of
commissions paid to 1st NET on the NETSOL Net Profit of NETSOL Web Products
through the NETSOL Web Site during the Initial Period. Such amount shall be
payable by NETSOL to 1st NET in twelve equal monthly installments with the
first monthly installment being due on the last day of the month immediately
following the month which includes the effective termination date of this
Agreement, and each monthly installment thereafter being due on the last day of
the applicable month.
<PAGE> 5
4.2. Product Availability and Information. NETSOL shall determine which styles
of its products will be made available for purchase over the Internet through
the NETSOL Web Site developed and maintained by 1st NET. The determination by
NETSOL of the NETSOL Web Products available for purchase through the NETSOL Web
Site will be sufficiently broad to give a reasonable prospect for NETSOL Net
Sales of expected $1,000,000, $2,000,00 and $3,000,000 during the Initial
Period, the 12 month period following the Initial Period, and second 12 month
period following the Initial Period, respectively.
4.2.1. NETSOL will provide 1st NET with marketing oriented information,
descriptions, prices and illustrations for each of the NETSOL Web Products as
they are made available to the public. NETSOL will also provide additional
selected text and graphic material to add visual interest to the NETSOL Web
Site on an ongoing basis.
4.2.2 All of the text and graphic information provided by NETSOL will be in
such format as mutually agreed upon. Initially, graphic images will be provided
only in GIF or in JPEG formats. 1st NET may designate additional or alternative
data formats from time to time as the technology utilized in the development
and maintenance of the NETSOL Web Site evolves.
4.3. Terms Of Sale And Warranty Information. In addition to the marketing
oriented information described above, NETSOL will provide 1st NET with its
complete terms and conditions of sale, including any warranty, exchange, return
and other customer service policies and procedures for inclusion on the NETSOL
Web Site as required by law.
4.4. Advertising The Web Site. 1st Net will use its reasonable efforts to
advertise the NETSOL Web Site through 1st NET's advertising channels in a
manner which will increase the exposure of the NETSOL Web Site to potential
Internet users and which is consistent with NETSOL financial resources and
business needs.
4.4.1. NETSOL will include the URL of the NETSOL Net Web Site and an invitation
to visit the NETSOL Web Site in such of its print, electronic and other
advertising as it determines.
4.5. Purchase Support Services. NETSOL will provide reasonable Purchaser
support services and facilities to handle complaints and questions by
Purchasers, NETSOL Web product returns, Purchaser refunds, and other Purchaser
service requests through a help desk to be set up and maintained by NETSOL.
5.0 SALE OF THIRD PARTY ADVERTISING; PAYMENT OF COMMISSIONS
5.1. Sale of Other Products and Services. In the event that 1st NET desires to
(i) have 1st NET products sold through the NETSOL Net Web Site or a NETSOL Web
Browser, or (ii) have 3P Advertising placed on the NETSOL Web Site. 1st NET
shall make a detailed written proposal to NETSOL and shall obtain NETSOL's
prior written approval before selling the 1st NET Products through the NETSOL
Web Site or a NETSOL Web Browser, or permitting 3P Advertising to be placed on
the
<PAGE> 6
NETSOL Web Site. 1st NET shall be fully responsible for all aspects of selling
and fulfilling the sale of 1st NET Products sold through the NETSOL Web Site or
a NETSOL Web Browser, and for placement of 3P Advertising on the NETSOL Web
Site.
5.2.
This portion of the Agreement has been omitted and filed separately with
the Securities and Exchange Commission.
6.0. OWNERSHIP OF COPYRIGHTS AND MATERIALS.
6.1. Ownership of Copyrights. The NETSOL Web Site and e-commerce capability
developed by 1st NET under this Agreement may contain copyrighted materials
provided by NETSOL or licensed from one or more third parties in addition to
original materials developed by 1st NET. It may also contain NETSOL or third
party materials that have been modified by 1st NET. As a result, the copyrights
and derivative copyrights in the Code used to develop the Web pages and the
NETSOL Web Site may belong to a combination of 1st NET, NETSOL, and/or other
third parties.
6.1.1. 1st NET and NETSOL assumes the responsibility for obtaining any third
party copyright licenses that may be required to use the materials for 1st NET
employs in the NETSOL Web Site and its constituent Web Pages unless those
materials are specified or supplied by NETSOL. When 1st NET obtains a license
to use copyrighted material on the NETSOL Web Site, 1st NET will inform NETSOL
in writing that such material is licensed from third parties and of the terms
and scope of the license. NETSOL shall abide by the terms of any such third
party license, and shall not knowingly allow the use of the licensed materials
beyond the scope of the license obtained by 1st NET without first obtaining any
required supplemental licenses from the copyright owners.
6.1.2. NETSOL assumes the responsibility for obtaining any copyright
authorizations that may be required to use the materials specified or supplied
by NETSOL to 1st NET for inclusion in the NETSOL Web Site.
6.2. NETSOL's Copyrights. NETSOL's copyrights, trademarks or other
intellectual property rights in Content provided by NETSOL, or any other
material developed by NETSOL, shall belong to NETSOL and 1st NET shall have no
right to copy, use or display such content or materials except for the purpose
of developing and maintaining the NETSOL Web Site.
7.0. DATA SECURITY CONSIDERATIONS.
1st NET will initially use the Microsoft Internet Security Framework for
transactional security when collecting order and credit card information from
Purchasers and transmitting data and instructions to banking institutions.
Provided that 1st NET uses the Microsoft Internet Security Framework or another
industry
<PAGE> 7
standard security system approved by NETSOL, 1st NET shall have no
responsibility or liability for any failures or inadequacies of the security
system employed.
8.0. WARRANTY AND DISCLAIMER OF LIABILITY.
8.1. Functionality. 1st NET warrants that the NETSOL Web Site and its
constituent Web Pages developed by 1st NET will provide the basic functionality
described in this Agreement. If a material nonconformity appears or is
discovered during the term of this Agreement and NETSOL communicates this fact
with details to 1st NET in writing, 1st NET will use its reasonable efforts to
correct the non-conforming functionality within a reasonable time as NETSOL's
sole and exclusive remedy.
8.2. Warranty Exclusions. 1st NET does not warrant that the NETSOL Web Site
will meet NETSOL's needs, the performance of data communication lines accessing
the Web Server, the Internet, the Web Server itself nor the performance of any
aspect of the NETSOL Web Site or its constituent Web Pages that are not under
1st NET's direct control. Without limiting the generality of the foregoing, 1st
NET is not responsible for problems in the interaction of the Web Pages with
Web Browsers or versions of Web Browsers that the NETSOL Web Site was not
designed for. NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE SHALL APPLY. This is a commercial and not personal or family
transaction.
9.0. WARRANTY OF TITLE, NON-VIOLATION OF LAW, AND INDEMNIFICATION BY MIRAGE.
9.1. NETSOL Warranties. NETSOL warrants, to its knowledge, that any materials
NETSOL specifies and the Content it provides to 1st NET for use or inclusion in
the NETSOL Web Site or the constituent Web Pages under this Agreement will not
infringe any patent, copyright, trademark or trade secret of another within the
United States, and will not violate any right of publicity or privacy, be
libelous or obscene, nor will any information, recipe, formula or instruction
contained in the materials be injurious to others within the United States.
9.2. NETSOL Indemnification. NETSOL shall defend, indemnify and hold 1st NET
harmless against any claims based on an allegation that (i) any materials
specified or Content provided by NETSOL to 1st NET, except to the extent that
1st NET or any 1st NET Subcontractor has modified such materials or Content, or
(ii) any NETSOL or information provided or sold using the e-commerce facilities
of the NETSOL Web Site violates any warranty in Section 8.1.
9.3. Indemnification Limitations. NETSOL shall have no liability under this
indemnity to the extent that any infringement or other injury is established to
have resulted from the use of materials, Content, or information specified or
provided by 1st NET, any material, Content, or enhancement, improvement or
development of the NETSOL Web Site and its constituent Web Pages performed by
1st NET or any 1st NET Subcontractor. NETSOL's only liability hereunder shall
be for that portion of an infringement or injury caused by NETSOL, but not for
any infringement or injury caused by 1st NET or others.
<PAGE> 8
9.4. Notice of Claims. 1st NET shall promptly notify NETSOL when it learns of
the existence of any claim, demand, or other matter to which Netsol's
indemnification obligations may apply, and shall allow NETSOL to defend the
same at its own expense and with counsel of its own selection. 1st NET shall at
all times also have the right to full participate in the defense at its own
expense. If the claim is one that cannot by its nature be defended solely by
NETSOL, then 1st NET shall make available all information and assistance that
NETSOL may reasonably request at NETSOL's expense. Subject to NETSOL's
indemnification obligations to 1st NET as set forth in Section 9.2 hereof,
NETSOL shall have the absolute right to settle any claim, demand or other
matter on such terms at it shall determine.
9.5. Possible Actions. Should any materials specified or Content provided by
NETSOL to 1st NET for use in the NETSOL Web Site or constituent Web Pages, or
any MIRAGE Web Product or information provided or sold through the NETSOL Web
Site become or in NETSOL's opinion, be likely to become the subject of a claim
of infringement of a patent, trademark, trade secret or copyright, or that they
are likely to become the basis of a claim alleging the violation of the right
of publicity or privacy that the material is libelous or obscene, that it was
injurious to others, or otherwise violates an applicable law rule or regulation
NETSOL may:
9.5.1. If possible, procure for itself, at no cost to 1st NET, the right to
continue to use, display or provide the materials in question;
9.5.2. Request 1st NET's assistance, which will be provided by 1st NET without
cost, with the replacement or modification of the MIRAGE/1st Net Web Site or
constituent Web Pages to correct or eliminate the potential problem; or
9.5.3. Request 1st NET's assistance, which will be provided by 1st NET without
cost, with the removal of the offending material from the NETSOL Web Site or
discontinuance of the sale or distribution of any NETSOL Web Products or
information offered on the NETSOL Web Site.
10.0 WARRANTY OF TITLE, NON-VIOLATION OF LAW, AND INDEMNIFICATION BY 1ST NET.
10.1. 1st NET Warranties. 1st NET warrants that, except for materials that are
specified or Content that is provided to 1st NET by NETSOL, the Code employed
by 1st NET in the NETSOL Web Site and its constituent Web Pages, and any
materials provided by 1st NET or any 1st NET Subcontractor for use or inclusion
in the NETSOL Web Site and its constituent Web Pages, will not infringe any
patent, copyright, trademark or trade secret of another within the United
States, and will not violate any right of publicity or privacy, be libelous or
obscene, nor will any information, recipe, formula or instruction contained in
the materials be injurious to others within the United States.
10.2. 1st NET Indemnification. 1st NET shall defend, indemnify and hold NETSOL
harmless against any claims based on an allegation that any materials developed
or supplied by 1st NET, or supplied by NETSOL and modified by 1st NET or by any
1st NET Subcontractor, infringe any patent, copyright, trademark or trade
secrets belonging to a third party and from any claims alleging a violation of
the right
<PAGE> 9
of publicity or privacy, that the material is libellous or obscene, or that it
was injurious to others.
10.3. Indemnification Limitations. 1st NET shall have no liability under this
indemnity to the extent that any infringement or other injury is established to
have resulted from the use of materials, Content or information specified or
provided by NETSOL, any material, content or information not supplied or
modified by 1st NET or by any 1st NET Subcontractor, or from any material
modification, editing, revision, enhancement, improvement or development of the
NETSOL Web Site and its constituent Web Pages not actually performed by 1st NET
or by any 1st NET Subcontractor 1st NET's only liability hereunder shall be for
that portion of an infringement or injury caused by 1st NET or by any 1st NET
Subcontractor, but not for any infringement or injury caused by NETSOL or other
third parties other than 1st NET Subcontractors.
10.4. Notice of Claims. NETSOL shall promptly notify 1st NET of the existence
of any claim, demand or other matter to which 1st NET's indemnification
obligations may apply, and shall allow 1st NET to defend the same at its own
expense and with counsel of its own selection. NETSOL shall at all times also
have the right to fully participate in the defense at its own expense. If the
claim is one that cannot by its nature be defended solely by 1st NET, then
NETSOL shall make available all information and assistance that 1st NET may
reasonably request at 1st NET's expense. 1st NET agrees that it shall have no
authority to settle any claim, demand or other matter which may in any manner
affect NETSOL's trademarks or other intellectual property rights without
NETSOL's prior written consent.
10.5. Possible Actions. Should any components of the NETSOL Web Site or
constituent Web Pages, for which 1st NET is responsible, become, or in 1st
NET's opinion, be likely to become, the subject of a claim of infringement of a
patent, trademark, trade secret or copyright, or that they are likely to become
the basis of a claim alleging the violation of the right of publicity or
privacy, that the material is libelous or obscene, or that they were injurious
to others, 1st NET may do any one of the following at 1st NET's option.
10.5.1. Procure for NETSOL, at no cost to NETSOL, the right to continue to use
the NETSOL Web Site or constituent Web Pages;
10.5.2. Replace or modify the NETSOL Web Site or constituent Web Pages, at no
cost to NETSOL, to correct or eliminate the potential problem, provided that
the same function is performed by the replacement of NETSOL Web Site or
constituent Web Pages;
10.5.3. Or if the right to continue using the material cannot be obtained or
the material cannot be replaced or modified at reasonable cost, remove, at no
cost to NETSOL, the offending material from the NETSOL Net Web Site.
11.0. REMOVAL OF DISPUTED MATERIAL.
11.1. Forwarding of Complaints. In the event that 1st NET receives a written
complaint alleging that any aspect of the NETSOL Web Site, its constituent
<PAGE> 10
Web Pages, the NETSOL Web Products, 3P Advertising or information distributed
through the NETSOL Web Site is injurious to another, infringes or otherwise
violates any third parties right, or any law or regulation, 1st NET will
promptly forward a copy or the complaint to NETSOL. If NETSOL receives such a
complaint, it will promptly forward a copy of the complaint to 1st NET.
11.2. Rights to Remove Disputed Material. Either NETSOL or 1st NET shall have
the right to remove, or require 1st NET to remove, any disputed material from
the NETSOL Web Site, or cease selling or distributing any products, advertising
or information through the NETSOL Net Web Site pending the resolution of any
dispute over the content of the NETSOL Web Site or the NETSOL Web Products or
information. The removal may take place at any time after the party initiating
the removal has received or given notice of a written complaint. The party
initiating the removal of disputed material, products, advertising or
information shall promptly notify the other party of its action. Neither party
shall have any liability to the other for the removal of any material from the
NETSOL Web Site under the provisions of this Section 11.2. In the event that
1st NET shall desire to exercise its right to remove disputed material from the
NETSOL Web Site, 1st NET shall first notify NETSOL in writing that it desires
to remove disputed material from the NETSOL Web Site, which notice shall
describe the disputed material and specify the reasons for such proposed
removal. If, within ten (10) days after receipt of such notice, NETSOL notifies
1st NET in writing that it has determined that such disputed material should not
be removed, and agrees to indemnify 1st NET against any liability arising from
such determination, 1st NET shall not remove the disputed material.
12. TERM AND TERMINATION.
12.1. Term. This Agreement shall begin and become effective from July 6, 1999
and shall continue for an initial term of thirty-six (36) months after the
month which includes the Start Date. Thereafter the Agreement will
automatically be renewed for successive twelve (12) month terms unless one
party notifies the other three (3) months prior to any renewal term that it
desires to terminate this Agreement.
12.2. Late Start Date. If the Start Date does not occur by September 1, 1999
for any reason, each party shall have the right to immediately terminate this
Agreement by giving the other party written notice of its election to terminate
this Agreement.
12.3. Discretionary Termination. Notwithstanding the normal term of this
Agreement set forth in Section 12.1, within thirty (30) days after the end of
the Initial Period, each party shall have the right to terminate this Agreement
for any reason by giving the other party written notice of its election to
terminate this Agreement, which notice shall specify the effective termination
date which shall be at least thirty (30) days after the date of such written
notice.
12.4. Termination Upon Material Breach. Notwithstanding the normal term of this
Agreement set forth in Section 12.1, either party shall have the right to
terminate this Agreement if the other party defaults in any of its material
obligations under this Agreement, unless within thirty (30) days after written
notice of such default the other party remedies the default.
<PAGE> 11
12.5. Liability Limitations. Neither party to this Agreement shall be liable by
reason of the termination of this Agreement to the other for compensation,
reimbursement or damages on account of any loss of prospective profits on
anticipated sales or on account of expenditures, investments, leases or other
commitments relating to the business or goodwill of either party,
notwithstanding any law to the contrary.
13.0. CONFIDENTIALITY.
13.1. NETSOL Confidential Information. This Agreement, any confidential NETSOL
business information provided to 1st NET in writing that is clearly marked
confidential at the time of disclosure, and the pricing, terms and conditions
under which 1st NET is willing to provide its services under this Agreement,
shall be kept confidential for a period of two (2) years following the
termination of this Agreement.
13.2. Purchaser Data. During the course of its performance under this
Agreement, 1st NET will collect data and information about Purchasers visiting
the NETSOL Web Site, and shall provide such data and information to NETSOL, and
make such data and information accessible to NETSOL on a current basis. The
privacy of individual Purchaser will be maintained in accordance with the
privacy policies set forth on the NETSOL Web Site. 1st NET will also be free to
retain, evaluate and freely utilize such data and information for its own
purposes.
13.3. Exclusions. Confidential information shall not include any information
which is already known to the recipient at the time of disclosure through
lawful channels of communication; or is or becomes publicly known through no
wrongful act of the recipient; or is rightfully received from a third party
without a similar restriction and without breach of this Agreement; or is
independently developed by the recipient without breach of this Agreement; or
is furnished to a third party by the disclosing party without a similar
restriction on the third parties' rights; or is approved for release by written
authorization of the disclosing party.
14.0. GENERAL CONDITIONS.
14.1 Relationship of the Parties. No party hereto is an agent or representative
of the other, and no party shall be liable for or bound by any representation,
act or omission whatsoever of the other party. This Agreement shall in no way
constitute the parties hereto, partners or joint venturers. This Agreement is
not for the benefit of any third party.
14.2. Force Majeure. Nonperformance of either party shall be excused to the
extent that performance is rendered impossible by strike, fire, flood,
governmental acts or orders or restrictions, failure of suppliers or
contractors, or any other reason where failure to perform is beyond the control
and not caused by the negligence of the non-performing party.
14.3. Notices. All notices, demands, requests, consents, statements,
satisfactions, waivers, designations, refusals, confirmations, denials and
other communications that may be required or otherwise provided for or
contemplated hereunder shall be in writing and shall be deemed to be properly
given and received (i) upon delivery, if delivered in person or by facsimile
transmission with receipt acknowledged, (ii) one
<PAGE> 12
(1) business day after having been deposited for overnight delivery with
Federal Express or another comparable overnight courier service, or (ii) three
(3) business days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service or the official
governmental postal service in the Territory, as the case may be, and sent by
registered or certified mail (or its equivalent in the Territory), postage
prepaid, addressed as follows:
If to NETSOL: If to 1st NET
/s/ Najeeb U. Ghauri /s/ Clifford J. Smith
233 Wilshire Boulevard, Suite 510 11423 West Bernardo Court
Santa Monica, California 90401 San Diego, California 92127
Attention: Najeeb U. Ghauri Attention: Gregory D. Writer, Jr.
Telephone: (310) 395-4073 Fax: (619) 674-4443
or to such other person or persons at such address or addresses as may be
designated by written notice to the other parties hereunder.
14.4. Severability. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
14.5. Binding Effect, Benefits. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, successors and
assigns; provided, however, that nothing in this Agreement shall be construed
to confer any rights, remedies, obligations or liabilities on any person other
than the parties hereto or their respective heirs, successors and assigns.
14.6. Title and Captions. Section headings are for convenience only and shall
not be considered in the interpretation of this Agreement.
14.7. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same document. The parties additionally acknowledge and
agree that this Agreement may be executed and delivered by facsimile. At such
time as each of the parties has a facsimile copy of this Agreement, and/or
counterparts thereof containing the signatures of all of the parties, this
Agreement shall be treated as having been fully executed and delivered for all
purposes.
14.8. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter herein and merges
all prior discussions between them. No modification of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing and signed by both parties to this Agreement.
14.9. Governing Law. This Agreement shall in all respects be interpreted,
construed in accordance with, and governed by the internal laws of the State of
California, without regard to the rules of conflict of laws.
<PAGE> 1
EXHIBIT 10.5
STOCK ACQUISITION AGREEMENT
BY AND BETWEEN
1ST NET TECHNOLOGIES, INC.
AND
MC32, INC.
Dated as of August 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
I. DEFINITIONS..........................................................................1
II. THE STOCK ACQUISITION................................................................2
2.1 Stock Acquisition.............................................................2
2.2 The Closing...................................................................2
2.3 Effective Time; Effect of Stock Acquisition...................................3
2.4 Articles of Incorporation.....................................................3
2.5 By-Laws.......................................................................3
2.6 Directors and Officers........................................................3
2.7 Conversion of Shares..........................................................3
III. REPRESENTATIONS AND WARRANTIES OF 1ST NET............................................4
3.1 Organization and Authorization................................................4
3.2 Non-Contravention.............................................................4
3.3. Capital Stock.................................................................4
3.4 Financial Statements..........................................................5
3.5 No Adverse Changes............................................................5
3.6 Approvals.....................................................................6
3.7 Taxes.........................................................................6
3.8 Contracts; Absence of Default.................................................7
3.9 Title to Assets...............................................................8
3.10 Litigation....................................................................8
3.11 Permits.......................................................................8
3.12 Corporate Records.............................................................8
3.13 Absence of Undisclosed Liabilities............................................9
3.14 Corporate Compliance..........................................................9
3.15 Regulatory Compliance.........................................................9
3.16 Conflict of Interest..........................................................9
3.17 Labor Matters.................................................................9
3.18 Benefit Plans................................................................10
3.19 Accuracy of Information Furnished............................................10
3.20 Brokers......................................................................10
3.21 Reorganization Representations of 1st Net....................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C> <C>
IV. SPECIAL MATTERS.....................................................................11
4.1 No-Shop......................................................................11
4.2 Payment of Certain Expenses..................................................11
V. REPRESENTATIONS AND WARRANTIES OF MC32..............................................11
5.1 Organization and Authorization...............................................11
5.2 Non-Contravention............................................................12
5.3 Capital Stock................................................................12
5.4 Unaudited Financial Statements and Stock Purchase Agreement..................12
5.5 No Adverse Changes...........................................................13
5.6 Litigation...................................................................13
5.7 Corporate Records............................................................13
5.8 Corporate Compliance.........................................................13
5.9 Accuracy of Information Furnished............................................13
5.10 Brokers......................................................................13
5.11 Reorganization Representations of MC32.......................................13
VI. COVENANTS...........................................................................14
6.1 Negative Covenants of 1ST NET and MC32.......................................14
6.2 Additional Affirmative Covenants of MC32.....................................14
6.3 Additional Affirmative Covenants of 1ST NET..................................15
6.4 Access and Confidentiality...................................................15
6.5 Public Announcements.........................................................15
6.6 Expenses.....................................................................15
6.7 Survival of Representations and Warranties and Covenants; Indemnification....16
6.8 Reorganization Covenant......................................................17
6.9 Financial Covenants of 1ST NET...............................................17
VII. CONDITIONS..........................................................................17
7.1 Conditions Precedent to the Obligations of All Parties.......................17
7.2 Additional Conditions Precedent to the Obligations of 1ST NET................18
7.3 Additional Conditions Precedent to the Obligations of MC32...................18
VIII. TERMINATION.........................................................................19
8.1 Termination by Mutual Consent................................................19
8.2 Termination by MC32..........................................................19
8.3 Effect of Termination........................................................19
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
IX. GENERAL PROVISIONS..................................................................19
9.1 Notices......................................................................19
9.2 Amendment and Waiver.........................................................20
9.3 Counterparts.................................................................20
9.4 Assignability................................................................21
9.5 Entire Agreement.............................................................21
9.6 Applicable Law...............................................................21
9.7 Headings.....................................................................21
9.8 Attorneys' Fees..............................................................21
9.9. Further Assurances...........................................................21
</TABLE>
EXHIBITS:
A - Articles of Incorporation of 1ST NET TECHNOLOGIES, INC.
B - Issuance of 1ST NET Common Stock to MC32 Shareholders
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THIS AGREEMENT ("Agreement") is made and entered into as of this 15th
day of August, 1998 by and between 1ST NET TECHNOLOGIES, INC., a Colorado
corporation ("1ST NET"), and MC32, INC.., a Colorado corporation ("MC32").
RECITALS
A. STOCK ACQUISITION. In order that 1ST NET may acquire all of the
capital stock of MC32, and MC32 desires that MC32 sale all its capital stock to
1ST NET pursuant to the terms and conditions set forth in this Agreement and in
accordance with the laws of the State of Colorado (the "Stock Acquisition"); and
B. TRANSFER OF TECHNOLOGY. 1ST NET will transfer to MC32 all of its
proprietary rights to the Mariah IP Telephoney technology and Wisper wireless
voice and data transmission technology.
C. TAX IMPLICATIONS. The parties intend that the Stock Acquisition
will constitute a reorganization under the provisions of Section 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
I. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth:
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Constituent Corporations" shall mean both MC32 and 1ST NET.
"Conversion Ratio" shall have the meaning set forth in Section 2.7.
"Effective Time" shall have the meaning set forth in Section 2.3.
"MC32 Common Stock" shall mean the common stock, $.001 par value, of
MC32.
"1ST NET" shall have the meaning set forth in the preface of this
Agreement.
"1ST NET Common Stock" shall mean the Common Stock, $.001 par value, of
1ST NET.
<PAGE> 6
"1ST NET Financial Statements" shall mean Financial Statements of 1ST
NET referred to in Section 3.4, including the notes thereto.
"Knowledge" of a party shall mean any item of which any executive
officer of MC32 or 1ST NET has actual knowledge or of which such
executive officer would have discovered following reasonable inquiry.
"Stock Acquisition" shall have the meaning set forth in the preambles
hereto and more fully described in Section 2.1.
"Ordinary course of business" or similar reference shall mean consistent
with past custom and practice, including with respect to quantity and
frequency.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Tax" shall mean a net income, gross income, gross receipts, sales, use,
ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, transfer, occupation, real
property, premium, property or windfall profit tax, custom duty, or
other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest and any penalty, additional
tax or additional amount imposed by any jurisdiction or other taxing
authority (federal, state, local or foreign).
II. THE TRANSACTION.
2.1 STOCK ACQUISITION. Pursuant to the provisions of this Agreement
and in accordance with Colorado Business Act at the Effective Time 1ST NET shall
acquire all of the outstanding stock of all classes of MC32.
2.2 THE CLOSING.
(a) Subject to the conditions set forth in Article VII,
unless this Agreement shall have been terminated as provided in Article VIII,
the consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of The Krueger Group, LLP, 11423 West
Bernardo Court, San Diego, California, commencing at 9:00 a.m., on December 31,
1998 or such other place or such other date as the parties may mutually
determine (the "Closing Date").
(b) At the Closing, (i) 1ST NET shall deliver to MC32 the
various certificates, instruments and documents referred to in Section 7.3, and
shall deliver to MC32 share certificates as set forth in Exhibit B hereto of 1ST
NET representing 450,000 shares of 1ST NET Common Stock, which shall be validly
issued and fully paid and nonassessable, free and clear of any lien or other
encumbrance.
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2.3 EFFECTIVE TIME; EFFECT OF STOCK ACQUISITION. The Stock
Acquisition shall become effective as of the time (the "Effective Time") 1ST NET
files the Notice of Transaction with the Secretary of State of the State of
Colorado. As of the Effective Time, the separate existence of MC32 shall
continue
2.4 ARTICLES OF INCORPORATION. The Articles of Incorporation of MC32
in effect immediately prior to the Effective Time shall continue to be the
Articles of Incorporation of MC32 until amended in accordance with the
provisions thereof.
2.5 BY-LAWS. The By-Laws of MC32 as in effect immediately prior to
the Effective Time shall be the By-Laws of MC32 until further amended in
accordance with the provisions thereof.
2.6 DIRECTORS AND OFFICERS.
(a) The Board of Directors of MC32 from and after the
Effective Time shall consist of the persons who are members of the Board of
Directors of 1ST NET as of the Effective Time. Such directors shall serve until
their resignation, removal or failure to be reelected and until their respective
successors are duly elected or appointed and qualified in accordance with the
Articles of Incorporation and By-Laws of MC32.
(b) The persons who are officers OF MC32 as of the Effective
Time shall continue in the same capacity as officers of MC32 until the Board of
Directors of the MC32 shall otherwise determine. Other persons may be elected or
appointed to other offices from time to time in accordance with the By-Laws of
MC32 .
2.7 PURCHASE OF SHARES.
As of the Effective Time, each share of MC32 shall be purchased
by 1ST NET.
III. REPRESENTATIONS AND WARRANTIES OF 1ST NET.
1ST NET hereby represents and warrants to MC32 as follows:
3.1 ORGANIZATION AND AUTHORIZATION.
1ST NET is a corporation duly organized, validly existing and in
good standing under the laws of Colorado, has the corporate power and all
necessary corporate authorizations to own all of its properties and assets and
to carry on its business as it is now being conducted. 1ST NET is duly qualified
to do business and is in good standing in each jurisdiction in which the nature
of its
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<PAGE> 8
business or character of its properties requires such qualification and where
the failure to be so qualified would materially and adversely affect 1ST NET,
its business, properties or rights. 1ST NET has delivered to MC32 complete and
correct copies of 1ST NET's Articles of Incorporation and By-Laws, as amended
and in effect on the date of this Agreement. 1ST NET has all requisite corporate
power to execute, deliver and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement by 1ST NET, and the
consummation by 1ST NET of the transactions contemplated hereby have been duly
authorized by the Board of Directors and shareholders of 1ST NET. This Agreement
has been duly executed and delivered by 1ST NET and constitutes a valid and
binding agreement of 1ST NET.
3.2 NON-CONTRAVENTION. The execution and delivery of this Agreement
do not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of 1ST NET (b) violate any
material provision of or result in the breach or the acceleration of or entitle
any party to accelerate (whether after the giving of notice or the lapse of time
or both) any obligation under any material mortgage, lease, agreement, license
or instrument, or any order, arbitration award, judgment, or decree, to which
1ST NET is a party or by which it is bound, (c) result in the creation or
imposition of any lien, charge, pledge, security interest or other encumbrance
on any material property of 1ST NET or (d) to the knowledge of 1ST NET violate
or conflict with any law, ordinance or rule to which 1ST NET is subject.
3.3. CAPITAL STOCK.
(a) The authorized and outstanding capital stock of 1ST NET
consists of _______________shares of Common Stock, $.001 par value. As of the
date of this Agreement there is __________________ shares of Common Stock issued
and outstanding which are validly issued, fully paid and nonassessable. There
are sufficient authorized but unissued shares of 1ST NET Common Stock to permit
the issuance of all shares required to be issued in accordance with the terms
and conditions of this Agreement to MC32 upon consummation of the Stock
Acquisition.
(b) There are no voting trusts, voting agreements,
irrevocable proxies or other agreements to which 1ST NET is a party, or of which
1ST NET has knowledge, in effect relating to the voting or transfer of any
shares of 1ST NET Common Stock.
(c) The Shares of 1ST NET Common Stock to be delivered
pursuant to the Stock Acquisition will, upon issuance, be validly issued, fully
paid and nonassessable.
3.4 FINANCIAL STATEMENTS. 1ST NET has previously furnished MC32 with
its audited Balance Sheets as of December 31, 1997 (collectively the "1ST NET
Financial Statements"). The 1ST NET Financial Statements (a) were prepared in
accordance with the books and records of 1ST NET; and (b) have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods covered thereby. The 1ST NET Financial
Statements present fairly the financial position of 1ST NET as of the dates
thereof and the results of operations and changes in financial position of 1ST
NET for the periods then ended. The
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<PAGE> 9
balance sheet of 1ST NET as of December 31, 1997 is sometimes referred to herein
as the "Latest 1ST NET Balance Sheet."
3.5 NO ADVERSE CHANGES. Except as contemplated herein, since the
date of the latest 1ST NET Balance Sheet, 1ST NET has conducted its business
only in the ordinary course, there has not been any material adverse change in
the financial condition, assets, liabilities, properties, business or operations
of 1ST NET and 1ST NET has not:
(a) issued or sold any stock, notes, bonds or other
securities, or any option to purchase the same, or entered into any agreement
with respect thereto;
(b) declared, set aside or made any dividend or other
distribution on capital stock or redeemed, purchased or acquired any shares
thereof or entered into any agreement in effect to the foregoing;
(c) amended its Articles of Incorporation or By-Laws;
(d) incurred any material obligation or liability (absolute
or contingent);
(e) made any payment or arrangement, agreement or commitment
to pay any bonus, incentive compensation or retirement, termination or severance
benefits;
(f) borrowed or loaned any money;
(g) changed its method of accounting; or
(h) agreed, whether in writing or otherwise, to take any
action described in this Section 3.5.
3.6 APPROVALS. Except for the approval by the 1ST NET shareholders
and the filing of the Notice of Transaction with the Colorado Secretary of
State, no consent, approval, order or authorization of, or registration,
declaration or filing with any governmental authority is required in connection
with the execution and delivery of this Agreement by 1ST NET or the consummation
by 1ST NET of the transactions contemplated hereby.
3.7 TITLE TO ASSETS. 1ST NET owns and has good and marketable title
to all of its assets and properties (real, personal and mixed, tangible or
intangible), reflected in the 1ST NET Financial Statements free and clear of any
mortgage, lien, pledge, charge, claim, conditional sales or other agreement,
lease, right or encumbrance, except to the extent stated or reserved against in
the 1ST NET Financial Statements.
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<PAGE> 10
3.8 LITIGATION. There are no actions, suits or proceedings or
investigations pending or, to the knowledge of 1ST NET threatened against or
affecting the business or financial condition of 1ST NET at law or in equity in
any court or before any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality. 1ST NET is not
in default in respect of any judgment, order, writ, injunction or decree of any
court or any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.9 PERMITS. 1ST NET has all permits, licenses, orders and approvals
of all foreign, federal, state, or local governmental or regulatory bodies
required for it to conduct its business as presently conducted, the absence of
which would have a material adverse effect on the business or financial
condition of 1ST NET all such permits, licenses, orders and approvals are in
full force and effect and no suspension or cancellation of any of them is
threatened; and such permits, licenses, orders or approvals will not be
adversely affected by the consummation of the transactions contemplated by this
Agreement.
3.10 CORPORATE RECORDS. The minute books of 1ST NET contain complete
and accurate records of all material corporate actions taken at all meetings,
all actions by written consent without a meeting, and all other material
corporate actions taken by the Board of Directors and shareholders of 1ST NET.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the 1ST NET Financial Statements, 1ST NET had
as of the dates of such financial statements, no liabilities or obligations,
whether accrued, contingent or otherwise required by GAAP to be reflected in the
1ST NET Financial Statements or otherwise material to 1ST NET. As of the date of
this Agreement, 1ST NET does not have any liabilities or obligations, whether
accrued, contingent or otherwise, except as provided for in the preceding
sentence and for such liabilities or obligations as have arisen in the ordinary
course of business since the date of the Latest Balance Sheet, none of which
newly arisen liabilities or obligations has a material adverse effect upon the
business or financial condition of 1ST NET.
3.12 CORPORATE COMPLIANCE. 1ST NET is not in violation of, or in
default under, any term or provision of its Articles of Incorporation or
By-Laws.
3.13 REGULATORY COMPLIANCE. To its knowledge, 1ST NET is in
compliance in all material respects with all federal, state, local and foreign
laws and regulations applicable to it, including, without limitation,
environmental laws. 1ST NET has not generated, used, handled, treated or stored
hazardous waste or hazardous substance (as hereinafter defined) and/or oil at,
on or in any site currently or formerly owned, leased or used by 1ST NET or
shipped the same for treatment, storage or disposal at any other site or
facilities other than those generated, used, handled, treated or stored in the
ordinary course of business which was in compliance in all material respects
with the laws and regulations relating to hazardous waste and hazardous
substances. For the purpose of this Section 3.15, "hazardous waste" and
"hazardous substance" shall have the meanings set forth
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<PAGE> 11
in the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.,
and the Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. Sections 9601 et seq., and any federal regulations adopted pursuant to
or in furtherance of such acts as such statutes or regulations may be amended,
or as defined in any state or local statutes or regulations governing such waste
and substances.
3.14 CONFLICT OF INTEREST.
(a) No director or officer of 1ST NET or, to the knowledge
of 1ST NET any employee of 1ST NET, has any interest in any material property,
real or personal or tangible or intangible necessary for, used in or pertaining
to the business of 1ST NET; and
(b) No director or officer of 1ST NET, or to the knowledge
of 1ST NET, employee of 1ST NET, (i) competes with 1ST NET in any line of
business, or (ii) is a party to any 1ST NET contract, nor does any director or
officer of 1ST NET, or, to the knowledge of 1ST NET, any employee of 1ST NET
have an ownership interest, direct or indirect, in any entity which competes
with 1ST NET in any line of business or is a party to any 1ST NET contract.
3.15 LABOR MATTERS. There are no disputes pending or, to the
knowledge of 1ST NET, threatened, between 1ST NET and any of its former
employees other than Mr. Kenneth Hill. To the knowledge of 1ST NET, 1ST NET is
in compliance with all applicable labor laws the failure to comply with which
would have a material adverse effect on the business or financial condition of
1ST NET. 1ST NET is not a party to any collective bargaining agreements.
3.16 BENEFIT PLANS.
(a) 1ST NET is not presently a party to any compensation,
bonus, pension, profit sharing, retirement, savings, stock option, stock
purchase, severance, bonus, medical, dental, health benefit, disability, income,
vacation, holiday, leave of absence, expense reimbursement, automobile or other
transportation allowance, or similar plans, procedures, programs or agreements
(the "1ST NET" Employee Benefit Plans").
(b) 1ST NET does not maintain or contribute to any "employee
welfare benefit plan" as defined in Section 3(1) of the Employee Retirement
Income Security Act of 1974 ("ERISA") (a "Welfare Benefit Plan"), pursuant to
collective bargaining agreement or otherwise, providing benefits to retirees or
former employees.
(c) 1ST NET has administered all former 1ST NET Employee
Benefit Plans, if any, in compliance in all material respects with applicable
law, including but not limited to ERISA, and with respect to each such plan all
applicable reporting and disclosure obligations have been satisfied in all
material respects.
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<PAGE> 12
(d) There is no pending or, to the knowledge of 1ST NET,
threatened litigation against 1ST NET, with respect to any 1ST NET Employee
Benefit Plan and no such plan has been the subject of an audit, investigation or
other proceeding by any governmental agency.
3.17 ACCURACY OF INFORMATION FURNISHED. The certificates, statements
and other information furnished to MC32 in writing by or on behalf of 1ST NET do
not to the knowledge of 1ST NET contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.18 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of 1ST NET who has or may have a valid claim
against MC32 or the Surviving Corporation for any broker's or finder's fee or
similar compensation.
IV. SPECIAL MATTERS.
4.1 NO-SHOP. 1ST NET agrees, severally, for the benefit of MC32 that
1ST NET will not, directly or indirectly, prior to the termination of this
Agreement as provided in Article VIII, (i) sell, transfer, pledge, encumber or
otherwise dispose of any shares and capital stock of 1ST NET, or discuss or
negotiate with any other corporation, person (other than its professional
advisors) or firm (other than representatives of MC32) or entertain or consider
any inquiry or proposals, regarding the possible disposition of such shares or
the business or all or substantially all of the assets of 1ST NET, or a Stock
Acquisition or combination of 1ST NET, or an acquisition of 1ST NET by another
party; (ii) provide any information relating to the possible sale of 1ST NET or
its business, or all or substantially all of the assets of 1ST NET, to any
potential third-party purchaser or to disclose to any potential third-party
purchaser that 1ST NET, or all or any sign 1st Netcant portion of the assets of
1ST NET, is or may be for sale; or (iii) intentionally take any action which is
inconsistent with the obligations of 1ST NET hereunder.
4.2 PAYMENT OF CERTAIN EXPENSES. If the closing does not occur, each
party shall pay its or his own expenses for legal, accounting and other
professional fees incurred in connection with this Agreement.
V. REPRESENTATIONS AND WARRANTIES OF MC32 .
MC32 hereby represents and warrants to 1ST NET as follows:
5.1 ORGANIZATION AND AUTHORIZATION. MC32 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, has the corporate power and all necessary authorizations to own all of
its properties and assets and to carry on its business as it is now being
conducted. MC32 is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or character of its properties
requires such
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<PAGE> 13
qualification and where the failure to be so qualified would materially and
adversely affect MC32 its businesses, properties or rights. MC32 has delivered
to 1ST NET complete and correct copies of its Articles of Incorporation and
By-Laws, as amended and in effect on the date of this Agreement. MC32 has all
requisite corporate power to execute, deliver and perform its obligations under
this Agreement. The execution, delivery and performance of this Agreement by
MC32 , and the consummation by MC32 of the transactions contemplated hereby have
been duly authorized by the Board of Directors of MC32 . This Agreement has been
duly executed and delivered by MC32 and upon the approval of the MC32
shareholders will constitute a valid and binding agreement of MC32 .
5.2 NON-CONTRAVENTION. The execution and delivery of this Agreement
do not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of MC32 (b) violate any
provision of or result in the breach or the acceleration of or entitle any party
to accelerate (whether after the giving of notice or the lapse of time or both)
any obligation under any mortgage, lease, agreement, license or instrument, or
any order, arbitration award, judgment, or decree, to which MC32 is a party or
by which either of them is bound, (c) result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance on any property
of MC32 or (d) violate or conflict with any law, ordinance or rule to which MC32
or the property of MC32 is subject.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of MC32 consists of
50,000,000 shares of Common Stock, $.001 par value. As of the date of this
Agreement there are no shares of Common Stock issued and outstanding that are
validly issued, fully paid and nonassessable.
(b) There are no outstanding subscriptions, options,
conversion rights, warrants or other agreements or commitments of any nature
whatsoever obligating MC32 to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional shares of the capital stock of MC32 or
obligating MC32 to grant, extend or enter into any such agreement or commitment,
except for that certain Option Agreement between MC32 and Entreprenuer
Investments, LLC, for services performed in the organizing of MC32 and for
on-going advisor services. The terms of the Option Agreement are 1,500,000
shares of MC32 Common Stock at $0.10 per share exercisable no later than August
15, 2001. No preemptive or similar rights exist or will arise as a result of the
transaction contemplated by this Agreement. There are no voting trusts, voting
agreements, irrevocable proxies or other agreements to which MC32 is a party, or
of which MC32 has knowledge, in effect relating to voting or transfer of any
shares of MC32 Common Stock.
5.4 NO ADVERSE CHANGES. MC32 has conducted its business only in the
ordinary course, and there has not been any material adverse changes in the
business, financial condition, assets, liabilities, properties or operations of
MC32.
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5.5 LITIGATION. There are no material actions, suits or proceedings
or investigations pending or, to the knowledge of MC32 , threatened against or
affecting the business, operations or financial condition of MC32 at law or in
equity in any court or before any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
MC32 is not in default in respect of any judgment, order, writ, injunction or
decree of any court or any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
5.6 CORPORATE RECORDS. The minute books of MC32 made available to
1ST NET or its legal counsel to review contained complete and accurate records
of all material corporate actions taken at all meetings, all actions by written
consent without a meeting, and all other material corporate actions taken by the
Board of Directors and shareholders of MC32 .
5.7 CORPORATE COMPLIANCE. MC32 is not in violation of, or in default
under, any term or provision of its Articles of Incorporation or By-Laws.
5.8 ACCURACY OF INFORMATION FURNISHED. The certificates, statements,
and other information furnished to 1ST NET in writing by or on behalf of MC32 in
connection with the transactions contemplated hereby, do not to the knowledge of
MC32 contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading; provided, however, that no
representation is made as to the accuracy of any financial projections contained
in such information.
5.9 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of MC32 who has or may have a valid claim against
1ST NET or the Surviving Corporation for any broker's or finder's fee or similar
compensation.
5.10 REORGANIZATION REPRESENTATIONS OF MC32 . There is no
intercorporate indebtedness existing between 1ST NET and MC32 . MC32 is not an
investment company as defined in Section 368(a) (2) (F) (iii) and (iv) of the
Code. MC32 is not under the jurisdiction of a court in a Title 11 or similar
case. The fair market value of the assets of MC32 exceeds and will exceed as of
the Effective Time the sum of its liabilities plus the amount of liabilities, if
any, to which the assets are subject.
VI. COVENANTS.
6.1 NEGATIVE COVENANTS OF 1ST NET AND MC32 . From the date of this
Agreement until the Effective Time, except with the prior written consent of the
other parties or as expressly permitted by this Agreement, 1ST NET and MC32 each
hereby covenant and agree that it will not:
(a) declare or pay any dividends or effect any stock split
or other reclassification;
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(b) merge or consolidate with any corporation;
(c) make any acquisition of stock or assets of any person or
entity;
(d) authorize the creation or issuance of or issue, sell or
dispose of, or create any obligation to issue, sell or dispose of, any shares of
its capital stock except pursuant to conversion rights, options or other
commitments or agreements existing on the date of this Agreement.
(e) incur any indebtedness for borrowed money other than in
the ordinary course of business or in connection with transactions disclosed
hereunder or contemplated herein;
(f) enter into or amend any employment contract with any of
its officers, increase the salary of any officer other than in the ordinary
course of business, adopt or amend in any material respect (except as required
by law) any employee benefit plan, severance plan or collective bargaining
agreement or make awards or distributions under any employee benefit plan not
consistent with past practice or custom;
(g) amend its Articles of Incorporation or By-Laws;
(h) dispose of any material assets or otherwise conduct its
business in a manner that is not consistent with past practices; or
6.2 ADDITIONAL AFFIRMATIVE COVENANTS OF MC32 . In addition to the
covenants set forth in Section 6.1, MC32 hereby covenants and agrees that from
the date of this Agreement until the Effective Time (or until the items referred
to have either been accomplished or, in good faith, abandoned), except with the
prior written consent of 1ST NET:
(a) shall use all reasonable efforts to comply with all
applicable federal or state filing requirements imposed on MC32 with respect to
the Stock Acquisition, and cooperate with and promptly furnish information to
1ST NET in connection with any such filing requirements imposed upon 1ST NET in
connection with the Stock Acquisition; and
(b) shall (i) promptly advise 1ST NET orally and in writing
of any inquiry or proposal for the acquisition of its stock, assets or business;
(ii) use all reasonable efforts to obtain any consent, authorization or approval
of, or exemption by, any governmental authority or agency or other third party
required to be obtained or made by in connection with the Stock Acquisition or
the taking of any action in connection with the consummation thereof; and (iii)
use all reasonable efforts to cause the conditions precedent to the Stock
Acquisition to be fulfilled.
6.3 ADDITIONAL AFFIRMATIVE COVENANTS OF 1ST NET. In addition to the
covenants set forth in Section 6.1, 1ST NET hereby covenants and agrees that
from the date of this Agreement until the Effective Time (or until the items
referred to have either been accomplished or, in good faith, abandoned), except
with the prior written consent of MC32 , it shall use all reasonable efforts to
comply with all filing requirements which federal or state law may impose on 1ST
NET with
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respect to the Stock Acquisition, and cooperate with and promptly furnish
information to MC32 in connection with any such filing requirements imposed upon
MC32 in connection with the Stock Acquisition.
6.4 ACCESS AND CONFIDENTIALITY.
(a) From the date of this Agreement to the Effective Time,
MC32 shall afford to 1ST NET and to the officers and authorized representatives
of 1ST NET (including, without limitation, counsel, financial advisors and
independent accountants) full access to its properties, personnel, books and
records at such reasonable times and in such manner as not to disrupt normal
business operations; and the officers of MC32 will furnish such officers and
representatives with such additional financial and operating data and other
information as to its business and properties as may be reasonably requested.
Similarly, from the date of this Agreement to the Effective Time, 1ST NET shall
afford to MC32 and to MC32 's officers and authorized representatives
(including, without limitation, counsel, financial advisors and independent
accountants) full access to its properties, personnel, books and records at such
reasonable times and in such manner as not to disrupt normal business
operations; and the officers of 1ST NET will furnish such officers and
representatives with such additional financial and operating data and other
information as to its business and properties as may be reasonably requested.
(b) MC32 and 1ST NET shall at all times prior to the
Effective Time and, in the event the transactions contemplated by this Agreement
are not consummated, at all times thereafter, keep confidential all confidential
or proprietary information furnished to it by the other party in connection with
this Agreement and the transactions contemplated hereby, and will not disclose
such confidential or proprietary information to any third party without the
prior written consent of the other party. In addition, in the event of
termination of this Agreement, all non-public documents (including copies
thereof) and other non-public written information obtained hereunder by any
party from any other party shall be returned to such party.
6.5 PUBLIC ANNOUNCEMENTS. Each of the parties hereto will obtain the
prior written approval from the other parties before issuing any press release
or otherwise making any public statements with respect to the Stock Acquisition
prior to the Effective Time.
6.6 EXPENSES. Subject to Section 4.2 hereof, each of the parties
hereto shall pay all of its own costs and expenses incurred in connection with
the Stock Acquisition, this Agreement and the transactions contemplated thereby
or hereby.
6.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS.The
parties hereto hereby acknowledge and agree that the representations and
warranties and covenants set forth in this Agreement shall survive the Closing
Date for a period of 24 months, provided that, any covenant contained herein
that is to be performed after the Closing Date shall survive for a period of 24
12
<PAGE> 17
months from the date or expiration of the period upon or during which such
covenant is to be performed.
6.8 REORGANIZATION COVENANT. Following the Stock Acquisition, the
parties will continue their respective historic businesses.
6.9 FINANCIAL COVENANTS OF 1ST NET. Following the Closing Date, 1ST
NET shall use its best efforts to promptly complete the required audits and
accounting with respect to 1ST NET and its then existing subsidiaries so as to
permit 1ST NET to prepare and file a true, correct and complete registration
statement under either the Securities Act of 1933, or the Securities and
Exchange Act of 1934, either act as amended.
VII. CONDITIONS.
7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ALL PARTIES.
Notwithstanding any other provision of this Agreement, the obligations of 1ST
NET on the one hand, and of MC32 on the other hand, to effect the Stock
Acquisition shall be subject to the fulfillment, as of the Closing, of each of
the following conditions (unless waived by the written consent of the parties
hereto):
(a) all permits, approvals and consents of any governmental
body or agency or other third party necessary or appropriate for consummation of
the Stock Acquisition shall have been obtained;
(b) there shall not be in effect an order or decision of a
court of competent jurisdiction which prevents, or would materially alter the
terms of, the Stock Acquisition;
(c) there shall not be any action or proceeding commenced by
or before any court or governmental agency or authority in the United States, or
threatened by any governmental agency or authority in the United States, that
challenges the consummation of the Stock Acquisition.
7.2 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF 1ST NET.
In addition to the conditions contained in Section 7.1, the obligations of 1ST
NET to effect the Stock Acquisition shall also be subject to the fulfillment as
of the Closing Date of each of the following conditions (unless waived in
writing by 1ST NET): The representations and warranties of MC32 contained in
Article V shall be true in all material respects at and as of the date hereof
and as of the Closing Date as if made at and as of such time; and MC32 shall
have duly performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed or complied
with by it prior to or on the Closing Date.
7.3 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MC32 . In
addition to the conditions contained in Section 7.1, the obligations of MC32 to
effect the Stock Acquisition shall also be subject to the fulfillment at the
Closing Date of each of the following conditions (unless waived in writing by
MC32):
13
<PAGE> 18
(a) the representations and warranties of 1ST NET contained
in Article III shall be true in all material respects at and as of the date
hereof and as of the Closing Date as if made at and as of the Closing Date; 1ST
NET shall have duly performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing Date; and
(b) 1ST NET shall have delivered to MC32 1ST NET Common
Stock certificates issued in the names of the persons and in the quantities set
forth in Exhibit B hereto, representing an aggregate of 4,000,000 shares;
VIII. TERMINATION.
8.1 TERMINATION BY MUTUAL CONSENT. At any time prior to the
Effective Time, this Agreement and the Agreement of Stock Acquisition may be
terminated by written consent of 1ST NET and MC32, notwithstanding approval of
the Stock Acquisition by the shareholders of 1ST NET or MC32.
8.2 TERMINATION BY MC32 . MC32 may terminate this Agreement and the
Agreement of Stock Acquisition at any time prior to the Effective Time by
delivery of written notice to 1ST NET if:
(a) There has been a material adverse change in 1ST NET's
business, assets, financial condition or prospects since the date of this
Agreement;
(b) 1ST NET has violated any material term or provision of
this Agreement which has not been cured by 1ST NET within ten (10) days from the
date of receipt of notice of such violation by MC32; or
(c) Any representation or warranty made by 1ST NET in this
Agreement is false or inaccurate in any material respect or there is any
material misrepresentation or omission by 1ST NET.
8.3 EFFECT OF TERMINATION. In the event of termination as provided
above, this Agreement shall forthwith become of no further force or effect, all
parties hereto shall bear their own costs associated with this Agreement and all
transactions mentioned herein and there shall be no obligation on the part of
any party's officers, directors or shareholders; provided, however, that Section
6.4(b), Section 6.5 and Section 9.8 shall survive such termination and continue
in full force and effect.
14
<PAGE> 19
IX. GENERAL PROVISIONS.
9.1 NOTICES. All notices, requests, demands or other communications
required or authorized or contemplated to be given by this Agreement shall be in
writing and shall be deemed to have been duly given if hand delivered, sent by
commercial overnight courier or sent by cert1st Neted or registered mail,
postage prepaid, and addressed as follows:
If to 1ST NET: 1ST NET TECHNOLOGIES, INC.
11423 West Bernardo Court
San Diego, California 92127
Attention: President
With a copy to: R. Blair Krueger, Esq.
The Krueger Group, LLP
11423 West Bernardo Court
San Diego, California 92127
If to MC32: Michael D. Tanner
MC32, Inc.
1869 West Littleon Boulevard
Littleton, Colorado 80120
With a copy to: Patricia Cudd
Cudd & Associates, Inc.
1120 Lincoln Street, Suite 1310
Denver, Colorado 80203
or such other address as the parties hereto may from time to time designate in
writing, prior to the giving of such notice. Any such notice, if hand delivered,
shall be effective upon the date of delivery, and if given by commercial
overnight courier or by certified or registered mail, shall be effective two
business days following the date of sending such notice. A facsimile
transmission, when received, shall be considered delivery of written notice.
9.2 AMENDMENT AND WAIVER. No amendment or waiver of any provision of
this Agreement shall in any event be effective, unless the same shall be in
writing signed by each of the parties hereto, and then such amendment, waiver or
consent shall be effective only in a specific instance and for the specific
purpose for which given.
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
15
<PAGE> 20
9.4 ASSIGNABILITY. This Agreement shall not be assigned by any party
without the prior written consent of all of the parties hereto, which consent
may be withheld by any such party in its sole and absolute discretion. In the
event of such permitted assignment, this Agreement shall bind and inure to the
benefit of the parties named herein and their respective successors and assigns.
9.5 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.
9.6 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado and the parties
hereby consent to the jurisdiction of the Nevada courts for all matters relating
to this Agreement.
9.7 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of the terms and conditions contained therein or of
this Agreement.
9.8 ATTORNEYS' FEES. In the event of any dispute which results in a
suit or other legal proceeding to construe or enforce any provision of this
Agreement or because of any alleged breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the parties agree that
the prevailing party or parties (in addition to all other amounts and relief to
which sued party or parties may be entitled) shall be entitled to recover
reasonable attorneys' fees and other costs and expenses incurred in any action
or proceeding.
9.9. FURTHER ASSURANCES. At the request of any of the parties hereto,
and without further consideration, the other parties agree to execute and
deliver to the other parties such documents and instruments and to do such
further acts as may be necessary or desirable to effectuate the Stock
Acquisition as contemplated by this Agreement.
(SIGNATURES ON FOLLOWING PAGE)
16
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have signed this Agreement or
have caused this Agreement to be signed by their respective duly authorized
officers as of the date first above written.
1ST NET TECHNOLOGIES, INC.
By: /s/ Gregory D. Writer, Jr.
-------------------------------------
Gregory D. Writer, Jr.
Chief Executive Officer
AND
By: /s/ Clifford J. Smith
-------------------------------------
Clifford J. Smith
President
MC32, INC.
By: /s/ Michael D. Tanner
-------------------------------------
Michael D. Tanner
Secretary
AND
By: /s/ James H. Watson, Jr.
-------------------------------------
James H. Watson, Jr.
President
17
<PAGE> 22
EXHIBIT A
ISSUANCE OF 1ST NET COMMON STOCK TO MC32 SHAREHOLDERS
<TABLE>
<CAPTION>
Number of 1ST NET Common Shares
Name of Shareholder to be delivered at the Closing
------------------- ------------------------------
<S> <C>
MC32 4,000,000
Total 4,000,000
</TABLE>
<PAGE> 1
EXHIBIT 10.6
STOCK ACQUISITION AGREEMENT
BY AND BETWEEN
1ST NET TECHNOLOGIES, INC.
AND
SPIRIT 32 DEVELOPMENT CORPORATION
Dated as of January 22, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. DEFINITIONS..........................................................................1
II. THE STOCK ACQUISITION................................................................2
2.1 Stock Acquisition.............................................................2
2.2 The Closing...................................................................2
2.3 Effective Time; Effect of Stock Acquisition...................................3
2.4 Articles of Incorporation.....................................................3
2.5 By-Laws.......................................................................3
2.6 Directors and Officers........................................................3
2.7 Conversion of Shares..........................................................3
III. REPRESENTATIONS AND WARRANTIES OF 1ST NET............................................4
3.1 Organization and Authorization................................................4
3.2 Non-Contravention.............................................................4
3.3. Capital Stock.................................................................4
3.4 Financial Statements..........................................................5
3.5 No Adverse Changes............................................................5
3.6 Approvals.....................................................................6
3.7 Taxes.........................................................................6
3.8 Contracts; Absence of Default.................................................7
3.9 Title to Assets...............................................................8
3.10 Litigation....................................................................8
3.11 Permits.......................................................................8
3.12 Corporate Records.............................................................8
3.13 Absence of Undisclosed Liabilities............................................9
3.14 Corporate Compliance..........................................................9
3.15 Regulatory Compliance.........................................................9
3.16 Conflict of Interest..........................................................9
3.17 Labor Matters.................................................................9
3.18 Benefit Plans................................................................10
3.19 Accuracy of Information Furnished............................................10
3.20 Brokers......................................................................10
3.21 Reorganization Representations of 1st Net....................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
IV. SPECIAL MATTERS.....................................................................11
4.1 No-Shop......................................................................11
4.2 Payment of Certain Expenses..................................................11
V. REPRESENTATIONS AND WARRANTIES OF SPIRIT 32.........................................11
5.1 Organization and Authorization...............................................11
5.2 Non-Contravention............................................................12
5.3 Capital Stock................................................................12
5.4 Unaudited Financial Statements and Stock Purchase Agreement..................12
5.5 No Adverse Changes...........................................................13
5.6 Litigation...................................................................13
5.7 Corporate Records............................................................13
5.8 Corporate Compliance.........................................................13
5.9 Accuracy of Information Furnished............................................13
5.10 Brokers......................................................................13
5.11 Reorganization Representations of SPIRIT 32..................................13
VI. COVENANTS...........................................................................14
6.1 Negative Covenants of 1st NET and SPIRIT 32..................................14
6.2 Additional Affirmative Covenants of SPIRIT 32................................14
6.3 Additional Affirmative Covenants of 1st NET..................................15
6.4 Access and Confidentiality...................................................15
6.5 Public Announcements.........................................................15
6.6 Expenses.....................................................................15
6.7 Survival of Representations and Warranties and Covenants; Indemnification....16
6.8 Reorganization Covenant......................................................17
6.9 Financial Covenants of 1st NET...............................................17
VII. CONDITIONS..........................................................................17
7.1 Conditions Precedent to the Obligations of All Parties.......................17
7.2 Additional Conditions Precedent to the Obligations of 1st NET................18
7.3 Additional Conditions Precedent to the Obligations of SPIRIT 32..............18
VIII. TERMINATION.........................................................................19
8.1 Termination by Mutual Consent................................................19
8.2 Termination by SPIRIT 32.....................................................19
8.3 Effect of Termination........................................................19
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
IX. GENERAL PROVISIONS..................................................................19
9.1 Notices......................................................................19
9.2 Amendment and Waiver.........................................................20
9.3 Counterparts.................................................................20
9.4 Assignability................................................................21
9.5 Entire Agreement.............................................................21
9.6 Applicable Law...............................................................21
9.7 Headings.....................................................................21
9.8 Attorneys' Fees..............................................................21
9.9. Further Assurances...........................................................21
</TABLE>
EXHIBITS:
A - Articles of Incorporation of 1ST NET TECHNOLOGIES, INC.
B - Issuance of 1ST NET Common Stock to SPIRIT 32 Shareholders
iii
<PAGE> 5
THIS AGREEMENT ("Agreement") is made and entered into as of this 22nd
day of January, 1999 by and among 1ST NET TECHNOLOGIES, INC., a Colorado
corporation ("1ST NET"), and SPIRIT 32 DEVELOPMENT CORPORATION., a Colorado
corporation ("SPIRIT 32").
RECITALS
A. STOCK ACQUISITION. In order that 1ST NET may acquire all of the
capital stock of SPIRIT 32, and SPIRIT 32 desires that SPIRIT 32 sale its all
its capital stock to 1ST NET pursuant to the terms and conditions set forth in
this Agreement and in accordance with the laws of the State of Colorado (the
"Stock Acquisition"); and
B. TAX IMPLICATIONS. The parties intend that the Stock Acquisition
will constitute a reorganization under the provisions of Section 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
I. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth:
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Constituent Corporations" shall mean both SPIRIT 32 and 1ST NET.
"Conversion Ratio" shall have the meaning set forth in Section 2.7.
"Effective Time" shall have the meaning set forth in Section 2.3.
"SPIRIT 32 Common Stock" shall mean the common stock, $.001 par value,
of SPIRIT 32.
"1ST NET" shall have the meaning set forth in the preface of this
Agreement.
"1ST NET Common Stock" shall mean the Common Stock, $.001 par value, of
1ST NET.
<PAGE> 6
"1ST NET Financial Statements" shall mean Financial Statements of 1ST
NET referred to in Section 3.4, including the notes thereto.
"Knowledge" of a party shall mean any item of which any executive
officer of SPIRIT 32 or 1ST NET has actual knowledge or of which such executive
officer would have discovered following reasonable inquiry.
"Stock Acquisition" shall have the meaning set forth in the preambles
hereto and more fully described in Section 2.1.
"Ordinary course of business" or similar reference shall mean consistent
with past custom and practice, including with respect to quantity and frequency.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Tax" shall mean a net income, gross income, gross receipts, sales, use,
ad valorem, franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, transfer, occupation, real property, premium, property
or windfall profit tax, custom duty, or other tax, governmental fee or other
like assessment or charge of any kind whatsoever, together with any interest and
any penalty, additional tax or additional amount imposed by any jurisdiction or
other taxing authority (federal, state, local or foreign).
II. THE TRANSACTION.
2.1 STOCK ACQUISITION. Pursuant to the provisions of this Agreement
and in accordance with Colorado Corporate Law, at the Effective Time 1ST NET
shall acquire all of the outstanding stock of all classes of SPIRIT 32.
2.2 THE CLOSING.
(a) Subject to the conditions set forth in Article VII,
unless this Agreement shall have been terminated as provided in Article VIII,
the consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of The Krueger Group, LLP, 11423 West
Bernardo Court, San Diego, California, commencing at 9:00 a.m., on January 30,
1999 or such other place or such other date as the parties may mutually
determine (the "Closing Date").
(b) At the Closing, (i) 1ST NET shall deliver to SPIRIT 32
the various certificates, instruments and documents referred to in Section 7.3,
and shall deliver to SPIRIT 32 share certificates as set forth in Exhibit B
hereto of 1ST NET representing 450,000 shares of 1ST NET Common Stock, which
shall be validly issued and fully paid and nonassessable, free and clear of any
lien or other encumbrance.
2
<PAGE> 7
2.3 EFFECTIVE TIME; EFFECT OF STOCK ACQUISITION. The Stock
Acquisition shall become effective as of the time (the "Effective Time") 1ST NET
files the Notice of Transaction with the Secretary of State of the State of
Colorado. As of the Effective Time, the separate existence of SPIRIT 32 shall
continue
2.4 ARTICLES OF INCORPORATION. The Articles of Incorporation of
SPIRIT 32 in effect immediately prior to the Effective Time shall continue to be
the Articles of Incorporation of SPIRIT 32 until amended in accordance with the
provisions thereof.
2.5 BY-LAWS. The By-Laws of SPIRIT 32 as in effect immediately prior
to the Effective Time shall be the By-Laws of SPIRIT 32 until further amended in
accordance with the provisions thereof.
2.6 DIRECTORS AND OFFICERS.
(a) The Board of Directors of SPIRIT 32 from and after the
Effective Time shall consist of the persons who are members of the Board of
Directors of 1ST NET as of the Effective Time. Such directors shall serve until
their resignation, removal or failure to be reelected and until their respective
successors are duly elected or appointed and qualified in accordance with the
Articles of Incorporation and By-Laws of SPIRIT 32.
(b) The persons who are officers of SPIRIT 32 as of the
Effective Time shall continue in the same capacity as officers of SPIRIT 32
until the Board of Directors of the SPIRIT 32 shall otherwise determine. Other
persons may be elected or appointed to other offices from time to time in
accordance with the By-Laws of SPIRIT 32.
2.7 PURCHASE OF SHARES.
As of the Effective Time, each share of SPIRIT 32 shall be
purchased by 1ST NET
III. REPRESENTATIONS AND WARRANTIES OF 1ST NET.
1ST NET hereby represents and warrants to SPIRIT 32 as follows:
3.1 ORGANIZATION AND AUTHORIZATION.
1ST NET is a corporation duly organized, validly existing and in
good standing under the laws of Colorado, has the corporate power and all
necessary corporate authorizations to own all of its properties and assets and
to carry on its business as it is now being conducted. 1ST NET is duly qualified
to do business and is in good standing in each jurisdiction in which the nature
of its business
3
<PAGE> 8
or character of its properties requires such qualification and where the failure
to be so qualified would materially and adversely affect 1ST NET, its business,
properties or rights. 1ST NET has delivered to SPIRIT 32 complete and correct
copies of 1ST NET's Articles of Incorporation and By-Laws, as amended and in
effect on the date of this Agreement. 1ST NET has all requisite corporate power
to execute, deliver and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement by 1ST NET, and the
consummation by 1ST NET of the transactions contemplated hereby have been duly
authorized by the Board of Directors and shareholders of 1ST NET. This Agreement
has been duly executed and delivered by 1ST NET and constitutes a valid and
binding agreement of 1ST NET.
3.2 NON-CONTRAVENTION. The execution and delivery of this Agreement
do not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of 1ST NET (b) violate any
material provision of or result in the breach or the acceleration of or entitle
any party to accelerate (whether after the giving of notice or the lapse of time
or both) any obligation under any material mortgage, lease, agreement, license
or instrument, or any order, arbitration award, judgment, or decree, to which
1ST NET is a party or by which it is bound, (c) result in the creation or
imposition of any lien, charge, pledge, security interest or other encumbrance
on any material property of 1ST NET or (d) to the knowledge of 1ST NET violate
or conflict with any law, ordinance or rule to which 1ST NET is subject.
3.3. CAPITAL STOCK.
(a) The authorized and outstanding capital stock of 1ST NET
consists of _______________shares of Common Stock, $.001 par value. As of the
date of this Agreement there is __________________ shares of Common Stock issued
and outstanding which are validly issued, fully paid and nonassessable. There
are sufficient authorized but unissued shares of 1ST NET Common Stock to permit
the issuance of all shares required to be issued in accordance with the terms
and conditions of this Agreement to SPIRIT 32 upon consummation of the Stock
Acquisition.
(b) There are no voting trusts, voting agreements,
irrevocable proxies or other agreements to which 1ST NET is a party, or of which
1ST NET has knowledge, in effect relating to the voting or transfer of any
shares of 1ST NET Common Stock.
(c) The Shares of 1ST NET Common Stock to be delivered
pursuant to the Stock Acquisition will, upon issuance, be validly issued, fully
paid and nonassessable.
3.4 FINANCIAL STATEMENTS. 1ST NET has previously furnished SPIRIT 32
with its audited Balance Sheets as of December 31, 1997 (collectively the "1ST
NET Financial Statements"). The 1ST NET Financial Statements (a) were prepared
in accordance with the books and records of 1ST NET; and (b) have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods covered thereby. The 1ST NET Financial
Statements present fairly the financial position of 1ST NET as of the dates
thereof and the results of operations and changes in financial position of 1ST
NET for the periods then ended. The balance sheet
4
<PAGE> 9
of 1ST NET as of December 31, 1997 is sometimes referred to herein as the
"Latest 1ST NET Balance Sheet."
3.5 NO ADVERSE CHANGES. Except as contemplated herein, since the
date of the Latest 1ST NET Balance Sheet, 1ST NET has conducted its business
only in the ordinary course, there has not been any material adverse change in
the financial condition, assets, liabilities, properties, business or operations
of 1ST NET and 1ST NET has not:
(a) issued or sold any stock, notes, bonds or other
securities, or any option to purchase the same, or entered into any agreement
with respect thereto, with the exception of 200,000 units comprised each of two
shares of Series "A" Preferred Stock and a warrant to purchase Common Shares
sold pursuant to Rule 505 of Regulation D;
(b) declared, set aside or made any dividend or other
distribution on capital stock or redeemed, purchased or acquired any shares
thereof or entered into any agreement in effect to the foregoing, with the
exception of that certain distribution to former holders of Series "A" Preferred
Stock declared as of March 30, 1999;
(c) amended its Articles of Incorporation or By-Laws;
(d) incurred any material obligation or liability (absolute
or contingent);
(e) made any payment or arrangement, agreement or commitment
to pay any bonus, incentive compensation or retirement, termination or severance
benefits;
(f) borrowed or loaned any money;
(g) changed its method of accounting; or
(h) agreed, whether in writing or otherwise, to take any
action described in this Section 3.5.
3.6 APPROVALS. Except for the approval by the 1ST NET shareholders
and the filing of the Notice of Transaction with the Colorado Secretary of
State, no consent, approval, order or authorization of, or registration,
declaration or filing with any governmental authority is required in connection
with the execution and delivery of this Agreement by 1ST NET or the consummation
by 1ST NET of the transactions contemplated hereby.
3.7 TITLE TO ASSETS. 1ST NET owns and has good and marketable title
to all of its assets and properties (real, personal and mixed, tangible or
intangible), reflected in the 1ST NET Financial Statements free and clear of any
mortgage, lien, pledge, charge, claim, conditional sales or other agreement,
lease, right or encumbrance, except to the extent stated or reserved against in
the 1ST NET Financial Statements.
5
<PAGE> 10
3.8 LITIGATION. There are no actions, suits or proceedings or
investigations pending or, to the knowledge of 1ST NET threatened against or
affecting the business or financial condition of 1ST NET at law or in equity in
any court or before any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality. 1ST NET is not
in default in respect of any judgment, order, writ, injunction or decree of any
court or any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.9 PERMITS. 1ST NET has all permits, licenses, orders and approvals
of all foreign, federal, state, or local governmental or regulatory bodies
required for it to conduct its business as presently conducted, the absence of
which would have a material adverse effect on the business or financial
condition of 1ST NET all such permits, licenses, orders and approvals are in
full force and effect and no suspension or cancellation of any of them is
threatened; and such permits, licenses, orders or approvals will not be
adversely affected by the consummation of the transactions contemplated by this
Agreement.
3.10 CORPORATE RECORDS. The minute books of 1ST NET contain complete
and accurate records of all material corporate actions taken at all meetings,
all actions by written consent without a meeting, and all other material
corporate actions taken by the Board of Directors and shareholders of 1ST NET.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the 1ST NET Financial Statements, 1ST NET had
as of the dates of such financial statements, no liabilities or obligations,
whether accrued, contingent or otherwise required by GAAP to be reflected in the
1ST NET Financial Statements or otherwise material to 1ST NET. As of the date of
this Agreement, 1ST NET does not have any liabilities or obligations, whether
accrued, contingent or otherwise, except as provided for in the preceding
sentence and for such liabilities or obligations as have arisen in the ordinary
course of business since the date of the Latest Balance Sheet, none of which
newly arisen liabilities or obligations has a material adverse effect upon the
business or financial condition of 1ST NET.
3.12 CORPORATE COMPLIANCE. 1ST NET is not in violation of, or in
default under, any term or provision of its Articles of Incorporation or
By-Laws.
3.13 REGULATORY COMPLIANCE. To its knowledge, 1ST NET is in
compliance in all material respects with all federal, state, local and foreign
laws and regulations applicable to it, including, without limitation,
environmental laws. 1ST NET has not generated, used, handled, treated or stored
hazardous waste or hazardous substance (as hereinafter defined) and/or oil at,
on or in any site currently or formerly owned, leased or used by 1ST NET or
shipped the same for treatment, storage or disposal at any other site or
facilities other than those generated, used, handled, treated or stored in the
ordinary course of business which was in compliance in all material respects
with the laws and
6
<PAGE> 11
regulations relating to hazardous waste and hazardous substances. For the
purpose of this Section 3.15, "hazardous waste" and "hazardous substance" shall
have the meanings set forth in the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901, et seq., and the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Sections 9601 et seq., and any
federal regulations adopted pursuant to or in furtherance of such acts as such
statutes or regulations may be amended, or as defined in any state or local
statutes or regulations governing such waste and substances.
3.14 CONFLICT OF INTEREST.
(a) No director or officer of 1ST NET or, to the knowledge
of 1ST NET any employee of 1ST NET, has any interest in any material property,
real or personal or tangible or intangible necessary for, used in or pertaining
to the business of 1ST NET; and
(b) No director or officer of 1ST NET, or to the knowledge
of 1ST NET, employee of 1ST NET, (i) competes with 1ST NET in any line of
business, or (ii) is a party to any 1ST NET contract, nor does any director or
officer of 1ST NET, or, to the knowledge of 1ST NET, any employee of 1ST NET
have an ownership interest, direct or indirect, in any entity which competes
with 1ST NET in any line of business or is a party to any 1ST NET contract.
3.15 LABOR MATTERS. There are no disputes pending or, to the
knowledge of 1ST NET, threatened, between 1ST NET and any of its former
employees other than Mr. Kenneth Hill. To the knowledge of 1ST NET, 1ST NET is
in compliance with all applicable labor laws the failure to comply with which
would have a material adverse effect on the business or financial condition of
1ST NET. 1ST NET is not a party to any collective bargaining agreements.
3.16 BENEFIT PLANS.
(a) 1ST NET is not presently a party to any compensation,
bonus, pension, profit sharing, retirement, savings, stock option, stock
purchase, severance, bonus, medical, dental, health benefit, disability, income,
vacation, holiday, leave of absence, expense reimbursement, automobile or other
transportation allowance, or similar plans, procedures, programs or agreements
(the "1ST NET" Employee Benefit Plans").
(b) 1ST NET does not maintain or contribute to any "employee
welfare benefit plan" as defined in Section 3(1) of the Employee Retirement
Income Security Act of 1974 ("ERISA") (a "Welfare Benefit Plan"), pursuant to
collective bargaining agreement or otherwise, providing benefits to retirees or
former employees.
(c) 1ST NET has administered all former 1ST NET Employee
Benefit Plans, if any, in compliance in all material respects with applicable
law, including but not limited to ERISA, and with respect to each such plan all
applicable reporting and disclosure obligations have been satisfied in all
material respects.
(d) There is no pending or, to the knowledge of 1ST NET,
threatened
7
<PAGE> 12
litigation against 1ST NET, with respect to any 1ST NET Employee Benefit Plan
and no such plan has been the subject of an audit, investigation or other
proceeding by any governmental agency.
3.17 ACCURACY OF INFORMATION FURNISHED. The certificates, statements
and other information furnished to SPIRIT 32 in writing by or on behalf of 1ST
NET do not to the knowledge of 1ST NET contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.18 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of 1ST NET who has or may have a valid claim
against SPIRIT 32 or the Surviving Corporation for any broker's or finder's fee
or similar compensation.
IV. SPECIAL MATTERS.
4.1 NO-SHOP. 1ST NET agrees, severally, for the benefit of SPIRIT 32
that 1ST NET will not, directly or indirectly, prior to the termination of this
Agreement as provided in Article VIII, (i) sell, transfer, pledge, encumber or
otherwise dispose of any shares and capital stock of 1ST NET, or discuss or
negotiate with any other corporation, person (other than its professional
advisors) or firm (other than representatives of SPIRIT 32) or entertain or
consider any inquiry or proposals, regarding the possible disposition of such
shares or the business or all or substantially all of the assets of 1ST NET, or
a Stock Acquisition or combination of 1ST NET, or an acquisition of 1ST NET by
another party; (ii) provide any information relating to the possible sale of 1ST
NET or its business, or all or substantially all of the assets of 1ST NET, to
any potential third-party purchaser or to disclose to any potential third-party
purchaser that 1ST NET, or all or any sign 1st Netcant portion of the assets of
1ST NET, is or may be for sale; or (iii) intentionally take any action which is
inconsistent with the obligations of 1ST NET hereunder.
4.2 PAYMENT OF CERTAIN EXPENSES. If the closing does not occur, each
party shall pay its or his own expenses for legal, accounting and other
professional fees incurred in connection with this Agreement.
V. REPRESENTATIONS AND WARRANTIES OF SPIRIT 32.
SPIRIT 32 hereby represents and warrants to 1ST NET as follows:
5.1 ORGANIZATION AND AUTHORIZATION. SPIRIT 32 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, has the corporate power and all necessary authorizations to own all of
its properties and assets and to carry on its business as it is now being
conducted. SPIRIT 32 is duly qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or character of its
properties requires such qualification and where the failure to be so qualified
would materially and adversely affect SPIRIT 32 its businesses,
8
<PAGE> 13
properties or rights. SPIRIT 32 has delivered to 1ST NET complete and correct
copies of its Articles of Incorporation and By-Laws, as amended and in effect on
the date of this Agreement. SPIRIT 32 has all requisite corporate power to
execute, deliver and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement by SPIRIT 32, and the
consummation by SPIRIT 32 of the transactions contemplated hereby have been duly
authorized by the Board of Directors of SPIRIT 32. This Agreement has been duly
executed and delivered by SPIRIT 32 and upon the approval of the SPIRIT 32
shareholders will constitute a valid and binding agreement of SPIRIT 32.
5.2 NON-CONTRAVENTION. The execution and delivery of this Agreement
do not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of SPIRIT 32 (b) violate any
provision of or result in the breach or the acceleration of or entitle any party
to accelerate (whether after the giving of notice or the lapse of time or both)
any obligation under any mortgage, lease, agreement, license or instrument, or
any order, arbitration award, judgment, or decree, to which SPIRIT 32 is a party
or by which either of them is bound, (c) result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance on any property
of SPIRIT 32 or (d) violate or conflict with any law, ordinance or rule to which
SPIRIT 32 or the property of SPIRIT 32 is subject.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of SPIRIT 32 consists of
__________ shares of Common Stock, $.001 par value. As of the date of this
Agreement there are ________ shares of Common Stock issued and outstanding that
are validly issued, fully paid and nonassessable.
(b) There are no outstanding subscriptions, options,
conversion rights, warrants or other agreements or commitments of any nature
whatsoever obligating SPIRIT 32 to issue, deliver or sell, or cause to be
issued, delivered or sold, any additional shares of the capital stock of SPIRIT
32 or obligating SPIRIT 32 to grant, extend or enter into any such agreement or
commitment. No preemptive or similar rights exist or will arise as a result of
the transaction contemplated by this Agreement. There are no voting trusts,
voting agreements, irrevocable proxies or other agreements to which SPIRIT 32 is
a party, or of which SPIRIT 32 has knowledge, in effect relating to voting or
transfer of any shares of SPIRIT 32 Common Stock.
5.4 NO ADVERSE CHANGES. SPIRIT 32 has conducted its business only in
the ordinary course, and there has not been any material adverse changes in the
business, financial condition, assets, liabilities, properties or operations of
SPIRIT 32.
5.5 LITIGATION. There are no material actions, suits or proceedings
or investigations pending or, to the knowledge of SPIRIT 32, threatened against
or affecting the business, operations or financial condition of SPIRIT 32 at law
or in equity in any court or before any foreign, federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality. SPIRIT 32 is not in default in respect of any judgment, order,
writ, injunction or decree of any court
9
<PAGE> 14
or any foreign, federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality.
5.6 CORPORATE RECORDS. The minute books of SPIRIT 32 made available
to 1ST NET or its legal counsel to review contained complete and accurate
records of all material corporate actions taken at all meetings, all actions by
written consent without a meeting, and all other material corporate actions
taken by the Board of Directors and shareholders of SPIRIT 32.
5.7 CORPORATE COMPLIANCE. SPIRIT 32 is not in violation of, or in
default under, any term or provision of its Articles of Incorporation or
By-Laws.
5.8 ACCURACY OF INFORMATION FURNISHED. The certificates, statements,
and other information furnished to 1ST NET in writing by or on behalf of SPIRIT
32 in connection with the transactions contemplated hereby, do not to the
knowledge of SPIRIT 32 contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading; provided, however,
that no representation is made as to the accuracy of any financial projections
contained in such information.
5.9 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of SPIRIT 32 who has or may have a valid claim
against 1ST NET or the Surviving Corporation for any broker's or finder's fee or
similar compensation.
5.10 REORGANIZATION REPRESENTATIONS OF SPIRIT 32. There is no
intercorporate indebtedness existing between 1ST NET and SPIRIT 32. SPIRIT 32 is
not an investment company as defined in Section 368(a) (2) (F) (iii) and (iv) of
the Code. SPIRIT 32 is not under the jurisdiction of a court in a Title 11 or
similar case. The fair market value of the assets of SPIRIT 32 exceeds and will
exceed as of the Effective Time the sum of its liabilities plus the amount of
liabilities, if any, to which the assets are subject.
VI. COVENANTS.
6.1 NEGATIVE COVENANTS OF 1ST NET AND SPIRIT 32. From the date of
this Agreement until the Effective Time, except with the prior written consent
of the other parties or as expressly permitted by this Agreement, 1ST NET and
SPIRIT 32 each hereby covenant and agree that it will not:
(a) declare or pay any dividends or effect any stock split
or other reclassification;
(b) merge or consolidate with any corporation;
(c) make any acquisition of stock or assets of any person or
entity;
(d) authorize the creation or issuance of or issue, sell or
dispose of, or create any obligation to issue, sell or dispose of, any shares of
its capital stock except pursuant to conversion rights, options or other
commitments or agreements existing on the date of this Agreement.
10
<PAGE> 15
(e) incur any indebtedness for borrowed money other than in
the ordinary course of business or in connection with transactions disclosed
hereunder or contemplated herein;
(f) enter into or amend any employment contract with any of
its officers, increase the salary of any officer other than in the ordinary
course of business, adopt or amend in any material respect (except as required
by law) any employee benefit plan, severance plan or collective bargaining
agreement or make awards or distributions under any employee benefit plan not
consistent with past practice or custom;
(g) amend its Articles of Incorporation or By-Laws;
(h) dispose of any material assets or otherwise conduct its
business in a manner that is not consistent with past practices; or
6.2 ADDITIONAL AFFIRMATIVE COVENANTS OF SPIRIT 32. In addition to
the covenants set forth in Section 6.1, SPIRIT 32 hereby covenants and agrees
that from the date of this Agreement until the Effective Time (or until the
items referred to have either been accomplished or, in good faith, abandoned),
except with the prior written consent of 1ST NET:
(a) shall use all reasonable efforts to comply with all
applicable federal or state filing requirements imposed on SPIRIT 32 with
respect to the Stock Acquisition, and cooperate with and promptly furnish
information to 1ST NET in connection with any such filing requirements imposed
upon 1ST NET in connection with the Stock Acquisition; and
(b) shall (i) promptly advise 1ST NET orally and in writing
of any inquiry or proposal for the acquisition of its stock, assets or business;
(ii) use all reasonable efforts to obtain any consent, authorization or approval
of, or exemption by, any governmental authority or agency or other third party
required to be obtained or made by in connection with the Stock Acquisition or
the taking of any action in connection with the consummation thereof; and (iii)
use all reasonable efforts to cause the conditions precedent to the Stock
Acquisition to be fulfilled.
6.3 ADDITIONAL AFFIRMATIVE COVENANTS OF 1ST NET. In addition to the
covenants set forth in Section 6.1, 1ST NET hereby covenants and agrees that
from the date of this Agreement until the Effective Time (or until the items
referred to have either been accomplished or, in good faith, abandoned), except
with the prior written consent of SPIRIT 32, it shall use all reasonable efforts
to comply with all filing requirements which federal or state law may impose on
1ST NET with respect to the Stock Acquisition, and cooperate with and promptly
furnish information to SPIRIT 32 in connection with any such filing requirements
imposed upon SPIRIT 32 in connection with the Stock Acquisition.
11
<PAGE> 16
6.4 ACCESS AND CONFIDENTIALITY.
(a) From the date of this Agreement to the Effective Time,
SPIRIT 32 shall afford to 1ST NET and to the officers and authorized
representatives of 1ST NET (including, without limitation, counsel, financial
advisors and independent accountants) full access to its properties, personnel,
books and records at such reasonable times and in such manner as not to disrupt
normal business operations; and the officers of SPIRIT 32 will furnish such
officers and representatives with such additional financial and operating data
and other information as to its business and properties as may be reasonably
requested. Similarly, from the date of this Agreement to the Effective Time, 1ST
NET shall afford to SPIRIT 32 and to SPIRIT 32's officers and authorized
representatives (including, without limitation, counsel, financial advisors and
independent accountants) full access to its properties, personnel, books and
records at such reasonable times and in such manner as not to disrupt normal
business operations; and the officers of 1ST NET will furnish such officers and
representatives with such additional financial and operating data and other
information as to its business and properties as may be reasonably requested.
(b) SPIRIT 32 and 1ST NET shall at all times prior to the
Effective Time and, in the event the transactions contemplated by this Agreement
are not consummated, at all times thereafter, keep confidential all confidential
or proprietary information furnished to it by the other party in connection with
this Agreement and the transactions contemplated hereby, and will not disclose
such confidential or proprietary information to any third party without the
prior written consent of the other party. In addition, in the event of
termination of this Agreement, all non-public documents (including copies
thereof) and other non-public written information obtained hereunder by any
party from any other party shall be returned to such party.
6.5 PUBLIC ANNOUNCEMENTS. Each of the parties hereto will obtain the
prior written approval from the other parties before issuing any press release
or otherwise making any public statements with respect to the Stock Acquisition
prior to the Effective Time.
6.6 EXPENSES. Subject to Section 4.3 hereof, each of the parties
hereto shall pay all of its own costs and expenses incurred in connection with
the Stock Acquisition, this Agreement and the transactions contemplated thereby
or hereby.
6.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS.The
parties hereto hereby acknowledge and agree that the representations and
warranties and covenants set forth in this Agreement shall survive the Closing
Date for a period of 24 months, provided that, any covenant contained herein
that is to be performed after the Closing Date shall survive for a period of 24
months from the date or expiration of the period upon or during which such
covenant is to be performed.
12
<PAGE> 17
6.8 REORGANIZATION COVENANT. Following the Stock Acquisition, the
parties will continue their respective historic businesses.
6.9 FINANCIAL COVENANTS OF 1ST NET. Following the Closing Date, 1ST
NET shall use its best efforts to promptly complete the required audits and
accounting with respect to 1ST NET and its then existing subsidiaries so as to
permit 1ST NET to prepare and file a true, correct and complete registration
statement under either the Securities Act of 1933, or the Securities and
Exchange Act of 1934, either act as amended.
VII. CONDITIONS.
7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ALL PARTIES.
Notwithstanding any other provision of this Agreement, the obligations of 1ST
NET on the one hand, and of SPIRIT 32 on the other hand, to effect the Stock
Acquisition shall be subject to the fulfillment, as of the Closing, of each of
the following conditions (unless waived by the written consent of the parties
hereto):
(a) all permits, approvals and consents of any governmental
body or agency or other third party necessary or appropriate for consummation of
the Stock Acquisition shall have been obtained;
(b) there shall not be in effect an order or decision of a
court of competent jurisdiction which prevents, or would materially alter the
terms of, the Stock Acquisition;
(c) there shall not be any action or proceeding commenced by
or before any court or governmental agency or authority in the United States, or
threatened by any governmental agency or authority in the United States, that
challenges the consummation of the Stock Acquisition.
7.2 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF 1ST NET.
In addition to the conditions contained in Section 7.1, the obligations of 1ST
NET to effect the Stock Acquisition shall also be subject to the fulfillment as
of the Closing Date of each of the following conditions (unless waived in
writing by 1ST NET): The representations and warranties of SPIRIT 32 contained
in Article V shall be true in all material respects at and as of the date hereof
and as of the Closing Date as if made at and as of such time; and SPIRIT 32
shall have duly performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it prior to or on the Closing Date.
13
<PAGE> 18
7.3 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SPIRIT 32.
In addition to the conditions contained in Section 7.1, the obligations of
SPIRIT 32 to effect the Stock Acquisition shall also be subject to the
fulfillment at the Closing Date of each of the following conditions (unless
waived in writing by SPIRIT 32):
(a) the representations and warranties of 1ST NET contained
in Article III shall be true in all material respects at and as of the date
hereof and as of the Closing Date as if made at and as of the Closing Date; 1ST
NET shall have duly performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing Date; and
(b) 1ST NET shall have delivered to SPIRIT 32 1ST NET Common
Stock certificates issued in the names of the persons and in the quantities set
forth in Exhibit B hereto, representing an aggregate of 750,000 shares;
VIII. TERMINATION.
8.1 TERMINATION BY MUTUAL CONSENT. At any time prior to the
Effective Time, this Agreement and the Agreement of Stock Acquisition may be
terminated by written consent of 1ST NET and SPIRIT 32, notwithstanding approval
of the Stock Acquisition by the shareholders of 1ST NET or SPIRIT 32.
8.2 TERMINATION BY SPIRIT 32. SPIRIT 32 may terminate this Agreement
and the Agreement of Stock Acquisition at any time prior to the Effective Time
by delivery of written notice to 1ST NET if:
(a) There has been a material adverse change in 1ST NET's
business, assets, financial condition or prospects since the date of this
Agreement;
(b) 1ST NET has violated any material term or provision of
this Agreement which has not been cured by 1ST NET within ten (10) days from the
date of receipt of notice of such violation by SPIRIT 32; or
(c) Any representation or warranty made by 1ST NET in this
Agreement is false or inaccurate in any material respect or there is any
material misrepresentation or omission by 1ST NET.
8.3 EFFECT OF TERMINATION. In the event of termination as provided
above, this Agreement shall forthwith become of no further force or effect, all
parties hereto shall bear their own costs associated with this Agreement and all
transactions mentioned herein and there shall be no obligation on the part of
any party's officers, directors or shareholders; provided, however, that Section
6.4(b), Section 6.5 and Section 9.8 shall survive such termination and continue
in full force and effect.
14
<PAGE> 19
IX. GENERAL PROVISIONS.
9.1 NOTICES. All notices, requests, demands or other communications
required or authorized or contemplated to be given by this Agreement shall be in
writing and shall be deemed to have been duly given if hand delivered, sent by
commercial overnight courier or sent by cert1st Neted or registered mail,
postage prepaid, and addressed as follows:
If to 1ST NET: 1ST NET TECHNOLOGIES, INC.
11423 West Bernardo Court
San Diego, CA 92127
Attention: President
With a copy to: R. Blair Krueger, Esq.
The Krueger Group, LLP
11423 West Bernardo Court
If to SPIRIT 32:
With a copy to:
or such other address as the parties hereto may from time to time designate in
writing, prior to the giving of such notice. Any such notice, if hand delivered,
shall be effective upon the date of delivery, and if given by commercial
overnight courier or by cert1st Neted or registered mail, shall be effective two
business days following the date of sending such notice. A facsimile
transmission, when received, shall be considered delivery of written notice.
9.2 AMENDMENT AND WAIVER. No amendment or waiver of any provision of
this Agreement shall in any event be effective, unless the same shall be in
writing signed by each of the parties hereto, and then such amendment, waiver or
consent shall be effective only in a spec1st Netc instance and for the spec1st
Netc purpose for which given.
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
9.4 ASSIGNABILITY. This Agreement shall not be assigned by any party
without the prior written consent of all of the parties hereto, which consent
may be withheld by any such party in its sole and absolute discretion. In the
event of such permitted assignment, this Agreement shall bind and inure to the
benefit of the parties named herein and their respective successors and assigns.
15
<PAGE> 20
9.5 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.
9.6 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado and the parties
hereby consent to the jurisdiction of the Nevada courts for all matters relating
to this Agreement.
9.7 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of the terms and conditions contained therein or of
this Agreement.
9.8 ATTORNEYS' FEES. In the event of any dispute which results in a
suit or other legal proceeding to construe or enforce any provision of this
Agreement or because of any alleged breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the parties agree that
the prevailing party or parties (in addition to all other amounts and relief to
which sued party or parties may be entitled) shall be entitled to recover
reasonable attorneys' fees and other costs and expenses incurred in any action
or proceeding.
9.9. FURTHER ASSURANCES. At the request of any of the parties hereto,
and without further consideration, the other parties agree to execute and
deliver to the other parties such documents and instruments and to do such
further acts as may be necessary or desirable to effectuate the Stock
Acquisition as contemplated by this Agreement.
(SIGNATURES ON FOLLOWING PAGE)
16
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have signed this Agreement or
have caused this Agreement to be signed by their respective duly authorized
officers as of the date first above written.
1ST NET TECHNOLOGIES, INC.
By: /s/ GREGORY D. WRITER, JR.
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
AND
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
SPIRIT 32 DEVELOPMENT CORPORATION
By: /s/ BOJAN MACASOVIC
-------------------------------------
Name: Bojan Macasovic
-----------------------------------
Title: President
----------------------------------
AND
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
17
<PAGE> 22
EXHIBIT B
ISSUANCE OF 1ST NET COMMON STOCK TO SPIRIT 32 SHAREHOLDERS
<TABLE>
<CAPTION>
Number of 1ST NET Common Shares
Name of Shareholder to be delivered at the Closing
------------------- ------------------------------
<S> <C>
Total 750,000
</TABLE>
<PAGE> 1
EXHIBIT 10.7
STOCK ACQUISITION AGREEMENT
BY AND BETWEEN
1ST NET TECHNOLOGIES, INC.
AND
SSP MANAGEMENT CORPORATION
Dated as of January 26, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. DEFINITIONS..........................................................................4
II. THE TRANSACTION......................................................................5
2.1 Stock Acquisition.............................................................5
2.2 The Closing...................................................................5
2.3 Effective Time; Effect of Stock Acquisition...................................5
2.4 Articles of Incorporation.....................................................6
2.5 By-Laws.......................................................................6
2.6 Directors and Officers........................................................6
2.7 Purchase of Shares............................................................6
III. REPRESENTATIONS AND WARRANTIES OF 1ST NET............................................6
3.1 Organization and Authorization................................................6
3.2 Non-Contravention.............................................................7
3.3. Capital Stock.................................................................7
3.4 Financial Statements..........................................................7
3.5 No Adverse Changes............................................................7
3.6 Approvals.....................................................................8
3.7 Title to Assets...............................................................8
3.8 Litigation....................................................................8
3.9 Permits.......................................................................8
3.10 Corporate Records.............................................................9
3.11 Absence of Undisclosed Liabilities............................................9
3.12 Corporate Compliance..........................................................9
3.13 Regulatory Compliance.........................................................9
3.14 Conflict of Interest..........................................................9
3.15 Labor Matters................................................................10
3.16 Benefit Plans................................................................10
3.17 Accuracy of Information Furnished............................................10
3.18 Brokers......................................................................10
IV. SPECIAL MATTERS.....................................................................10
4.1 No-Shop......................................................................10
4.2 Payment of Certain Expenses..................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
V. REPRESENTATIONS AND WARRANTIES OF SSP...............................................11
5.1 Organization and Authorization...............................................11
5.2 Non-Contravention............................................................11
5.3 Capital Stock................................................................11
5.4 No Adverse Changes...........................................................12
5.5 Litigation...................................................................12
5.6 Corporate Records............................................................12
5.7 Corporate Compliance.........................................................12
5.8 Accuracy of Information Furnished............................................12
5.9 Brokers......................................................................12
5.10 Reorganization Representations of SSP........................................12
VI. COVENANTS...........................................................................13
6.1 Affirmative Covenants of SSP.................................................13
6.2 Affirmative Covenants of 1ST NET.............................................13
6.3 Access and Confidentiality...................................................13
6.4 Public Announcements.........................................................14
6.5 Expenses.....................................................................14
6.6 Survival of Representations and Warranties and Covenants; Indemnification....14
6.7 Reorganization Covenant......................................................14
6.8 Financial Covenants of 1ST NET...............................................14
VII. CONDITIONS..........................................................................14
7.1 Conditions Precedent to the Obligations of All Parties.......................14
7.2 Additional Conditions Precedent to the Obligations of 1ST NET................15
7.3 Additional Conditions Precedent to the Obligations of SSP....................15
VIII. TERMINATION.........................................................................15
8.1 Termination by Mutual Consent................................................15
8.2 Termination by SSP...........................................................15
8.3 Effect of Termination........................................................16
IX. GENERAL PROVISIONS..................................................................16
9.1 Notices......................................................................16
9.2 Amendment and Waiver.........................................................16
9.3 Counterparts.................................................................17
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
9.4 Assignability................................................................17
9.5 Entire Agreement.............................................................17
9.6 Applicable Law...............................................................17
9.7 Headings.....................................................................17
9.8 Attorneys' Fees..............................................................17
9.9. Further Assurances...........................................................17
</TABLE>
EXHIBITS:
A - Articles of Incorporation of 1ST NET TECHNOLOGIES, INC.
B - Issuance of 1ST NET Common Stock to SSP Shareholders
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THIS STOCK ACQUISITION AGREEMENT ("Agreement") is made and entered into
as of the 26th day of January, 1999 by and between 1ST NET TECHNOLOGIES, INC., a
Colorado corporation ("1ST NET"), ENTREPRENUER INVESTMENTS, LLC, a Colorado
Limited Liability Company ("EI") and SSP MANAGEMENT CORPORATION, a Colorado
corporation ("SSP").
RECITALS
A. SALE. EI owns one million (1,000,000) shares of SSP common stock
representing all of the issued and outstanding common stock of SSP.
B. STOCK ACQUISITION. 1ST NET desires to purchase all of the
capital stock of SSP, and EI desires to sell all issued and outstanding capital
stock of SSP to 1ST NET pursuant to the terms and conditions set forth in this
Agreement and in accordance with the laws of the State of Colorado (the "Stock
Acquisition"); and
B. TAX IMPLICATIONS. The parties intend that the Stock Acquisition
will constitute a reorganization under the provisions of Section 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
I. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth:
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Constituent Corporations" shall mean both SSP and 1ST NET.
"Conversion Ratio" shall have the meaning set forth in Section 2.7.
"Effective Time" shall have the meaning set forth in Section 2.3.
"SSP Common Stock" shall mean the common stock, $.001 par value, of SSP.
"1ST NET" shall have the meaning set forth in the preface of this
Agreement.
"1ST NET Common Stock" shall mean the Common Stock, $.001 par value, of
1ST NET.
"1ST NET Financial Statements" shall mean Financial Statements of 1ST
NET referred to in Section 3.4, including the notes thereto.
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"Knowledge" of a party shall mean any item of which any executive
officer of SSP or 1ST NET has actual knowledge or of which such executive
officer would have discovered following reasonable inquiry.
"Stock Acquisition" shall have the meaning set forth in the preambles
hereto and more fully described in Section 2.1.
"Ordinary course of business" or similar reference shall mean consistent
with past custom and practice, including with respect to quantity and frequency.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Tax" shall mean a net income, gross income, gross receipts, sales, use,
ad valorem, franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, transfer, occupation, real property, premium, property
or windfall profit tax, custom duty, or other tax, governmental fee or other
like assessment or charge of any kind whatsoever, together with any interest and
any penalty, additional tax or additional amount imposed by any jurisdiction or
other taxing authority (federal, state, local or foreign).
II. THE TRANSACTION.
2.1 STOCK ACQUISITION. Pursuant to the provisions of this Agreement
and in accordance with Colorado Corporate Law, at the Effective Time 1ST NET
shall acquire from EI all of the outstanding stock of all classes of SSP in
consideration, in part, of the forfeiture and forgiveness by 1ST NET and SSP of
any and all indebtedness owed by EI to SSP.
2.2 THE CLOSING.
(a) Subject to the conditions set forth in Article VII,
unless this Agreement shall have been terminated as provided in Article VIII,
the consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of The Krueger Group, LLP, 11423 West
Bernardo Court, San Diego, California, commencing at 9:00 a.m., on January 26,
1999 or such other place or such other date as the parties may mutually
determine (the "Closing Date").
(b) At the Closing, (i) 1ST NET shall deliver to EI the
various certificates, instruments and documents referred to in Section 7.3, and
shall deliver to EI share certificates as set forth in Exhibit B hereto of 1ST
NET representing 1,000,000 shares of 1ST NET Common Stock, which shall be
validly issued and fully paid and nonassessable, free and clear of any lien or
other encumbrance.
2.3 EFFECTIVE TIME; EFFECT OF STOCK ACQUISITION. The Stock
Acquisition shall become effective as of the time (the "Effective Time") 1ST NET
files the Notice of Transaction with the Secretary of State of the State of
Colorado. As of the Effective Time, the separate existence of SSP shall
continue.
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2.4 ARTICLES OF INCORPORATION. The Articles of Incorporation of SSP
in effect immediately prior to the Effective Time shall continue to be the
Articles of Incorporation of SSP until amended in accordance with the provisions
thereof.
2.5 BY-LAWS. The By-Laws of SSP as in effect immediately prior to
the Effective Time shall be the By-Laws of SSP until further amended in
accordance with the provisions thereof.
2.6 DIRECTORS AND OFFICERS.
(a) The Board of Directors of SSP from and after the
Effective Time shall consist of the persons who are members of the Board of
Directors of 1ST NET as of the Effective Time. Such directors shall serve until
their resignation, removal or failure to be reelected and until their respective
successors are duly elected or appointed and qualified in accordance with the
Articles of Incorporation and By-Laws of SSP.
(b) The persons who are officers of SSP as of the Effective
Time shall continue in the same capacity as officers of SSP until the Board of
Directors of the SSP shall otherwise determine. Other persons may be elected or
appointed to other offices from time to time in accordance with the By-Laws of
SSP.
2.7 PURCHASE OF SHARES.
As of the Effective Time, each share of SSP shall be purchased
by 1ST NET
III. REPRESENTATIONS AND WARRANTIES OF 1ST NET.
1ST NET hereby represents and warrants to SSP as follows:
3.1 ORGANIZATION AND AUTHORIZATION.
1ST NET is a corporation duly organized, validly existing and in
good standing under the laws of Colorado, has the corporate power and all
necessary corporate authorizations to own all of its properties and assets and
to carry on its business as it is now being conducted. 1ST NET is duly qualified
to do business and is in good standing in each jurisdiction in which the nature
of its business or character of its properties requires such qualification and
where the failure to be so qualified would materially and adversely affect 1ST
NET, its business, properties or rights. 1ST NET has delivered to SSP complete
and correct copies of 1ST NET's Articles of Incorporation and By-Laws, as
amended and in effect on the date of this Agreement. 1ST NET has all requisite
corporate power to execute, deliver and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement by 1ST NET,
and the consummation by 1ST NET of the transactions contemplated hereby have
been duly authorized by the Board of Directors and shareholders of 1ST NET. This
Agreement has been duly executed and delivered by 1ST NET and constitutes a
valid and binding agreement of 1ST NET.
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3.2 NON-CONTRAVENTION. The execution and delivery of this Agreement
do not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of 1ST NET (b) violate any
material provision of or result in the breach or the acceleration of or entitle
any party to accelerate (whether after the giving of notice or the lapse of time
or both) any obligation under any material mortgage, lease, agreement, license
or instrument, or any order, arbitration award, judgment, or decree, to which
1ST NET is a party or by which it is bound, (c) result in the creation or
imposition of any lien, charge, pledge, security interest or other encumbrance
on any material property of 1ST NET or (d) to the knowledge of 1ST NET violate
or conflict with any law, ordinance or rule to which 1ST NET is subject.
3.3. CAPITAL STOCK.
(a) The authorized and outstanding capital stock of 1ST NET
consists of 40,000,000 shares of Common Stock, $.001 par value. As of the date
of this Agreement there is approximately 5,600,000 shares of Common Stock issued
and outstanding which are validly issued, fully paid and nonassessable. There
are sufficient authorized but unissued shares of 1ST NET Common Stock to permit
the issuance of all shares required to be issued in accordance with the terms
and conditions of this Agreement to SSP upon consummation of the Stock
Acquisition.
(b) There are no voting trusts, voting agreements,
irrevocable proxies or other agreements to which 1ST NET is a party, or of which
1ST NET has knowledge, in effect relating to the voting or transfer of any
shares of 1ST NET Common Stock.
(c) The Shares of 1ST NET Common Stock to be delivered
pursuant to the Stock Acquisition will, upon issuance, be validly issued, fully
paid and nonassessable.
3.4 FINANCIAL STATEMENTS. 1ST NET has previously furnished SSP with
its audited Balance Sheets as of December 31, 1997 (collectively the "1ST NET
Financial Statements"). The 1ST NET Financial Statements (a) were prepared in
accordance with the books and records of 1ST NET; and (b) have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods covered thereby. The 1ST NET Financial
Statements present fairly the financial position of 1ST NET as of the dates
thereof and the results of operations and changes in financial position of 1ST
NET for the periods then ended. The balance sheet of 1ST NET as of December 31,
1997 is sometimes referred to herein as the "Latest 1ST NET Balance Sheet."
3.5 NO ADVERSE CHANGES. Except as contemplated herein, since the
date of the Latest 1st Net Balance Sheet, 1ST NET has conducted it business only
in the ordinary course, there has not been any material adverse change in the
financial condition, assets, liabilities, properties, business or operations of
1ST NET and 1ST NET has not:
(a) issued or sold any stock, notes, bonds or other
securities, or any option to purchase the same, or entered into any agreement
with respect thereto, with the exception of 450,000 shares of common stock
distributed for the purpose of acquiring Spirit 32 Inc., incorporated on January
22, 1999;
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(b) declared, set aside or made any dividend or other
distribution on capital stock or redeemed, purchased or acquired any shares
thereof or entered into any agreement in effect to the foregoing, with the
exception of that certain acquisition of Spirit 32, Inc. for 450,000 shares of
common stock on January 22, 1999;
(c) amended its Articles of Incorporation or By-Laws;
(d) incurred any material obligation or liability (absolute
or contingent);
(e) made any payment or arrangement, agreement or commitment
to pay any bonus, incentive compensation or retirement, termination or severance
benefits;
(f) borrowed or loaned any money;
(g) changed its method of accounting; or
(h) agreed, whether in writing or otherwise, to take any
action described in this Section 3.5.
3.6 APPROVALS. Except for the approval by the 1ST NET shareholders
and the filing of the Notice of Transaction with the Colorado Secretary of
State, no consent, approval, order or authorization of, or registration,
declaration or filing with any governmental authority is required in connection
with the execution and delivery of this Agreement by 1ST NET or the consummation
by 1ST NET of the transactions contemplated hereby.
3.7 TITLE TO ASSETS. 1ST NET owns and has good and marketable title
to all of its assets and properties (real, personal and mixed, tangible or
intangible), reflected in the 1ST NET Financial Statements free and clear of any
mortgage, lien, pledge, charge, claim, conditional sales or other agreement,
lease, right or encumbrance, except to the extent stated or reserved against in
the 1ST NET Financial Statements.
3.8 LITIGATION. There are no actions, suits or proceedings or
investigations pending or, to the knowledge of 1ST NET threatened against or
affecting the business or financial condition of 1ST NET at law or in equity in
any court or before any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality. 1ST NET is not
in default in respect of any judgment, order, writ, injunction or decree of any
court or any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.9 PERMITS. 1ST NET has all permits, licenses, orders and approvals
of all foreign, federal, state, or local governmental or regulatory bodies
required for it to conduct its business as presently conducted, the absence of
which would have a material adverse effect on the business or financial
condition of 1ST NET all such permits, licenses, orders and approvals are in
full force and effect and no suspension or cancellation of any of them is
threatened; and such permits, licenses, orders or approvals will not be
adversely affected by the consummation of the transactions contemplated by this
Agreement.
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3.10 CORPORATE RECORDS. The minute books of 1ST NET contain complete
and accurate records of all material corporate actions taken at all meetings,
all actions by written consent without a meeting, and all other material
corporate actions taken by the Board of Directors and shareholders of 1ST NET.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the 1ST NET Financial Statements, 1ST NET had
as of the dates of such financial statements, no liabilities or obligations,
whether accrued, contingent or otherwise required by GAAP to be reflected in the
1ST NET Financial Statements or otherwise material to 1ST NET. As of the date of
this Agreement, 1ST NET does not have any liabilities or obligations, whether
accrued, contingent or otherwise, except as provided for in the preceding
sentence and for such liabilities or obligations as have arisen in the ordinary
course of business since the date of the Latest Balance Sheet, none of which
newly arisen liabilities or obligations has a material adverse effect upon the
business or financial condition of 1ST NET.
3.12 CORPORATE COMPLIANCE. 1ST NET is not in violation of, or in
default under, any term or provision of its Articles of Incorporation or
By-Laws.
3.13 REGULATORY COMPLIANCE. To its knowledge, 1ST NET is in
compliance in all material respects with all federal, state, local and foreign
laws and regulations applicable to it, including, without limitation,
environmental laws. 1ST NET has not generated, used, handled, treated or stored
hazardous waste or hazardous substance (as hereinafter defined) and/or oil at,
on or in any site currently or formerly owned, leased or used by 1ST NET or
shipped the same for treatment, storage or disposal at any other site or
facilities other than those generated, used, handled, treated or stored in the
ordinary course of business which was in compliance in all material respects
with the laws and regulations relating to hazardous waste and hazardous
substances. For the purpose of this Section 3.12, "hazardous waste" and
"hazardous substance" shall have the meanings set forth in the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq., and the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Sections 9601 et seq., and any federal regulations adopted pursuant to or in
furtherance of such acts as such statutes or regulations may be amended, or as
defined in any state or local statutes or regulations governing such waste and
substances.
3.14 CONFLICT OF INTEREST.
(a) No director or officer of 1ST NET or, to the knowledge
of 1ST NET any employee of 1ST NET, has any interest in any material property,
real or personal or tangible or intangible necessary for, used in or pertaining
to the business of 1ST NET; and
(b) No director or officer of 1ST NET, or to the knowledge
of 1ST NET, employee of 1ST NET, (i) competes with 1ST NET in any line of
business, or (ii) is a party to any 1ST NET contract, nor does any director or
officer of 1ST NET, or, to the knowledge of 1ST NET, any employee of 1ST NET
have an ownership interest, direct or indirect, in any entity which competes
with 1ST NET in any line of business or is a party to any 1ST NET contract.
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3.15 LABOR MATTERS. There are no disputes pending or, to the
knowledge of 1ST NET, threatened, between 1ST NET and any of its former
employees other than Mr. Kenneth Hill. To the knowledge of 1ST NET, 1ST NET is
in compliance with all applicable labor laws the failure to comply with which
would have a material adverse effect on the business or financial condition of
1ST NET. 1ST NET is not a party to any collective bargaining agreements.
3.16 BENEFIT PLANS.
(a) 1ST NET is not presently a party to any compensation,
bonus, pension, profit sharing, retirement, savings, stock option, stock
purchase, severance, bonus, medical, dental, health benefit, disability, income,
vacation, holiday, leave of absence, expense reimbursement, automobile or other
transportation allowance, or similar plans, procedures, programs or agreements
(the "1ST NET Employee Benefit Plans").
(b) 1ST NET does not maintain or contribute to any "employee
welfare benefit plan" as defined in Section 3(1) of the Employee Retirement
Income Security Act of 1974 ("ERISA") (a "Welfare Benefit Plan"), pursuant to
collective bargaining agreement or otherwise, providing benefits to retirees or
former employees.
(c) 1ST NET has administered all former 1ST NET Employee
Benefit Plans, if any, in compliance in all material respects with applicable
law, including but not limited to ERISA, and with respect to each such plan all
applicable reporting and disclosure obligations have been satisfied in all
material respects.
(d) There is no pending or, to the knowledge of 1ST NET,
threatened litigation against 1ST NET, with respect to any 1ST NET Employee
Benefit Plan and no such plan has been the subject of an audit, investigation or
other proceeding by any governmental agency.
3.17 ACCURACY OF INFORMATION FURNISHED. The certificates, statements
and other information furnished to SSP in writing by or on behalf of 1ST NET do
not to the knowledge of 1ST NET contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.18 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of 1ST NET who has or may have a valid claim
against SSP or the Surviving Corporation for any broker's or finder's fee or
similar compensation.
IV. SPECIAL MATTERS.
4.1 NO-SHOP. 1ST NET agrees, severally, for the benefit of SSP that
1ST NET will not, directly or indirectly, prior to the termination of this
Agreement as provided in Article VIII, (i) sell, transfer, pledge, encumber or
otherwise dispose of any shares and capital stock of 1ST NET, or discuss or
negotiate with any other corporation, person (other than its professional
advisors) or firm (other than representatives of SSP) or entertain or consider
any inquiry or proposals, regarding the possible disposition of such shares or
the business or all or substantially all of the assets of 1ST
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NET, or a Stock Acquisition or combination of 1ST NET, or an acquisition of 1ST
NET by another party; (ii) provide any information relating to the possible sale
of 1ST NET or its business, or all or substantially all of the assets of 1ST
NET, to any potential third-party purchaser or to disclose to any potential
third-party purchaser that 1ST NET, or all or any significant portion of the
assets of 1ST NET, is or may be for sale; or (iii) intentionally take any action
which is inconsistent with the obligations of 1ST NET hereunder.
4.2 PAYMENT OF CERTAIN EXPENSES. If the closing does not occur, each
party shall pay its or his own expenses for legal, accounting and other
professional fees incurred in connection with this Agreement.
V. REPRESENTATIONS AND WARRANTIES OF SSP. SSP hereby represents and
warrants to 1ST NET as follows:
5.1 ORGANIZATION AND AUTHORIZATION. SSP is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, has the corporate power and all necessary authorizations to own all of
its properties and assets and to carry on its business as it is now being
conducted. SSP is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or character of its properties
requires such qualification and where the failure to be so qualified would
materially and adversely affect SSP its businesses, properties or rights. SSP
has delivered to 1ST NET complete and correct copies of its Articles of
Incorporation and By-Laws, as amended and in effect on the date of this
Agreement. SSP has all requisite corporate power to execute, deliver and perform
its obligations under this Agreement. The execution, delivery and performance of
this Agreement by SSP, and the consummation by SSP of the transactions
contemplated hereby have been duly authorized by the Board of Directors of SSP.
This Agreement has been duly executed and delivered by SSP and upon the approval
of the SSP shareholders will constitute a valid and binding agreement of SSP.
5.2 NON-CONTRAVENTION. The execution and delivery of this Agreement
do not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of SSP (b) violate any
provision of or result in the breach or the acceleration of or entitle any party
to accelerate (whether after the giving of notice or the lapse of time or both)
any obligation under any mortgage, lease, agreement, license or instrument, or
any order, arbitration award, judgment, or decree, to which SSP is a party or by
which either of them is bound, (c) result in the creation or imposition of any
lien, charge, pledge, security interest or other encumbrance on any property of
SSP or (d) violate or conflict with any law, ordinance or rule to which SSP or
the property of SSP is subject.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of SSP consists of
10,000,000 shares of Common Stock, $.001 par value, and 1,000,000 shares of
Preferred Stock, $.001 par value. As of the date of this Agreement there are
1,000,000 shares of Common Stock issued to EI and outstanding that are validly
issued, fully paid and nonassessable.
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(b) There are no outstanding subscriptions, options,
conversion rights, warrants or other agreements or commitments of any nature
whatsoever obligating SSP to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional shares of the capital stock of SSP or
obligating SSP to grant, extend or enter into any such agreement or commitment.
No preemptive or similar rights exist or will arise as a result of the
transaction contemplated by this Agreement. There are no voting trusts, voting
agreements, irrevocable proxies or other agreements to which SSP is a party, or
of which SSP has knowledge, in effect relating to voting or transfer of any
shares of SSP Common Stock.
5.4 NO ADVERSE CHANGES. SSP has conducted its business only in the
ordinary course, and there has not been any material adverse changes in the
business, financial condition, assets, liabilities, properties or operations of
SSP.
5.5. LITIGATION. There are no material actions, suits or proceedings
or investigations pending or, to the knowledge of SSP, threatened against or
affecting the business, operations or financial condition of SSP at law or in
equity in any court or before any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
with the exception of
5.6 CORPORATE RECORDS. The minute books of SSP made available to 1ST
NET or its legal counsel to review contained complete and accurate records of
all material corporate actions taken at all meetings, all actions by written
consent without a meeting, and all other material corporate actions taken by the
Board of Directors and shareholders of SSP.
5.7 CORPORATE COMPLIANCE. SSP is not in violation of, or in default
under, any term or provision of its Articles of Incorporation or By-Laws.
5.8 ACCURACY OF INFORMATION FURNISHED. The certificates, statements,
and other information furnished to 1ST NET in writing by or on behalf of SSP in
connection with the transactions contemplated hereby, do not to the knowledge of
SSP contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading; provided, however, that no
representation is made as to the accuracy of any financial projections contained
in such information.
5.9 BROKERS. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of SSP who has or may have a valid claim against
1ST NET or the Surviving Corporation for any broker's or finder's fee or similar
compensation.
5.10 REORGANIZATION REPRESENTATIONS OF SSP. There is no
intercorporate indebtedness existing between 1ST NET and SSP. SSP is not an
investment company as defined in Section 368(a) (2) (F) (iii) and (iv) of the
Code. SSP is not under the jurisdiction of a court in a Title 11 or similar
case. The fair market value of the assets of SSP exceeds and will exceed as of
the Effective Time the sum of its liabilities plus the amount of liabilities, if
any, to which the assets are subject.
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VI. COVENANTS.
6.1 AFFIRMATIVE COVENANTS OF SSP. SSP hereby covenants and agrees
that from the date of this Agreement until the Effective Time (or until the
items referred to have either been accomplished or, in good faith, abandoned),
except with the prior written consent of 1ST NET:
(a) shall use all reasonable efforts to comply with all
applicable federal or state filing requirements imposed on SSP with respect to
the Stock Acquisition, and cooperate with and promptly furnish information to
1ST NET in connection with any such filing requirements imposed upon 1ST NET in
connection with the Stock Acquisition; and
(b) shall (i) promptly advise 1ST NET orally and in writing
of any inquiry or proposal for the acquisition of its stock, assets or business;
(ii) use all reasonable efforts to obtain any consent, authorization or approval
of, or exemption by, any governmental authority or agency or other third party
required to be obtained or made by in connection with the Stock Acquisition or
the taking of any action in connection with the consummation thereof; and (iii)
use all reasonable efforts to cause the conditions precedent to the Stock
Acquisition to be fulfilled.
6.2 AFFIRMATIVE COVENANTS OF 1ST NET. 1ST NET hereby covenants and
agrees that from the date of this Agreement until the Effective Time (or until
the items referred to have either been accomplished or, in good faith,
abandoned), except with the prior written consent of SSP, it shall use all
reasonable efforts to comply with all filing requirements which federal or state
law may impose on 1ST NET with respect to the Stock Acquisition, and cooperate
with and promptly furnish information to SSP in connection with any such filing
requirements imposed upon SSP in connection with the Stock Acquisition.
6.3 ACCESS AND CONFIDENTIALITY.
(a) From the date of this Agreement to the Effective Time,
SSP shall afford to 1ST NET and to the officers and authorized representatives
of 1ST NET (including, without limitation, counsel, financial advisors and
independent accountants) full access to its properties, personnel, books and
records at such reasonable times and in such manner as not to disrupt normal
business operations; and the officers of SSP will furnish such officers and
representatives with such additional financial and operating data and other
information as to its business and properties as may be reasonably requested.
Similarly, from the date of this Agreement to the Effective Time, 1ST NET shall
afford to SSP and to SSP's officers and authorized representatives (including,
without limitation, counsel, financial advisors and independent accountants)
full access to its properties, personnel, books and records at such reasonable
times and in such manner as not to disrupt normal business operations; and the
officers of 1ST NET will furnish such officers and representatives with such
additional financial and operating data and other information as to its business
and properties as may be reasonably requested.
(b) SSP and 1ST NET shall at all times prior to the
Effective Time and, in the event the transactions contemplated by this Agreement
are not consummated, at all times thereafter, keep confidential all confidential
or proprietary information furnished to it by the other party in connection with
this Agreement and the transactions contemplated hereby, and will not disclose
such
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confidential or proprietary information to any third party without the prior
written consent of the other party. In addition, in the event of termination of
this Agreement, all non-public documents (including copies thereof) and other
non-public written information obtained hereunder by any party from any other
party shall be returned to such party.
6.4 PUBLIC ANNOUNCEMENTS. Each of the parties hereto will obtain the
prior written approval from the other parties before issuing any press release
or otherwise making any public statements with respect to the Stock Acquisition
prior to the Effective Time.
6.5 EXPENSES. Subject to Section 4.2 hereof, each of the parties
hereto shall pay all of its own costs and expenses incurred in connection with
the Stock Acquisition, this Agreement and the transactions contemplated thereby
or hereby.
6.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS.The
parties hereto acknowledge that the representations and warranties and covenants
set forth in this Agreement shall survive the Closing Date for a period of 24
months, provided that, any covenant contained herein that is to be performed
after the Closing Date shall survive for a period of 24 months from the date or
expiration of the period upon or during which such covenant is to be performed.
6.7 REORGANIZATION COVENANT. Following the Stock Acquisition, the
parties will continue their respective historic businesses.
6.8 FINANCIAL COVENANTS OF 1ST NET. Following the Closing Date, 1ST
NET shall use its best efforts to promptly complete the required audits and
accounting with respect to 1ST NET and its then existing subsidiaries so as to
permit 1ST NET to prepare and file a true, correct and complete registration
statement under either the Securities Act of 1933, or the Securities and
Exchange Act of 1934, either act as amended.
VII. CONDITIONS.
7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ALL PARTIES.
Notwithstanding any other provision of this Agreement, the obligations of 1ST
NET on the one hand, and of SSP on the other hand, to effect the Stock
Acquisition shall be subject to the fulfillment, as of the Closing, of each of
the following conditions (unless waived by the written consent of the parties
hereto):
(a) all permits, approvals and consents of any governmental
body or agency or other third party necessary or appropriate for consummation of
the Stock Acquisition shall have been obtained;
(b) there shall not be in effect an order or decision of a
court of competent jurisdiction which prevents, or would materially alter the
terms of, the Stock Acquisition;
(c) there shall not be any action or proceeding commenced by
or before any court or governmental agency or authority in the United States, or
threatened by any governmental agency or authority in the United States, that
challenges the consummation of the Stock Acquisition.
14
<PAGE> 16
7.2 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF 1ST NET.
In addition to the conditions contained in Section 7.1, the obligations of 1ST
NET to effect the Stock Acquisition shall also be subject to the fulfillment as
of the Closing Date of each of the following conditions (unless waived in
writing by 1ST NET): The representations and warranties of SSP contained in
Article V shall be true in all material respects at and as of the date hereof
and as of the Closing Date as if made at and as of such time; and SSP shall have
duly performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed or complied
with by it prior to or on the Closing Date.
7.3 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SSP. In
addition to the conditions contained in Section 7.1, the obligations of SSP to
effect the Stock Acquisition shall also be subject to the fulfillment at the
Closing Date of each of the following conditions (unless waived in writing by
SSP):
(a) the representations and warranties of 1ST NET contained
in Article III shall be true in all material respects at and as of the date
hereof and as of the Closing Date as if made at and as of the Closing Date; 1ST
NET shall have duly performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing Date; and
(b) 1ST NET shall have delivered to EI 1ST NET Common Stock
certificates issued in the names of the persons and in the quantities set forth
in Exhibit B hereto, representing an aggregate of 1,000,000 shares;
VIII. TERMINATION.
8.1 TERMINATION BY MUTUAL CONSENT. At any time prior to the
Effective Time, this Agreement and the Agreement of Stock Acquisition may be
terminated by written consent of 1ST NET and SSP, notwithstanding approval of
the Stock Acquisition by the shareholders of 1ST NET or SSP.
8.2 TERMINATION BY SSP. SSP may terminate this Agreement and the
Agreement of Stock Acquisition at any time prior to the Effective Time by
delivery of written notice to 1ST NET if:
(a) There has been a material adverse change in 1ST NET's
business, assets, financial condition or prospects since the date of this
Agreement;
(b) 1ST NET has violated any material term or provision of
this Agreement which has not been cured by 1ST NET within ten (10) days from the
date of receipt of notice of such violation by SSP; or
(c) Any representation or warranty made by 1ST NET in this
Agreement is false or inaccurate in any material respect or there is any
material misrepresentation or omission by 1ST NET.
15
<PAGE> 17
8.3 EFFECT OF TERMINATION. In the event of termination as provided
above, this Agreement shall forthwith become of no further force or effect, all
parties hereto shall bear their own costs associated with this Agreement and all
transactions mentioned herein and there shall be no obligation on the part of
any party's officers, directors or shareholders; provided, however, that Section
6.3(b), Section 6.4 and Section 9.8 shall survive such termination and continue
in full force and effect.
IX. GENERAL PROVISIONS.
9.1 NOTICES. All notices, requests, demands or other communications
required or authorized or contemplated to be given by this Agreement shall be in
writing and shall be deemed to have been duly given if hand delivered, sent by
commercial overnight courier or sent by certified or registered mail, postage
prepaid, and addressed as follows:
If to 1ST NET: 1ST NET TECHNOLOGIES, INC.
11423 West Bernardo Court
San Diego, CA 92127
Attention: President
With a copy to: R. Blair Krueger, Esq.
The Krueger Group, LLP
11423 West Bernardo Court
San Diego, California 92127
If to SSP: James H. Watson, Jr.
1869 W. Littleton Boulevard
Littleton, Colorado 80120
With a copy to: James K. Kreutz & Associates
5655 S. Yosemite, Suite 200
Englewood, Colorado 80111
or such other address as the parties hereto may from time to time designate in
writing, prior to the giving of such notice. Any such notice, if hand delivered,
shall be effective upon the date of delivery, and if given by commercial
overnight courier or by certified or registered mail, shall be effective two
business days following the date of sending such notice. A facsimile
transmission, when received, shall be considered delivery of written notice.
9.2 AMENDMENT AND WAIVER. No amendment or waiver of any provision of
this Agreement shall in any event be effective, unless the same shall be in
writing signed by each of the parties hereto, and then such amendment, waiver or
consent shall be effective only in a specified instance and for the specified
purpose for which given.
16
<PAGE> 18
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
9.4 ASSIGNABILITY. This Agreement shall not be assigned by any party
without the prior written consent of all of the parties hereto, which consent
may be withheld by any such party in its sole and absolute discretion. In the
event of such permitted assignment, this Agreement shall bind and inure to the
benefit of the parties named herein and their respective successors and assigns.
9.5 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.
9.6 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado and the parties
hereby consent to the jurisdiction of the Nevada courts for all matters relating
to this Agreement.
9.7 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of the terms and conditions contained therein or of
this Agreement.
9.8 ATTORNEYS' FEES. In the event of any dispute which results in a
suit or other legal proceeding to construe or enforce any provision of this
Agreement or because of any alleged breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the parties agree that
the prevailing party or parties (in addition to all other amounts and relief to
which sued party or parties may be entitled) shall be entitled to recover
reasonable attorneys' fees and other costs and expenses incurred in any action
or proceeding.
9.9. FURTHER ASSURANCES. At the request of any of the parties hereto,
and without further consideration, the other parties agree to execute and
deliver to the other parties such documents and instruments and to do such
further acts as may be necessary or desirable to effectuate the Stock
Acquisition as contemplated by this Agreement.
[SIGNATURES ON NEXT PAGE]
17
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have signed this Agreement or
have caused this Agreement to be signed by their respective duly authorized
officers as of the date first above written.
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
/s/ Gregory D. Writer, Jr.
----------------------------------------
Gregory D. Writer, Jr.,
Chief Executive Officer
ENTREPRENEUR INVESTMENTS, LLC
a Colorado limited liability company
/s/ James H. Watson, Jr.
----------------------------------------
James H. Watson, Jr.,
Managing Partner
SSP MANAGEMENT CORPORATION
a Colorado corporation
/s/ James H. Watson, Jr.
----------------------------------------
James H. Watson, Jr.,
Chief Executive Officer
18
<PAGE> 20
EXHIBIT B
ISSUANCE OF 1ST NET COMMON STOCK TO SSP SHAREHOLDERS
<TABLE>
<CAPTION>
Number of 1ST NET Common Shares
Name of Shareholder to be delivered at the Closing
------------------- ------------------------------
<S> <C>
ENTREPRENUER INVESTMENTS, LLC 1,000,000
Total 1,000,000
</TABLE>
<PAGE> 1
EXHIBIT 10.8
TECHNOLOGY LICENSE AGREEMENT
THIS TECHNOLOGY LICENSE AGREEMENT (this "Agreement") is entered into as
of the 19th day of April, 1999, by and between 1ST NET TECHNOLOGIES, INC., a
Colorado corporation (referred to as "1st NET" or the "Licensor"), and TUMMY
BUSTERS, INC., a Nevada corporation (referred to as "Tummy Busters" or the
"Licensee").
RECITALS
A. Licensor is the developer and owner of certain rights, in and to the
"Crayon Crawler" web browser and community software program ("Crayon Crawler").
B. Licensee desires to acquire an exclusive license to use the Crayon
Crawler web browser. Licensor is willing to grant such license, all on the terms
and conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals and the mutual
covenants and conditions contained herein, the parties agree as follows:
1. DEFINITIONS. Unless a contrary interpretation is required by the
specific context, the following terms shall have the following definitions,
whether used in the singular, plural, possessive or other such form:
1.1 "PRODUCT" shall mean the product of Licensee which, in the
absence of this Agreement, would infringe Licensor's rights in the trademarks
and/or the Technology.
1.2 "TECHNOLOGY" shall mean any and all confidential information,
inventions, know-how, data, trade secrets, whether or not patentable, including
any
Page 1 of 10
<PAGE> 2
trademarks, tradenames, copyrights and other intellectual property rights based
on the Products and/or related to the Crayon Crawler web browser.
1.3 "MODIFICATIONS, IMPROVEMENTS AND ENHANCEMENTS" shall mean any
technology in addition to or substitution for existing technology and which
requires the use of existing technology to operate.
2. GRANT OF EXCLUSIVE LICENSE.
2.1 LICENSE. Licensor hereby grants to Licensee, and Licensee
hereby accepts from Licensor, upon the terms and conditions contained in this
Agreement, a worldwide exclusive license to use, market and sell the Crayon
Crawler web browser in consideration of the payment of $400,000 (the "License").
The License shall restrict the right of Licensor to compete with Licensee and
the right of Licensor to grant licenses to third parties.
2.1.1 In further consideration for the grant of the
License, 1st Net shall receive from CTG five percent (5%) of gross sales of the
Product, but not less than $25,000 per month (the "Monthly Minimum Fee") during
the term of this Agreement. 1st Net, at its sole option, may accept this royalty
from CTG in the form of CTG Common Stock at:
(i) the 30-day average trading price for the Common
Stock during the calendar month for which the
Monthly Minimum Fee is owing; or
(ii) the latest offering price per share.
2.2 MODIFICATIONS, IMPROVEMENTS AND ENHANCEMENTS BY LICENSOR. The
License shall extend to any Modifications, Improvements or Enhancements in the
Technology hereafter developed by Licensor. Licensor will supply all such
Page 2 of 10
<PAGE> 3
Modifications, Improvements and Enhancements to Licensee as soon as practicable
following their development; however, Licensor shall have no obligation to make
any Modifications, Improvements and Enhancements. Licensor shall notify Licensee
of the date upon which each Modification, Improvement or Enhancement shall be
deemed to be a part of the License under this Agreement.
2.3 MODIFICATIONS, IMPROVEMENTS AND ENHANCEMENTS BY LICENSEE.
Licensee shall have the right to modify, improve and enhance the Technology from
time to time. Licensee shall, within thirty (30) days, forward to Licensor a
description of any such Modification, Improvement or Enhancement. Upon
termination of this Agreement, Licensee shall not have any ownership with
respect to rights to any such Modification, Improvement or Enhancement. Licensee
agrees to defend Licensor in any claim, lawsuit or other proceeding that may
hereafter be made or filed which is based on, related to or connected with any
Modification, Improvement or Enhancement affected by Licensee pursuant to this
Section 2.3.
2.4 RIGHTS EXCLUDED. The License shall not include the rights to
manufacture, reproduce, publish, transfer, market, distribute, sublicense,
assign or sell the Technology in any transfer medium whatsoever except as
expressly provided in this Agreement.
2.5 TITLE. Licensee hereby acknowledges that Licensor retains
title to the Technology and shall have and retain title to any Modifications,
Improvements and Enhancements made to the Technology by any party and that
Licensee acquires only a License to specific rights as set forth in this
Agreement. Licensor shall grant to Licensee a license with respect to any
Modifications, Improvements or Enhancements developed by Licensor in accordance
with Section 2.2 of this Agreement.
Page 3 of 10
<PAGE> 4
3. TRADEMARKS, TRADENAMES AND COPYRIGHTS.
3.1 SOLE PROPERTY OF LICENSOR. In addition to Technology, all
trademarks, tradenames and copyrights granted or applied for in connection with
the Technology are, will and shall remain the sole property of Licensor. Any
direct or indirect use, publication or reference to Licensor's name, trademarks,
or tradenames, except as specified in this Agreement or as expressly authorized
by Licensor in writing, is prohibited.
3.2 USE OF LICENSOR'S TRADEMARKS, TRADENAMES AND COPYRIGHTS.
Licensee may use Licensor's trademarks, tradenames and copyright on products as
follows:
Crayon Crawler
Web Safe, Kid Approved
3.3 EFFECT OF TERMINATION OR EXPIRATION. Upon termination or
expiration of this Agreement, the right of Licensee to use Licensor's tradenames
and trademarks shall cease immediately.
4. WARRANTIES AND INDEMNIFICATION.
4.1 Licensor represents and warrants that it is the owner of the
entire right, title and interest in and to the trademarks above and the
Technology, and that it has the full right, power and capacity to enter into
this Agreement and to lawfully grant the exclusive rights granted to Licensee
hereby. Licensor further warrants that, except as otherwise provided in this
Agreement, it will not take any action, or fail to take any action during the
term of this Agreement, that would negate this Agreement or cause a loss to
Licensee of the License granted hereunder.
Page 4 of 10
<PAGE> 5
4.2 Licensor represents and warrants that it is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado; has the power and authority to enter into this Agreement; all
corporate and other action required to be taken on behalf of Licensor to
authorize the execution and delivery of this Agreement, and to carry out the
transactions contemplated herein, have been duly and properly taken.
4.3 Licensee shall defend at its own cost any infringement suit
that may be brought against Licensee or Licensor on account of the development,
manufacture, production, use, or sale of the Technology or of any Product sold
by Licensee, and shall indemnify and save Licensor harmless against any such
patent or similar infringement suits, and any claims, losses, damages,
liabilities or expenses, including reasonable attorneys' fees and costs, which
may be incurred by Licensor therein or in settlement thereof. Any and all
settlements must be approved by Licensor before execution by Licensee.
4.4 LICENSOR DOES NOT WARRANT THE ADEQUACY OF THE TECHNOLOGY AND
DOES NOT WARRANT, EXPRESSLY OR IMPLIEDLY, THE MERCHANTABILITY, SUITABILITY OR
FITNESS THEREOF FOR ANY PURPOSE WHATSOEVER. EXCEPT AS OTHERWISE SET FORTH IN
THIS SECTION 4, LICENSOR DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE,
EXPRESS OR IMPLIED.
5. DOCUMENTATION AND CONFIDENTIAL INFORMATION.
5.1 PROTECTION OF CONFIDENTIAL PROPRIETARY INFORMATION. Licensee
shall protect all documents, information and data supplied by Licensor and
designated as confidential and proprietary to Licensor. Each party shall
promptly report to the other
Page 5 of 10
<PAGE> 6
any unauthorized disclosures or misuse of such information and data of which
such party becomes aware or has reasonable cause to believe has occurred.
Licensee agrees to immediately notify Licensor of any Modification, Improvement
or Enhancement to the Licensed Software developed by Licensee and to provide
details thereof to Licensor.
5.2 CONFIDENTIALITY AGREEMENTS. Concurrent with the execution of
this Agreement, Licensee agrees to execute Licensor's standard form
Confidentiality Agreement of which is attached hereto as Exhibit "A". Licensee
also agrees to require its employees and representatives with access to the
Technology and other documents or materials designated by Licensor as
confidential and proprietary to execute the standard form Confidentiality
Agreement and to execute any other instruments or documents Licensor deems
necessary or advisable in order to protect its trade secrets and any other
confidential and proprietary information.
5.3 EFFECT OF TERMINATION OR EXPIRATION. Upon termination or
expiration of this Agreement, Licensee shall cease all use of and, at its own
expense, immediately return to Licensor, at Licensor's principal offices or such
other location as Licensor may designate, all copies of any diskettes, source
codes, tapes, recordings, manuals, books, or other electronic or written
materials relating to the Technology or any tradenames, trademarks or logo types
relating to Licensor regardless whether prepared by Licensor or Licensee,
including all copies of materials containing information or data supplied by
Licensor and designated by Licensor as confidential and proprietary.
6. TERM AND TERMINATION.
6.1 SINGLE TERM. This Agreement shall be for a single term
commencing on the date hereof and expiring three (3) years from the date hereof,
Page 6 of 10
<PAGE> 7
unless sooner terminated as provided for herein. Licensor and Licensee shall
have no obligation, nor has either made any promise, whether express or implied,
to renew or extend this Agreement beyond the term thereof. Licensor and Licensee
shall each have the absolute right, in their sole discretion, to determine
whether to renew or extend this Agreement, regardless of whether and to what
degree the other party has performed its obligations hereunder.
6.2 TERMINATION. Either party may terminate this Agreement
effective immediately on delivery of written notice of the same to the other
party for any of the following:
6.2.1 Mutual agreement of the parties hereto;
6.2.2 Commission of a material breach of the Agreement; or
6.2.3 The filing or submission of any petition in
bankruptcy by or against a party to this Agreement or any of its subsidiaries
dealing in the Technology, or upon occurrence of any other act of insolvency by
a party to this Agreement or such subsidiaries; provided, in the event that a
party declines to exercise its termination rights upon the bankruptcy or
insolvency of the other, this Agreement shall remain in full force and effect
and binding upon the bankruptcy or insolvent party.
6.3 CONTINUING OBLIGATIONS OF LICENSEE. Notwithstanding
termination of this Agreement, whether by expiration of its term or otherwise,
Licensee shall remain obligated to do the following:
6.3.1 To indemnify and defend Licensor as provided in this
Agreement; and
6.3.2 To maintain the confidentiality of any and all of
Licensor's data or information designated as confidential and proprietary.
Page 7 of 10
<PAGE> 8
6.4 NO CONTINUATION OF LICENSOR'S OBLIGATIONS. Upon termination
of this Agreement and without prejudice to any claims which Licensee may have
against Licensor immediately prior to such termination or arising therefrom,
Licensor's obligations under the Agreement shall cease immediately.
7. MISCELLANEOUS PROVISIONS.
7.1 ASSIGNMENTS. Neither this Agreement nor any rights or
obligations of Licensee hereunder shall be assignable by Licensee in whole or in
part, by operation of law or otherwise, without the prior written consent of
Licensor, which may be granted or withheld in Licensor's sole discretion.
Subject to the foregoing, this Agreement shall be binding upon and shall inure
to the benefit of the successors and assigns of the respective parties hereto.
7.2 HEADINGS. The headings of the articles, paragraphs and
clauses used in this Agreement are included for convenience only and are not to
be used in interpreting or construing this Agreement.
7.3 GOVERNING LAW. This Agreement and all disputes concerning its
execution, formation, interpretation, performance, breach, termination,
validity, or enforceability shall be governed by the laws of the State of
California as applicable to contracts made between residents of California,
regardless of the laws which may otherwise be applicable under principles of
conflicts of laws.
7.4 WAIVER. No claim or right arising out of a breach of this
Agreement can be discharged in whole or in part by a waiver of the claim or
right unless it is in writing and signed by the aggrieved party.
7.5 NOTICES. All notices and other communications required herein
shall be in writing and shall be either delivered personally or be dispatched by
facsimile
Page 8 of 10
<PAGE> 9
or sent by certified mail, postage prepaid, return receipt requested. Items
delivered personally shall be deemed delivered one day after dispatch; items
sent by certified or registered mail shall be deemed delivered three (3) days
after mailing. The addresses of the parties for purposes of this provision are:
LICENSOR: Attention: Chief Executive Officer
1st Net Technologies, Inc.
11423 W. Bernardo Court
San Diego, California 92127
WITH A
COPY TO: R. Blair Krueger
The Krueger Group, LLP
11423 W. Bernardo Court
San Diego, California 92127
LICENSEE: Lawrence K. Kimball
Tummy Buster, Inc.
11423 W. Bernardo Court
San Diego, California 92127
Either party may change its address by giving notice thereof as required herein.
7.8 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto, and shall supersede the terms and
conditions of any and all prior agreements, understanding, promises,
representations and writings made by either party to the other concerning the
subject matter and the terms and conditions hereof. No subsequent modification,
amendment, or extension of this Agreement or any of the terms and conditions
hereof shall be of any force or effect unless it is in writing and signed by a
duly authorized officer or representative of each of the parties.
7.9 SEVERABILITY. The unenforceability, invalidity or illegality
of any provisions of this Agreement shall not render the other provisions
unenforceable, invalid or illegal.
Page 9 of 10
<PAGE> 10
7.10 COUNTERPARTS. This Agreement may be executed in counterparts
with the same force and effect as if all signatures appeared on the same
document.
IN WITNESS WHEREOF, each of the parties have caused this Agreement to be
executed by its duly authorized officer as of the day and year first written
above.
1ST NET TECHNOLOGIES, INC.
a Colorado corporation
/s/ GREGORY D. WRITER, JR.
-----------------------------------
Gregory D. Writer, Jr.,
Chief Executive Officer
/s/ CLIFFORD J. SMITH
-----------------------------------
Clifford J. Smith
President
TUMMY BUSTERS, INC.,
a Nevada corporation
/s/ LAWRENCE K. KIMBALL
-----------------------------------
Lawrence K. Kimball,
Chief Financial Officer
/s/ SHARON E. RAMIA
-----------------------------------
Sharon E. Ramia
Secretary
Page 10 of 10
<PAGE> 11
EXHIBIT "A"
CONFIDENTIALITY AGREEMENT
<PAGE> 12
CONFIDENTIALITY AGREEMENT
THIS CONFIDENTIALITY AGREEMENT (this "Agreement") is entered into as of
the 19th day of April, 1999, by and between 1ST NET TECHNOLOGIES, INC., a
Colorado corporation ("1st NET") and TUMMY BUSTER, INC., a Nevada corporation
("Tummy Buster").
RECITALS
A. PURPOSE. In the course of the relationship between 1`st NET and TUMMY
BUSTER arising out of that certain Technology License Agreement entered into by
the parties on April 19, 1999, it is essential for the parties to have a
completely open exchange of information which requires that the parties execute
this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. COVENANT. The parties to this Agreement shall treat any information
(irrespective of its source or form of communication) that may be furnished by
or on behalf of the parties, whether furnished before, on or after the date of
this Agreement, confidentially and in strict accordance with the provisions
hereof.
2. CONFIDENTIAL MATERIAL. The term Confidential Material shall include
any notes, analyses, compilations, studies or other documents or records
prepared by the parties or others, which is generated from information supplied
by the the parties or its representatives. The term Confidential Material shall
not include information which either party can prove by documentary evidence:
(i) becomes generally available to the public other than as a result of a
disclosure in violation of this Agreement; (ii) was available to either party,
as the case may be, on a non-confidential basis from a source other than the
parties (provided such information is not subject to another confidentiality
agreement or other obligation of secrecy to TUMMY BUSTER, 1st NET or another
party); or (iii) becomes available to either party on a non-confidential basis
from sources other than the parties, provided that such source is not prohibited
from transmitting the information to the parties by a contractual, legal or
fiduciary obligation.
<PAGE> 13
3. WRITTEN CONSENT. Without the prior written consent of 1st NET, TUMMY
BUSTER will not disclose and will direct its representatives not to disclose, to
any person other than its representatives, the fact that the Confidential
Material has been made available to TUMMY BUSTER. The term "person" as used in
this Agreement shall be broadly interpreted to include, without limitation, any
corporation, company, partnership or individual.
4. COMPELLED DISCLOSURE.If TUMMY BUSTER or any of its representatives
are requested or required (orally or in writing, by interrogatory, subpoena,
civil investigatory demand or any similar process relating to any legal
proceeding, investigation, hearing or otherwise) to disclose any Confidential
Material, you will provide 1st NET with prompt notice in advance of such
disclosure so that 1st NET may seek a protective order or other appropriate
remedy and/or waive compliance with this Agreement and TUMMY BUSTER agrees to
cooperate in pursuing any such course of action. In the event that such
protective order or other remedy is not obtained, TUMMY BUSTER will furnish only
such information as TUMMY BUSTER is advised to be legally required and will
exercise its best efforts to obtain assurance that confidential treatment will
be accorded to any information which is compelled to be disclosed.
5. SECURITIES CONCERNS. TUMMY BUSTER acknowledges that it is aware, and
agrees that it will advise its representatives who are informed as to the
matters which are the subject of this Agreement, that the United States
securities laws prohibit any person who has received from any issuer-related
material, non-public information from purchasing or selling securities of the
issuer or from communication of such information to any other person under
circumstances in which it is reasonably foreseeable that person is likely to
purchase or sell such securities while in possession of material non-public
information.
6. LIQUIDATED DAMAGES. TUMMY BUSTER acknowledges and agrees that 1st NET
would not have an adequate remedy at law and would be irreparably harmed in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the 1st NET shall be entitled to injunctive relief to
prevent breaches of this Agreement and to specifically enforce its terms and
provisions hereof, in addition to any other remedy at law or in equity.
7. NO WAIVER. No failure to or delay in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, and no single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise of any right, power or privilege. The losing party agrees to
pay all costs and expenses, including reasonable counsel fees, incurred by the
prevailing party in case any such action for breach of this Agreement is brought
by them.
<PAGE> 14
8. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed within such State without reference to principles of
conflicts of law.
9. JURISDICTION.TUMMY BUSTER consents to personal jurisdiction and
venue in any action brought in connection with any matter arising under this
Agreement.
10. TERM. This Agreement shall remain in effect for a period of three
years from the date hereof and may be modified or waived only by a separate
writing by 1st NET that expressly so modifies or waives this Agreement.
The individual or individuals executing this Agreement are duly
authorized and empowered to fully bind the parties to the terms and conditions
of this Agreement.
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
/s/ GREGORY D. WRITER, JR.
- ------------------------------------
Gregory D. Writer, Jr.
Chief Executive Officer
TUMMY BUSTER, INC., a
Nevada corporation
/s/ LAWRENCE K. KIMBALL
- -------------------------------------
Lawrence K. Kimball
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.9
TECHNOLOGY LICENSE AGREEMENT
THIS TECHNOLOGY LICENSE AGREEMENT (this "Agreement") is entered into as
of the 1st day of May, 1999, by and between 1ST NET TECHNOLOGIES, INC., a
Colorado corporation (referred to as "1st NET" or the "Licensor"), and THE
CHILDREN'S TECHNOLOGY GROUP, INC., a Nevada corporation (referred to as "CTG" or
the "Licensee").
RECITALS
A. Licensor is the developer and owner of certain rights, in and to
the "MindWalker" web browsers and community software programs ("MindWalker").
B. Licensee desires to acquire a non-exclusive license to use and
distribute the MindWalker web browser and an exclusive license to develop and
distribute a web browser for the teenage market based on "MindWalker"
technology. Licensor is willing to grant such license, all on the terms and
conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals and the mutual
covenants and conditions contained herein, the parties agree as follows:
Page 1 of 14
<PAGE> 2
1. DEFINITIONS. Unless a contrary interpretation is required by the
specific context, the following terms shall have the following definitions,
whether used in the singular, plural, possessive or other such form:
1.1 "PRODUCT" shall mean the product of Licensee which, in
the absence of this Agreement, would infringe Licensor's rights in the
trademarks and/or the Technology.
1.2 "TECHNOLOGY" shall mean any and all confidential
information, inventions, know-how, data, trade secrets, whether or not
patentable, including any trademarks, tradenames, copyrights and other
intellectual property rights based on the Products and/or related to the
MindWalker web browser.
1.3 "MODIFICATIONS, IMPROVEMENTS AND ENHANCEMENTS" shall
mean any technology in addition to or substitution for existing technology and
which requires the use of existing technology to operate.
2. GRANT OF NON-EXCLUSIVE AND EXCLUSIVE LICENSES.
2.1 LICENSE. Licensor hereby grants to Licensee, and
Licensee hereby accepts from Licensor, upon the terms and conditions contained
in this Agreement, a worldwide non-exclusive license to use, market and sell the
MindWalker web browser, and exclusive rights to develop a MindWalker web browser
for the teenage market.
2.2 MODIFICATIONS, IMPROVEMENTS AND ENHANCEMENTS BY
LICENSOR. The License shall extend to any Modifications, Improvements or
Enhancements in the Technology hereafter developed by Licensor. Licensor will
supply all such Modifications, Improvements and Enhancements to Licensee as soon
as practicable following their development; however, Licensor shall have no
obligation to make any Modifications, Improvements and Enhancements. Licensor
shall notify Licensee of the date upon which each Modification, Improvement or
Enhancement shall be deemed to be a part of the License under this Agreement.
2.3 MODIFICATIONS, IMPROVEMENTS AND ENHANCEMENTS BY
LICENSEE. Licensee shall have the right to modify, improve and enhance the
Technology from time to time. Licensee shall, within thirty (30) days, forward
to Licensor a description of any such Modification, Improvement or Enhancement.
Upon termination of this Agreement,
Page 2 of 14
<PAGE> 3
Licensee shall not have any ownership with respect to rights to any such
Modification, Improvement or Enhancement. Licensee agrees to defend Licensor in
any claim, lawsuit or other proceeding that may hereafter be made or filed which
is based on, related to or connected with any Modification, Improvement or
Enhancement affected by Licensee pursuant to this Section 2.3.
2.4 RIGHTS EXCLUDED. The License shall not include the
rights to manufacture, reproduce, publish, transfer, market, distribute,
sublicense, assign or sell the Technology in any transfer medium whatsoever
except as expressly provided in this Agreement.
2.5 TITLE. Licensee hereby acknowledges that Licensor
retains title to the Technology and shall have and retain title to any
Modifications, Improvements and Enhancements made to the Technology by any party
and that Licensee acquires only a License to specific rights as set forth in
this Agreement. Licensor shall grant to Licensee a license with respect to any
Modifications, Improvements or Enhancements developed by Licensor in accordance
with Section 2.2 of this Agreement.
3. TRADEMARKS, TRADENAMES AND COPYRIGHTS.
3.1 SOLE PROPERTY OF LICENSOR. In addition to Technology,
all trademarks, tradenames and copyrights granted or applied for in connection
with the Technology are, will and shall remain the sole property of Licensor.
Any direct or indirect use, publication or reference to Licensor's name,
trademarks, or tradenames, except as specified in this Agreement or as expressly
authorized by Licensor in writing, is prohibited.
Page 3 of 14
<PAGE> 4
3.2 USE OF LICENSOR'S TRADEMARKS, TRADENAMES AND COPYRIGHTS.
Licensee may use Licensor's trademarks, tradenames and copyright on products as
follows:
MindWalker
3.3 EFFECT OF TERMINATION OR EXPIRATION. Upon termination or
expiration of this Agreement, the right of Licensee to use Licensor's tradenames
and trademarks shall cease immediately.
4. WARRANTIES AND INDEMNIFICATION.
4.1 Licensor represents and warrants that it is the owner of
the entire right, title and interest in and to the trademarks above and the
Technology, and that it has the full right, power and capacity to enter into
this Agreement and to lawfully grant the exclusive rights granted to Licensee
hereby. Licensor further warrants that, except as otherwise provided in this
Agreement, it will not take any action, or fail to take any action during the
term of this Agreement, that would negate this Agreement or cause a loss to
Licensee of the License granted hereunder.
4.2 Licensor represents and warrants that it is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado; has the power and authority to enter into this
Agreement; all corporate and other action required to be taken on behalf of
Licensor to authorize the execution and delivery of this Agreement, and to carry
out the transactions contemplated herein, have been duly and properly taken.
4.3 Licensee shall defend at its own cost any infringement
suit that may be brought against Licensee or Licensor on account of the
development, manufacture,
Page 4 of 14
<PAGE> 5
production, use, or sale of the Technology or of any Product sold by Licensee,
and shall indemnify and save Licensor harmless against any such patent or
similar infringement suits, and any claims, losses, damages, liabilities or
expenses, including reasonable attorneys' fees and costs, which may be incurred
by Licensor therein or in settlement thereof. Any and all settlements must be
approved by Licensor before execution by Licensee.
4.4 LICENSOR DOES NOT WARRANT THE ADEQUACY OF THE TECHNOLOGY
AND DOES NOT WARRANT, EXPRESSLY OR IMPLIEDLY, THE MERCHANTABILITY, SUITABILITY
OR FITNESS THEREOF FOR ANY PURPOSE WHATSOEVER. EXCEPT AS OTHERWISE SET FORTH IN
THIS SECTION 4, LICENSOR DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE,
EXPRESS OR IMPLIED.
5. DOCUMENTATION AND CONFIDENTIAL INFORMATION.
5.1 PROTECTION OF CONFIDENTIAL PROPRIETARY INFORMATION.
Licensee shall protect all documents, information and data supplied by Licensor
and designated as confidential and proprietary to Licensor. Each party shall
promptly report to the other any unauthorized disclosures or misuse of such
information and data of which such party becomes aware or has reasonable cause
to believe has occurred. Licensee agrees to immediately notify Licensor of any
Modification, Improvement or Enhancement to the Licensed Software developed by
Licensee and to provide details thereof to Licensor.
5.2 CONFIDENTIALITY AGREEMENTS. Concurrent with the
execution of this Agreement, Licensee agrees to execute Licensor's standard form
Confidentiality Agreement of which is attached hereto as Exhibit "A". Licensee
also agrees to require
Page 5 of 14
<PAGE> 6
its employees and representatives with access to the Technology and other
documents or materials designated by Licensor as confidential and proprietary to
execute the standard form Confidentiality Agreement and to execute any other
instruments or documents Licensor deems necessary or advisable in order to
protect its trade secrets and any other confidential and proprietary
information.
5.3 EFFECT OF TERMINATION OR EXPIRATION. Upon termination or
expiration of this Agreement, Licensee shall cease all use of and, at its own
expense, immediately return to Licensor, at Licensor's principal offices or such
other location as Licensor may designate, all copies of any diskettes, source
codes, tapes, recordings, manuals, books, or other electronic or written
materials relating to the Technology or any tradenames, trademarks or logo types
relating to Licensor regardless whether prepared by Licensor or Licensee,
including all copies of materials containing information or data supplied by
Licensor and designated by Licensor as confidential and proprietary.
6. TERM AND TERMINATION.
6.1 SINGLE TERM. This Agreement shall be for a single term
commencing on the date hereof and expiring three (3) years from the date hereof,
unless sooner terminated as provided for herein. Licensor and Licensee shall
have no obligation, nor has either made any promise, whether express or implied,
to renew or extend this Agreement beyond the term thereof. Licensor and Licensee
shall each have the absolute right, in their sole discretion, to determine
whether to renew or extend this Agreement, regardless of whether and to what
degree the other party has performed its obligations hereunder.
Page 6 of 14
<PAGE> 7
6.2 TERMINATION. Either party may terminate this Agreement
effective immediately on delivery of written notice of the same to the other
party for any of the following:
6.2.1 Mutual agreement of the parties hereto;
6.2.2 Commission of a material breach of the
Agreement; or
6.2.3 The filing or submission of any petition in
bankruptcy by or against a party to this Agreement or any of its subsidiaries
dealing in the Technology, or upon occurrence of any other act of insolvency by
a party to this Agreement or such subsidiaries; provided, in the event that a
party declines to exercise its termination rights upon the bankruptcy or
insolvency of the other, this Agreement shall remain in full force and effect
and binding upon the bankruptcy or insolvent party.
6.3 CONTINUING OBLIGATIONS OF LICENSEE. Notwithstanding
termination of this Agreement, whether by expiration of its term or otherwise,
Licensee shall remain obligated to do the following:
6.3.1 To indemnify and defend Licensor as provided in
this Agreement; and
6.3.2 To maintain the confidentiality of any and all
of Licensor's data or information designated as confidential and proprietary.
6.4 NO CONTINUATION OF LICENSOR'S OBLIGATIONS. Upon
termination of this Agreement and without prejudice to any claims which Licensee
may have against Licensor immediately prior to such termination or arising
therefrom, Licensor's obligations under the Agreement shall cease immediately.
Page 7 of 14
<PAGE> 8
7. MISCELLANEOUS PROVISIONS.
7.1 ASSIGNMENTS. Neither this Agreement nor any rights or
obligations of Licensee hereunder shall be assignable by Licensee in whole or in
part, by operation of law or otherwise, without the prior written consent of
Licensor, which may be granted or withheld in Licensor's sole discretion.
Subject to the foregoing, this Agreement shall be binding upon and shall inure
to the benefit of the successors and assigns of the respective parties hereto.
7.2 HEADINGS. The headings of the articles, paragraphs and
clauses used in this Agreement are included for convenience only and are not to
be used in interpreting or construing this Agreement.
7.3 GOVERNING LAW. This Agreement and all disputes
concerning its execution, formation, interpretation, performance, breach,
termination, validity, or enforceability shall be governed by the laws of the
State of California as applicable to contracts made between residents of
California, regardless of the laws which may otherwise be applicable under
principles of conflicts of laws.
7.4 WAIVER. No claim or right arising out of a breach of
this Agreement can be discharged in whole or in part by a waiver of the claim or
right unless it is in writing and signed by the aggrieved party.
7.5 NOTICES. All notices and other communications required
herein shall be in writing and shall be either delivered personally or be
dispatched by facsimile or sent by certified mail, postage prepaid, return
receipt requested. Items delivered personally shall be deemed delivered one day
after dispatch; items sent by certified or registered mail shall be deemed
delivered three (3) days after mailing. The addresses of the parties for
purposes of this provision are:
Page 8 of 14
<PAGE> 9
LICENSOR: Attention: Chief Executive Officer
1st Net Technologies, Inc.
11423 W. Bernardo Court
San Diego, California 92127
WITH A COPY TO:
R. Blair Krueger
The Krueger Group, LLP
11423 W. Bernardo Court
San Diego, California 92127
LICENSEE: The Children's Technology Group, Inc.
11423 W. Bernardo Court
San Diego, California 92127
Either party may change its address by giving notice thereof as required herein.
7.8 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto, and shall supersede the terms and
conditions of any and all prior agreements, understanding, promises,
representations and writings made by either party to the other concerning the
subject matter and the terms and conditions hereof. No subsequent modification,
amendment, or extension of this Agreement or any of the terms and conditions
hereof shall be of any force or effect unless it is in writing and signed by a
duly authorized officer or representative of each of the parties.
7.9 SEVERABILITY. The unenforceability, invalidity or
illegality of any provisions of this Agreement shall not render the other
provisions unenforceable, invalid or illegal.
7.10 COUNTERPARTS. This Agreement may be executed in
counterparts with the same force and effect as if all signatures appeared on the
same document.
[SIGNATURES ON NEXT PAGE]
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<PAGE> 10
IN WITNESS WHEREOF, each of the parties have caused this Agreement to be
executed by its duly authorized officer as of the day and year first written
above.
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
/s/ Gregory D. Writer, Jr.
----------------------------------------
Gregory D. Writer, Jr.,
Chief Executive Officer
THE CHILDREN'S TECHNOLOGY GROUP, INC.,
a Nevada corporation
/s/ Lawrence K. Kimball
----------------------------------------
Lawrence K. Kimball,
Chief Financial Officer
Page 10 of 14
<PAGE> 11
EXHIBIT "A"
CONFIDENTIALITY AGREEMENT
<PAGE> 12
WARRANT AGREEMENT
BY AND AMONG
1ST NET TECHNOLOGIES, INC.
AND
TUMMY BUSTERS, INC.,
d.b.a.
CHILDREN'S TECHNOLOGY GROUP
Dated as of April 19, 1999
<PAGE> 13
TUMMY BUSTERS, INC.
WARRANT AGREEMENT
WARRANT TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER APRIL 19, 2002
This certifies that 1st Net Technologies, Inc. ("1st Net"), or any party
to whom this Warrant is assigned (1st Net and such assignee hereinafter
collectively "Holder"), is entitled to subscribe for and purchase 4,000,000
shares (as constituted on the date of issuance hereof) of the fully paid and
nonassessable Common Stock, no par value (the "Common Stock"), of Tummy Busters,
Inc., a Nevada corporation doing business as "Children's Technology Group" (the
"Corporation"), subject to the provisions and upon the terms and conditions
hereinafter set forth. The purchase price of each such share shall be $0.10 per
share, as adjusted herein (the "Warrant Price"). The number and character of
such shares of Common Stock are subject to downward adjustment as provided
below, and the term "Common Stock" shall mean, unless the context otherwise
requires, the stock and other securities and property at the time receivable
upon the exercise of this Warrant. The term "Warrant" as used herein shall
include this Warrant and any warrant(s) delivered in substitution or exchange
therefor as provided herein.
1. CONSIDERATION; APPOINTMENT OF NEW MANAGEMENT. As consideration
for the issuance of this Warrant, the parties shall have entered into that
certain Technology License Agreement of even date herewith a true and correct
copy of which is attached hereto as Exhibit "A" (by which 1st Net grants the
Corporation an exclusive license and marketing rights to the "Crayon Crawler"
web browser and community software program), and the Corporation shall have paid
1st Net pursuant thereto cash consideration in the amount of $400,000. As
further consideration, concurrently with the execution and delivery hereof the
Corporation (i) shall have entered into that certain additional Technology
License Agreement with 1st Net a true and correct copy of which is attached
hereto as Exhibit "B" (by which the Corporation grants an exclusive license to
1st Net for r-site.com) and (ii) shall hereby remove the existing officers and
directors of the Corporation and appoint (a) Messrs. Gregory D. Writer, Jr.,
Lawrence K. Kimball and James H. Watson, Jr., and Ms. Martha Kreutz, as members
of the Board of Directors, and (b) Mr. Gregory D. Writer as Chairman, Chief
Executive Officer, and President, Mr. Jeffrey Chatfield as Vice President,
Investor Relations, Mr. Lawrence K. Kimball as Chief Financial Officer and
Treasurer, and Ms. Sharon Ramia as Secretary, of the Corporation.
2. METHOD OF EXERCISE; PAYMENT. The purchase right represented by
this Warrant may be exercised by Holder, in whole or in part, by the surrender
of this
2
<PAGE> 14
Warrant (with the subscription form attached hereto duly executed) at the
original office of the Corporation located at 11423 West Bernardo Court, San
Diego, California 92127 and by the payment to the Corporation, by certified or
cashier's check, of an amount equal to the aggregate Warrant Price of the shares
of Common Stock being purchased. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within thirty (30) days of the surrender
of this Warrant (with the subscription form attached hereto duly executed) and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the aggregate purchase price of shares with respect to which this
Warrant shall not then have been exercised shall also be issued to Holder within
such time. A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock issuable
upon such exercise shall be treated for all purposes as the holder of such
shares of record as of the close of business on such date.
3. STOCK FULLY PAID; RESERVATION OF SHARES. The Corporation
covenants and agrees that all securities which may be issued by the Corporation
upon the exercise of the rights represented by this Warrant in accordance with
its terms will, upon issuance, be fully paid and nonassessable and free from all
taxes, liens and charges of the Corporation with respect to the issue thereof.
The Corporation further covenants and agrees that, during the period within
which the rights represented by this Warrant may be exercised, the Corporation
will at all times have authorized and reserved for issuance a sufficient number
of shares of its Common Stock or other securities as would be required in the
event of the full exercise of the rights represented by this Warrant. The
Corporation will not, by amendment of its Articles of Incorporation or through
reorganization, consolidation, merger, dissolution, issue or sale of securities,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against dilution or other impairment.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The applicable
Warrant price from time to time in effect and the number of shares of Common
Stock receivable upon exercise of this Warrant shall be subject to downward
adjustment from time to time after the date hereof as follows:
4.1 ADJUSTMENT TO WARRANT PRICE FOR CERTAIN DILUTING ISSUES.
4.1.1. SPECIAL DEFINITIONS. For purposes of this
Article 4, the following definitions shall
apply:
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<PAGE> 15
(1) `ADDITIONAL SHARES OF COMMON STOCK' shall mean
all shares of Common Stock issued (or, pursuant
to Section 4.1.3, deemed to be issued) by the
Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(A) to officers, directors or bona fide
employees of, or consultants to, the
Corporation pursuant to stock option or
stock purchase plans or agreements on
terms approved by the Board of
Directors;
(B) upon exercise of this Warrant; or
(C) for which adjustment of the Warrant
Price is made pursuant to Section 4.2.
(2) `BUSINESS DAY' means any day other than a
Saturday, Sunday, or a day on which banking
institutions in the State of New York are
authorized or obligated to be closed by law or
by executive order.
(3) `COMMON STOCK MARKET PRICE' of one share of
Common Stock at any date shall be deemed to be,
if the shares of the Corporation are
publicly-traded, the average of the daily
closing prices for the five (5) consecutive
Business Days ending two (2) Business Days
before the day in question (as adjusted for any
stock dividend, split, combination or
reclassification). The closing price for each
day shall be the last reported sales price or,
in case no such reported sales take place on
such day, the last reported bid price, in either
case on the principal national securities
exchange on which the Common Stock is listed or
admitted to trading or the last reported sales
price on the National Market System ("NMS") of
the National Association of Securities Dealers
Automatic Quotation System ("NASDAQ"), or if the
Common Stock is not included in the NMS, the
average of the reported last closing bid and
asked prices on NASDAQ, or if not listed or
admitted to trading on any national securities
exchange or NASDAQ, the average reported bid
price as furnished by The National Quotation
Bureau, Incorporated (or the equivalent
recognized source of quotations), all as
adjusted. If the Shares of the Corporation are
not publicly-traded, the Common Stock Market
Price shall be deemed $0.10 per share. The sale
of Common Stock in a bona fide underwritten
public offering shall be deemed a sale of Common
Stock at the Common Stock Market price,
notwithstanding the immediately preceding
sentence.
4
<PAGE> 16
(4) `CONVERTIBLE SECURITIES' shall mean any
evidences of indebtedness, shares (other than
Common Stock or this Warrant) or other
securities convertible into or exchangeable for
Common Stock.
(5) `OPTIONS' shall mean rights, options, or
warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible
Securities.
(6) `ORIGINAL ISSUE DATE' shall mean April 19, 1999,
the date on which this Warrant was first issued.
4.1.2 NO DOWNWARD ADJUSTMENT OF WARRANT PRICE. No
decrease in the Warrant Price shall be made in
respect of the issuance of Additional Shares of
Common Stock unless the consideration per share
for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is
less than the lower of the Warrant Price or the
Common Stock Market Price in effect on the date
of, and immediately prior to, such issue. No
increase in the Warrant Price shall be made in
respect of the issuance of Additional Shares of
Common Stock.
4.1.3. DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK. In the event the Corporation at any time
or from time to time after the Original Issue
Date shall issue any Options or Convertible
Securities or shall fix a record date for the
determination of holders of any class of
securities then entitled to receive any such
Options or Convertible Securities, then the
maximum number of shares (as set forth in the
instrument relating thereto without regard to
any provisions contained therein designed to
protect against dilution) of Common Stock
issuable upon the exercise of such Options or,
in the case of Convertible Securities and
Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to
be Additional Shares of Common Stock issued as
of the time of such issue or, in case such a
record date shall have been fixed, as of the
close of business on such record date, provided
that Additional Shares of Common Stock shall not
be deemed to have been issued unless the
consideration per share (determined pursuant to
Section 4.1.5 hereof) of such Additional Shares
of Common Stock would be less than the lower of
the Warrant Price or the Common Stock Market
Price in effect on the date of and immediately
prior to such issue, or such record date, as the
case may be, and provided further that in any
case in which Additional Shares of Common Stock
are deemed to be issued:
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<PAGE> 17
(1) no further adjustments in the Warrant Price
shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion
or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or
otherwise, for any increase in the consideration
payable to the Corporation, or decrease in the
number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof,
the Warrant Price computed upon the original
issue thereof (or upon the occurrence of a
record date with respect thereto), and any
subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming
effective, be recomputed to reflect such
increase or decrease insofar as it affects such
Options or the rights of conversion or exchange
under such Convertible Securities (provided,
however, that no such adjustment of the Warrant
Price shall affect Common Stock previously
issued upon exercise of the Warrant); and
(3) no readjustment pursuant to clause (2) above
shall have the effect of increasing the Warrant
Price.
4.1.4 DOWNWARD ADJUSTMENT OF WARRANT PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
In the event the Corporation, at any time after
the Original Issue Date shall issue Additional
Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued
pursuant to Section 4.1.3) without consideration
or for a consideration per share less than the
lower of the Warrant Price or the Common Stock
Market price in effect on the date of and
immediately prior to such issue, then and in
such event, the Warrant Price shall be reduced,
concurrently with such issue, to a price
(calculated to the nearest cent) equal to the
quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common
Stock outstanding immediately prior to
such issuance, multiplied by the lower
of the Warrant Price or the Common Stock
Market price in effect on the date of
and immediately prior to such issue,
plus
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<PAGE> 18
(y) the consideration received by the
Corporation upon such issuance;
by
(B) the total number of shares of Common
Stock outstanding immediately after the
issuance of such Common Stock, and
(C) in the event the Common Stock Market
Price in effect on the date of and
immediately prior to such issue is lower
than the Warrant Price in effect on the
date of and immediately prior to such
issue, then by multiplying the resulting
quotient by a fraction, the numerator of
which shall be the Warrant Price in
effect on the date of and immediately
prior to such issue and the denominator
of which shall be the Common Stock
Market Price in effect on the date of
and immediately prior to such issue.
The Warrant Price adjusted as provided above may be similarly readjusted
upward (but not above the initial Warrant Price to reflect the issuance of
shares of Common Stock for a consideration per share greater than the lower of
the Warrant Price or the Common Stock Market Price in effect on the date of and
immediately prior to such issue.
In the event of any adjustment of the Warrant Price as provided in this
Section 4.1.4, then and in each such case Holder, upon the exercise hereof,
shall be entitled to receive, in lieu of the shares of Common Stock theretofore
receivable upon the exercise of this Warrant, a number of shares of Common Stock
determined by (a) dividing the Warrant Price prior to the adjustment by the
adjusted Warrant Price, and (b) multiplying the resultant quotient by the total
number of shares of Common Stock called for by the face of this Warrant.
4.1.5 DETERMINATION OF CONSIDERATION. For purposes of this
Section 4.1, the consideration received by the
Corporation for the issue of any Additional Shares of
Common Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the
Corporation excluding amounts paid or payable
for accrued interest or accrued dividends;
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<PAGE> 19
(B) insofar as it consists of property other
than cash, be computed at the fair market value
thereof at the time of such issue, as determined
in good faith by the Board; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or
securities or other assets of the Corporation
for consideration which covers both, be the
proportion of such consideration so received,
computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the
Corporation for Additional Shares of Common
Stock deemed to have been issued pursuant to
Section 4.1.3, relating to Options and
Convertible Securities, shall be determined by
dividing:
4.2 ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If
the Common Stock issuable upon exercise of this Warrant shall be changed into
the same or a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in Section 4.2), the Warrant
Price then in effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that this
Warrant shall be exercisable into, in lieu of the number of shares of Common
Stock which the holders would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon exercise of this Warrant immediately before that change.
4.4 CERTIFICATES AS TO ADJUSTMENT. Upon the occurrence of
each adjustment or readjustment of the Warrant Price pursuant to this Article 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause independent public
accountants selected by the Corporation to verify such computation and prepare
and furnish to Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of Holder, furnish or cause to be furnished to such Holder, a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Warrant Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the exercise of the Warrant.
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<PAGE> 20
4.5 NOTICES OF RECORD DATE. In the event that the
Corporation shall propose at any time: (i) to declare any dividend or
distribution upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not out of
earnings or earned surplus; (ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of stock of
any class or series or other rights; (iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; (iv) to merge or consolidate with or into any other corporation,
or sell, lease or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (v) to enter into any transaction or series
of transactions within any three month period pursuant to an agreement to which
the Corporation is a party in which greater than fifty percent (50%) of the
Corporation's voting securities (on as-converted-to-Common Stock basis) shall be
transferred;
Then, in connection with each such event, the Corporation shall send to the
Holder: (1) at least twenty (20) days' prior written notice of the date on which
a record shall be taken for such dividend, distribution or subscription rights
(and specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (iii), (iv) and (v) above; and (2) in the case of the matters
referred to in (iii), (iv) and (v) above, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon the occurrence of
such event).
5. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder, but in lieu of a
fractional share upon complete exercise hereof, Holder may purchase a whole
share at the then effective Warrant Price.
6. DISSOLUTION OR LIQUIDATION. In case the Corporation shall, at
any time prior to the expiration of this Warrant and prior to the exercise
hereof, dissolve, liquidate or wind up its affairs, Holder shall be entitled,
upon the exercise hereof, to receive in lieu of the shares of the Corporation's
Common Stock which it would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to it upon any
such dissolution, liquidation or winding up with respect to such shares of the
Corporation's Common Stock, had it been the holder of record of such shares of
Common Stock or other securities receivable upon the exercise of this Warrant on
the record date for the determination of those entitled to receive any such
liquidating distribution or, if no record is taken, upon the date of such
liquidating distribution. If any such distribution. If any such dissolution,
liquidation or winding up results in a cash distribution or distribution of
property which the Corporation's Board of Directors determines in good faith to
have a cash value in excess of the Warrant Price provided by this Warrant, as it
may be adjusted, then
9
<PAGE> 21
Holder may, at its option, exercise this Warrant without making payment of the
aggregate Warrant Price and, in such case, the Corporation upon the distribution
to Holder shall, in making settlement to Holder, deduct from the amount payable
to Holder an amount equal to such aggregate Warrant Price.
7. TERM. This Warrant may be exercised in whole or in part at any
time and from time to time on or after April 19, 1999 and shall terminate on
April 19, 2002.
8. NO SHAREHOLDER RIGHTS. No Holder hereof, solely by virtue
hereof, shall be entitled to any rights of a shareholder of the Corporation.
9. TRANSFER AND EXCHANGE.
9.1 TRANSFER. This Warrant is transferable on the books of
the Corporation at its principal office by the registered holder hereof upon
surrender of this Warrant properly endorsed. Upon such surrender, the
Corporation shall issue and deliver to the transferee a new Warrant or Warrants
representing the Warrants so transferred. Upon any partial transfer, the
Corporation shall issue and deliver to Holder a new Warrant or Warrants with
respect to the Warrants not so transferred.
9.1 EXCHANGE. This Warrant is exchangeable at the principal
office of the Corporation for Warrants to purchase the same aggregate number of
shares of Common Stock purchasable hereunder, each new Warrant to represent the
right to purchase such number of shares as Holder shall designate at the time of
such exchange.
9.2 SECURITIES ACTION OF 1933. The Holder, by acceptance
hereof, agrees that this Warrant and the shares of the Common Stock issued or
issuable upon exercise of this Warrant may not be offered or sold except in
compliance with the Securities Action of 1933, as amended (the "1933 Act"), and
then only against receipt of an agreement of such person to whom such offer of
sale is made to comply with the provisions of this Article 9 with respect to any
resale or other disposition of such securities. The Holder consents to the
Corporation's making a notation on its records in order to implement such
restrictions on transferability.
10. LOSS OR MUTILATION. Upon receipt by the Corporation of evidence
satisfactory to it (in the exercise of reasonable discretion) of the ownership
of and the loss, theft, destruction or mutilation of this Warrant and (in the
case of loss, theft, or destruction) of indemnity satisfactory to it (in the
exercise of reasonable discretion), and (in the case of mutilation) upon
surrender and cancellation thereof, the Corporation will execute and deliver in
lieu hereof a new Warrant.
11. GOVERNMENTAL APPROVALS. The Corporation will from time to time
use its best efforts to take all action which may be necessary to obtain and
keep
10
<PAGE> 22
effective any and all permits, consents and approvals of governmental agencies
and authorities and securities act filings under federal and state laws, which
may be or become requisite in connection with the issuance, sale and delivery of
this Warrant, and the issuance, sale and delivery of the Common Stock or other
securities issued or deliverable upon exercise of this Warrant.
12. SUCCESSORS. All the covenants and provisions of this Warrant
shall bind and inure to the benefit of Holder and the Corporation and their
respective successors and assigns.
13. NOTICES. All notices and other communications given pursuant to
this Warrant shall be in writing and shall be deemed to have been given when
personally delivered or when mailed by prepaid registered, certified or express
mail, return receipt requested. Notices should be addressed as follows:
(a) If to Holder, then to:
With a copy (which shall not constitute notice) to:
(b) If to the Corporation, then to:
With a copy (which shall not constitute notice) to:
Such addresses for notices may be changed by any party by notice to the other
party pursuant to this Article 13.
14. AMENDMENT. This Warrant may be amended only by instrument in
writing signed by the Corporation and Holder.
15. CONSTRUCTION OF WARRANT. This Warrant shall be construed as a
whole and in accordance with its fair meaning. A reference in this Warrant to
any section shall be deemed to include a reference to every section the number
of which begins with the number of the section to which reference is made. This
Warrant has been negotiated by the parties hereto and the language hereof shall
not be construed for or against any party.
16. LAW GOVERNING. This Warrant is executed, delivered and to be
performed in the State of California and shall be construed and enforced in
accordance with and governed by the laws of such State without regard to the
conflicts of law provisions of such State.
11
<PAGE> 23
Dated as of ________________, 1999
1ST NET TECHNOLOGIES, INC., TUMMY BUSTER, INC.,
a Colorado corporation a Nevada corporation
- --------------------------------- ----------------------------------------
Gregory D. Writer, Jr., Lawrence K. Kimball
Chief Executive Officer Chief Financial Officer
12
<PAGE> 24
SUBSCRIPTION FORM
(TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant and purchased ________ of the number of shares of Common Stock of
_________________, purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
Dated: _________________, 199___
----------------------------------------
(Signature of Registered Owner)
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip)
13
<PAGE> 25
ISSUE OF A NEW WARRANTY
(TO BE EXECUTED ONLY UPON PARTIAL EXERCISE,
EXCHANGE OR PARTIAL TRANSFER OF WARRANT)
Please issue ______ (number) Warrants, each representing the right to purchase
_____ shares of Common Stock of ___________, to the registered holder hereof.
Dated: ____________, 199___
----------------------------------------
(Signature of Registered Owner)
14
<PAGE> 26
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the Warrant, with respect to the number of
shares of Common Stock set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------------------------------------------------------
and does hereby irrevocably constitute and appoint ________________ as
Attorney-in-fact to make such transfer on the books of _______________________,
maintained for the purpose, with full power of substitution in the premises.
Dated: ________________, 199___
----------------------------------------
(Signature)
<PAGE> 27
EXHIBIT "B"
CONFIDENTIALITY AGREEMENT
<PAGE> 28
CONFIDENTIALITY AGREEMENT
THIS CONFIDENTIALITY AGREEMENT (this "Agreement") is entered into as of
the 22nd day of April, 1999, by and between 1ST NET TECHNOLOGIES, INC., a
Colorado corporation ("1st NET") and THE CHILDRENS TECHNOLOGY GROUP, INC., a
Nevada corporation ("CTG").
RECITALS
1. PURPOSE. In the course of the relationship between 1st NET and
CTG arising out of that certain Technology License Agreement entered into by the
parties on April 22, 1999, it is essential for the parties to have a completely
open exchange of information which requires that the parties execute this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. COVENANT. The parties to this Agreement shall treat any
information (irrespective of its source or form of communication) that may be
furnished by or on behalf of the parties, whether furnished before, on or after
the date of this Agreement, confidentially and in strict accordance with the
provisions hereof.
2. CONFIDENTIAL MATERIAL. The term Confidential Material shall
include any notes, analyses, compilations, studies or other documents or records
prepared by the parties or others, which is generated from information supplied
by the the parties or its representatives. The term Confidential Material shall
not include information which either party can prove by documentary evidence:
(i) becomes generally available to the public other than as a result of a
disclosure in violation of this Agreement; (ii) was available to either party,
as the case may be, on a non-confidential basis from a source other than the
parties (provided such information is not subject to another confidentiality
agreement or other obligation of secrecy to CTG, 1st NET or another party); or
(iii) becomes available to either party on a non-confidential basis from sources
other than the parties, provided that such source is not prohibited from
transmitting the information to the parties by a contractual, legal or fiduciary
obligation.
<PAGE> 29
3. WRITTEN CONSENT. Without the prior written consent of 1st NET,
CTG will not disclose and will direct its representatives not to disclose, to
any person other than its representatives, the fact that the Confidential
Material has been made available to CTG. The term "person" as used in this
Agreement shall be broadly interpreted to include, without limitation, any
corporation, company, partnership or individual.
4. COMPELLED DISCLOSURE.If CTG or any of its representatives are
requested or required (orally or in writing, by interrogatory, subpoena, civil
investigatory demand or any similar process relating to any legal proceeding,
investigation, hearing or otherwise) to disclose any Confidential Material, you
will provide 1st NET with prompt notice in advance of such disclosure so that
1st NET may seek a protective order or other appropriate remedy and/or waive
compliance with this Agreement and CTG agrees to cooperate in pursuing any such
course of action. In the event that such protective order or other remedy is not
obtained, CTG will furnish only such information as CTG is advised to be legally
required and will exercise its best efforts to obtain assurance that
confidential treatment will be accorded to any information which is compelled to
be disclosed.
5. SECURITIES CONCERNS. CTG acknowledges that it is aware, and
agrees that it will advise its representatives who are informed as to the
matters which are the subject of this Agreement, that the United States
securities laws prohibit any person who has received from any issuer-related
material, non-public information from purchasing or selling securities of the
issuer or from communication of such information to any other person under
circumstances in which it is reasonably foreseeable that person is likely to
purchase or sell such securities while in possession of material non-public
information.
6. LIQUIDATED DAMAGES. CTG acknowledges and agrees that 1st NET
would not have an adequate remedy at law and would be irreparably harmed in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the 1st NET shall be entitled to injunctive relief to
prevent breaches of this Agreement and to specifically enforce its terms and
provisions hereof, in addition to any other remedy at law or in equity.
7. NO WAIVER. No failure to or delay in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, and no single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise of any right, power or privilege. The losing party
agrees to pay all costs and expenses, including reasonable counsel fees,
incurred by the prevailing party in case any such action for breach of this
Agreement is brought by them.
<PAGE> 30
8. CHOICE OF LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to agreements
made and to be performed within such State without reference to principles of
conflicts of law.
9. JURISDICTION.CTG consents to personal jurisdiction and venue in
any action brought in connection with any matter arising under this Agreement.
10. TERM. This Agreement shall remain in effect for a period of
three years from the date hereof and may be modified or waived only by a
separate writing by 1st NET that expressly so modifies or waives this Agreement.
The individual or individuals executing this Agreement are duly
authorized and empowered to fully bind the parties to the terms and conditions
of this Agreement.
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
- ------------------------------------
Gregory D. Writer, Jr.
Chief Executive Officer
THE CHILDRENS TECHNOLOGY GROUP, INC.,
a Nevada corporation
- ------------------------------------
Lawrence K. Kimball
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into, at San Diego,
California, as of the 19th day of April 1999, by and between 1st Net
Technologies, Inc., a corporation duly organized under the laws of the State of
Colorado (the "Company"), with offices at 11423 West Bernardo Court, San Diego,
California, 92127, and Lawrence K. Kimball (hereinafter referred to as the
"Executive"), who resides at 2755 Brant Street, San Diego, California 92103.
RECITALS
WHEREAS: The Company currently employs and desires to continue to employ the
Executive as Chief Financial Officer.
WHEREAS: The Executive is currently employed and desires to continue to be so
employed by the Company, subject to the following terms and conditions.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and with reference to the above recitals, the parties hereby
agree as follows:
ARTICLE 1
TERM OF EMPLOYMENT
The Company hereby employs the Executive as Chief Financial Officer of the
Company and the Executive hereby accepts such employment by the Company for a
period of three (3) years (the "Term") commencing from April 19, 1999 (the
"Commencement Date") and expiring upon the third anniversary of the
Commencement Date, unless extended at the mutual option of the parties. This
Agreement is subject to renewal only upon the approval of the Board of
Directors of Company.
ARTICLE 2
DUTIES AND OBLIGATIONS
2.1 During the Term of this Agreement, the Executive shall: (i) devote his full
business time, attention and energies to the business of the Company; (ii)
shall use his best efforts to promote the interests of the Company; (iii) shall
perform all functions and services as the Chief Financial Officer of the
Company, including general management and supervision over the operations of
the business and employees of the Company; (iv) shall act in accordance with
the policies and directives of the Company as determined from time to time by
its Board and of Directors (the "Board") communicated to the Executive in
writing; and (v) shall report directly to the Chief Executive Officer.
<PAGE> 2
2.2 The Executive covenants and agrees that, while actually employed by the
Company, he shall not engage in any other Internet-related business duties or
pursuits whatsoever, or directly or indirectly render any services of a
business or commercial nature to any other person or organization, including,
but not limited to, providing services to any business that is in competition
with or similar in nature to the Company, whether for compensation or
otherwise, without the prior written consent of the Board. However, the
expenditure of reasonable amounts of time for educational, charitable, or
professional activities shall not be deemed a breach of this Agreement, if
those activities do not materially interfere with the services required under
this Agreement, and shall not require the prior written consent of the Board.
Notwithstanding anything herein contained to the contrary, this Agreement shall
not be construed to prohibit the Executive from making passive personal
investments or conducting personal business, financial or legal affairs or
other personal matters if those activities do not materially interfere with the
services required hereunder. In addition to the foregoing, notwithstanding
anything contained herein to the contrary, this Agreement shall not be
construed to prohibit the Executive from serving as a director or board member
of any other corporation, company, or other business entity, and such service
shall not require approval by the Board, unless such entity is deemed by the
Board, in the exercise of its reasonable discretion, to be a prospective or
actual competitor of the Company.
2.3 The principal location in which the Executive's services are to be
performed will be the San Diego, California area. The Executive shall not be
required to change such principal location without his consent.
ARTICLE 3
COMPENSATION
3.1 As compensation for the services to be rendered by the Executive pursuant
to this Agreement, the Company hereby agrees to pay the Executive a base salary
equal to at least Seventy Thousand Dollars ($70,000.00) per year during the
Term of this Agreement, which rate shall be reviewed by the Board at least
annually and may be increased (but not reduced) by the Board in such amounts as
the Board deems appropriate. The base salary shall be paid in substantially
equal bimonthly installments in accordance with the normal payroll practices of
the Company.
3.2 The Company shall provide the Executive with the opportunity to earn an
annual bonus for each fiscal year of the Company, occurring in whole or in part
during the Term. The annual bonus payable to the Executive shall be in such
amount and based on such criteria for the award as may be established by the
Board from time to time. Any bonus shall be paid as promptly as practicable
following the end of the preceding fiscal year. The Executive shall participate
also in all other short-term and long-term bonus or incentive plans or
arrangements in which other senior executives of the Company are eligible to
participate from time to time. The provisions of this Section 3.2 shall be
subject to the provisions of Section 3.5.
<PAGE> 3
3.3 As further consideration for the services rendered by the Executive during
the Term, the Executive shall be granted stock options to purchase shares of
the Company's common stock on the terms and conditions set forth in the
attached Schedule A (each an "Option").
3.4 The Company shall have the right to deduct or withhold from the
compensation due to the Executive hereunder any and all sums required for
federal income and employee social security taxes and all state or local income
taxes now applicable or that may be enacted and become applicable during the
Term.
3.5 In the event the Company becomes a "publicly held corporation" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company may provide for shareholder approval of any performance
based compensation provided herein which is first created after the Company
becomes so "publicly held," and may provide for the establishment of a
compensation committee to establish any applicable performance goals and
determine whether such performance goals have been met.
ARTICLE 4
EMPLOYEE BENEFITS
4.1 The Company agrees that the Executive shall be entitled to all ordinary and
customary perquisites afforded to executive employees of the Company, at the
Company's sole expense (except to the extent employee contribution may be
required under the Company's benefit plans as they may now or hereafter exist),
which shall in no event be less than the benefits afforded to the Executive on
the date hereof and the other executive employees of the Company as of the date
hereof or from time to time, but in any event shall include any qualified or
non-qualified pension, profit sharing and savings plans, any death benefit and
disability benefit plans, life insurance coverages, any medical, dental, health
and welfare plans or insurance coverages for Executive and his wife, and any
stock purchase programs that are approved by the Board on terms and conditions
at least as favorable as provided to the Executive on the date hereof and other
senior executives of the Company as of the date hereof or from time to time.
4.2 The Executive shall be entitled to three (3) weeks of paid vacation for
each year of his employment hereunder (including four weeks for 1999), which,
to the extent unused in any given year, may be carried over in accordance with
the policies of the Company then in effect. Notwithstanding anything to the
contrary, however, the Executive shall be entitled to carry over any unused
vacation for a period not less than two (2) years.
4.3 The Executive shall be entitled to a car allowance of Three Hundred Dollars
($300) per month during the Term.
4.4 The Company shall reimburse the Executive for all reasonable fees and costs
incurred the purchase, installation, and reasonable operating expenses of a
recent model laptop and high-speed Internet connection. All amounts paid
pursuant to this Section 4.4 shall be equal on a net after tax basis to the
fees incurred by the Executive, provided, however, that, as a condition to
<PAGE> 4
such reimbursement, the Executive shall furnish to the Company adequate records
and other documentary evidence substantiating each expenditure.
ARTICLE 5
BUSINESS EXPENSES
5.1 The Company shall pay or reimburse the Executive for all reasonable and
authorized business expenses incurred by the Executive during the Term; such
payment or reimbursement shall not be unreasonably withheld so long as said
business expenses have been incurred for and promote the business of the
Company and are normally and customarily incurred by employees in comparable
positions at other comparable businesses in the same or similar market.
Notwithstanding the above, and except as otherwise provided in Section 4.4
hereof, the Company shall not pay or reimburse the Executive for the costs of
any membership fees or dues for private clubs, civic organizations, and similar
organizations or entities, unless such organizations and the fees and costs
associated therewith have first been approved in writing by the Board.
5.2 The Company shall reimburse the Executive for expenses incurred with
business-related travel. Notwithstanding the above, the Company shall not pay
or reimburse the Executive for the costs of any business-related travel to the
extent such costs exceed the cost of Business Class.
5.3 As a condition to reimbursement under this Article 5, the Executive shall
furnish to the Company adequate records and other documentary evidence required
by federal and state statutes and regulations for the substantiation of each
expenditure. The Executive acknowledges and agrees that failure to furnish the
required documentation may result in the Company denying all or part of the
expense for which reimbursement is sought.
ARTICLE 6
TERMINATION OF EMPLOYMENT
6.1 The Board may, during the Term, without notice to the Executive, terminate
this Agreement and discharge the Executive for Cause, whereupon the respective
rights and obligations of the parties hereunder shall terminate; provided,
however, that the Company shall immediately pay the Executive any amount due
and owing pursuant to Articles 3, 4 and 5, prorated to the date of termination;
provided, further, however, that no termination for Cause may occur without the
Executive having the right to a hearing with the Executive's counsel present.
As used herein, the term "for Cause" shall refer to the termination of the
Executive's employment as a result of any one or more of the following: (i) any
conviction of the Executive for a felony; (ii) the gross-willful misconduct of
the Executive or, (iii) the gross dishonesty of the Executive.
<PAGE> 5
6.2 Anything in this Agreement to the contrary notwithstanding, the Board
shall have the right, at any time in its sole and subjective discretion, to
terminate this Agreement without Cause upon not less than thirty (30) days prior
written notice to the Executive. The term "termination without Cause" shall
mean the termination of the Executive's employment for any reason other than
those expressly set forth in Section 6.1, or no reason at all, and shall also
mean the Executive's decision to terminate this Agreement by reason of any act,
decision or omission by the Company or the Board that: (A) materially
modifies, reduces, changes, or restricts the Executive's salary, bonus
opportunities, options or other compensation benefits or perquisites, or the
Executive's authority, functions, services, duties, rights, and privileges as,
or commensurate with the Executive's position as, Chief Financial Officer of the
Company as described in Section 2.1 hereof; (B) relocates the Executive without
his consent from the Company's offices located at 11423 W. Bernardo Court, Sand
Diego, California, 92127 to any other location in excess of fifty (50) miles
beyond the geographic limits of San Diego, California; (C) deprives the
Executive of his titles and positions of Chief Financial Officer of the Company;
or (D) involves or results in any failure by the Company to comply with any
material provision of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive (each a
"Good Reason"). The Company also shall (i) continue to provide to the Executive
and his beneficiaries, at its sole cost, the insurance coverages referred to in
Section 4.1 above, and (ii) pay to the Executive in a single lump-sum payment
the aggregate cost of the benefits (other than insurance coverages) 5 under
Section 4.1 hereof, in each case to the extent he would have received such
insurance coverages and benefits had he remained employed by the Company for
the greater of (A) the remaining balance of the Term or (B) two (2) years.
6.3 The Executive's employment shall terminate automatically upon the
Executive's death during the Term. If the Company determines in good faith that
the Disability (as defined below) of the Executive has occurred during the
Term, it shall give written notice to the Executive of its intention to
terminate his employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive, provided that, within the thirty (30) days after such
receipt, the Executive shall not have returned to full-time performance of his
duties. Anything in this Agreement to the contrary notwithstanding, upon the
death or Disability of the Executive, the Company shall provide the Executive
or his successors, heirs, designees, or assigns, with continued payment of the
Executive's then current base salary and all benefits under Article 4 hereof
for two (2) years. For purpose of this Agreement, "Disability" shall mean the
inability of the Executive to perform his duties to the Company on account of
physical or mental illness or incapacity for a period of one hundred eighty
(180) consecutive calendar days, or for a period of two hundred ten (210)
calendar days, whether or not consecutive, during any three hundred sixty-five
(365) day period.
6.4 Anything in this Agreement to the contrary notwithstanding, the Executive
shall have the right, at any time in his sole and subjective discretion, to
terminate this Agreement without Good Reason upon not less than thirty (30) days
prior written notice to the Company. In the event the Executive voluntarily
terminates his employment hereunder other than for Good Reason, the respective
rights and obligations of the parties hereunder shall terminate; provided,
however, that the Company shall immediately pay the Executive any amount due
and owing pursuant to Articles 3, 4 and 5, prorated to the date of termination.
<PAGE> 6
6.5 Anything in this Agreement to the contrary notwithstanding, upon the
Executive's termination under this Article 6, the Company's obligations with
respect to any stock option to purchase shares of the Company's common stock
granted to the Executive shall be determined by the terms and conditions of
such option as set forth in the Executive's written option agreement regarding
such option, which shall be fully consistent with the terms and conditions set
forth in attached Schedule A with respect to the options described therein.
ARTICLE 7
NO MITIGATION OR OFFSET; INSURANCE
7.1 The Executive shall not be required to seek other employment or to reduce
any severance benefit payable to him under Article 6 hereof, and no severance
benefit shall be reduced on account of any compensation received by the
Executive from other employment. The Company's obligation to pay severance
benefits under this Agreement shall not be reduced by any amount owed by the
Executive to the Company.
7.2
(a) The Company shall provide Executive with D&O insurance coverage at
least as favorable to Executive as what the Company maintains as of
the date hereof or such greater coverage as the Company may maintain
from time to time.
(b) Upon the written request of the Executive specifying the amount of a
requested advance and the intended use thereof, the Company shall
indemnify Executive for his expenses (including attorneys' fees and
disbursements), judgments, fines and amounts paid in settlement
incurred by him in connection with such claim, action, suit,
proceeding or appeal whether civil, criminal, administrative,
investigative or otherwise, in advance of the final disposition of any
such claim, action, suit, proceeding or appeal therefrom to the
fullest extent permitted under California law.
ARTICLE 8
RESTRICTIVE COVENANTS
8.1 During the Term and following termination of this Agreement, the Executive
agrees that, without the Company's prior written consent, he will not use or
disclose to any person, firm, association, partnership, entity or corporation,
any confidential information concerning:
(i) the business operations or internal structure of the Company;
(ii) the customers of the Company;
(iii) the financial condition of the Company; and
<PAGE> 7
(iv) other confidential information pertaining to the Company, including
without limitation, trade secrets, technical data, marketing analyses
and studies, operating procedures, customer and/or inventor lists, or
the existence or nature of any of the Company's agreements (other than
this Agreement and any other option or compensation related agreements
involving the Executive); provided, however, that the Executive shall
be entitled to disclose such information:
(i) to the extent the same shall have otherwise become publicly
available (unless made publicly available by the Executive);
(ii) during the course of or in connection with any actual or
potential litigation, arbitration, or other proceeding based
upon or in connection with the subject matter of this Agreement;
(iii) as may be necessary or appropriate to conduct his duties
hereunder, provided the Executive is acting in good faith and in
the best interest of the Company; or
(iv) as may be required by law or judicial process.
8.2 The Executive acknowledges that he has established and will continue to
establish favorable relations with the customers, clients and accounts of the
Company and will have access to trade secrets of the Company. Therefore, in
consideration of such relations and to further protect trade secrets, directly
or indirectly, of the Company, the Executive agrees that during the Term and
for a period of one (1) year from the date of termination of the Executive, the
Executive will not, directly or indirectly, without the express written consent
of the Board:
(i) own or have any interest in or act as an officer, director, partner,
principal, employee, agent, representative, consultant or independent
contractor of, or in any way assist in, any business which is engaged,
directly or indirectly, in any business competitive with the Company
in those Internet-related markets in which the Company competes within
the United States at any time during the Term, or become associated
with or render services to any person, firm, corporation or other
entity so engaged ("Competitive Businesses"); provided, however, that
the Executive may own without the express written consent of the
Company not more than two (2) percent of the issued an outstanding
securities of any company or enterprise whose securities are listed on
a national securities exchange or actively traded in the over the
counter market; (ii) solicit clients, customers or accounts of the
Company for, on behalf of or otherwise related to any such Competitive
Businesses or any products related thereto; or (iii) solicit any
person who is or shall be in the employ or service of the Company to
leave such employ or service for employment with the Executive or an
affiliate of the Executive. Notwithstanding the foregoing, if any
court determines that the covenant not to compete, or any part
thereof, is unenforceable because of the duration of such provision or
the geographic area or scope covered thereby, such court shall have
<PAGE> 8
the power to reduce the duration, area or scope of such provision
to the extent necessary to make the provision enforceable and, in
its reduced form, such provision shall then be enforceable and
shall be enforced.
8.3 Recognizing the irreparable damage will result to the Company in the event
of the breach or threatened breach of any of the foregoing covenants and
assurances by the Executive contained in Sections 8.1 and 8.2 hereof, and that
the Company's remedies at law for any such breach or threatened breach may be
inadequate, the Company and its successors and assigns, in addition to such
other remedies which may be available to them, shall be entitled to an
injunction to be issued by any court of competent jurisdiction ordering
compliance with this Agreement or enjoining and restraining the Executive, and
each and every person, firm or company acting in concert or participation with
him, from the continuation of such breach. The obligations of the Executive and
rights of the Company pursuant to this Article 9 shall survive the termination
of this Agreement. The covenants and obligations of the Executive set forth in
this Article 9 are in addition to and not in lieu of or exclusive of any other
obligations and duties the Executive owes to the Company, whether expresses or
implied in fact or law.
ARTICLE 9
GENERAL PROVISIONS
9.1 This Agreement and attached schedules (which are incorporated herein and
shall be treated as part of hereof) are intended to be the final, complete and
exclusive agreement between the parties relating to the employment of the
Executive by the Company with respect to the Term and all prior or
contemporaneous understandings, representations and statements, oral or written,
are merged herein. Notwithstanding anything to the contrary, the terms and
conditions of any stock option agreements signed by the Executive prior to the
date hereof shall remain in effect. No modification waiver, amendment,
discharge or change of this Agreement shall be valid unless the same is in
writing and signed by the party against which the enforcement thereof is or may
be sought.
9.2 No waiver, by conduct or otherwise, by any party of any term, provision, or
condition of this Agreement, shall be deemed or construed as a further or
continuing waiver of any such term, provision, or condition nor as a waiver of
a similar or dissimilar condition or provision at the same time or at any prior
or subsequent time.
9.3 The rights under this Agreement, or by law or equity, shall be cumulative
and may be exercised at any time and from time to time. No failure by any party
to exercise, and no delay in exercising, any rights shall be construed or
deemed to be a waiver thereof, nor shall any single or partial exercise by any
party preclude any other or future exercise thereof or the exercise of any
other right.
9.4 Except as otherwise provided in this Agreement, any notice, approval,
consent, waiver or other communication required or permitted to be given or to
be served upon any person in connection with this Agreement shall be in
writing. Such notice shall be personally served, sent by telegram, tested
telex, fax or cable, or sent prepaid by either registered or certified mail
with
<PAGE> 9
return receipt requested or Federal Express and shall be deemed given (i) if
personally served or by Federal Express, when delivered to the person to whom
such notice is addressed, (ii) if given by telegram, telex, fax or cable, when
sent, or (ii) if given by mail, two (2) business days following deposit in the
United States mail. Any notice given by telegram, telex, fax or cable shall be
confirmed in writing by overnight mail or Federal Express within forty-eight
(48) hours after being sent. Such notices shall be addressed to the party to
whom such notice is to be given at the party's address set forth below or as
such party shall otherwise direct. If to the Company 1st Net Technologies, Inc.
11423 West Bernardo Court, San Diego, California 92103.
9.5 The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the parties hereto.
9.6 This Agreement shall be construed and enforced in accordance with the laws
of the State of California, without giving effect to the principles of conflict
of laws thereof, except that the indemnification provisions of Section 8.2
shall be governed by California law without regard to conflict of laws
principles.
9.7 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one
instrument.
9.8 The provisions of this Agreement are agreed to be severable, and if any
provision, or application thereof, is held invalid or unenforceable, then such
holding shall not effect any other provision or application.
9.9 As used herein, and as the circumstances require, the plural term shall
include the singular, the singular shall include the plural, the neuter term
shall include the masculine and feminine genders, and the feminine term shall
include the neuter and the masculine genders.
9.10 Any controversy or claim arising out of, or related to, this Agreement, or
the breach thereof, shall be settled by binding arbitration in the City of San
Diego, California, in accordance with the rules then in effect of the American
Arbitration Association, and the arbitrator's decision shall be binding and
final, and judgment upon the award rendered may be entered in any court having
jurisdiction thereof. Each party hereto shall pay its or their own expenses
incident to the negotiation, preparation and resolution of any controversy or
claim arising out of, or related to, this Agreement, or the breach thereof,
provided, however, the Company shall pay and be solely responsible for any
attorneys' fees and expenses and court or arbitration costs incurred by the
Executive as a result of a claim that the Company has breached or otherwise
failed to perform this Agreement or any provision hereof to be performed by the
Company if the Executive prevails in the contest in whole or in part.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
/s/ GREGORY D. WRITER, JR.
-----------------------------------------------
Gregory D. Writer, Jr., Chief Executive Officer
/s/ LAWRENCE K. KIMBALL
------------------------------------------------
Lawrence K. Kimball, individually
<PAGE> 11
SCHEDULE A
As further consideration for the services rendered by the Executive during the
Term, the Executive shall be granted Options on the terms and conditions set
forth below, effective as of April 19, 1999. Each such Option shall be
effective upon such grant effective date.
1. Regular Options. The Executive shall be granted Options to purchase one
hundred fifty thousand (150,000) shares of the Company's common stock. The
Regular Options shall have a ten (10) year term (the "Regular Option Term") of
exercise and, except as otherwise provided herein, shall remain exercisable
following vesting for the full term. The exercise price of an Option granted as
a Regular Option shall be exercisable at a price of $5.00 per share.
(i) Vesting. The Regular Options shall vest based on the
continued employment of the Executive in equal installments
of 12,500 Options each quarter, ending July 19, 1999,
October 19, 1999, January 19, 2000, and April 19, 2000 for
the first year of employment, and quarterly thereafter for
the second and third years of employment.
(ii) Payment Upon Exercise. Payment for the shares subject to any
Regular Option may be tendered in cash or by certified, bank
cashier's or teller's check or by shares of the Company's
common stock (valued at fair market value (as determined by
the Company) as of the date of tender) already owned by the
Executive, or some combination of the foregoing or such
other form of consideration which has been approved by the
Board, including any approved cashless exercise mechanism or
a promissory note given by the Executive.
(iii) Termination for Cause. As of the date of the Executive's
termination for Cause under Section 6.1 of this Agreement,
any unvested or unexercised portion of the Regular Options
shall terminate immediately and shall be of no further force
or effect.
(iv) Termination Without Cause or for Good Reason. As of the date
of the Executive's termination by the Company without Cause
or by the Executive for Good Reason under Section 6.2 of
this Agreement, any unvested portion of the Regular Options
shall become immediately and fully vested and exercisable
from such termination of employment until the date that is
two (2) years following the termination date.
(v) Termination due to Death or Disability. As of the date of
the Executive's termination due to death or Disability under
Section 6.3 of this Agreement, any unvested portion of the
Regular Options shall become immediately and fully vested
and exercisable. Any previously vested but unexercised
Regular Options shall remain exercisable from the date of
such termination of employment until the end of the Regular
Option Term or, if earlier, the date that is two (2) years
following the termination date.
<PAGE> 12
(vi) Termination Without Good Reason. As of the date of any voluntary
termination of employment with the Company by the Executive other than due
to death or Disability, and other than for Good Reason, any unvested
portion of the Regular Options shall terminate immediately and shall be of
no further force or effect. Any previously vested but unexercised Regular
Options shall remain exercisable from the date of such termination of
employment until the end of the Regular Option Term or, if earlier, the
date that is one (1) year following the termination date.
(i)
<PAGE> 1
EXHIBIT 10.11
OUTSIDE DIRECTOR'S AGREEMENT
THIS OUTSIDE DIRECTOR'S AGREEMENT (this "Agreement") is made as of the
1st day of May, 1999 (the "Effective Date") by and between 1st Net Technologies,
Inc., a Colorado corporation (the "Company"), and Steven J. Santamaria, an
individual residing at 2370 Indian Paintbrush Circle, Highlands Ranch, Colorado
80126 (the "Director").
WHEREAS, the Company desires to engage the Director and the Director
desires to accept such engagement by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Term. The Company hereby agrees to engage the Director, and the
Director hereby agrees to serve the Company, in the capacity of a member of the
Board of Directors and Chairman of the Executive Committee of the Company for a
period commencing on May 1, 1999 (the "Engagement Date") and ending on April 30,
2001 (such period, subject to earlier termination or extension as provided
herein, being referred to as the "Period of Engagement").
2. Duties and Services. During the Period of Engagement, Director
agrees to serve the Company as a member of the Board of Directors and as the
Chairman of the Executive Committee with the duties set forth in Exhibit A
attached hereto, and in such other offices of the Company and of its
subsidiaries and related companies (collectively, "Affiliates") to which he may
be elected or appointed, and to perform such other reasonable and appropriate
duties as may be requested of him by the Board of Directors of the Company (the
"Board of Directors"), in accordance with the terms herein set forth. Excluding
periods of vacation and sick leave to which the Director is entitled, the
Director shall devote such amount of his time and energy to the business and
affairs of the Company and its Affiliates as is necessary to fulfill his duties
hereunder and to promote the interests of the Company, but in no event less than
an average of 20 hours per month (during regular business hours). The Company
and the Director each agree and acknowledge that various factors, including the
Company's possible expansion of its operations, may require the Director to
devote a significantly greater number of hours to the Company's business from
time to time, for which the Director will not be entitled to additional
compensation. Subject to the limitations of Section 5 hereof, and provided that
such other business activities do not materially interfere with the Director's
ability to fulfill his obligations hereunder, the Director may engage in other
business activities during the Period of Engagement.
<PAGE> 2
3. Compensation.
(a) Base Salary. Commencing on the Engagement Date, the
Director shall receive a base salary hereunder of 25,000 shares of 1st Net
Technologies, Inc..
(b) Bonus. The Director shall be entitled to such bonuses and
other benefits as the Board of Directors may periodically award in its
reasonable discretion.
(c) Benefit Plans. The Director shall be entitled to
participate or continue to participate in or receive benefits under all of the
Company's director benefit plans, policies, practices and arrangements (the
"Benefit Plans"), including without limitation any pension plan, profit-sharing
plan, savings plan, deferred compensation plan, stock option plan, life
insurance, disability insurance or health-and-accident plan or arrangement, made
available by the Company now or in the future to its Directors generally,
subject to and on a basis consistent with the terms, conditions and overall
administration of such Benefit Plans.
(d) Fringe Benefits. The Director shall receive fringe
benefits not less favorable than those now and from time to time made available
to the Company's Directors generally.
(e) Expenses. All entertainment, travel and other expenses
incident to the rendering of services by the Director hereunder shall be paid or
reimbursed by the Company. If any such expenses are advanced by the Director,
the Company shall reimburse him therefor on presentation of the appropriate
documentation required by the Internal Revenue Code of 1986, as amended (the
"Code"), or Treasury Regulations promulgated thereunder, or otherwise required
under the Company's policy with respect to such expenses. If any such expenses
are paid, or are to be paid, directly by the Company, The Director shall provide
such documentation as will allow the Company to determine that such expenses are
appropriate.
(f) Vacation. The Director shall be entitled to two (2) weeks
paid vacation to be taken at time or times mutually satisfactory to the
Director and the Company.
(g) Working Facilities. The Company shall provide the
Director with an office, secretarial, administrative and other assistance, and
such other facilities and services as shall be suitable to his position and
appropriate for the performance of his duties.
4. Early Termination. Notwithstanding the provisions of Section 1
hereof, the Director's Engagement hereunder may be terminated by the Company or
the Director, as applicable, under the following circumstances:
2
<PAGE> 3
(a) Death. The Director's Engagement hereunder shall
terminate upon his death.
(b) Disability. If the Company determines in good faith,
after considering all relevant medical evidence, that the Director has incurred
a Disability (as defined below). During the Period of Engagement, the Company
may give the Director written notice of its intention to terminate the
Director's Engagement, subject to the provisions of the Americans with
Disabilities Act. In such event, the Director's Engagement with the Company
shall terminate effective on the 30th day after receipt of such notice by the
Director, provided that within 30 days after such receipt the Director shall not
have returned to full performance of his duties. The Director shall continue to
receive his Base Salary until the date of termination. For the purpose of this
Agreement, "Disability" shall mean the Director's failure to perform his duties
to the Company for a total of 16 consecutive weeks during any 12-month period as
a result of incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by the Company and acceptable to
the Director or the Director's legal representative (such agreement as to
acceptability not to be withheld, delayed or conditioned unreasonably).
(c) Cause. The Company may terminate the Director's
Engagement hereunder for Cause (as defined below). For purposes of this
Agreement, the Company shall have "Cause" to terminate the Director's Engagement
hereunder upon a finding by the Board of Directors that the Director has (i)
engaged in acts or omissions with respect to the Company or any Affiliate of the
Company which constitute intentional misconduct or a knowing violation of law as
reasonably determined by the disinterested members of the Board of Directors;
(ii) personally received a benefit in money, property or services from the
Company or any Affiliate of the Company or from another person or entity dealing
with the Company in violation of this Agreement or applicable law, including any
payment from a person or entity dealing with the Company or involved in any way
in any transaction in which the Company is a party, unless previously disclosed
to, and expressly approved by, the disinterested members of the Board of
Directors; (iii) breached the provisions of Section 5 or 6 of this Agreement;
(iv) breached his fiduciary duty of loyalty to the Company or any Affiliate of
the Company; (v) engaged in gross negligence in the performance of his duties to
the Company or any Affiliate of the Company; (vi) frequently and repeatedly
failed to perform services for the Company or any Affiliate of the Company which
have been reasonably requested of him by the Board of Directors and which are
consistent with the terms of this Agreement; or (vii) been convicted of a
felony. For purposes of this Agreement, the Company shall also have "Cause" to
terminate the Director's Engagement hereunder upon the decision of the Board of
Directors to cause the Company to cease the operation of its business. In the
event of such a decision to cause the Company to cease the operation of its
business, this Agreement shall terminate as of the earlier of (i) the date that
the operations cease or (ii) thirty (30) days following notice to the Director
that the Board of Directors has determined (which determination shall be made in
good faith) that the Director's services are no longer required.
3
<PAGE> 4
(d) Good Reason. The Director may terminate his Engagement
for Good Reason (as defined below). For purposes of this Agreement, the Director
shall have "Good Reason" to terminate his Engagement with the Company in the
event of (i) any reduction in the Director's Base Salary, without the Director's
consent, unless such reduction is generally consistent with a reduction suffered
by all of the Company's other management level Directors; (ii) any material
breach by the Company of, or default by it under, the provisions of this
Agreement or that certain Restricted Stock Purchase Agreement by and between the
parties dated as of the Effective Date; provided, however, that in the case of
any breach or default, the Director shall not have Good Reason to terminate his
Engagement unless and until he has provided the Company with written notice of
such breach at least 15 days in advance of his intended termination date and a
reasonable opportunity and period of time to cure such breach or default
(provided, further, however, if the Company cures such breach, the Director
shall not have Good Reason to terminate this Agreement); and (iii) any
substantial diminution of duties, responsibilities or status, or other
imposition by the Company of unreasonable requirements or working conditions on
the Director which are not withdrawn or corrected in all material respects
within a 30-day period following notice by the Director to the Company of such
diminution or imposition or, if any of the foregoing arose because of conditions
or circumstances outside of the control of the Company, such longer period as
may be reasonably required under the circumstances.
(e) Mutual Agreement. The Director's Engagement may be
terminated by mutual agreement of the Director and the Company at any time.
(f) Payment of Unpaid Salary Upon Termination. In the event
of a termination pursuant to this Section 4, the Company shall pay to the
Director (or his beneficiaries, estate or legal representative, as appropriate)
promptly after the Director's termination, the unpaid Base Salary to which he is
entitled pursuant to Section 3(a) prorated through the Director's termination.
5. Confidentiality and Non-Competition.
(a) Confidential Materials. The Company and the Director
acknowledge that the services to be performed by the Director under this
Agreement are unique and extraordinary and, as a result of such Engagement, the
Director will be in possession of confidential information and trade secrets
(collectively, "Confidential Material") relating to the business practices of
the Company and its Affiliates. The Director agrees that he will not, directly
or indirectly, (i) disclose to any other person or entity either during or after
his Engagement by the Company or (ii) use, except during his Engagement by the
Company in the business and for the benefit of the Company or any of its
Affiliates, any Confidential Material acquired by the Director during his
Engagement by the Company, without the prior written consent of the Company,
which consent must be obtained by an appropriate officer of the Company other
than the Director, or as otherwise required by law or any rule or regulation of
any federal or state authority. Upon termination of his Engagement with the
Company for any reason, the
4
<PAGE> 5
Director shall return to the Company all tangible manifestations of Confidential
Materials and all copies thereof.
(b) Non-Competition. The Director agrees that during the term
hereof, without the prior written consent of the Board of Directors, he will not
become a stockholder (other than as a holder of less than 1% of the outstanding
stock of a public company), member, director, officer, director or agent of or
consultant to any corporation (other than an Affiliate), or member of or
consultant to any partnership or other entity, or engage in any business as a
sole proprietor or act as a consultant to any such entity, or otherwise engage,
directly or indirectly, in any enterprise, in each case which competes directly
with any business engaged in, or known by the Director to be contemplated to be
engaged in, by the Company or any of its Affiliates. As used herein, "any
business engaged in by the Company or any of its Affiliates" means the ownership
and operation of corporate Internet services, including E-mail services and the
development of corporate web sites. The Director shall be deemed to know a
business is "contemplated to be engaged in" by the Company when he is advised by
the Company's Chairman of the Board, President, Chief Executive Officer or Chief
Operation Officer that the Board of Directors has determined to pursue that
particular business activity. Notwithstanding the foregoing, in the event that
the Director desires to provide services as a consultant, agent or advisor (but
not otherwise) to any entity engaged in a competitive business or activity of
the Company as described above, the Director must provide at least three (3)
working days' advance written notice of such proposed engagement to the Company.
If the Company has not expressed, in writing, its reasonable objection to such
engagement to the Director within twenty-four (24) hours after receiving such
notice, the Director shall thereafter be deemed to be authorized by the Company
to proceed with such engagement. The Director agrees that during the non-compete
period referred to in this Section 5, neither the Director nor any person or
enterprise controlled by the Director will solicit for Engagement any person
employed by the Company or any of its Affiliates at, or at any time within three
months prior to, the time of the solicitation.
(c) Injunctive Relief. The Director agrees that the remedy at
law for any breach by him of this Section 5 will be inadequate and that the
Company shall be entitled to injunctive relief.
6. Representations and Warranties of The Director. The Director
represents and warrants to Company as follows: (a) The resume, personal history
and other information which the Director has heretofore provided to Company with
respect to the Director's prior employment, qualifications, licensing and
experience, whether orally or in writing, is true, correct and complete in all
material respects and does not omit any information which Company could
reasonably consider material to a decision to offer the Engagement; (b) The
Director has full right and authority to enter into this Agreement without the
approval of any other person; (c) The Director holds all licenses and
qualifications necessary for the performance of his duties hereunder and agrees
to keep all such licenses and qualifications in effect during the Period of
Engagement; and (d) The Director is not under any pre-existing obligation,
including nondisclosure or
5
<PAGE> 6
noncompetition restrictions, which would prevent, restrict or interfere with the
performance of his duties for Company under this Agreement. The Director
understands that Company is relying upon the truthfulness and accuracy of the
foregoing representations in engaging the Director.
7. General. This Agreement is further governed by the
following provisions:
(a) Notices. Any notice or other communication required or
permitted to be given hereunder shall be made in writing and shall be delivered
in person, by facsimile transmission or mailed by prepaid registered or
certified mail, return receipt requested, addressed to the parties at the
address stated above or to such other address as the party shall have furnished
in writing in accordance with this Section. Such notices or communications shall
be effective upon delivery if delivered in person or by facsimile and either
upon actual receipt or three (3) days after mailing, whichever is earlier, if
delivered by mail.
(b) Parties In Interest. This Agreement shall be binding upon
and inure to the benefit of the Director, and it shall be binding upon and inure
to the benefit of the Company and any corporation succeeding to all or
substantially all of the business and assets of the Company by merger,
consolidation, purchase of assets or otherwise.
(c) Arbitration. Any disputes arising under the terms of this
Agreement shall be settled by arbitration between the parties in or around the
City of San Diego in a proceeding held under the rules of the American
Arbitration Association. In such proceeding, each party shall choose one
arbitrator and the two so chosen shall choose a third arbitrator. The vote of
two of the arbitrators shall be sufficient to determine an award.
(d) Entire Agreement. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the Engagement of the Director by the Company, and contains all of
the covenants and agreements between the parties with respect to such Engagement
in any manner whatsoever. Any modification of this Agreement will be effective
only if it is in writing signed by the party to be charged.
(e) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to the choice of law or conflicts of laws rules and laws of such
jurisdiction.
(f) Severability. In the event that any term or condition
contained in this Agreement shall for any reason be held by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
condition of this Agreement, but this Agreement shall be construed as if such
invalid or illegal or unenforceable term or condition had never been contained
herein.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
1ST NET TECHNOLOGIES, INC., a
Colorado corporation
/s/ GREGORY D. WRITER, JR.
---------------------------------------
Gregory D. Writer, Jr., Chief Executive
Officer
DIRECTOR
/s/ STEVEN J. SANTAMARIA
---------------------------------------
Steven J. Santamaria, an individual
7
<PAGE> 8
EXHIBIT "A"
DUTIES OF THE DIRECTOR
The Director shall serve as a member of the Board of Directors and as the
Chairman of the Executive Committee of the Company for a period of two years. In
such capacity, the Director shall (i) recruit and solicit prospective members to
join the Company's board of directors, (ii) procure and solicit prospective
investment bankers, underwriters and investors who may be interested in
facilitating either a debt or equity investment in the Company, and (iii)
perform such other functions which the Company may reasonably request.
8
<PAGE> 1
EXHIBIT 10.12
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[AIR LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, June,
1, 1998, is made by and between Entrepreneur Investments, LLC ("LESSOR") and 1st
Net Technologies, Inc. ("LESSEE"), (collectively the "PARTIES," or individually
a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 11423 W. Bernardo Court, located in the
City of San Diego, County of San Diego, State of CA, with zip code 92127, as
outlined on Exhibit ____ attached hereto ("PREMISES"). The "BUILDING" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): 4,000 square feet of: +/- 8,200 square
foot, two-story office building in the Montadura Business Center.
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "INDUSTRIAL
CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: 20 unreserved vehicle parking spaces ("UNRESERVED PARKING
SPACES"); and ________________ reserved vehicle parking spaces ("RESERVED
PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 5 years and 0 months ("ORIGINAL TERM") commencing September 1,
1998 ("COMMENCEMENT DATE") and ending August 31, 2003 ("EXPIRATION DATE"). (Also
see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see Paragraphs
3.2 and 3.3.)
1.5 BASE RENT: $8,000.00 per month ("BASE RENT"), payable on the first day
of each month commencing September 1, 1998 (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _______, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $8,000 as Base Rent for
the period September 1, 1998.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Fifty percent
(50%) ("LESSEE'S SHARE") as determined by [ ] prorata square footage of the
Premises as compared to the total square footage of the Building or [ ] other
criteria as described in Addendum ________.
1.7 SECURITY DEPOSIT: $8,000.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: Internet Marketing, Hosting and Web-Page Design. Staff
basic computer and administrative personnel. ("PERMITTED USE") (Also see
Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] _____________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ] _____________________ represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _____________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$_______________) for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by Clifford J. Smith ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs ________ through _______, and Exhibits _____ through
_____, all of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
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2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease provide the
parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including, but not limited to, the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in
Paragraph 8.1).
(vii) The cost of insurance carried by Lessor with respect to
the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over-
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payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of any
above or below ground storage tank; (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority; and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including, but not limited
to, the installation (and, at Lessor's option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including, but
not limited to, all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to, matters pertaining to (i) industrial hygiene; (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
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systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor, in an amount equal to
one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "Insurance Cost Increase" is defined as
any increase in the actual cost of the insurance applicable to the Building and
required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall
include, but not be limited to, requirements of the holder of a mortgage or
deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase"
shall not, however, include any premium increases resulting from the nature of
the occupancy of any other lessee of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the "Base
Premium." If a dollar amount has not been inserted in Paragraph 1.9 and if the
Building has been previously occupied during the twelve (21) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
annual premium applicable to such twelve (12) month period. If the Building was
not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible
of the Building. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant
to Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor, by reason
of any of the foregoing matters, Lessee upon notice from Lessor, shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increase in such amounts over the Base
Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include any form
of real estate tax or assessment, general, special, ordinary or extraordinary,
and any license fee, commercial rental tax, improvement bond or bonds, levy or
tax (other than inheritance, personal income or estate taxes) imposed upon the
Industrial Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage, or other improvement district thereof, levied
against any legal or equitable interest of Lessor in the Industrial Center or
any portion thereof, Lessor's right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES" shall
also include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a change
in the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be the
amount of Real Property Taxes, which are assessed against the Premises, Building
or Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone
else responsible for the performance of the Lessee's obligations under this
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to, the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (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 that the Lessee proves could have
been reasonably avoided; (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 the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's 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 the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such pro-
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the state in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to, architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to, consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including, but not limited to, the obligation to
provide the Tenancy Statement and information required in Paragraph 16.
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37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "Option" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Default under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at: San Diego CA
------------------------- -------------------------
on: on: 6-15-98
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By LESSOR: By LESSEE:
Entrepreneur Investments, LLC 1st Net Technologies, Inc.
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
By: /s/ JAMES H. WATSON, JR. By: /s/ CLIFFORD J. SMITH
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Name Printed: James H. Watson, Jr. Name Printed: Clifford J. Smith
------------------------ ------------------------
Title: General Managing Member Title: President
------------------------------- -------------------------------
By: By:
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Name Printed: Name Printed:
------------------------ ------------------------
Title: Title:
------------------------------- -------------------------------
Address: 11440 W. Bernardo Ct., #155 Address: 11440 W. Bernardo Ct., #256
----------------------------- -----------------------------
San Diego, CA 92127 San Diego, CA 92127
- ------------------------------------- -------------------------------------
Telephone: (619) 675-4449 Telephone: (877) 282-6255
--------------------------- ---------------------------
Facsimile: (619) 675-4443 Facsimile: (619) 675-4443
--------------------------- ---------------------------
BROKER: BROKER:
Executed at: Executed at:
------------------------- -------------------------
on: on:
---------------------------------- ----------------------------------
By: By:
---------------------------------- ----------------------------------
Name Printed: Name Printed:
------------------------ ------------------------
Title: Title:
------------------------------- -------------------------------
Address: Address:
----------------------------- -----------------------------
- ------------------------------------- -------------------------------------
Telephone: ( ) Telephone: ( )
--------------------------- ---------------------------
Facsimile: ( ) Facsimile: ( )
--------------------------- ---------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777.
Initials:
-------
-------
MULTI-TENANT -- GROSS
(C)AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1993 FORM MTG-1-6/93
PAGE 13 OF 13
<PAGE> 1
EXHIBIT 10.13
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of the
10th day of January, 1999 (the "Effective Date") by and between 1ST NET
TECHNOLOGIES, INC., a Colorado corporation (the "Corporation" or "Grantor"), on
the one hand, and CLIFFORD SMITH, an employee, GREGORY D. WRITER, JR., an
employee, JEFFREY CHATFIELD, an employee, and ENTREPRENEUR INVESTMENTS, LLC, a
Colorado limited liability company ("EI"), an advisor, on the other hand (each a
"Grantee" and collectively, "Grantees"), as follows:
Pursuant and subject to the Corporation's Non-Qualified Stock Option
Plan, a copy of which is attached hereto as Exhibit "A" and incorporated herein
by this reference (the "Plan"), the Corporation's Board of Directors has
determined that it is to the advantage and best interest of the Corporation and
its stockholders to grant the options provided for herein to Grantee. The
parties hereby agree as follows:
1. GRANT OF OPTION: For value received, the Corporation hereby
grants to each Grantee a right and option to purchase, on the terms and
conditions hereinafter set forth, 300,000 shares (in the case of EI), 100,000
shares (in the case of both Mr. Writer and Mr. Smith), and 25,000 shares (in the
case of Mr. Chatfield), respectively, of the Corporation's Common Stock.
2. TIME AND MANNER OF EXERCISE: From and after the Effective Date,
and during the succeeding five-year period commencing on the anniversary
thereof, each Grantee shall have the right to purchase from the Grantor, at an
exercise price of $3.00 per Share, up to 100 percent of the aggregate number of
shares of Common Stock of the Grantor which are subject to his Option. The
purchase shall be made upon delivery to the Grantor of a notice of exercise
accompanied by a certified or cashier's check in payment of the aggregate option
price. Promptly upon receipt of such material, the Grantor shall deliver to such
Grantee stock certificate(s) representing the number of shares purchased in
accordance with the foregoing and during such Grantee's lifetime, duly
registered in the name(s) of such Grantee and, at Grantees' election, his
spouse. The failure of any Grantee to exercise an option with respect to any
shares of the Grantor's Common Stock for which the right has accrued during any
one-year period shall not result in the termination of this Option with respect
to such shares of Common Stock; rather, the same shall cumulate and be eligible
for exercise during the remainder of the three-year option exercise term
following the Exercise Date.
3. ANTIDILUTION PROVISIONS: The number of shares that each Grantee
is entitled to purchase upon the exercise of this Option and the purchase price
of those shares are subject only to the adjustments set forth in Section 5.6 of
the Plan.
4. INVESTMENT UNDERTAKING; NON-ASSIGNABILITY: Except as expressly
provided herein, this Option may be exercised only by each Grantee during his or
her lifetime. Each
<PAGE> 2
Grantee will hold this Option and the rights arising hereunder for investment
and not with a view to distribution, and upon exercise will deliver a letter
confirming each Grantee's nondistributive intent with respect to the shares of
Common Stock received. Grantees will not transfer or assign this Option, except
by will or the laws of intestate succession.
5. EXPIRATION: This Option shall terminate and expire at midnight
on the date that is five years after the Effective Date. If any Grantee dies
while still eligible to participate in the Plan, his executor(s) or
administrator(s), or any person or persons who acquired the Option from the
Grantee by bequest or inheritance, shall, during the 12-month period commencing
on the date of the Grantee's death, have the right to exercise this Option with
respect to the shares that remain subject to this Option on that date, subject
to the conditions that this Option (i) shall in no event be exercisable after
its expiration in accordance with this Section 5 and (ii) it shall be
exercisable by such representative(s) or successor(s) only to the extent that
the Grantee's right to exercise this Option had accrued pursuant to Paragraph 2
hereof at the time of the Grantee's death and had not previously been exercised.
Any options not exercisable or not exercised prior to the end of such 12-month
period shall be automatically null and void.
6. REPRESENTATIONS OF GRANTOR: So long as this Option remains
outstanding and unexpired, the Grantor will reserve for issuance upon the
exercise of this Option the number of shares of the Grantor's Common Stock that
are subject to this Option. The shares of Common Stock of the Grantor subject to
this Option shall, when issued, be validly issued, fully paid and nonassessable.
The Grantor will pay, when due and payable, any and all federal and state taxes
or fees that may be payable by the Grantor with respect to the grant of this
Option or the issuance of any shares of Common Stock or certificates therefore
subject to this Option. This does not include any federal, state or other
personal income tax payable by the Grantee by virtue of (i) the grant of this
Option; (ii) the issuance of any shares of Common Stock upon exercise thereof;
or (iii) any subsequent disposition of such shares which shall remain the
obligation of the Grantee.
7. WITHHOLDING TAXES: If the Corporation determines that it is
required to withhold federal, state or local tax as a result of the exercise of
this Option, the Grantee, as a condition to the exercise of this Option, shall
make arrangements satisfactory to the Corporation to enable it to satisfy such
withholding requirements.
8. NOTICE: Any notice, request, or instructions given in connection
with this Option shall be in writing and shall be delivered in person or by
certified mail as follows:
(a) If to the Grantor, at 11423 W. Bernardo Court, San
Diego, California, 92127, Attention: Corporate Secretary;
(b) If to Grantees, at 11423 W. Bernardo Court, San Diego,
California, 92127;
2
<PAGE> 3
(c) Or at such other address(s) as either of the parties
shall have given notice to the other in accordance with the provisions hereof.
9. COMMITTEE DETERMINATION FINAL: The interpretation and
construction of the Plan and this Agreement, including any inconsistency between
the two documents, shall be reserved to and made by the Committee of the Board
of Directors of the Corporation provided for under the Plan. The Committee's
determinations shall be final as between the parties hereto unless otherwise
determined by the Board of Directors of the Corporation.
10. GOVERNING LAW: This Option is granted and delivered in the State
of California and is intended to be construed and enforced under the laws
thereof.
IN WITNESS WHEREOF, this Option is executed on behalf of the Grantor and
its duly authorized officers and by Grantees as of this 10th day of January,
1999.
GRANTOR:
1ST NET TECHNOLOGIES, INC.,
a Colorado corporation
/s/ GREGORY D. WRITER, JR.
----------------------------------------
Gregory D. Writer, Jr.,
Chief Executive Officer
GRANTEES:
/s/ CLIFFORD SMITH
----------------------------------------
Clifford Smith, an individual
/s/ GREGORY D. WRITER, JR.
----------------------------------------
Gregory D. Writer, Jr., an individual
/s/ JEFFREY CHATFIELD
----------------------------------------
Jeffrey Chatfield, an individual
ENTRENEUR INVESTMENTS, LLC,
a Colorado limited liability company
/s/ JAMES H. WATSON, JR.
----------------------------------------
James H. Watson, Jr.,
Managing General Member
3
<PAGE> 1
EXHIBIT 10.14
CONSULTING AGREEMENT
This agreement is entered into between Entrepreneur Investments, LLC, a
Colorado Limited Liability Corporation (hereafter also EI) and MARIAH
COMMUNICATIONS, INC., a Colorado Corporation (hereafter also MCI), with
reference to the following facts.
MCI has expressed a desire to enter into this exclusive agreement with EI
to provide consulting services for MCI. EI is in the business of providing such
services and desires to enter into an agreement with MCI to provide these
services. This agreement is for the purpose of defining the services to be
provided and the rights and responsibilities of both parties.
I. SERVICES PROVIDED BY EI
1. EI agrees to provide consulting services to MCI and will make
itself available to render advice to MCI concerning certain issues such as
financing structures, shareholder relations, public market strategy,
broker relations, capitalization, corporate structure and any other such
subjects as may be necessary in fulfilling this Agreement. EI also agrees
to act as a consultant to MCI to help the MCI prepare or cause to be
prepared a suitable offering memorandum(s). This memorandum will be
prepared in a format acceptable to the securities industry and will be
prepared from the information provided by MCI.
2. EI will, upon request, prepare a recommended capital structure
for MCI's entry into the public market. This structure will be approved by
MCI and will be implemented by a qualified attorney to be designated by EI
and agreed by MCI. The structure will include distribution to
shareholders, creditors, and other parties and shall include the agreed
upon capital formation requirements of MCI.
3. EI will, if requested, provide or arrange to be provided, such
accounting services as are necessary to complete independent audits of
MCI's books in order to proceed with the preparation and filing of any and
all required registrations. All accounting work will be provided at the
MCI's expense.
4. EI will cause to be prepared, through qualified securities
counsel, a registration or exemption from registration filing of the MCI's
securities with the proper Federal and/or State Securities Commissions as
agreed by both parties. All legal work will be provided at the MCI's
expense.
5. In order to complete the registration, EI will distribute any
stock it receives from MCI to the Members of EI upon the effective
registration of those securities.
6. EI will caused to be prepared a form 15c2-11 for distribution to
the brokerage community for the purpose of establishing a market for the
MCI's stock and a listing on the
1
<PAGE> 2
Over the Counter Bulletin Board (OTC: BB) Market or other similar national
quotations system.
7. EI agrees to use its expertise and business contacts to arrange for
the development of certain market makers for the MCI's stock once the stock
distribution and quotation is complete.
II. RESPONSIBILITIES OF MCI
1. MCI Agrees to prepare or assist in the preparation of a suitable
offering memorandum document. This memorandum will be prepared in a format
acceptable to the securities industry.
2. MCI will, if requested, provide or arrange to be provided to EI or
its designee, such accounting records as may be necessary to complete an
audit of MCI's books in order to proceed with the preparation and filing of
any necessary registration(s). All accounting work will be at the MCI's
expense.
3. MCI agrees to provide EI with such financial, business and other
material and information about MCI, its products, services, contracts,
pending litigation, patents, trademarks and other such business matters
which EI may request and which EI considers to be important and material
information for the completion of this contract.
4. MCI agrees to provide EI, or its appropriate attorney, investigators
and accountants all material requested in order to prepare a registration
document. These materials include but are not limited to: articles of
incorporation and all amendments thereto; by-laws of the corporation;
minutes and resolutions of all shareholders and Board of Directors meetings;
a copy of the share register showing the names, addresses and social
security number of shareholders, along with the dates of issuance and the
numbers of shares owned by each shareholder; the names, addresses and social
security numbers of all officers and directors of the corporation; a resume
for each officer and director of the corporation; and financial statements
providing balance sheets for the two previous years (if applicable) and
Statement of Operations for the three previous years (if applicable).
5. MCI agrees to notify EI of any changes in the status or nature of
its business, any pending litigation, or any other developments that may
require further disclosure in filings, registrations or other documents.
III. CASH COMPENSATION
For services rendered, as described above, EI will receive the following
cash compensation: $25,000.
2
<PAGE> 3
If the MCI should, for whatever reason, terminate or withdraw from this
Agreement, the MCI agrees that EI's fee will be the amount which the MCI may
have paid or is required to pay under this Agreement as of the date of
termination or withdrawal.
IV. REPRESENTATIONS BY EI
EI represents, warrants, and covenants the following:
1. EI is a Limited Liability Corporation duly organized and existing
under the laws of the State of Colorado and is in good standing with the
jurisdiction of its incorporation.
2. EI will disclose to MCI all material facts and circumstances which
may affect its ability to perform its undertaking herein.
3. EI will cooperate in a prompt and professional manner with MCI, its
attorneys, accountants and agents in the performance of this Agreement.
V. REPRESENTATIONS OF MCI
MCI represents, warrants and covenants the following:
1. MCI will cooperate fully with EI in executing the responsibilities
required under this Agreement so that EI may fulfill its responsibilities in a
timely manner.
2. MCI will neither circumvent this agreement either directly or
indirectly nor will it interfere with, impair, delay or cause EI to perform
work not described in this Agreement.
3. MCI and each of its subsidiaries is a corporation duly organized and
existing under the laws of its state of incorporation and is in good standing
with the jurisdiction of its incorporation in each state where it is required
to be qualified to do business.
4. MCI's articles of incorporation and by-laws delivered pursuant to
this Agreement are true, and complete copies of same have been duly adopted.
5. MCI will cooperate in a prompt and professional manner with EI, its
attorneys, accountants and agents during the performance of the obligations due
under this Agreement.
6. MCI represents that no person has acted as a finder or investment
advisor in connection with the transactions contemplated in this Agreement. MCI
will indemnify EI with respect to any claim for a finder's fee in connection
with this Agreement. MCI represents that no officer, director or stockholder of
the company is a member of the NASD, an employee or associated member of the
NASD, MCI represents that it has disclosed or will disclose to EI all potential
conflicts of interests involving its officers, directors, principals,
stockholders and/or employees.
3
<PAGE> 4
7 All financial information from the MCI will be provided to EI
in a timely and complete manner and all other information which MCI has
previously provided to EI concerning the MCI is accurate and complete in
every material respect. If it is later determined that such is not the
case, it shall be considered a basis for the termination of this
Agreement.
VI. CONFIDENTIALITY
EI agrees that all information received from MCI shall be treated
as confidential information and EI shall not share such information with
any other person or entity, except as are required to EI to fulfill this
Agreement, without the express written consent of MCI, unless such
disclosure will not cause damages to MCI.
MCI agrees not to divulge any named source (i.e. lenders,
institutions, investors, personal contacts, Broker Dealers, etc.) which
may be introduced to MCI by EI, for a period of one (1) year from the
execution of this Agreement. Furthermore, MCI agrees not to circumvent,
either directly or indirectly, the relationship that EI has with said
sources.
VII. NOTICES
Any notices from either party to the other shall be deemed received
on the date such notice is personally delivered. Any notice sent by fax
transmission shall be deemed received by the other party on the day it
has been transmitted. Any notice sent by mail by either party to the
other shall be deemed received on the third business day after it has
been deposited at a United States Post Office. For purposes of delivering
or sending notice to the parties under this Agreement such notices shall
be delivered or sent as follows:
Entrepreneur Investments, LLC Mariah Communications, Inc.
1869 W. Littleton Blvd. 3025 S. Parker Road
Littleton, CO 80120 Aurora, CO 80012
4
<PAGE> 5
VIII. ENTIRE AGREEMENT
Neither party has made representations to the other which is not
specifically set forth in this Agreement. There are no oral or other
agreements between the parties which have been entered into prior or
contemporaneously with the formation of this Agreement. All oral
promises, agreements, representations, statements and warranties herein,
after asserted by one party against the other, shall be deemed to have
been waived by such party asserting that they were made and this
Agreement shall supersede all prior negotiations, statements,
representations, warranties and agreements made or entered into between
the parties to this Agreement.
IX. NO ASSIGNMENT
Neither party may assign any benefit due or delegate performance
under this Agreement without the express written consent of the other
party.
X. CONSTRUCTION
This Agreement shall be governed by the laws of the State of
Colorado. It shall also be construed as if the parties participated
equally in its negotiation and drafting. The Agreement shall not be
construed against one party over another party.
XI. ATTORNEYS FEES
In any action concerning the enforcement, breach, or interpretation
of this Agreement, the prevailing party shall be entitled to recover its
costs of suit and reasonable attorneys fees from the other party, in
addition to any other relief granted by the court.
XII. WAIVER
The waiver of any provision of this Agreement by either party shall
not be deemed to be a continuing waiver or a waiver of any other
provision of this Agreement by either party.
XIII. SEVERABILITY
If any provision of this Agreement or any subsequent modifications
hereof are found to be unenforceable by a court of competent
jurisdiction, the remaining provisions shall continue to remain in full
force and effect.
5
<PAGE> 6
XIV. AUTHORITY TO ENTER INTO AGREEMENT
The individuals signing this Agreement below represent to each other that
they have the authority to bind their respective corporations to the terms and
conditions of this Agreement. The individuals shall not, however have personal
liability by executing this Agreement and sign this Agreement only in their
representative capacities as authorized officers of the MCI and EI,
respectively.
IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement
on the 15th day of August, 1998.
MARIAH COMMUNICATIONS, INC. ENTREPRENEUR INVESTMENTS, LLC
/s/ [Signature Illegible] /s/ J. H. WATSON, JR.
- ------------------------------ --------------------------------
Authorized Corporate Officer Authorized Corporate Officer
J. H. Watson Jr./Managing Member
- ------------------------------ --------------------------------
Print Name/Title Print Name/Title
6
<PAGE> 1
EXHIBIT 10.15
INTERNET WEB SITE
DEVELOPMENT AGREEMENT
THIS AGREEMENT made and entered into on this 9th day of November 1998, by and
between Technologies, Inc., a Colorado Corporation, having offices at 11423 West
Bernardo Court, San Diego, California 92127 (hereafter referred to as 1st NET)
and North West Farms, Inc. having offices at 11423 West Bernardo Court, San
Diego, California 92127 (hereafter referred to as NWFM).
WITNESSETH:
WHEREAS, 1st NET is a business specializing in the building and marketing
of 'Corporate Due Diligence Web Sites' and the dissemination of information
for publicly traded companies on the Internet; and
WHEREAS, 1st NET desires to enter into an agreement as an independent
contractor whereby 1st Net will provide marketing and database services for
NWFM; and
WHEREAS, NWFM is a public company that is, at this time, trading its common
stock on the NASDAQ and without however, being an employee; and
WHEREAS, the parties hereto desire to enter into an agreement which will
define their rights and responsibilities toward each other.
NOW, THEREFORE, in consideration of the mutual covenants and conditions herein
contained, the parties hereto agree as follows:
1. 1st NET shall at times act as an independent contractor in the transaction
of its business and shall conduct its activities in accordance with the
rules and regulations of the Securities and Exchange Commission, and the
long standing recognized practices of the industry. Nothing contained in
this Agreement shall be construed to create the relationship of employer
and employee between NWFM and 1st NET.
2. This Agreement shall commence on the date hereof and will terminate on the
earlier of the following:
(a) 1 Year from the date of this Agreement;
(b) Cause shall be determined solely by the following:
i. Dishonesty related to independent contractor status with NWFM.
ii. Violation of any rule or regulation of any regulatory agency; or
iii. Any other neglect, act or omission detrimental to the conduct of
NWFM.
iv. Failure to pay as described in section 8.
(c) Upon termination for cause by 1st NET upon ten (10) days written notice.
Cause shall be determined solely by the following:
i. Dishonesty related to material facts regarding the development of
the company's projects;
ii. Violation of any rule or regulation of any regulatory agency; or
iii. Any other neglect, act or omission detrimental to the conduct of
1st NET.
3. 1st NET will perform the services as outlined in Exhibit A incorporated
herein. 1st NET will disseminate, through the use of the Internet, the
contents of the information package and any research reports produced by
NWFM in order to attract potential investors, the investment community, as
well as communication with existing shareholders.
<PAGE> 2
Exhibit A:
The focus and purpose of 1st Net's Internet Financial Relations Services
is to create an effective presence on the Internet for publicly traded
companies. Through a structured program, designed to be all encompassing
for the investment community, 1st NET and its clients can accomplish this
goal. There are four main areas on which we focus:
1) The dissemination and presentation of all pertinent corporate
information to current and prospective shareholders and the investment
community at large via the World Wide Web.
2) The comprehensive marketing of the sites content in an effective
method for a period of two (2) months to begin immediately following
the completion of the 'Corporate Due Diligence Web Site'.
3) The development and maintenance of a structured, users database.
4) Three months maintenance of the web site.
(See sections 8 & 9 for payment, fee schedules and contract end date)
4. 1st NET shall be responsible for the payment of all expenses and taxes or
other liabilities, which 1st NET incurs due to the receipt of any
compensation as a result of this Agreement.
5. 1st NET shall be free to exercise its own judgment as to the time, place
and manner of its actual marketing activities related to this Agreement.
NWFM acknowledges that 1st NET is engaged in other business activities and
that it will continue such activities during the term of this Agreement.
1st NET shall not be restricted from engaging in other business activities
during the term of this Agreement.
6. Neither during the term of this Agreement nor thereafter shall 1st NET use
any information acquired by them in a manner adverse to the interests of
NWFM or do any act to damage the goodwill of NWFM. 1st NET shall supply to
NWFM upon request all sources of information and shall not make any untrue
statements or misrepresentations, nor fail to state any material fact to
NWFM. 1st NET shall indemnify and hold NWFM harmless from the claim of any
client or company due to any allegation of fraud or misrepresentation from
any and all damages related thereto. This provision shall survive the
termination of this Agreement.
7. 1st NET understands and agrees that in performance of its duties hereunder
they will have certain confidential and proprietary information
("information") concerning NWFM, some of which are confidential,
proprietary and may be trade secrets of NWFM. 1st NET agrees to hold all
of such information within its own organization and shall not, without the
prior written consent of an authorized officer of NWFM utilize,
communicate, or otherwise disclose said information, or any part thereof,
to any third party in any manner.
FOR SERVICES RENDERED AS DESCRIBED ABOVE IN SECTIONS 1, 2, AND 3 OF
'EXHIBIT A' 1ST NET WILL RECEIVE THE FOLLOWING COMPENSATION:
(a) 1 million shares of Treasury Stock in NWFM (OTC BB: NWFM) payable upon the
execution of this contract.
(b) In addition, NWFM understands that Monterey Ventures will be issuing an
option to 1st Net to buy 665,160 shares of free trading stock at $.02
cents per share, equal to a total of $13,302.20.
(c) In addition, NWFM agrees to pay 1st Net $30,000 for services 1, 2, and 3,
described in "EXHIBIT A".
8. Monthly maintenance will begin on February 9th 1999 and will continue for
a period of nine (9) months ending November 9th 1999. Maintenance fees are
set at $500.00 per month with a total value of $4,500.00 for the term of
this contract.
9. Monthly maintenance fees can be increased to fulfill the requirements of
NWFM as mutually agreed by both parties. THIS CONTRACT TERMINATES ON
NOVEMBER 9TH 1999.
10. This agreement shall supersede all former agreements, which may have
existed between the parties hereto, whether oral or written.
<PAGE> 3
11. In the event that any claim, lawsuit or controversy arises or is brought
against NWFM or 1st NET as a result of any action or inaction of 1st NET or
NWFM, the expenses incurred, including reasonable attorneys' fees shall be
borne by the losing party.
12. This agreement shall supersede all former agreements, which may have
existed between the parties hereto, whether oral or written. Neither party
may assign this contract nor any payment nor benefits to which the parties
may become entitled, without prior written consent.
13. This Agreement shall be deemed a California contract and governed by the
laws thereof. Any provision of this Agreement prohibited by the laws of any
state shall, as to such state, be ineffectual only to the extent of such
prohibition and shall not invalidate the remaining provisions of this
Agreement.
14. Any controversy or claim arising out of or relating to this contract, or
the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
IN WITNESS HEREOF, the parties hereto have executed this document as of the
date and year written below.
BY: /s/ GREG D. WRITER Date: 11-9-98
-----------------------------------
Greg D. Writer
North West Farms, Inc.
BY: /s/ CLIFFORD J. SMITH Date: 11-9-98
-----------------------------------
Clifford J. Smith, President
1st Net Technologies, Inc.
<PAGE> 1
EXHIBIT 11
1ST NET TECHNOLOGIES, INC.
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
----------------------------------------
JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1998
---------- ------------ ----------
<S> <C> <C> <C>
Net Income............................................ $ (235,755) $ (286,076) $ 192,390
Weighted Average Number of common shares
outstanding......................................... 6,154,700 3,165,500 2,798,000
Incremental Shares for Computing fully diluted
earnings per share.................................. 2,508,400 5,000 --
Total Number of Shares for Computing fully diluted
earnings per share.................................. 8,663,100 3,170,500 2,798,000
Primary Earnings Per Share............................ $ -- $ (0.090) $ 0.069
Diluted Earnings Per Share............................ $ -- $ (0.090) $ 0.069
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share" (SFAS 128). SFAS
128 specifies the computation, presentation, and disclosure requirements of
earnings per share and supersedes Accounting Principles Board Opinion 5,
"Earnings Per Share". SFAS 128 requires dual presentation of basic and, where
applicable, diluted earnings per share. Basic earnings per share, which excludes
the impact of common stock equivalents, replaces primary earnings per share.
Diluted earnings per share which utilizes the average market price per share or
ending market price per share when applying the treasury stock method in
determining common stock equivalents, replaces fully-diluted earnings per share.
SFAS 128 is effective for the Company in 1998 and 1997. However, there were no
common stock equivalents during the year ended December 31, 1997 and, therefore,
there is no effect on the earnings per share presented for that year, due to the
Company's adoption of SFAS 128. In the year ended December 31, 1998, however,
this adoption is effective in the presentation of Diluted earnings per share for
that period. Basic earnings per share have been computed using the weighted
average number of common shares and common share equivalents outstanding.
Diluted earnings per share were calculated using the weighted number of common
shares and common share equivalents, including all options and warrants as if
exercised at the beginning of the periods.
<PAGE> 1
EXHIBIT 16.1
Securities And Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: 1st Net Technologies, Inc.'s Registration Statement on Form 10-SB under
Rule 12(g) of The Securities and Exchange Act of 1934 (to be filed on or
about August 20, 1999)
Ladies and Gentlemen:
The purpose of this letter is to satisfy the requirements of Item 304(a)(3)
of Regulation S-B with the intent that 1st Net Technologies, Inc. ("1st Net")
will lodge this letter as Exhibit 16.1 to its Form 10-SB referenced above (the
"Form 10-SB"). We agree with the statements made by 1st Net in its Form 10-SB,
Item 3, Changes in and Disagreements With Accountants.
Cordovano and Harvey, P.C.
<PAGE> 1
EXHIBIT 16.2
Securities And Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: 1st Net Technologies, Inc.'s Registration Statement on Form 10-SB under
Rule 12(g) of The Securities and Exchange Act of 1934 (to be filed on or
about August 20, 1999)
Ladies and Gentlemen:
The purpose of this letter is to satisfy the requirements of Item 304(a)(3)
of Regulation S-B with the intent that 1st Net Technologies, Inc. ("1st Net")
will lodge this letter as Exhibit 16.2 to its Form 10-SB referenced above (the
"Form 10-SB"). We agree with the statements made by 1st Net in Form 10-SB, Item
3, Changes in and Disagreements With Accountants.
Bewley, Argy, & Company,
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF 1ST NET TECHNOLOGIES, INC.
Mariah Communications, Inc., a Colorado corporation
Spirit 32, Inc., a Colorado corporation
The Childrens Technology Group, Inc., a Nevada corporation
SSP Management Corporation, a Colorado corporation
<PAGE> 1
EXHIBIT 23.1
[CORBIN & WERTZ LETTERHEAD]
August 18, 1999
Lawrence K. Kimball
Chief Financial Officer
1st Net Technologies, Inc.
11423 West Bernardo Court
San Diego, CA 92127
Re: Registration Statement on Form 10-SB
Dear Mr. Kimball,
We consent to the use of our name in 1st Net Technologies, Inc.'s Registration
Statement on Form 10-SB.
Sincerely,
/s/ CORBIN & WERTZ
- -----------------------
Corbin & Wertz
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below appoints James H. Watson, Jr. his true and lawful attorney-in-fact and
agent, with full power of substitution for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Form 10-SB, and any related Form 10-SB, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorney-in-fact, and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes he might or could do in person,
hereby ratifying and conforming all that such attorney-in-fact and agent, or
his substitute may lawfully do or cause to be done by virtue hereof. Each
person whose signature appears below hereby revokes any power of attorney
granted in connection with this form 10-SB Statement prior to the 20th day of
August 1999.
Pursuant to the requirements of the Securities Exchange Act of 1934 this
Form 10-SB has been signed by the following persons in the capacities indicated
below on the 20th day of August 1999.
/s/ CLIFFORD J. SMITH
----------------------------------
Clifford J. Smith, Director
/s/ JAMES H. WATSON, JR.
----------------------------------
James H. Watson, Jr., Director
/s/ STEVEN J. SANTAMARIA
----------------------------------
Steven J. Santamaria, Director
/s/ LAWRENCE K. KIMBALL
----------------------------------
Lawrence K. Kimball, Director
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<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 780,921 17,888
<SECURITIES> 1,226,091 78,496
<RECEIVABLES> 141,707 154,752
<ALLOWANCES> (6,795) (20,285)
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,416,026 311,883
<PP&E> 503,110 199,222
<DEPRECIATION> (49,984) (23,246)
<TOTAL-ASSETS> 3,186,763 803,220
<CURRENT-LIABILITIES> 516,950 283,343
<BONDS> 227,840 26,962
0 0
0 50,000
<COMMON> 5,581 3,513
<OTHER-SE> 3,435,983 874,415
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<TOTAL-COSTS> 1,988,483 1,193,077
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<LOSS-PROVISION> 49,603 (135,645)
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (235,755) (286,076)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (235,755) (286,076)
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<NET-INCOME> (235,755) (286,076)
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