As Filed with the Securities and Exchange Commission on August ___, 1998
Registration No.______
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
WORLD WIDE MAGIC NET, INC.
(Name of small business issuer in its charter)
-----------------
California 95-4597370
(State or other jurisdiction) (I.R.S. Employer Identification No.)
7370
(Primary Standard Industrial Classification Code)
Alan Chang
320 S. Garfield Avenue, Suite 318
Alhambra, CA 91801
(626) 588-3660
(Name, Address and Telephone Number of Agent for Service)
-----------------------
Copies to:
William D. Evers, Esq.
Kevin F. Barrett, Esq.
Evers & Hendrickson, LLP
155 Montgomery, 12th Floor
San Francisco, CA 94104
Phone No.: (415) 772-8100 Fax No.: (415) 772-8101
-------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- -------------------------------- -------------------- ---------------------- ---------------------- -------------------
Proposed Maximum
Title of each class Amount to be Aggregate Offering Amount of
of Securities to be Registered Registered Price Per Share Price (1) Registration Fee
- -------------------------------- -------------------- ---------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 2,500,000 $4.00 $10,000,000 $2,950
Total $10,000,000 $2,950
- -------------------------------- -------------------- ---------------------- ---------------------- -------------------
<FN>
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended (the "Securities Act"), solely for purposes of calculating the
registration fee.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification.
SUBJECT TO COMPLETION DATED _________
Preliminary Prospectus
WORLD WIDE MAGIC NET, INC.
2,500,000 SHARES
COMMON STOCK
All of the 2,500,000 shares of common stock offered by this Prospectus
are being sold either by World Wide Magic Net, Inc. d.b.a. Cyber Merchants
Exchange (the "Company") or shares will be offered through Brokers. Prior to
this Offering, there has been no public market for the Company's common stock;
therefore, the public offering price has been determined by the Company. After
completion of this offering ("Offering"), and dependent largely upon the number
of shares sold in this Offering, the Company's shares may be traded on a stock
exchange (no application has been made to any stock exchange) or in the
over-the-counter market, or no active trading market may develop or be
sustained. See "Risk Factors" and "Shares Eligible for Future Resale."
This Offering is being made directly by the Company for not more than
2,500,000 shares (the "Maximum" amount). Until 100,000 Shares (the "Minimum")
are fully subscribed, all subscription payments will be deposited into an escrow
account at Imperial Bank, Los Angeles, California. If the Minimum is not
obtained within twelve months of the date of the commencement of this Offering,
all proceeds deposited in the escrow account will be promptly refunded in full
with interest, without any deduction for expenses. See "Use of Proceeds." This
Offering will be terminated upon the earlier of: the sale of the Maximum amount,
twelve months after the date of this Prospectus or the date on which the Company
decides to close the Offering. A minimum purchase of 500 shares is required. The
Company reserves the right to reject any Share Purchase Agreement in full or in
part. See "Plan of Distribution."
The common stock offered hereby involves a high degree of risk. See
"Risk Factors."
<TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<CAPTION>
- -------------------------------------------- ------------------------- ----------------------- ---------------------
Underwriting
Discounts and Proceeds to the
Price to Public (1) Commissions (2) Company (3)
- -------------------------------------------- ------------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Per Share: $4.00 None $4.00
- -------------------------------------------- ------------------------- ----------------------- ---------------------
Total Minimum (100,000 Shares): $400,000 None $400,000
- -------------------------------------------- ------------------------- ----------------------- ---------------------
Total Maximum (2,500,000 Shares): $10,000,000 None $10,000,000
- -------------------------------------------- ------------------------- ----------------------- ---------------------
<FN>
(1) The Price to Public has been arbitrarily determined by the Company. Among
factors considered in determining the public offering price were the
Company's current financial condition, its future prospects, the state of
the markets for its services, the experience of management, and the
economics of the industry in general.
(2) The shares are being sold directly by the Company through designated
officers who are registered as sales representative, where required, and
will not receive any commission and through Brokers. See "Plan of
Distribution."
(3) Before deducting estimated expenses of $108,000 payable by the Company,
including registration fees, escrow agent fees, costs of printing, copying
and postage and other offering costs, in addition to legal and accounting
fees.
</FN>
</TABLE>
The date of this Prospectus is August _____, 1998
2
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this Offering other than those contained in
this Prospectus and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person in any jurisdiction in which such
offer or solicitation is unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any date subsequent to
the date hereof.
This Prospectus is available in an electronic format, upon appropriate request
from a resident of those states in which this Offering may lawfully be made. The
Company will transmit promptly, without charge, a paper copy of this Prospectus
to any such resident upon receipt of a request.
REFERENCE DATA
Upon the date of this Prospectus, the Company became subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended ("Exchange Act") for its current fiscal year. Upon completion of this
Offering the Company may be required to register under the Exchange Act and
continue to file required annual and quarterly reports.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent public accounting firm
after the end of its fiscal year. The Company's fiscal year ends on June 30. In
addition, the Company will send shareholders quarterly reports with unaudited
financial information for the first three quarters of each fiscal year.
The Company was incorporated under the laws of the state of California,
on July 16, 1996. The Company's corporate office and principal place of business
is located at 320 S. Garfield Avenue, Suite 318, Alhambra, California 91801. The
Company's telephone number is (626) 588-3660 or (888) 564-6263 (JOIN CME). The
Company's fax number is (626) 588-3655. The Company's E-mail address is
[email protected] and its World Wide Web site is http://www.c-me.com.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains certain statements of a
forward-looking nature relating to future events or future financial performance
of the Company. Prospective investors are cautioned that such statements are
only predictions and involve risks and uncertainties. The Company's actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business", as well as those discussed
elsewhere in this Prospectus.
The Company
The Company was founded in July 1996 with the primary mission to make
electronic commerce (E-commerce) easy, practical, efficient and inexpensive for
buyers and sellers in the consumer products wholesale industry. To that end, the
Company has developed three products which includes: (1) a virtual trade show,
(2) an exclusive Internet Sourcing Network ("ISN") and (3) an exclusive Internet
Sourcing Network with Internet Electronic Data Interchange ("EDI") capabilities.
The products currently serviced include apparel, footwear, piece goods, sporting
goods, computers, software, consumer electronics, linens and baby items.
The Company's virtual trade show has been operational since November 1,
1996. Located at http://www.c-me.com, this virtual trade show enables
wholesalers and manufacturers to showcase their consumer products over the
Internet for a nominal fee. Retail buyers have free access to the virtual trade
show through the use of the Company's FOCASTING (Focused Broadcasting) and DEPS
(Dynamic End-User Profile System) software.
Since October, 1997, the Company has been working with Burlington Coat
Factory Warehouse Corporation [NYSE:BCF] and has created an ISN for it. The ISN
will create an electronic link between BCF and its vendor base, allowing BCF to
streamline and centralize the way it buys and sources goods. The Company is also
working with Family Bargain Corporation to create an ISN for it. In addition,
the Company seeks to create ISN's for other retailers, including Ann & Hope and
Ames Department Stores.
Lastly, the Company is in the process of developing Internet EDI and
incorporating these capabilities into the ISN's the Company creates for
retailers. By using existing Internet technology as a framework, the Company's
ISN with Internet EDI will provide an affordable alternative to standard EDI to
retailers and vendors alike.
Strategy
The Company's strategy is to aggressively secure as many collaborative
retail partnerships as possible by establishing specific ISN's for each retailer
in exchange for the retailer's co-marketing efforts in encouraging their vendors
to join the ISN. Subsequently, the Company intends to establish a presence in
the Pacific Rim and to develop foreign partnerships that will strengthen the
Company's position. Management is hopeful that such an expansion will allow the
Company to attract foreign vendors who, ordinarily, would have no effective
means of communicating and presenting products to major U.S.-based retailers.
More importantly, the Company is hopeful that its domestic and foreign
operations will allow it to achieve a critical mass of vendors and product
information. See, "Business -- Strategic Plan."
4
<PAGE>
The Offering
Common Stock offered by the Company 100,000 shares (Minimum)
2,500,000 shares (Maximum)
Common Stock outstanding prior
to the Offering, as of November
30, 1997 5,750,000 shares(1)
Use of Proceeds If the Company raises the Minimum, it
intends to use the proceeds for the
expansion of its current operations,
including establishing Internet Sourcing
Networks with Internet EDI, up-grading its
existing computer infrastructure and
Internet access, and for working capital
purposes. If the Company raises the Maximum,
it intends to form joint ventures with
suitable foreign partners to open up to
eight (8) offices in the Far East. The
Company intends to invest up to $1,000,000
in each foreign office in return for an
equity interest above and beyond the
Company's investment as well as 10% royalty
from the gross receipts of each foreign
office. The remaining proceeds will be used
for the expansion of its current operations,
including establishing Internet Sourcing
Networks with Internet EDI, up-grading its
existing computer infrastructure and
Internet access, and for working capital
purposes.
(1) The Company has 5,750,000 shares of common stock currently outstanding and
250,000 shares of common stock reserved for issuance upon exercise of currently
exercisable stock options. See, "Stock Options."
<TABLE>
Summary Financial Data:
<CAPTION>
Statement of Operations Data: Year Ended June 30, 1997 Nine Months Ended March 31
-------------------------- ----------------------------------
(Unaudited)
1997 1998
----------- -----------
<S> <C> <C> <C>
Revenues $ 35,900 $ 18,830 $ 54,168
Operating loss (637,208) (447,190) (425,921)
Interest income(1) 50,397 41,099 10,829
Loss before income taxes (586,811) (406,091) (415,092)
Net loss (587,611) (406,891) (415,892)
Basic and diluted net loss per share (2) (0.13) (0.09) (0.08)
Shares used in per share calculation (3) 4,503,671 4,420,595 4,938,060
</TABLE>
5
<PAGE>
Balance Sheet Data: March 31, 1998 (Unaudited)
----------------------------
Actual As Adjusted (4)
Working capital ........................ $ 475,138 $10,367,138
Total assets ........................... $ 605,029 $10,497,029
Stockholders' equity ................... $ 576,497 $10,468,497
(1) Interest income from loan to Frank Yuan. See, "Certain Transactions".
(2) See Note 1 of Notes to Financial Statements for the determination of shares
used in computed basic and diluted net loss per share.
(3) Based on shares outstanding as of March 31, 1998, excludes, as of March 31,
1998, (i) 145,000 shares of Common Stock issuable upon exercise of options
outstanding under the Company's 1997 Stock Option Plan at a weighted
average exercise price of $0.19 per share and 105,000 shares reserved for
future issuance thereunder and (ii) 950,000 shares of Common Stock issuable
upon exercise of outstanding warrants at a weighted average exercise price
of $4.00 per share. See "Management -Stock Options" and Note 1 of Notes to
Financial Statements.
(4) Adjusted to reflect the sale of 2,500,000 shares of Common Stock by the
Company at the initial public offering price of $4.00 per share and the
application of the estimated net proceeds therefrom.
RISK FACTORS
An investment in the Shares being offered hereby involves a high degree
of risk. Consequently, in addition to the other information set forth in this
Prospectus, the following risk factors should be considered carefully by
potential investors in evaluating an investment in the Company's Shares.
Future Capital Needs - Additional Funding Requirements
From its inception in July, 1996, the Company funded its operations
primarily by raising $1,050,000 through the private sale of 9,500,000 shares of
common stock to a limited group of investors. In addition, prior to this
Offering, the Company raised approximately $500,000 through the private sale of
2,000,000 shares. In March, 1998 the Board of Directors and shareholders
effectuated a 2-for-1 reverse stock split such that after the reverse split a
total of 5,750,000 issued shares and 250,000 shares reserved for stock options,
remain outstanding. Management believes that the Minimum amount (approximately
$292,000, net of expenses) together with cash flows from the sale of its
Internet services are sufficient to fund operations for the next 6 months and
will enable the Company to market its ISN, and pursue additional strategic
retail partners. If the Maximum (approximately $9,892,000, net of expenses) is
raised, the Company expects to not only fund its current operations but to also
pursue the development of ISN's with Internet EDI capabilities, and form joint
ventures with suitable foreign partners. The joint venture plan entails opening
up to eight (8) satellite offices in Pacific Rim countries (i.e., China, South
Korea, Taiwan, Hong Kong, Singapore, Thailand, Indonesia, and the Philippines)
to attract foreign manufacturers to join the Company's services, including its
virtual trade show and Internet Sourcing Network. In return for an investment of
up to $1,000,000 in each of these anticipated foreign offices, the Company
expects to receive an equity interest above and beyond the Company's investments
as well as a 10% royalty of the gross receipts from each foreign office. Any
excess funds will be held in reserve until needed. Because this Offering is
being conducted on a best-efforts basis there can be no assurance that either
the Minimum or Maximum amounts will be raised. If the Minimum is not achieved,
the Company will have to curtail present operations significantly and seek
alternative funding sources. See "Use of Proceeds."
In the event the Company requires additional financing, it may seek
such financing through bank borrowing, debt or other equity financing. There can
be no assurance that such financing will be available to the Company on
acceptable terms, if at all. Any future equity financing may involve the sale of
additional shares of the Company's Common Stock on terms that have not yet been
established. These terms may be more favorable than those contained herein and
would result in dilution to the investors in this Offering.
6
<PAGE>
Limited Operating History
Although incorporated in July, 1996, the Company started its operations
in November 1996. The revenues from the sale of the Company's services prior to
June 30, 1997 totaled $35,900. As interest in the Internet as a viable marketing
tool and advertising medium increases and the Company solidifies its
relationships and contracts with Burlington Coat Factory and Family Bargain
Corporation, Management expects sales to exceed operating expenses. Because the
Company has only recently begun to market its ISN and collect subscription fees,
it is difficult to predict when, if ever, it will produce an operating profit.
History of Losses
The process of establishing and operating an early stage Internet
venture required the Company to incur substantial development costs at a time
when revenue sources were limited. As a result, the Company incurred operating
losses of $587,611 in the fiscal year ended June 30, 1997. See "Selected
Financial Data" and "Financial Statements." Management expects that the spread
between expenses and revenues will continue to narrow and that operations will
become profitable. It is important to note, however, that Management's belief is
based in part on Burlington's Coat Factory's and Family Bargain Corporation's
co-marketing efforts as well as their efforts to convince their vendors to join
the Internet Sourcing Network. It also assumes that no unexpected costs or
expenses are incurred.
Valuation and Dilution
The $4.00 per share offering price assumes a valuation of the Company
of approximately $37,777,777 based on 9,444,444 shares outstanding after the
completion of the sale of 2,500,000 shares offered hereby plus the grant and
exercise of stock options to purchase 250,000 shares (of which 105,000 shares
have not yet been granted) and the exercise of Burlington Coat Factory's stock
warrant (which, assuming the maximum number of shares are sold hereby, would be
for 944,444 shares). Prior to this Offering, there has not been any public
market for the Company's common stock and no public market is expected to
develop. Accordingly, the Offering price has been arbitrarily determined by the
Company. Among factors considered in determining the Offering price were the
Company's current financial condition, its future prospects, the state of the
markets for its services, the experience of management, and the economics of the
industry in general. Purchasers of the Shares will experience immediate and
substantial dilution in the pro forma net tangible book value per share of the
Common Stock from the Offering price. See "Dilution."
Reliance on Collaborative Partners
The Company's present strategy is to seek collaborative partners,
mainly retailers, for the purpose of creating ISN's for them in exchange for
their co-marking efforts. Such collaborative arrangements, if entered into, may
provide the Company with additional revenues and make it easier for the Company
to attract subscribers. Although the Company has successfully secured such a
partnership with Burlington Coat Factory and Family Bargain Corporation, there
can be no assurance that the Company will be successful in finding other
suitable collaborative partners to establish ISN's, nor can there be any
assurance as to the timing or terms of any such collaboration. If the Company is
unable to enter into favorable collaborative arrangements, the Company may not
have sufficient resources to further develop the ISN's. In any event, the
Company believes that revenues from the ISN's, will depend in part upon the
efforts expended by the retailer's management and buyers in encouraging and, to
some extent, in requiring, the retailer's existing vendor pool to join the ISN.
The amount and timing of resources devoted to convincing vendors to join the
ISN's will be controlled by the retailer. Should the retailer fail to perform
any essential functions, the Company's business and results could be materially
adversely affected. However, although the Company seeks exclusive agreements
with the collaborative partners there can be no
7
<PAGE>
assurance that any of the Company's anticipated collaborative partners would not
pursue alternative technologies or develop alternative methods on their own or
in collaboration with others, including the Company's competitors.
Dependence on the Internet
Because the Company's products and services are directly marketed over
the Internet, the future success of the Company will depend in large part on
whether the Internet proves to be a viable commercial marketplace. Whether
because of inadequate development of the necessary infrastructure or as a result
of fraud, or any other cause, if retailers lack confidence in sourcing products
over the Internet the Company's business, operating results and financial
condition will be materially adversely affected.
Rapid Technological Change; Dependence on New Product Development
The Internet market in which the Company intends to compete is
characterized by rapid and significant technological developments, frequent new
product introductions and enhancements, continually evolving business
expectations and swift changes. To compete effectively in such markets, the
Company must continually improve and enhance its existing products and services
and develop new technologies and products that incorporate technological
advances, satisfy increasing customer expectations and compete effectively on
the basis of performance and price. The Company's success will also depend
substantially upon its ability to anticipate, and to adapt its products and
services to its collaborative partners preferences. There can be no assurance
that technological developments will not render some of the Company's products
and services obsolete, or that the Company will be able to respond with improved
or new products, services, and technology that satisfy evolving retailer and
wholesaler expectations. Failure by the Company to develop or introduce new
products, services, and enhancements in a timely manner could have a material
adverse effect on the Company's business, financial condition and operations.
Also, to the extent one or more of the Company's competitors introduces products
that better address the retailer's needs, the Company's business would be
materially adversely affected.
Delays in New Product and Service Development and Introduction
The process of developing products and services such as those offered
by the Company is extremely complex and it is highly likely that the Company
will experience delays in developing and introducing new products and services
in the future. If the Company is unable to develop and introduce new products,
services or enhancements to existing products and services in a timely manner in
response to changing market conditions or customer requirements, the Company's
business, operating results and financial conditions would be materially
adversely affected. Also, announcements of currently planned or other new
products and services may cause customers to delay their subscription decisions
in anticipation of such products and services, which could have a material
adverse effect on the Company's business, operating results and financial
condition, especially if the introduction of such products and services is
delayed.
Flaws and Defects in Products and Services
Products and services as complex as those offered by the Company may
contain undetected flaws or defects when first introduced or as new versions are
released. Any inaccuracy or defects may result in adverse products and service
reviews and a loss or delay in market acceptance. There can be no assurance that
flaws or defects will not be found in the Company's products and services. If
found, flaws and defects would have a material adverse effect upon the Company's
business operations and financial condition.
Management of Potential Growth
The Company's ability to manage its future growth, if any, will require
it to continue to implement and improve its operational, financial and
management information systems and control and to hire and train new
8
<PAGE>
employees, including management and technical personnel, and also to motivate
and manage its new employees and to integrate them into its overall operations
and culture. Although the management team has successfully grown other
companies, there can be no assurance that the Company will be able to perform
such actions successfully. The Company's failure to manage growth effectively
would have a material adverse effect on the Company's results of operations and
its ability to execute its business strategy.
Lack of Public Market
Prior to this Offering, there has not been a public market for the
Shares and none is anticipated to develop in the near future. It is unlikely
that a regular trading market will develop in the near term or that, if
developed, it will be sustained. In the event a regular public trading market
does not develop, any investment in the Company's Common Stock would be highly
illiquid. Accordingly, an investor in the Shares may not be able to sell the
Shares readily.
Adverse Effect on Market Price of Shares by Shares Eligible for Future Sale
All 5,750,000 shares of Common Stock issued by the Company and 250,000
shares reserved for stock options, after taking into account the 2-for-1 reverse
stock split prior to this Offering, were offered and sold by the Company in
private transactions in reliance on an exemption from registration under the
Securities Act. Accordingly, all of such securities are "restricted securities"
within the meaning of Rule 144 and cannot be resold without registration, except
in reliance on Rule 144 or another applicable exemption from registration.
In general, Rule 144 imposes a minimum holding period of one year for
restricted securities. Thereafter, if restricted or other securities are sold
for the account of a person (or persons whose shares are required to be
aggregated), including any affiliate of the Company, the amount of securities
sold, together with all sales of restricted securities and other securities of
the same class for the account of such person within the preceding three months
shall not exceed the greater of: (i) one percent of the shares or other units of
the class outstanding as shown by the most recent report or statement published
by the issuer, or (ii) the average weekly reported volume of trading in such
securities on all national securities exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the filing of the required notice, or if no such
notice is required, the date of receipt of the order to execute the transaction
by the broker or the date of execution of the transaction directly with a market
maker, or (iii) the average weekly volume of trading in such securities reported
through the consolidated transaction reporting system contemplated by Rule
11Aa3-1 under the Securities Exchange Act of 1934 during the four-week period
specified in (ii) above. The seller also must comply with the notice and manner
of sale requirements of Rule 144, and there must be current public information
available about the Company. In addition, any person (or persons whose shares
are aggregated) who is not, at the time of the sale, nor during the preceding
three months, an affiliate of the Company, and who has beneficially owned
restricted shares for at least two years, can sell such shares under Rule 144
without regard to notice, manner of sale, public information or the volume
limitations described above.
Future sales of Shares of Common Stock by the Company could materially
adversely affect the prevailing market price, if any, of the Company's Common
Stock. In addition, there are 250,000 shares reserved for future issuance under
the Company's stock option grants to management and employees. The shares of
Common Stock underlying these options would represent 4.2% of the Company's
outstanding Common Stock prior to this Offering, assuming all the options were
exercised. The Company is unable to predict the effect those sales by the
Company, if any, or potential sales under any future stock option plan, may have
on the market price of the Common Stock prevailing at the time of any such
sales.
Additionally, Burlington Coat Factory Warehouse Corporation (BCF) owns
a warrant (the "Warrant") to purchase the Company's Common Stock, on a fully
diluted basis, equal to ten (10%) of the Company pursuant to the Warrant
Agreement dated October 15, 1997. The Warrant is currently exercisable at $4.00
per share. The Warrant expires upon the earlier of the following dates: (i)
October 15, 2002: or (ii) 30 days after the closing of a firmly
9
<PAGE>
underwritten public offering of the Company's securities with which the
aggregate gross proceeds to the Company are at least $5,000,000 and the offering
price is at least $4.00 per share. The exercise of the Warrant would result in a
substantial amount of shares being issued which could dilute the investors in
this Offering if the Warrant was exercised at a time when the shares of the
Company were trading at a price above this Offering price.
Dividends
The Company has not paid any dividends or made distributions to its
investors and is not likely to do so in the foreseeable future. The Company
presently intends to retain earnings for use in its business. Additionally, the
Company may fund a portion of its future expansion through debt financing, and a
condition of such financing may prohibit the payment of dividends while the debt
is outstanding. Therefore, investors should purchase Shares with the
understanding that management's goal is to build value by increasing the size of
the business and not by paying dividends. See "Dividend Policy."
Control
Regardless of whether the Minimum or Maximum number of the Shares are
sold pursuant to this Offering, control of the Company will remain with the
present equity owners after the completion of the Offering. As a result, these
stockholders will be able to control the Company and its operations, including
the election of at least a majority of the Company's Board of Directors and
thus, the policies of the Company.
Competition
With the popularity of the Internet growing daily and as computer
hardware (i.e., servers) and creating/maintaining web sites becomes more
affordable, other on-line services may appear or are already established which
will try to create an electronic link between vendors (wholesalers and
manufacturers) on one side and retailers on the other. Some of those businesses
may have far greater financial and marketing resources, operating experience and
name recognition than the Company. Potential competitors include AT-Net
(http://www.at-net.com), Apparel Exchange (http://aparelex.com), RagNet
(http://www.ragnet.com), XMNet (http://www.xmnet.com), E.R.I.C Worldwide
Enterprises (http://ericww.com), ICES, Inc. (http://www.icesinc.com), The Mart
(http://www.themart.com), Apparel.Net (http://www.apparel.net), and Global
Textile Network (http://www.g-t-n.com). All these web sites take different
approaches ranging from creating "yellow page" type listing to acting as a
middleman in transactions. To the best of the Company's knowledge, all of them
charge membership and transaction fees higher than those charged by the Company
to join its virtual trade show. Moreover, as far as the Company is aware, some
of these companies charge buyers a monthly access fee to view products over the
Internet. Most importantly, the Company believes that none of these web sites
focus on the retailers. It is Management's belief that an important factor that
vendors consider in joining an Internet service is whether retail buyers will
actually see their products. Management also believes that buyers will be less
inclined to visit a web site where they have to pay to visit if there are no
assurances that the web site will include substantive product information. As
such, Management believes that these competing web sites will have difficulty
attracting and maintaining subscribers as well as attracting buyers.
Notwithstanding, these potential competitors, as well as the entry of more
competitors offering similar web sites, could have a material adverse effect
upon the Company's business, operating results and financial condition.
Dependence on Founder and Key Personnel
The Company's business depends to a large extent on retaining the
services of its founder, Frank S. Yuan (Chief Executive Officer and President),
as well as Alan Chang (Vice President of Administration), James Zheng (Chief
Technology Officer), and David Rau (Chief Financial Officer). Frank S. Yuan is a
principal stockholder in the Company. The Company's operations could be
materially adversely affected if, for any reason, one or more of the above
officers ceases to be active in the Company's management. The Company has sought
to minimize the possible
10
<PAGE>
loss of Mr. Chang or Mr. Rau to competitors by having each of them execute
employment agreements containing non-competition and non-disclosure covenants.
The Company has no key-person life insurance policy on any of the
above-mentioned key personnel. See "Management" and "Principal Stockholders."
Lack of Full-Time Systems Administrator
Currently, the Company utilizes the services of James Zheng and his
assistant, Joseph Sloan, who both function as the Company's Systems
Administrator. However, neither of them are working in that capacity on a
full-time basis. Rather, Mr. Zheng is working on an on-call basis and devotes at
least one day a week to maintaining the Company's system, network, and database.
Mr. Sloan works solely on an on-call basis. Depending on the success of this
Offering, the Company expects to hire a full-time Systems Administrator.
Penny Stock Regulations
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These requirements may have
the effect of reducing the level of trading activity, if any, in the secondary
market for a security that becomes subject to the penny stock rules. If the
Company's Common Stock becomes subject to the penny stock rules, investors in
this Offering may find it more difficult to sell their shares.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares in this
Offering are estimated to be approximately $292,000 if the Minimum is sold, and
$9,892,000 if the Maximum is sold, after offering expenses. The Company expects
to use the net proceeds for the purposes outlined below. If the Company raises
the Maximum amount of this Offering, it intends to use funds from the Offering
to increase sales through an extensive marketing and advertising campaign,
attract more collaborative partners, form joint ventures with suitable foreign
partners to open up to eight (8) offices in the Far East, expand its current
operations, including establishing Internet Sourcing Networks with Internet EDI,
up-grading its existing computer infrastructure and Internet access, and for
working capital purposes.
Minimum Maximum
100,000 Shares 2,500,000 Shares
-------------- ----------------
Working Capital: $ 164,000 $1,385,000
Office Expansion (Los Angeles): 35,000 99,000
Office Set-Up (New York): -- 198,000
Research/Development of Internet EDI: 58,000 99,000
Upgrading Hardware and Internet Access: 35,000 99,000
Foreign Office Set-Up (up to 8): -- 8,012,000
---------- ----------
Total: $ 292,000 $9,892,000
========== ==========
11
<PAGE>
Description of Use of Proceeds
Minimum: If the minimum amount of shares are subscribed to as part of
this Offering, the Company intends to use the proceeds for the expansion of its
current operations, including establishing Internet Sourcing Networks with
Internet EDI, up-grading its existing computer infrastructure and Internet
access, and for working capital purposes.
Maximum: If the maximum amount of shares are subscribed to as part of
this Offering, the Company will use all proceeds received as follows:
Office Expansion: The Company will use approximately $99,000 to expand
its principal office in Alhambra, California.
Office Set-Up: The Company will use approximately $198,000 to set up an
office in New York mirrored after its principal office in Alhambra, California.
Research/Development of Internet EDI: The Company will use
approximately $99,000 to develop its Internet EDI software.
Upgrading Hardware and Internet Access: The Company will use
approximately $99,000 to purchase new computer hardware and upgrade its existing
computer hardware as well as upgrade its Internet access.
Foreign Office Set-Up: The Company will use approximately $8,012,000 to
set-up up to eight (8) foreign offices.
Working Capital. The Company will use approximately $1,385,000 for
working capital purposes.
The Company does not contemplate changes in the proposed allocation of
estimated net proceeds of this Offering. However, the foregoing are estimates
and events may require changes. Therefore, the Company reserves the right to
make changes, if appropriate. Pending application of the net proceeds as
described herein, the Company intends to invest the net proceeds in short-term,
interest bearing, investment-grade securities.
DIVIDEND POLICY
The Company has not declared or paid dividends since its inception. The
Company presently intends to retain all earnings to facilitate growth and does
not anticipate paying cash dividends in the foreseeable future. Although the
Company has no present plans to pursue additional financing through bank
borrowing, debt or other equity financing, the pursuit of such financing may
prohibit the payment of dividends. See "Description of Capital Stock."
CAPITALIZATION
The following table sets forth the actual unaudited capitalization of
the Company on March 31, 1998, and also provides the pro forma capitalization of
the Company as of March 31, 1998, after giving effect to the sale of the Minimum
(100,000 Shares) and the Maximum (2,500,000 Shares) number of Shares offered
hereby at the public offering price of $4.00 per share and the application of
the estimated net proceeds:
12
<PAGE>
March 31, 1998
--------------
Pro Forma As Adjusted
---------------------
Actual Minimum Maximum
------------ ------------ ------------
Stockholders' Equity:
Common Stock, No Par Value,
40,000,000 Shares Authorized
5,750,000 Shares Issued and
Outstanding $ 1,550,000 $ 1,842,000 $ 11,442,000
Additional Paid-In Capital: 30,000 30,000 30,000
Accumulated Deficit (1,003,503) (1,003,503) (1,003,503)
------------ ------------ ------------
Total Stockholders' Equity: $ 576,497 $ 868,497 $ 10,468,497
============ ============ ============
In reliance upon the registration exemption provided for in Section
4(2) of the Securities Act of 1933, as amended, the Company raised working
capital through two separate private offerings. The Company initially raised
$1,050,000 through the first private offering resulting in the issuance of
9,500,000 shares of the Company's common stock. Thereafter, pursuant to the
approval of the Board of Directors, the Company raised an additional $500,000
through the second private offering resulting in the issuance of 2,000,000
shares of the Company's common stock. As a result of the two private offerings
the Company had issued a total of 11,500,000 shares of the Company's common
stock, excluding 500,000 shares that have been issued or are held in reserve as
stock options. Subsequently, in March 1998, the Board of Directors and
shareholders effectuated a 2-for-1 reverse stock split such that a total of
6,000,000 shares, including stock options, remain outstanding.
DILUTION
On March 31, 1998, the Company had an unaudited net tangible book value
of $576,497 or $0.1 per share. The net tangible book value per share is equal to
the Company's total tangible assets less total liabilities, divided by the total
number of outstanding shares of Common Stock. After giving effect to the sale of
the Minimum and Maximum number of Shares offered hereby at the public offering
price of $4.00 per share, and the application by the Company of the estimated
net proceeds after deducting expenses, the pro forma net tangible book value of
the Company as of March 31, 1998, would have been $908,517 and $10,508,517,
respectively, or $0.149 per share and $1.236 per share, respectively. This
represents an immediate increase in net tangible book value of $0.049 per share
and $1.136 per share, respectively, to existing stockholders and an immediate
dilution of $3.851 per share and $2.764 per share to new investors purchasing
Shares in this offering. The following table illustrates the per share dilution
in net tangible book value per share to new investors at the Minimum and Maximum
Offering:
Minimum Maximum
------- -------
Public Offering Price Per Share $4.00 $4.00
Net Tangible Book Value Per Share as
of March 31, 1998 $0.1 $0.1
Increase in Net Tangible Book Value
Per Share attributed to New
Investors $0.049 $1.136
------ ------
Pro Forma Net Tangible Book Value Per $0.149 $1.236
Share after this Offering: ------ ------
Net Tangible Book Value Dilution Per $3.851 $2.764
Share to New Investors ====== ======
13
<PAGE>
<TABLE>
The following table sets forth, on a pro forma basis, as of March 31,
1998, the difference between existing stockholders and the purchasers of Shares
at the Minimum and Maximum amounts sold in this Offering with respect to the
number of shares purchased, the total consideration paid, and the average price
paid per share:
<CAPTION>
Shares Purchased Total Consideration Average Price Per Share
------------------------------ ------------------------------ -----------------------
Number Percent Amount Percent
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Minimum Sold
Existing Shareholders (1) 6,000,000 98% $ 1,620,020 80% $ 0.27
New Investors 100,000 2% $ 400,000 20% $ 4.00
----------- ----------- ----------- ----------- --------
Total: 6,100,000 100% $ 2,020,020 100% $ 0.33
=========== =========== =========== =========== ========
Maximum Sold
Existing Shareholders (1) 6,000,000 83% $ 1,620,020 14% $ 0.27
New Investors 2,500,000 17% $10,000,000 86% $ 4.00
----------- ----------- ----------- ----------- --------
Total 8,500,000 100% $11,620,020 100% $ 1.37
=========== =========== =========== =========== ========
<FN>
(1) As used herein, the 6,000,000 shares purchased by existing shareholders
assumes 5,750,000 shares of issued common stock plus the grant and exercise of
175,000 shares of stock reserved for stock options at $0.40 per share, and
75,000 shares for $20.
</FN>
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
The selected financial data presented below, as of June 30, 1997, and
for the year then ended have been derived from the Financial Statements of the
Company, which have been audited by KPMG Peat Marwick, LLP, independent
certified public accountants. The financial statements and the independent
auditors' report therein are included elsewhere in this Prospectus. The
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<CAPTION>
Statement of Operations Data: Year Ended June 30, 1997 Nine Months Ended March 31
------------------------ -----------------------------------
(Unaudited)
1997 1998
----------- -----------
<S> <C> <C> <C>
Revenues ................................................... $ 35,900 $ 18,830 $ 54,168
Operating loss ............................................. (637,208) (447,190) (425,921)
Interest income(1) ......................................... 50,397 41,099 10,829
Loss before income taxes ................................... (586,811) (406,091) (415,092)
Net loss ................................................... (587,611) (406,891) (415,892)
Basic and diluted net loss per share ....................... (0.13) (0.09) (0.08)
Shares used in per share calculation(2) .................... 4,503,671 4,420,595 4,938,060
<FN>
(1) Interest income from loan to Frank Yuan, see "Certain Transactions".
(2) See Note 1 of Notes to Financial Statements.
</FN>
</TABLE>
14
<PAGE>
Balance Sheet Data: June 30, 1997 March 31, 1998
------------- --------------
Audited Unaudited
Working capital .......................... $390,282 $475,138
Total assets ............................. 541,216 605,029
Stockholders' equity ..................... 492,389 576,497
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and the related notes thereto included elsewhere in this Prospectus.
This Prospectus contains certain forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to those discussed in "Risk Factors"
and elsewhere in this Prospectus.
Introduction
The Company was formed in July, 1996 to develop, establish, and market
web-based E-commerce solutions for retailers and their supply chains. These
solutions take the form of three interlocking services: (1) a virtual trade
show, (2) an Internet Sourcing Network ("ISN"), and (3) Internet EDI (which is
still in the developmental stages). The business strategy of the Company is
focused on establishing collaborative partnerships with U.S.-based retailers
wherein the Company will provide the retailer with an ISN in return for their
assistance in marketing the ISN to the supply chains. After establishing ISN's
for these collaborative retail partners, the Company intends to use the
Internet's near-global accessibility to expand these retailers' supply chains to
foreign producing countries, primarily in the Pacific Rim. If the Maximum amount
is raised, the Company intends to use a substantial portion of the proceeds from
this Offering to implement its business strategy.
During the development stage of the Company, the Company's primary
activities have involved developing its virtual trade show and ISN software and
database (the "Software"), organizing its sales force, and marketing its virtual
trade show and ISN. Research and development costs are expensed as incurred.
Selling expenses consist primarily of salaries, commissions, and administrative
costs associated with the Company's payroll and marketing personnel. General and
administrative expenses include the costs of consultants and other
administrative functions of the Company.
Financial Condition and Results of Operations:
The Company has had two years of operation.
Fiscal Year Ended June 30, 1997
The Company began conducting business in November, 1996. For the fiscal
year ended June 30, 1997, the Company received total revenues of $35,900 which
were from fees paid to the Company in connection with its virtual trade show and
web design services. The total operating expenses for the fiscal year ended June
30, 1997 amounted to $673,108, consisting of $123,104 for cost of revenue of the
Company's virtual trade show software and database and $550,004 of general and
administrative expenses related primarily to setting up its office, hiring and
training
15
<PAGE>
telemarketers, attending trade shows, and other expenses associated with the
start-up expenditures of the Company. Consequently, for the fiscal year ended
June 30, 1997, the Company experienced a net loss totaling $587,611.
Nine Months ended March 31, 1997 and 1998
The following discussion sets forth information for the nine-months
ended March 31, 1998 compared with March 31, 1997. This information has been
derived from unaudited interim financial statements of the Company contained
elsewhere and reflects, in Management's opinion, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of operations for these periods. Results of operations for any interim
period are not necessarily indicative of results to be expected from the full
fiscal year.
From the end of the Company's fiscal year until March 31, 1998, the
Company's revenues totaled $54,168, representing an increase of $35,338 from the
same period a year ago, consisting primarily of fees paid by users of the
Company's virtual trade show and web design services. The Company's operating
expenses for the nine months ended March 31, 1998 totaled $480,089 consisting of
$106,636 for cost of revenue of the Company's ISN and related software and
$373,453 for general administrative and selling expenses, representing an
increase of $14,069 from the nine months ended March 31, 1997. Consequently, the
Company experienced a net loss of $415,892 for the nine months ended March 31,
1998.
Status of Operations
Since its inception, the Company has solicited approximately 1,800
vendors that have shown some interest in joining the Company. Out of the 1,800
vendors solicited, the Company completed approximately 600 web sites for
vendors, which includes product and company information. However, to date, the
Company has only been able to collect its basic subscription fee from about 250
of these vendors.
Participation Agreements
On October 15, 1997, the Company entered into a Participation Agreement
with Burlington Coat Factory Corporation ("BCF"). Under the terms of the
Participation Agreement, BCF would assist the Company in marketing the ISN to
BCF's vendors in return for a portion of the monthly hosting fees. The Company
is required to pay BCF 50% of the monthly hosting fees collected from vendors
who join BCF's ISN as well as 50% of the additional monthly hosting fees
collected from vendors who decide to join BCF's ISN as a secondary ISN. The
Company is also required to pay BCF 33% of the monthly hosting fees collected
from vendors who appear on BCF's vendor list but wish to join another ISN the
Company has created for a different retailer as well as 33% of monthly hosting
fee collected from foreign (non-US) vendors who join BCF's ISN. Moreover, the
Company is required to pay BCF 5% of all monthly hosting fees collected from US
vendors of products in the apparel, linens, juvenile furniture, and footwear
industries who did not join BCF's ISN. See, "Key Contracts & Strategic
Partners."
On January 27, 1998, the Company entered into a similar Participation
Agreement with Family Bargain Corporation ("FBAR"). Under the terms of the
Participation Agreement, FBAR would assist the Company in marketing the ISN to
FBAR's vendors in return for a portion of the monthly hosting fees. Unlike the
Company's Participation Agreement with BCF, FBAR will only receive 33% of the
monthly hosting fees collected from vendors who join FBAR's ISN.
Income Taxes
Since its inception, the Company has been taxed as a C corporation.
Accordingly, the Company has available as of March 31, 1998 approximately
$1,000,000 in net operating loss carry forwards which can be used to offset
future federal taxable income. However, the utilization of net operating losses
may be subject to certain limitations as prescribed by Section 382 of the
Internal Revenue Code.
16
<PAGE>
Liquidity and Capital Resources
Since its inception, the Company's principal source of capital has come
as a result of private placements of equity. Specifically, through the use of
private placements, the Company was able to raise $1,550,000 in capital through
the issuance of 11.5 million shares of common stock described as follows:
a. From August, 1996 to January, 1997, the Company raised $1,050,000 in
an initial private placement of 9.5 million shares of common stock. 4.5 million
shares were sold to Frank S. Yuan, founder and President of the Company, for
$50,000. The remaining 5 million shares were sold at $0.20 per share.
b. From November, 1997 to March, 1998, the Company raised an additional
$500,000 through a second private placement of 2 million shares of common stock.
All the shares were sold for $0.25 per share.
In March, 1998, the Board of Directors and majority of the shareholders
approved a 2-for-1 reverse stock split. The reverse stock split would also
affect the stock options held by key employees. See, "Stock Options." After
giving effect to the 2-for-1 reverse stock split, the Company had a total of
5.75 million shares of common stock outstanding.
The Company experienced losses from operations of $587,611 for the year
ended June 30, 1997 and $415,892 for the period ended March 31, 1998. As of
March 31, 1998, the Company had $491,220 in cash and $576,497 in net
stockholders' equity. Since March 31, 1998, the Company has continued to
experience losses from operations and increases in net deficit. Management
estimates the Company's monthly burn rate to be between $40,000 and $50,000. As
for April and May, 1998, the Company's burn rate was $46,000 and $39,441,
respectively. Accordingly, the Company needs to raise capital to continue its
development strategy. Management expects this capital requirement be met from
the proceeds of this Offering if the Maximum is raised. If the Company is unable
to raise the Minimum amount in this Offering, it may be unable to continue as a
going concern. See, "Risk Factors -- Limited Operating History; History of
Losses."
Based on its development strategy, the Company anticipates that the net
proceeds of this Offering, if the Minimum is raised, will be adequate to satisfy
the Company's capital and operation requirements for approximately 6 months from
the consummation of this Offering. The Minimum net proceeds of this Offering are
estimated to be approximately $292,000 ($9,892,000 if the Maximum amount is
raised), assuming an estimated initial public offering price of $4.00 per share.
The Company's capital requirements may vary materially from those now planned
because of results of development, retailer and wholesaler acceptance, among
other factors. See, "Risk Factors -- Reliance of Collaborative Partners;
Dependence of the Internet."
In the event of unanticipated developments during the next 6 months, or
to satisfy future funding requirements, the Company will fund its operation
through public or private offerings of securities, with collaborative or other
arrangements with corporate partners or from other sources. Additional financing
may not be available when needed or on terms acceptable to the Company. If
adequate financing is not available, the Company may be required to delay, scale
back or eliminate certain of its development programs and curtail its
development strategy. To the extent the Company raises additional capital by
issuing securities, dilution to investors purchasing shares in this Offering
will result.
17
<PAGE>
BUSINESS
Overview
The Company develops, establishes, and markets web-based solutions for
buyers and sellers in the wholesale industry. The products currently profiled
include apparel, footwear, piece goods, sporting goods, computers, software,
consumer electronics linens and baby items. The Company has three interlocking
services including a virtual trade show, an Internet Sourcing Network ("ISN"),
and Internet EDI (which is still in the developmental stages). The Company's
virtual trade show and ISN provide a convenient on-line forum which enables
retailer buyers to quickly preview products and make efficient preliminary
merchandising decisions. Designed to cast aside the outdated, costly, and time
consuming old way of doing business, the Company's virtual trade show and ISN
enables retail buyers to manage more efficiently and streamline their
merchandise selection process. The Company's ISN also opens a new interactive
channel of communication between the buyer and vendor/seller that is normally
not available and allows an easy, practical, and convenient way for the vendor
to call the buyer's attention to its entire product line. Lastly, when
developed, the Company's Internet EDI will compliment its ISN to create an
inexpensive alternative to standard EDI.
The Company's virtual trade show and ISN are supported by the Company's
proprietary FOCASTING (Focused Broadcasting) and DEPS (Dynamic End-User Profile
System) software. Similar to PointCast(TM) services, FOCASTING enables retail
buyers to create individual web pages filled with only those products that fall
within their buying responsibilities. After the buyer creates his customized web
page, the FOCASTING software will "push" or broadcast directly to the buyer's
desktop all products contained within the Company's database that fall within
the selected product categories. DEPS, on the other hand, is a multi-purpose
software that enables the buyer to control the flow of information as well as
opens up an interactive channel of communication between the buyer and vendor.
Simply put, DEPS advances "Push" technology to new heights by putting the
end-user (the buyer) in total control of the information "pushed" to him. With
DEPS, the buyer will have the ability to independently manipulate the
information contained within his own database without adversely affecting what
other buyers see. DEPS also helps the buyer work efficiently by notifying him
whenever new or close-out items appear in his database. The buyer will then be
prompted to look at the new or close-out items while other products remain
available for review and consideration. Lastly, DEPS allows interactivity
between the buyer and vendor that was heretofore not available. With DEPS,
buyers can broadcast and vendors can receive important messages. For instance,
buyers can now send broadcast messages to announce "Open to Buys," inquire about
specific terms, or inquire about product availability. DEPS also allows buyers
to send important feedback messages to vendors whenever a buyer deletes a
product from his database.
The Company believes that its services are a winner for both buyers and
vendors. Buyers win by utilizing a practical, cost-effective, and efficient
means for sourcing merchandise. Moreover, buyers win by using a service that
provides them with rapid and easy access to diverse product lines. Vendors win
by: (1) improving communications with the buyer; (2) gaining daily access to the
right buyer; (3) having their products quickly displayed to the buyer for prompt
consideration; (4) saving significant sums ordinarily involved in mailing or
shipping samples, line sheets, and product catalogs; and (5) receiving
assurances that when the buyers call for a personal meeting and inspection of
samples, they will already have an interest in selected samples since they will
already have previewed the products using the Company's services.
The Company markets and sells its services through a direct sales force
as well as with the assistance of retail buyers. The Company's retail customers
include Burlington Coat Factory, Ann & Hope, and Family Bargain Corporation.
18
<PAGE>
Industry Background
In the past, vendors did several things in order to consummate a
potential sale. They would often travel to the buyers offices to show product
samples, attend trade shows to show off their product to prospective buyers, or
bring/ship their samples to the buyer for consideration. All these old ways of
doing business resulted in a lot of time and money being spent by the vendor.
Even after all of this time has been inefficiently spent, vendors and sales
representatives will still have to invest more hours on the telephone trying to
locate the right buyer they want to see their merchandise. And, for those
vendors who are able to visit the buyer's offices, even more time may be spent
waiting to meet with the right buyer. The Company believes that its services are
better than that costly, and time consuming process and increase the chance that
the vendor's merchandise will be seen by the right buyer.
Strategic Plan
Establish Collaborative Partnerships with Retailers
The Company's primary strategy is to aggressively develop as many
collaborative retail partnerships as possible by establishing ISN's in return
for the retailer's co-marketing efforts in encouraging the ISN to the retailers
existing and potential vendor base. Management believes that with the assistance
of the retailer's management and buyers, the Company will be able to attract a
greater number of vendors willing to pay to join the retailer's ISN. And, when
the Company adds Internet EDI capabilities to the retailer's ISN, Management
believes that the retailers will encourage its vendors to join the retailer's
ISN in order to facilitate their business relationship. The Company also plans
to include the information provided by vendors who join the retailer's ISN in
the Company's virtual trade show. This will allow the Company to simultaneously
build substance to its public web site so that it can also function as a useful
business tool for other retailer buyers.
Develop Foreign Strategic Partners or Expand
In conjunction with establishing collaborative retail partnerships, the
Company will seek to attract foreign vendors to its services. To do this, the
Company will seek suitable foreign partners to whom the Company will license its
web-based software, including the Company's real-time product retrieval
software, search-engine software, FOCASTING and DEPS software. In return for
this license, the Company will request that a foreign entity be established
either in the form of a partnership or joint venture in which the Company will
have an equity interest above and beyond its investment interests plus a 10%
share of the gross receipts from each foreign office. The foreign entity will
offer foreign vendors access, via the Internet, to the U.S. market and
U.S.-based retailers. Management believes that foreign vendors will be eager to
join such a service and supply the relevant product information when they know
that U.S. retailers will be looking at their products. As such, it is
Management's belief that the Company will be able to dramatically increase the
amount of substantive product and vendor information contained in the Company's
ISN's and virtual trade show. Management hopes that these satellite offices will
serve as a barrier to entry for potential competitors. With the information
obtained from U.S.-based vendors and foreign vendors, the Company will achieve a
critical mass of product and vendor information so as to make the Company the
preeminent Internet source for such information.
Services Offered
Virtual Trade Show
The Company's virtual trade show is located at http://www.c-me.com.
This virtual trade show became functional on November 1, 1996 and allows vendors
(wholesalers and manufacturers) the ability to showcase their products over the
Internet.
19
<PAGE>
To accomplish this, the Company essentially transforms the vendor's
line sheet or product catalog into a dynamic Internet listing, complete with a
detailed description and digital photograph of the product. These web pages are
generated "on the fly" so that, with the proper equipment and password, the
vendor has the ability to make changes to its product information from any
workstation with Internet access. These products are then indexed and separated
into easily recognizable categories on the virtual trade show, which facilitates
quick product searches by retail buyers. The virtual trade show also includes a
real-time product retrieval search engine linked to the Company's database that
can be accessed by simply pointing and clicking a computer mouse button. As an
added benefit, the Company creates a basic home page for the vendor, upon which
the vendor can include a brief description of its company history and contact
information. To join the Company's virtual trade show, the Company charges a
$300 set-up fee and a $30 monthly hosting fee, which permits the subscribing
vendor to list up to 15 products.
Retail buyers have free access to this virtual trade show. And, by
using the Company's FOCASTING software, the buyer can create individual web
pages filled with only those product categories that fall within their buying
responsibilities. The FOCASTING software then "pushes" or broadcasts directly to
the buyer's desktop all products within the Company's database that fall within
the selected product categories. For example, if a Men's Jeans buyer created a
customized web page using FOCASTING and selected "Men's Jeans," the FOCASTING
software will transmit all the information and images relating to Men's Jeans
within the Company's database to the buyer each time he/she logs on.
Internet Sourcing Network
The Company's ISN was developed to help retail buyers locate and review
products more efficiently and effectively. No longer will the buyer have to
venture out into the field to review product samples or wait for samples to be
sent. Rather, with the ISN, the buyer will have instant access to numerous
product images and diverse product lines without ever having to leave his
office.
The ISN takes all the features of the Company's virtual trade show and
customizes it to suit the needs of each retailer. In addition to incorporating
the Company's FOCASTING software, the ISN will feature the Company's innovative
DEPS software. DEPS advances "Push" technology to new heights by putting the
end-user (the buyer) in complete control of the information "pushed" to him.
When used in conjunction with the FOCASTING software, the buyer can customize
his own web page by selectively deleting, restoring or archiving the information
"pushed" to him. Unlike the lack of control the end-user previously experienced
with "push" technology, DEPS enables the buyer to freely manipulate the data he
receives to suit his own needs. In addition, DEPS possesses an advanced feature
that provides "individualized" update notification. That is, each buyer will be
notified of any information that is "new" to him and not receive a simple
generic update notice sent to every user. Moreover, with DEPS, the ISN becomes
interactive allowing the buyers to send broadcast e-mails and receive responses
from vendors. The buyer can then evaluate the responses and purchase the best
product at the best price. With all the information provided to the buyer
through the ISN, the buyer can now make an intelligent preliminary buying
decision.
The ISN also empowers the vendors to make changes to the information
they have displayed on the ISN. That is, the vendor will be provided with a
unique password that allows it to remove or add product information on to the
ISN from any computer with Internet access.
ISN with Internet EDI
The Company is in the process of developing Internet EDI (Electronic
Data Interchange) which it will incorporate into the ISN's it designs for
retailers. Conceptually, the Company's ISN with Internet EDI will be linked to
the retailers existing network. At least initially, the ISN with Internet EDI
will assist in the transmission of purchase orders, invoices, and shipping
documents.
20
<PAGE>
The Company believes that once completed, the ISN with Internet EDI
will provide all the benefits and functions of standard EDI (the ability to send
and receive purchase orders, invoices, and shipping documents) but at a lower
cost. Generally, standard EDI is provided over a third-party networking system.
Operating independent of the Internet, standard EDI requires a complex
infrastructure with substantial maintenance costs, which are necessarily passed
on to the subscribing vendors and retailers. Management believes that some
vendors often pay $4,000 to $5,000 per year just to use standard EDI, which
includes purchasing third-party EDI software and sometimes paying a usage fee.
In addition, the retailers must also pay these third-party software companies
several thousand dollars per year just to be able to use their EDI software.
In contrast, Management believes that its ISN with Internet EDI
capabilities will function equally as effective as standard EDI but without the
substantial costs of maintaining a separate infrastructure. With Internet EDI,
Management utilizes an established infrastructure -- the Internet -- with a
reliable, proven and inexpensive but effective method of data transfer.
Management believes that the ISN with Internet EDI can reduce the costs for both
sides and present a win-win situation for retailers and vendors alike. The
retailer wins by having free access to this business tool that will not only
allow it to transmit and receive crucial documents but also help its buyers
efficiently source products, reduce clerical mistakes, save money, and,
ultimately, achieve a truly "paperless" way of conducting business. Similarly,
the vendors win by using the ISN with Internet EDI because it allows them to
receive and transmit crucial documents at a fraction of the cost. Moreover, the
vendors win by: (1) eliminating the costs in printing catalogs and shipping
entire sample lines, (2) reducing unproductive sales calls, and (3) gaining
daily access to the right buyer.
Web Page/Home Page Design
Management believes that designing premium web sites is a good way both
to supplement its income as well as to increase the Company's technical
capabilities. To date, because of Management's access to local Southern
California banks, the Company was able to develop web sites for these banks --
EverTrust Bank, American International Bank, First Continental Bank, United
National Bank, and Grand National Bank. The Company has also developed premium
web sites for A.I. Systems (a computer parts wholesaler), Nissin Caps (a hat and
cap manufacturer), Cyborg Millennium Clothing (a streetwear clothing company)
and Kidz World, Inc. (an importer of virtual pet games).
Key Contracts & Strategic Partners
Management has established or is in the process of establishing
affiliations and/or contracts with several retailers. The most significant of
these are listed below.
Burlington Coat Factory. The Company has negotiated a contract with
Burlington Coat Factory Warehouse Corporation (BCF). Under the terms of
this contract, the Company will build an exclusive ISN for BCF for
free. In return, BCF will provide the Company with a list of its
existing vendors (estimated at 15,000 vendors) and help the Company
market the ISN to these vendors. Management anticipates charging the
vendors a $300 set-up fee and a $150 monthly hosting fee. BCF shall
receive 50% of the monthly hosting fees collected from vendors who join
BCF's ISN as well as 50% of the additional monthly hosting fees
collected from vendors who decide to join BCF's ISN as a secondary ISN.
BCF shall also receive 33% of the monthly hosting fees collected from
vendors who appear on BCF's vendor list but wish to join another ISN
the Company has created for a different retailer as well as 33% of
monthly hosting fee collected from foreign (non-US) vendors who join
BCF's ISN. BCF shall also receive 5% of all monthly hosting fees
collected from US vendors of products in the apparel, linens, juvenile
furniture, and footwear industries who did not join BCF's ISN. Lastly,
BCF will receive a stock warrant whereby BCF has the option to purchase
an equity interest of up to 10% of the Company. Management believes
that offering its partners a meaningful warrant option in the Company
and a substantial profit-sharing package, such as the
21
<PAGE>
one granted to BCF, will foster more aggressive and dedicated
co-marketing efforts from these partners. As a result, Management will
utilize this approach in cultivating other collaborative retail
partnerships.
Ann & Hope. The Company has built an ISN for Ann & Hope, a Rhode
Island-based retailer. In return, Ann & Hope has provided the Company
with a list of its vendors and has issued a letter strongly encouraging
its vendors to join the ISN.
Family Bargain Corporation. The Company has negotiated a contract with
Family Bargain Corporation [NASDAQ:FBAR], a San Diego-based retailer,
to develop an exclusive ISN. Family Bargain Corporation, through
General Textiles and Factory 2-U, operates over 150 off-price retail
apparel and housewares stores located throughout California, Arizona,
Washington, New Mexico, Oregon, Nevada, and Texas. Family Bargain
Corporation has agreed to send letters to its vendors encouraging them
to join the ISN and will have its buyers do the same. In return for its
efforts in marketing and promoting the ISN, Family Bargain Corporation
will receive 33% of the monthly hosting fees.
Ames Department Stores. The Company is also currently negotiating with
Ames Department Stores, [NASDAQ:AMES], a Connecticut-based retailer, to
develop an exclusive ISN. To date, Ames' management has agreed to test
the Company's ISN system in a few departments. Upon successful
completion of the testing stage, Ames Department Stores may contract
with the Company on terms similar to those of the Company's contract
with BCF.
Marketing
The Company's primary method of marketing its virtual trade show to its
customers (wholesalers) as well as its end-users (retailers) has been
establishing a presence at major trade shows. So far, the Company has attended
various trade shows in target industries including the International Textile
Show, COMDEX, the 86th Annual National Retail Federation Convention & Expo, the
Imprinted Sportswear Show, the Consumer Electronics Show (CES), the Super Show,
MAGIC, ASR, NSGA, and Western Shoe Associates' Shoe Show. Management anticipates
continuing the Company's presence at these trade shows. Just before these trade
shows, the Company anticipates pursuing strategic advertisement in major trade
publication that cover the Company's target industries
Marketing the ISN's vary from retailer to retailer. For instance, for
Ann & Hope's ISN, Ann & Hope has prepared a letter strongly urging its vendors
to join. It is ultimately up to the Company's sales staff to get Ann & Hope's
vendors to subscribe. As for BCF and Family Bargain Corporation, their
management has agreed to assist the Company in co-marketing the ISN. Management
anticipates that their co-marketing efforts will include, but will not be
limited to, (1) a letter from management explaining the importance of joining
the ISN, (2) a brochure describing the ISN and related services, (3) periodic
telephone calls by their buyers to the vendors explaining the importance of
joining the ISN, (4) quarterly or semi-annual vendor seminars/conventions to
explain the importance of the ISN and how it works, if advisable, and (5) when
the Internet EDI is in place, a letter explaining that BCF and Family Bargain
Corporation will be using Internet EDI and encouraging the vendors to join.
Management also anticipates retaining a public relation/advertising
firm to assist it in obtaining more publicity on its ISN, Internet EDI,
FOCASTING, DEPS, and virtual trade show.
Competition
Web sites are far easier to establish today than a few years ago. As a
result, numerous companies have developed web sites to assist wholesalers in
marketing their products over the Internet. Among these include AT-Net
(http://www.at-net.com), Apparel Exchange (http://aparelex.com), RagNet
(http://www.ragnet.com), XMNet (http://www.xmnet.com), E.R.I.C Worldwide
Enterprises (http://ericww.com), ICES, Inc. (http://www.icesinc.com), The Mart
(http://www.themart.com), Apparel.Net (http://www.apparel.net), and Global
Textile Network
22
<PAGE>
(http://www.g-t-n.com). All these web sites take different approaches ranging
from creating "yellow page" type listing to acting as a middleman in
transactions. To the best of the Company's knowledge, all of them charge
membership and transaction fees higher than those charged by the Company to join
its virtual trade show. Moreover, as far as the Company's aware, some of these
companies charge buyers a monthly access fee to view products over the Internet.
Most importantly, the Company feels that none of these web sites focus on the
retailers. It is Management's belief that an important factor a vendor considers
in joining an Internet service is whether retail buyers will actually see their
products. Management also believes that buyers will be less inclined to visit a
web site where they have to pay to visit if there are no assurances that the web
site will include substantive product information. As such, Management believes
that these competing web sites will have difficulty attracting and maintaining
subscribers as well as attracting buyers. See, "Risk Factors -- Competition."
The Company's approach is different in that it focuses on the
retailers. Management believes that once vendors know that buyers from a
significant retailer, such as Burlington Coat Factory, will be using an ISN
provided by the Company, the vendors would be more willing to pay a membership
fee. With its contract with Burlington Coat Factory and Family Bargain
Corporation and affiliations with Ann & Hope and Ames Department Stores, the
Company can assure vendors that actual retail buyers will be viewing their
products over the Internet. Another distinguishing factor between the Company
and its competitors is the Company's eventual integration of Internet EDI into
the ISN. Once the Company has its Internet EDI software in place, Management
believes that retailers will be more willing to use the services provided by the
Company and demand their vendors to join C-ME.
Intellectual Property Rights
The Company intends to seek U.S. patent, trademark, and copyright
protection on its products and developments, where appropriate, and to protect
its proprietary technology under U.S. and foreign laws affording protection for
trade secrets. However, to date the Company has not filed for any such
protection of either patent, trademark or copyright rights or any other type of
intellectual property rights in the U.S. or any foreign country.
The Company relies primarily upon trade secrets, technical know-how and
other unpatented proprietary information relating to its product development. To
protect its trade secrets, technical know-how and other proprietary information,
the Company's employees are required to enter into agreements providing for
maintenance of confidentiality. The Company also has entered into non-disclosure
agreements to protect its confidential information delivered to third parties in
conjunction with possible corporate collaborations and for other purposes.
However, there can be no assurance that these types of agreements will
effectively prevent unauthorized disclosure of the Company's confidential
information, that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets and
proprietary know-how will not otherwise become known or independently discovered
by others.
While the Company has not been involved in any patent or other
intellectual property rights litigation, there can be no assurance that third
parties will not assert claims against the Company with respect to existing and
future products. In the event of litigation to determine the validity of any
third party's claims, such litigation could result in significant expense to the
Company, and divert the efforts of the Company's technical and management
personnel, whether or not such litigation is determined in favor of the Company.
The Internet industry is subject to frequent litigation regarding patent and
other intellectual property rights. Leading companies and organizations in the
Internet industry have numerous patents that protect their intellectual property
rights in these areas. In the event of an adverse result of any such litigation,
the Company could be required to expend significant resources to develop
non-infringing technology or to obtain licenses to the technology which is the
subject of the litigation. There can be no assurance that the Company would be
successful in such development or that any such license would be available on
commercially reasonable terms.
23
<PAGE>
Facilities
The Company leases its principal offices located at 320 South Garfield
Avenue, Suite 318, Alhambra, California 91801.
Legal Proceedings
The Company has been named as a defendant, along with Burlington Coat
Factory, in a lawsuit brought by Stanley Rosner ("Rosner"), an individual. In
March, 1998, Rosner commenced an action in the Supreme Court of the State of New
York, Nassau County, New York (Index No. 98-006524). Rosner alleges breach of
oral and written contracts between the Company and Rosner and between Burlington
Coat Factory and Rosner in 1997. Rosner claims that he is due certain fees from
both the Company and Burlington Coat Factory for services allegedly rendered in
connection with certain transactions involving the Company and Burlington Coat
Factory. These transactions relate to the Internet services that the Company has
and will provide to Burlington Coat Factory, and current and anticipated
transactions arising from vendors of Burlington Coat Factory. Rosner claims that
he is due damages in an amount not less than $5,000,000 plus unspecified
punitive damages from both the Company and Burlington Coat Factory. The Company
intends to vigorously defend this action. The Company believes that it is not
obligated to make any payments to Rosner and has meritorious defenses to all of
Rosner's allegations. However, if the Company does not prevail and a significant
damage award against the Company is granted, this would have a material adverse
effect upon the Company.
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company and their
respective ages and positions with the Company are set forth in the following
table.
NAME AGE POSITION
---- --- --------
Frank S. Yuan 50 Chief Executive Officer, President, and
Chairman of the Board
Charles Rice 56 Director
Deborah Shamaley 39 Director
Robert Lee 41 Director
Robert Hsieh 50 Director
Peter Lin 28 Director
Alan Chang 31 Vice President of Administration,
Secretary and General Counsel
David Rau 43 Chief Financial Officer
James Zheng 30 Chief Technology Officer
24
<PAGE>
Board of Directors
Directors of the Company currently do not receive salaries or fees for
serving as directors of the Company. There are presently six (6) directors on
the Board. All directors are reimbursed by the Company for any expense incurred
in attending Board meetings.
Frank S. Yuan. Founded the Company in 1996. Mr. Yuan has served as the Chief
Executive Officer, President and Chairman of the Board since the Company's
inception. Mr. Yuan has a well-diversified business background, which includes
more than 20 years experience in the apparel and computer wholesale industries.
In 1986, Mr. Yuan founded U.N. Imports, Inc. -- a men's apparel import/wholesale
company. Prior to that, Mr. Yuan founded Frenchy's Clothing Co., a 3 store men's
clothing retail chain, and Foria International, Inc., a men's clothing line that
manufactured apparel under the "Knights of Round Table" label. Mr. Yuan also
co-founded UNI-CGS, Inc. -- a computer hardware importer and wholesaler. Besides
experience in the apparel and computer industries, Mr. Yuan also has substantial
experience in real estate where he founded UNI-Fortune Company. UNI-Fortune was
responsible for developing and selling two retail shopping centers, three office
buildings, six condominium projects, and a 400 plus apartment units complex. Mr.
Yuan was also the co-founder of two community commercial banks -- United
National Bank and EverTrust Bank. Lastly, Mr. Yuan founded and served as the
Chairman of the Board for Western Cities Titles Insurance Company -- a title
insurance company selling title insurance in Los Angeles County, California. Mr.
Yuan has a B.A. in Economics from Fu-Jen Catholic University in Taiwan (1970)
and a M.B.A. from Utah State University (1973).
Charles Rice. Mr. Rice has been a member of the Company's Board of Directors
since February 1, 1997. Mr. Rice has 30 years of experience in wholesale apparel
buying. He has extensive buying experience as a men's apparel buyer for Sears,
Roebuck and Company and Montgomery Ward. Mr. Rice is currently employed by Deer
Creek Enterprises, Ltd. where he serves as a manufacturer's representative for
Sunkyong America/Leader Apparel. Mr. Rice has a B.S. in Business and Economics
from Fthe University of Delaware (1963).
Deborah Shamaley. Mrs. Shamaley has been a member of the Company's Board of
Directors since February 1, 1997. In March, 1985, Mrs. Shamaley co-founded of
the Texas Apparel Group. The Texas Apparel Group was later renamed The Apparel
Group (TAG). TAG specialized in buying and selling wholesale/retail -
off-price/close-out women's apparel. TAG grew to 228 employees with 23 retail
outlets across Texas, New Mexico, Arkansas, Oklahoma, Missouri, and Mexico,
including 8 franchise outlets. TAG sold to 1,800 wholesale accounts; which
included Burlington Coat Factory, Sears, J.C. Penney's, Nordstrom, Sam's, 50
Off, Factory 2-U, and One Price Clothing Stores. Sales rose from $1.08 million
in its first year of business to $37.3 million at its peak. In 1996, Mrs.
Shamaley sold her interest in the Texas Apparel Group and has since retired.
Robert H.J. Lee. Mr. Lee has been a member of the Company's Board of Directors
since February 1, 1997. Mr. Lee was the founder and President of PicoPower
Technology, Inc. which specialized in inventing low wattage chips for use in the
growing portable computer market. During the three years PicoPower was in
business, its sales rose to $40 million. In 1994, PicoPower was sold to Cirrus
Logic for approximately $60 million. From 1995 to 1996, Mr. Lee served as
Corporate Vice President for Cirrus Logic. In 1996, Mr. Lee became an
independent venture capitalist. In April, 1997, Mr. Lee joined 2M Invest Corp.
(a venture capital fund) and became its Managing Director. Mr. Lee also serves
as the Chairman for several companies including Link Max, Inc. (a company
specializing in Intranet services), Cycore A/S (a Swedish corporation
specializing in 3-D graphics rendering and special effects rendering software),
and Kaukas Systems, Inc. (a company specializing in providing a voice call back
response service for doctors). Mr. Lee has a degree from Chien-Hsien Institute
of Technology in Taiwan (1975) and a M.S. in Computer Science from Stevens
Institute of Technology (1982).
Robert Hsieh, Ph.D. Dr. Hsieh has been a member of the Company's Board of
Directors since February 1, 1997. Dr. Hsieh currently serves as the
Vice-Chairman of Microtek Lab, Inc. (USA) and Microtek International, Inc.
(Taiwan). Dr. Hsieh founded Microtek Lab, Inc. and was the guiding force behind
the development of its desktop scanner
25
<PAGE>
business. Under Dr. Hsieh's leadership, Microtek launched the industry's first
desktop scanner in 1984, which has grown progressively since then to include a
full array of color and grayscale models. Dr. Hsieh also co-founded, and is the
Co-Chairman of, Ulead Systems -- a Windows-based applications software company.
Dr. Hsieh has also served on numerous Boards of Directors for high-tech
companies, including C-Cube, Sierra Imaging Technology, and Hologram Imaging
Technology. Dr. Hsieh has a B.S. degree in Electrical Engineering from National
Cheng Kung University in Taiwan (1968) and a M.S. (1971) and Ph.D. (1978) in
Electrical Engineering from the University of Cincinnati.
Peter Lin. Mr. Lin has been a member of the Company's Board of Directors since
February 1, 1997. Mr. Lin is currently a Senior Financial Analyst specializing
in mergers and acquisitions for Watson Pharmaceuticals, Inc. Prior to that, Mr.
Lin was a Corporate Actions Analyst for Capital Research and Management Company
from September, 1993 to September, 1996 and for the Franklin Templeton Group
from October, 1992 to September, 1993. Mr. Lin has a B.S. in Business
Administration from University of California, Berkeley (1991) and a M.I.S.
degree from Claremont Graduate University in California (1998).
Officers
Alan Chang. Mr. Chang joined the Company in September, 1996 and has served as
the Vice President of Administration, Secretary and General Counsel. Prior to
that, Mr. Chang practiced commercial litigation from 1992 to 1996 with the law
firm of Lewis, D'Amato, Brisbois & Bisgaard. Mr. Chang has a B.A. degree in
Political Science from New York University (1989) and a J.D. degree from Boston
University (1992).
David Rau. Mr. Rau joined the Company in August, 1996 and serves as its
Controller and Chief Financial Officer. Mr. Rau also serves as the
Controller/CFO for U.N. Imports, Inc. and has served in that capacity since
1986. Mr. Rau has a B.A. in Economics from Fu-Jen Catholic University in Taiwan
(1977), a M.B.A. from Eastern New Mexico University (1983), and a M.S. in
Computer Science from North Texas State University (1986).
James Zheng. Mr. Zheng serves as the Company's Chief Technology Officer and was
instrumental in designing, developing, and implementing the Company's
product-driven search engine, database structure, and on-line
purchasing/ordering systems. Mr. Zheng also designed and built the Company's
network, based on TCP/IP. Concurrent with his responsibilities at the Company,
Mr. Zheng owns a multimedia company (Multimedia Dynamics) where he develops
interactive multimedia application in the areas of corporate presentation,
marketing, and computer-based training as well as provides consulting services
in cross-platform multimedia and Internet application development. Some of his
clients have included Fidelity National Title Insurance Company, Toshiba of
America, LPL Financial Services, Ross Roy Communications, Inc., Santa
Fe/Burlington Northern Railroad, JLG Technology, and Mazda Motor of America. Mr.
Zheng also worked at AIMS Multimedia from 1994 to 1996 where he functioned as a
software engineer, webmaster and UNIX systems engineer. Mr. Zheng has a B.S.
degree in Computer Science from Zhengzhou University, China (1989). Mr. Zheng
also has a M.S. degree in Computer Science from University of California,
Riverside (1992), where he is also a Ph.D. candidate.
Other Key Advisors and Employees
James K. Ho, Ph.D. Dr. Ho serves as a consultant for the Company. Dr. Ho is a
professor of information & decision sciences at the University of Illinois at
Chicago, where he also serves as director of applied research and consulting
services for the College of Business Administration. He did his undergraduate
work at Columbia University and obtained his Ph.D. from Stanford University. Dr.
Ho has published widely in academic and professional journals and authored three
books and numerous research articles including "Evaluating the World Wide Web: A
Study of 1000 Commercial Sites," "A Comparative Study of Commercial Web Sites in
Australia, France, Hong Kong, and USA," and "Focasting: The future of Web
Advertising." He has extensive experience working with international
organizations, major corporations, as well as small businesses in the
application of information technology in the workplace. Based on his recent
book, Prosperity in the Information Age, he conducts
26
<PAGE>
executive seminars on "Competing in the Information Age: Maximizing the Payoff
from Information Technology" and on "Internet Strategies: Beyond Web Sites and
Home Pages." Dr. Ho teaches courses in information and operations management for
MBA, MS, and Ph.D. students, making extensive use of Web resources. It was Dr.
Ho who suggested that the Company implement a FOCASTING (Focused Broadcasting)
function in the Company's web site to provide an added value for the Company's
subscribers.
Joseph Sloan Mr. Sloan serves as a consultant to the Company. Mr. Sloan is
currently the senior UNIX administrator for Toyota in charge with implementing
its call center database, direct response marketing database, web site, external
UNIX mail gateway, and new UNIX system. Mr. Sloan has a background in system and
network administration of Solaris, SGI Irix, BSD, LINUX and other UNIX systems.
Moreover, Mr. Sloan has a background in UNI - PC integration, administration of
mail, DNS, web and security as well as utility programming in Perl, Shell, C/C++
and other languages. Mr. Sloan has worked at McDonnell Douglas Corporation where
he wrote ATE and Mil-1553 avionics test software and Hughes Aircraft Co. where
he was responsible for large-scale naval electronics warfare system for the Navy
of the Republic of China. Mr. Sloan has an Associate Degree in Electronics
Technology from Fullerton College (1981). Mr. Sloan is currently completing his
B.S. Degree in Computer Engineering from California State Long Beach.
Executive Compensation
The following table sets forth, for the fiscal year ended June 30,
1998, annual compensation, including salary and bonuses paid by the Company to
each executive officer and all executive officers as a group.
Name and Principal Parties Annual Compensation
-------------------------- -------------------
Salary Bonus
------ -----
Frank S. Yuan $ 50,000 -0-
Chief Executive Officer and President
Alan Chang $ 70,000 -0-
Vice President of Administration, Secretary and
General Counsel
David Rau $ 33,600 -0-
Chief Financial Officer
James Zheng $ 24,000(1) -0-
Chief Technology Officer
All executive officers as a group (Frank S. Yuan, Alan $153,600 -0-
Chang, and David Rau)
(1) Mr. Zheng joined the Company on a full-time basis on November 1, 1996. His
contract provided for a salary of $72,500/annum. Subsequently, on March 31,
1997, Mr. Zheng advised Management that he would be devoting most of his
energies towards his own business (Multimedia Dynamics). Management and Mr.
Zheng came to an agreement whereby Mr. Zheng would receive a consulting fee of
$2,000 per month and remain on an "on call as needed" basis with the Company.
27
<PAGE>
Employment Agreements
Mr. Chang entered into an employment agreement with the Company in
September 1996, pursuant to which Mr. Chang will serve as Vice President of
Administration and General Counsel. The term of the agreement is for two years.
Pursuant to the agreement with Mr. Chang, the Company will pay Mr. Chang a base
salary of $70,000 beginning September 16, 1996, and a cash bonus based on
profitability. The bonus is designed as follows: in any fiscal year in which the
net income of the Company exceeds twelve (12) percent of capital investment in
the Company, Mr. Chang will receive a share of a five (5) percent cash bonus on
all amounts exceeding twelve (12) percent of capital investment in the Company
for Mr. Chang's services. This bonus is for administrative staff only and Mr.
Chang's share of the cash bonus is at the discretion of the Company.
Mr. Rau entered into an employment agreement with the Company in
October 1996, pursuant to which Mr. Rau will serve as part-time treasurer. The
term of the agreement is "at will"; either party may terminate the agreement
upon ten (10) days written notice. Pursuant to the agreement with Mr. Rau, the
Company will pay Mr. Rau a base salary of $33,600 beginning October 1996.
Directors and Officers Insurance
The Company is exploring the possibility of obtaining Directors' and
Officers' liability insurance. The Company has obtained a premium quotation but
has not entered into any contracts with any insurance company to provide said
coverage as of the date of this Prospectus. There is no assurance that the
Company will be able to obtain such insurance.
Indemnification of Officers and Directors
At present, the Company has not entered into individual indemnity
agreements with its Officers or Directors. However, the Company's Articles of
Incorporation and By-Laws provide a blanket indemnification and state that the
Company shall indemnify, to the fullest extent under California law, its
Directors and Officers against certain liabilities incurred with respect to
their service in such capacities. In addition, the Articles of Incorporation
provide that the personal liability of Directors and Officers for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, Officers, and controlling persons of the
Company pursuant to the foregoing provision, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a Director, Officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such Director, Officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
case.
Stock Options
<TABLE>
The Company has adopted a non-qualified Stock Option Plan covering
250,000 shares of the Company's Common Stock, pursuant to which directors,
officers, key employees, and consultants working for the Company are eligible to
receive stock options. The plan is administered by the Board of Directors and
the President of the Company (the "Administrator"). The selection of
participants, allotment of shares, determination of price and other conditions
of purchase of the stock options are determined by the Administrator in order to
attract and retain persons
28
<PAGE>
instrumental to the success of the Company. As determined by the Administrator,
payment upon exercise of options may be in cash or other payment method.
Generally, the vesting, exercise and termination schedules are determined by the
Administrator at the time of grant, as is the exercise price. The stock options,
in most cases, are terminated if the Grantee resigns, terminates, or no longer
holds his/her position with the Company. The table below reflects stock options
granted by the Company to executive officers and other persons. The table covers
all options granted by the Company through March 31, 1998.
<CAPTION>
Name of Holder Date Granted No. of Shares Exercise Price Expiration Date
- -------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Alan Chang(1) 1996 50,000 $.40/Share 1998-1999
David Rau(2) 1996 25,000 $ 10.00 1998-1999
James Zheng(3) 1996 50,000 $ 10.00 1998-1999
Monica Cheang(4) 1997 10,000 $.40/Share 1998-1999
Jean-Paul Berube (5) 1997 5,000 $.40/Share 1998-1999
Luz Jimenez 1997 5,000 $.40/Share 1998-1999
Total Granted: (6) 1996-1997 145,000 $.40/Share - $10.00 1997-1999
Total Ungranted: 105,000 (7)
<FN>
(1) Alan Chang was granted a restricted stock option to purchase 50,000 shares
of common stock at $.40 per share pursuant to an employment contract executed on
October 8, 1996. The option vested two years after the execution of the
employment contract. However, Mr. Chang can only exercise 50% of the option
(25,000 shares) within 15 days after the end of his second year of employment.
The remaining 50% of the option (25,000 shares) is exercisable within 15 days
after the end of his third year of employment.
(2) David Rau was granted a restricted stock option to purchase 25,000 shares of
common stock for a total cost of $10.00 pursuant to an employment contract
executed on October 28, 1996. The option vested two years after the execution of
the employment contract. However, Mr. Rau can only exercise 50% of the option
(12,500 shares) within 15 days after the end of his second year of employment.
The remaining 50% of the option (12,500 shares) is exercisable within 15 days
after the end of his third year of employment.
(3) James Zheng was granted a restricted stock option to purchase 50,000 shares
of common stock for a total cost of $10.00 pursuant to an employment contract
executed on November 1, 1996. The option vested two years after the execution of
the employment contract. However, Mr. Zheng can only exercise 50% of the option
(25,000 shares) within 15 days after the end of his second year of employment.
The remaining 50% of the option (25,000 shares) is exercisable within 15 days
after the end of his third year of employment.
(4) Monica Cheang, who serves as the Company's Office Administrator, was
promised a restricted stock option to purchase 10,000 shares of common stock at
$.40 per share. Ms. Cheang can only exercise 50% of her option (5,000 shares)
within 15 days after the end of her second year of employment. The remaining 50%
of the option (5,000 shares) is exercisable within 15 days after the end of her
third year of employment.
(5) Jean-Paul Berube (Design Engineer), and Luz Jimenez (Administrative
Assistant) were each promised restricted stock option to purchase 5,000 shares
of common stock at $.40 per share. They can only exercise 50% of their option
(2,500 shares) within 15 days after the end of their second year of employment.
The remaining 50% of the options (2,500 shares) are exercisable within 15 days
after the end of their third year of employment.
29
<PAGE>
(6) Excludes a stock option to purchase 5,000 shares granted to Ringo Tsang and
a stock option to purchase 5,000 shares granted to Ernest Loya at $.40 per
share. These shares were cancelled in 1998 due to their resignation from the
Company.
(7) The Board of Directors has empowered Management to grant the remaining
105,000 share of ungranted stock options to key employees.
</FN>
</TABLE>
The stock options described above are non-qualified stock options that
were issued by the Company to certain employees and executive officers. As of
March 31, 1998, no options have been exercised or canceled.
CERTAIN TRANSACTIONS
On September 17, 1996, the Company loaned Frank S. Yuan $922,020.00.
The loan was evidenced by a written promissory note that required Mr. Yuan to
pay monthly interest on the outstanding principal balance of the loan at a rate
of 8% per annum. Furthermore, Mr. Yuan was required to make principal payments
on demand. To secure the promissory note, Mr. Yuan granted the Company a
security interest in two credit facilities offered by American International
Bank and United National Bank totaling $1,500,000. Mr. Yuan has since paid off
the loan in its entirety.
In July 1996, The Frank S. Yuan Family Trust purchased 2,700,000 shares
for $50,000. Frank S. Yuan is the trustee of The Frank S. Yuan Family Trust.
All future transactions, including loans, between the Company and its
officers, directors, principal shareholder and affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
30
<PAGE>
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of March 31,
1998, and as adjusted to reflect the sale of the Shares offered hereby, for (i)
each executive officer or director of the Company who beneficially owns Shares;
(ii) each stockholder known to the Company to beneficially own 5% or more of the
outstanding Shares of its Common Stock; and (iii) all executive officers and
directors as a group. The Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such Shares, subject to
community property laws where applicable.
<CAPTION>
Executive Officers, Shares Percentage of Common Shares Outstanding
Directors, and 5% Beneficially
Stockholders(1) Owned(2) After Offering
- --------------- -------- --------------
Before Minimum Minimum Maximum Maximum
Offering w/o BCF w/BCF(3) w/o BCF w/BCF(4)
-------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Frank S. Yuan Family Trust 2,700,000 45% 44.3% 39.8% 31.8% 28.6%
Charles Rice 60,000 1% 1% 0.9% 0.7% 0.7%
Deborah Shamaley 300,000 5% 4.9% 4.5% 3.5% 3.2%
Robert H.J. Lee 250,000 4.2% 4.1% 3.7% 2.9% 2.6%
Robert Hsieh 125,000 2.1% 2.1% 1.8% 1.5% 1.3%
Peter Lin 295,000 4.9% 4.9% 4.4% 3.5% 3.1%
Alan Chang (5) 51,500 0.8% 0.8% 0.7% 0.6% 0.5%
David Rau (6) 55,000 0.9% 0.9% 0.8% 0.6% 0.6%
James Zheng (7) 100,000 1.7% 1.6% 1.5% 1.2% 1.1%
UNI, L.P. 501,000 8.4% 8.2% 7.4% 5.9% 5.3%
All Officers, Directors, 4,437,500 74% 72.8% 65.5% 52.2% 47%
and 5% Shareholders as
Group
All Other Stockholders(8) 1,562,500 26% 25.6% 23.1% 18.4% 16.6%
New Stockholders if 100,000 1.6% 1.4%
Minimum Sold
New Stockholders if 2,500,000 29.4% 26.4%
Maximum Sold
BCF if Minimum Sold 677,777 (9) 10.0%
BCF if Maximum Sold 944,444 (10) 10%
<FN>
(1) All Officer, Directors, and 5% Shareholders of the Company may be reached at
World Wide Magic Net, Inc., 320 S. Garfield Ave., Ste. 318, Alhambra, CA 91801.
31
<PAGE>
(2) Based on 6,000,000 shares outstanding (5,750,000 shares outstanding plus
250,000 shares reserved for stock options of which stock options of 145,000
shares have been granted ). (After the 2-for-1 reverse stock split.)
(3) As part of the Company's contract with Burlington Coat Factory, the Company
granted Burlington Coat Factory a stock warrant to obtain a 10% equity interest
in the Company. See, "Key Contracts & Strategic Partners -- Burlington Coat
Factory." Assumes the exercise by Burlington Coat Factory of its stock warrant
to obtain a 10% equity interest in the Company at $4.00 per share. If the
minimum amount of shares (100,000 share) are subscribed to pursuant to this
Offering, Burlington Coat Factory's stock warrant would entitle it to purchase
up to 677,777 shares. This number of shares is determined by taking the
difference between that number of shares 6,777,777 (of which 6,100,000 shares
represents 90%; 6,100,000 / .90 = 6,777,777) and 6,100,000 shares (6,777,777 -
6,100,000 = 677,777). Thus, if the minimum amount of shares are subscribed to,
Burlington Coat Factory can purchase up to 677,777 shares for $2,711,108.
(4) Assumes the exercise by Burlington Coat Factory of its stock warrant to
obtain a 10% equity interest in the Company at $4.00 per share. If the maximum
amount of shares (2,500,000 share) are subscribed to pursuant to this Offering,
Burlington Coat Factory's stock warrant would entitle it to purchase up to
944,444 shares. This number of shares is determined by taking the difference
between that number of shares 9,444,444 (of which 8,500,000 shares represents
90%; 8,500,000 / .90 = 9,444,444) and 8,500,000 shares (9,444,444 - 8,500,000 =
944,444). Thus, if the maximum amount of shares are subscribed to, Burlington
Coat Factory can purchase up to 944,444 shares for $3,777,777.
(5) Assumes the exercise by Alan Chang of his stock options (50,000 shares). Mr.
Chang is also the beneficial owner of 1,500 shares that were purchased at $.42
average cost per share.
(6) Assumes the exercise by David Rau of his stock options (25,000 shares). Mr.
Rau is also the beneficial owner of 30,000 shares that were purchased at $.42
average cost per share.
(7) Assumes the exercise by James Zheng of his stock options (50,000 shares).
Mr. Zheng is also the beneficial owner of 50,000 shares that were purchased at
$.40 per share.
(8) Assumes the exercise by Monica Cheang (10,000), Jean-Paul Berube (5,000),
and Luz Jimenez (5,000) of their stock options. Also assumes the grant and
exercise of the remaining 105,000 shares held in reserve for stock options.
(9) See Footnote 3 above.
(10) See Footnote 4 above.
</FN>
</TABLE>
DESCRIPTION OF SECURITIES
Common Stock
On June 30, 1997, the authorized capital stock of the Company consisted
of 50,000,000 Shares of Common Stock. On March 24, 1998, the Company's Articles
of Incorporation was amended so that the Company's authorized capital stock
consisted of 40,000,000 Shares of Common Stock and 10,000,000 Shares of
Preferred Stock, without par value. As of March 31, 1998, there were 5,750,000
Shares of Common Stock outstanding and held of record by 34 stockholders. There
are no outstanding shares of Preferred Stock. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders, except that upon giving the legally required notice,
stockholders may cumulate their Shares in the election of directors. The Company
may pay dividends at the time and extent declared by the Board of Directors and
in accordance with California corporate law. The Common Stock has no preemptive
or other subscription rights, and there are no conversion rights or redemption
or sinking fund provisions with respect to such Shares. All outstanding Shares
of Common Stock are, and the Shares offered hereby will be, upon the completion
of this Offering, fully paid and not assessable.
32
<PAGE>
Warrants
Burlington Coat Factory Warehouse Corporation (BCF) owns a warrant (the
"Warrant") to purchase the Company's Common Stock, on a fully diluted basis,
equal to ten (10%) of the Company pursuant to the Warrant Agreement dated
October 15, 1997. The Warrant is currently exercisable at $4.00 per share. The
Warrant expires upon the earlier of the following dates: (i) October 15, 2002:
or (ii) 30 days after the closing of a firmly underwritten public offering of
the Company's securities with which the aggregate gross proceeds to the Company
are at least $5,000,000 and the offering price is at least $4.00 per share. The
Common Stock issued upon the exercise of this Warrant has certain registration
rights.
PLAN OF DISTRIBUTION
General
The Company proposes to offer and sell the shares directly to members
of the public residing in selected states. (A listing of those states in which
residents may purchase shares is on the Share Purchase Agreement, which
accompanies this Prospectus). Announcements of this Offering, in the form
prescribed by Rule 134 of the Securities Act, will be communicated to selected
persons. A copy of this Prospectus will be delivered to those who request it,
together with the Subscription Agreement. All shares will be sold at the public
offering price of $4.00 per share and a minimum purchase of 500 shares is
required. The Company reserves the right to reject any subscription or share
purchase agreement in full or in part.
The Company will effect offers and sales of shares through printed
copies of this Prospectus delivered by mail and electronically and through
broker-dealers. Any voice or other communications will be conducted in certain
states through its executive officers, and in other states through a designated
sales agent, licensed in those states. Under Rule 3a4-1 of the Exchange Act,
none of these employees of the Company will be deemed a "broker," as defined in
the Exchange Act, solely by reason of participation in this Offering, because
(1) none is subject to any of the statutory disqualifications in Section
3(a)(39) of the Exchange Act, (2) in connection with the sale of the shares
hereby offered, none will receive, directly or indirectly, any commissions or
other remuneration based either directly or indirectly on transactions in
securities, (3) none is an associated person (partner, officer, director or
employee) of a broker or dealer and (4) each meets all of the following
conditions: (A) primarily performs substantial duties for the issuer otherwise
than in connection with transactions in securities; (B) was not a broker or
dealer, or an associated person of a broker or dealer, within the preceding 12
months; and (C) will not participate in selling an offering of securities for
any issuer more than once every 12 months.
Determination of Offering Price
Prior to this Offering there has been no market for the common stock of
the Company, and there can be no assurances that a market will develop or be
sustained. Accordingly, the public offering price has been determined by the
Company's Board of Directors. Among factors considered in determining the public
offering price were the Company's results of operations, the Company's current
financial condition, its future prospects, the state of the markets for its
products, the experience of management and the economics of the industry segment
in general.
The Company intends to engage the services of selected broker-dealers
or underwriters to sell the Shares. The Company seeks to engage a broker-dealer
or an underwriter who is based in California as well one who is based abroad,
possibly in Taiwan. Each is to be responsible for raising five million dollars
($5,000,000) by using its best efforts in selling the Company stocks. In the
event that such a party is engaged, the Company will sticker this Prospectus to
describe the terms and conditions of any agreement, including commissions and
fees received by such parties. No such engagements with any broker-dealer or
underwriter has been made.
33
<PAGE>
The Shares are offered on a "minimum-maximum" basis: 100,000 Shares
(the "Minimum"), and 2,500,000 Shares (the "Maximum"). The Shares are offered
directly by the Company subject to the subscription and payment for not less
than 100,000 Shares, offered by the Company during the "Impound Period," which
shall begin with the commencement of the Offering and terminate upon the earlier
of (i) the date upon which the escrow agent, Imperial Bank confirms that it has
received the Minimum in deposited funds in a specified escrow account, (ii)
within twelve months of the date of the commencement of this Offering, or (iii)
the date upon which the Company terminates the Offering prior to the sale of the
Minimum. All subscription payments received during the Impound Period will be
deposited into an interest bearing escrow account entitled: "Imperial Trust
Company Escrow Account for World Wide Magic Net, Inc." at Imperial Trust
Company, 201 N. Figueroa, Suite 610, Los Angeles, California 90012.
All payments for Shares must be made payable to the order of "Imperial
Trust Company Escrow Account for World Wide Magic Net, Inc." and delivered with
a completed subscription agreement to the Company. Within three business days of
receipt, the Company will transmit for deposit into the escrow account, all
payments and corresponding copies of subscription agreements. During the Impound
Period, subscribers will not have the right to any return of subscriptions.
In the event less than $400,000 in subscriptions are received within
twelve months of the date of the commencement of this Offering, then 100% of the
proceeds shall be promptly returned to the prospective investors by the Escrow
Agent, pursuant to the terms of an Escrow Agreement the Company has filed with
the Securities and Exchange Commission. When the balance of the bank account
reaches $400,000, the Escrow Agent shall then release such funds to the Company
and they will be used in the manner described under "Use of Proceeds."
Unless the Minimum number of Shares offered hereby are sold by the end
of the Offering period (i.e., within twelve months of the date of the
commencement of this Offering), all proceeds will be promptly returned to
subscribers without deduction for commissions or expenses. If the Minimum amount
is raised, the remaining 2,400,000 shares will continue to be offered until the
earlier of the sale of all of the Shares being offered, termination of the
Offering or until expiration of the offering period.
The Shares are offered subject to prior sale and the Company reserves
the right to reject any offer in whole or in part. The Company will send written
confirmation by U.S. mail to notify subscribers of the acceptance of their
subscriptions within ten days of their acceptance (i.e., signed copies of the
Subscription Agreement). Common Stock certificates will be delivered to
investors by means of Federal Express or other delivery service within two weeks
after the Minimum has been sold, and thereafter within 30 days of acceptance of
the subscription by the Company.
Registration Rights
The Company has issued a stock warrant to BCF pursuant to which BCF was
granted certain registration rights.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is the
Secretary of the Company.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by its counsel, Evers & Hendrickson, LLP, San
Francisco, California.
34
<PAGE>
EXPERTS
The financial statements of the Company as of June 30, 1997 and for the
year then ended, included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon authority of said firm as
experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the June 30, 1997,
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations raise substantial doubt about the
entity's ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of that uncertainty.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the shares offered hereby has been filed with the Securities and
Exchange Commission, Office of Small Business Policy, Washington, D.C. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the shares
offered hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office located at 450 Fifth Street,
N.W., Washington, D.C. 20549, the Northeast Regional Office located at 7 World
Trade Center, 13th Floor, New York, New York, 10048 and copies of all or any
part thereof may be obtained from the Public Reference Branch of the Commission
upon the payment of certain fees prescribed by the Commission. In addition the
Commission maintains a World Wide Web site on the Internet at http://www.sec.org
that contains reports, proxy and information statements and other documents
filed electronically with the Commission, including the Registration Statement.
The Company intends to furnish its shareholders with annual reports containing
financial statements audited by its independent public accountants and quarterly
reports containing unaudited financial information for the first three quarters
of each fiscal year.
35
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article IV of the Registrant's Articles of Incorporation provides that the
liability of the directors of this corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law and that the
corporation is authorized to indemnify the directors and officers of the
corporation to the fullest extent permissible under California law.
Section 2.15 of Article II of the Registrant's By-laws provides that it may
indemnify any director, officer, agent or employee as to those liabilities and
on those terms and conditions as are specified in Section 317 of the California
Corporations Code. In any event, the Registrant shall have the right to purchase
and maintain insurance on behalf of any such persons whether or not the
Registrant would have the power to indemnify such person against the liability
insured against.
Insofar as indemnification for liabilities arising under the Securities Act,
indemnification may be permitted to directors, officers or persons controlling
the Registrant pursuant to the foregoing section. The Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution of
the securities being registered are estimated as follows, assuming the Maximum
offering amount is sold:
SEC filing fees 2,950
Blue Sky filing fees 10,500
Accountant's fees and expenses 10,000
Legal fees and expenses 31,000
Printing 15,000
Marketing expenses 10,000
Postage 5,000
Transfer Agent's fees 5,000
Miscellaneous 18,550
Total $108,000
The Registrant will bear all expenses shown above.
36
<PAGE>
Item 26. RECENT SALES OF UNREGISTERED SECURITIES
a) The following information is given for all securities that World Wide Magic
Net, Inc. (the "Company") sold within the past three years without
registering the securities under the Securities Act.
Date Title Amount
---- ----- ------
1. 7/16/96 to 12/31/96 Common Stock $ 1,050,000
2. 10/1/97 to 12/31/97 Common Stock $ 500,000
b) No underwriters were used in connection with any of the issuances of
shares. The class of persons to whom the Company issued shares was those
persons known to the
1. Founders, Employees, Directors, consultants, business associates,
private investors
2. Employees, Directors, consultants, business associates, private
investors
a) No underwriters were used in connection with any of the issuances of shares
or options so there were no underwriting discounts or commissions. The
transactions and the types and amounts of consideration received by the
Company were:
1. Cash
2. Cash
d) The sales were made pursuant Section 4(2) of the Securities Act and Section
25102(f) of the California Corporations Code.
Item 27. EXHIBITS
ITEM (601) DOCUMENT PAGE
- ---------- -------- ----
3.1 Articles of Incorporation, July 16, 1996
3.2 Amendment to Articles of Incorporation filed
March 30, 1998
3.3 By-laws
4.1 Article II of By-laws (Reference is made to
Exhibit 3.3)
4.2 Share Specimen
4.3 Warrant held by Burlington Coat Factory
Warehouse Corporation
5 Opinion of Evers & Hendrickson, LLP with
respect to the legality of the shares being
registered
10.1 Lease of registrant's facilities
37
<PAGE>
10.2 Participation Agreement with Burlington Coat
Factory Warehouse Corporation
10.3 Contract with Family Bargin Corporation
10.4 Employment Contract with Alan Chang
10.5 Employment contract with David Rau
10.6 Escrow Agreement with Imperial Bank
23.1 Consent of KPMG Peat Marwick, LLP
23.2 Consent of Evers & Hendrickson, LLP
99.1 Share Purchase Agreement
Item 28. UNDERTAKINGS
a) The Registrant hereby undertakes that is will:
1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the bona fide
offering.
3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
e) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion or the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
38
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe the registrant
meets all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned in the City
of Alhambra, on July ___, 1998.
World Wide Magic Net, Inc.
By:________________________ By:_________________________________
Frank S. Yuan David Rau
Chief Executive Officer, Chief Financial Officer
President, and Chairman of the Board
<TABLE>
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<CAPTION>
Signature Title Date
<S> <C> <C>
________________________ Chief Executive Officer July _____, 1998
Frank S. Yuan President, Chairman of the Board
________________________ Chief Financial Officer July _____, 1998
David Rau
________________________ Director July _____, 1998
Deborah Shamaley
________________________ Director July _____, 1998
Charles Rice
________________________ Director July ______, 1998
Robert Hsieh
________________________ Director July ______, 1998
Robert Lee
________________________ Director July ______, 1998
Peter Lin
</TABLE>
39
<PAGE>
No person is authorized in connection with any offering made hereby to give any
information or to make any representation not contained herein and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date of this Prospectus or that the information contained
herein is correct as of any date subsequent to the date of this Prospectus.
TABLE OF CONTENTS Page
----
Summary........................................................................4
Risk Factors...................................................................6
Use of Proceeds...............................................................11
Dividend Policy...............................................................12
Capitalization................................................................12
Dilution......................................................................13
Selected Financial Data.......................................................14
Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................................15
Business......................................................................18
Management....................................................................24
Certain Transactions..........................................................30
Principal Stockholders........................................................31
Description of Securities.....................................................32
Plan of Distribution..........................................................33
Legal Matters.................................................................34
Experts.......................................................................35
Additional Information........................................................35
Financial Statements..........................................................36
Until ____________, 1998 (90 days after the effective date of this Prospectus),
all dealers effecting transactions in the Securities, whether or not
participating in this Offering, may be required to deliver a Prospectus. This in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
WORLD WIDE
----------
MAGIC NET, INC.
---------------
2,500,000 Shares of
Common Stock
PROSPECTUS
August __, 1998
40
<PAGE>
WORLD WIDE MAGIC NET, INC.
dba CYBER MERCHANTS EXCHANGE
INDEX TO FINANCIAL STATEMENTS
Report of KPMG Peat Marwick LLP, Independent Auditors .................... F-2
Balance Sheets ........................................................... F-3
Statements of Operations ................................................. F-4
Statements of Stockholders' Equity ....................................... F-5
Statements of Cash Flows ................................................. F-6
Notes to Financial Statements ............................................ F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
World Wide Magic Net, Inc.
dba Cyber Merchants Exchange:
We have audited the accompanying balance sheet of World Wide Magic Net, Inc.,
dba Cyber Merchants Exchange (the Company) as of June 30, 1997 and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the account principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of World Wide Magic Net, Inc. dba
Cyber Merchants Exchange as of June 30, 1997 and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has experienced operating losses and negative
cash flows from operating activities since inception. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Los Angeles, California
October 17, 1997
F-2
<PAGE>
<TABLE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Balance Sheets
<CAPTION>
Assets
June 30, 1997 March 31, 1998
------------- --------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 4,078 $ 491,220
Accounts receivable 9,560 12,450
Notes receivable 419,570 --
Other current assets 5,901 --
----------- -----------
Total current assets 439,109 503,670
Property and equipment, net 97,524 96,797
Other assets 4,583 4,562
----------- -----------
$ 541,216 $ 605,029
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 44,552 $ 24,897
Deferred revenue 4,275 3,635
----------- -----------
Total current liabilities 48,827 28,532
----------- -----------
Stockholders' equity:
Preferred stock, no par value. Authorized -- --
10,000,000 shares; none issued and outstanding
Common stock, no par value. Authorized 40,000,000 1,050,000 1,550,000
shares; issued and outstanding 4,750,000 shares at
June 30, 1997 and 5,750,000 shares at March 31, 1998
Additional paid-in capital 30,000 30,000
Accumulated deficit (587,611) (1,003,503)
----------- -----------
Net stockholders' equity 492,389 576,497
Commitments (Note 5)
Contingency (Note 8)
----------- -----------
$ 541,216 $ 605,029
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Statements of Operations
<CAPTION>
Nine Months Nine Months
Year Ended Ended Ended
June 30, 1997 March 31, 1997 March 31, 1998
------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues - subscriber's fees $ 35,900 $ 18,830 $ 54,168
Operating costs and expenses:
Cost of revenues 123,104 80,831 106,636
General and administrative expenses 550,004 385,189 373,453
----------- ----------- -----------
Operating loss (637,208) (447,190) (425,921)
Interest Income 50,397 41,099 10,829
----------- ----------- -----------
Loss before income taxes (586,811) (406,091) (415,092)
Income taxes 800 800 800
----------- ----------- -----------
Net Loss (587,611) (406,891) (415,892)
=========== =========== ===========
Basic and diluted net loss per share $ (0.13) $ (0.09) $ (0.08)
=========== =========== ===========
Shares used in computation of net loss per
share 4,503,671 4,420,595 4,938,060
=========== =========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Statements of Stockholders' Equity
<CAPTION>
Common Stock Net
---------------------------- Additional Accumulated Stockholders'
Shares Amount Paid-in capital deficit equity
---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 $ -- -- -- --
Issuance of common stock at inception 4,750,000 1,050,000 -- -- 1,050,000
Deferred compensation related to stock options -- -- 30,000 -- 30,000
Net loss -- -- -- (587,611) (587,611)
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 4,750,000 1,050,000 30,000 (587,611) 492,389
========== ========== ========== ========== ==========
Issuance of common stock (unaudited) 1,000,000 500,000 -- -- 500,000
Net loss (unaudited) -- -- -- (415,892) (415,892)
---------- ---------- ---------- ---------- ----------
Balance at March 31, 1998 (unaudited) 5,750,000 $1,550,000 30,000 (1,003,503) 576,497
========== ========== ========== ========== ==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Statements of Cash Flows
<CAPTION>
Year Ended Nine Months Ended Nine Months Ended
June 30, 1997 March 31, 1997 March 31, 1998
----------- ----------- -----------
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (587,611) $ (406,891) $ (415,892)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 24,632 8,268 24,718
Compensation expense related to stock options 30,000 30,000 --
Changes in assets and liabilities:
Accounts receivable (9,560) (17,750) (2,890)
Other current assets (5,901) (3,867) 5,901
Other assets (4,583) (4,583) 21
Accounts payable and accrued expenses 44,552 43,175 (19,655)
Deferred revenue 4,275 4,000 (640)
----------- ----------- -----------
Net cash used in operating activities (504,196) (347,648) (408,437)
Cash flows used in investing activities
Purchase of property and equipment (122,156) (119,657) (23,991)
Net proceed received from (paid to) note receivable (419,570) (569,120) 419,570
----------- ----------- -----------
Net cash provided by (used in) investing
Investing activities (541,726) (688,777) 395,579
----------- ----------- -----------
Cash flows provided by financing activities -
proceeds from issuance of common stock 1,050,000 1,050,000 500,000
----------- ----------- -----------
Net increase in cash 4,078 13,575 487,142
Cash at beginning of year -- -- 4,078
----------- ----------- -----------
Cash at end of year $ 4,078 $ 13,575 $ 491,220
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ -- $ -- $ --
Income taxes 800 800 --
=========== =========== ===========
</TABLE>
F-6
<PAGE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Notes to Financial Statements
(Information as of March 31, 1998 and for the nine months ended March 31, 1997
and 1998 is unaudited)
(1) Summary of Significant Accounting Policies
World Wide Magic Net, Inc., dba Cyber Merchants Exchange (the Company)
is a developer of business-to-business electronic commerce network,
whereby retailer can go on-line, review product information and
purchase items through the network developed and maintained by the
Company.
Unaudited Interim Financial Information
The financial information as of March 31, 1998 and for the nine months
ended March 31, 1997 and 1998 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the
Company considers necessary for a fair presentation of the financial
position at such date and the operations and cash flows for the periods
then ended. Operating results for the nine months ended March 31, 1998
are not necessarily indicative of results that may be expected for the
entire year.
Liquidity and Going Concern
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company has experienced operating losses and
negative cash flows from operating activities since inception.
Management's plans include obtaining additional financing from outside
sources, increasing revenues through collaborative arrangements with
other companies and other marketing efforts, and controlling operating
costs and expenses. If the Company is unable to achieve projected
operating results and/or obtain sufficient financing, management will
be required to curtail growth plans and implement further cost
controls. There can be no assurance that the Company will realize such
plans.
The Company's financial condition and the uncertainty of the
realization of the above plans may raise substantial doubt about the
Company's ability to continue as a going concern. Accordingly, the
accompanying financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Revenue Recognition
Subscriber's fees represent revenues generated through a one-time,
nonrefundable membership fee and monthly hosting fees. Revenues are
recognized after the services have been rendered and no significant
vendor obligation remains. Unearned but billed revenues are deferred.
Revenues generated from certain vendors are recognized net of portion
related to third party collaborative business partners.
F-7
<PAGE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Notes to Financial Statements, continued
(Information as of March 31, 1998 and for the nine months ended March 31, 1997
and 1998 is unaudited)
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated on the straight-line method over the estimated
useful lives of the assets, generally three to five years. Leasehold
improvements are amortized over the shorter of the amortized useful
lives or lease term.
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes".
Under SFAS No. 109, deferred income taxes reflect the impact of
"temporary differences" between assets and liabilities for financial
reporting purposes and such amounts as measured by tax law and
regulations.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
Accounting for Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of carrying amount or fair value, less costs to
sell. Adoption of this statement did not have a material impact on the
Company's financial position, results of operations or liquidity.
Stock Options
SFAS No. 123 allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income disclosure for employee
stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma disclosure provisions of SFAS No.
123.
F-8
<PAGE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Notes to Financial Statements, continued
(Information as of March 31, 1998 and for the nine months ended March 31, 1997
and 1998 is unaudited)
Recent Accounting Pronouncements
On October 27, 1997, the American Institute of Certified Public
Accounts issued Statement of Position (SOP) 97-2, "Software Revenue
Recognition". SOP 97-2 is applicable to all entities that license,
sell, lease or otherwise market computer software and is effective for
transactions entered into in fiscal years beginning after December 15,
1997. Retroactive application of the provisions of this SOP is
prohibited. Management is currently assessing the adoption of this SOP.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, which establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997 and
requires reclassification of financial statements for earlier periods
to be provided for comparative purposes. The Company has not determined
the manner in which it will present the information required by SFAS
No. 130 in its annual financial statements for the year ending December
31, 1998. The Company's total comprehensive income (loss) for all
periods presented herein would not have differed from those amounts
reported as net loss in the consolidated statements of operations.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual financial statements and requires
those enterprises to report selected information about operating
segments in interim financial reports issued to stockholders. SFAS No.
131 is effective for financial statements for periods beginning after
December 31, 1997. The Company has not yet determined the manner in
which it will present the information required by SFAS No. 131.
Net Loss Per Share
Basic and diluted net loss per share are computed using the weighted
average number of outstanding shares of common stock. Pursuant to SEC
Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued for nominal consideration, prior to the
anticipated effective date of the IPO, are included in the calculation
of basic and diluted net loss per share as if they were outstanding for
all periods presented.
Net loss per share for the year ended June 30, 1997 does not include
the effect of 155,000 stock options with a weighted average exercise
price of $0.21 per share because their effects are anti-dilutive.
F-9
<PAGE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Notes to Financial Statements, continued
(Information as of March 31, 1998 and for the nine months ended March 31, 1997
and 1998 is unaudited)
Net loss per share for the nine months ended March 31, 1998 does not
include the effect of 145,000 stock options with a weighted average
exercise price of $0.19 per share, 950,000 common stock warrants with a
weighted average exercise price of $4.00 per share, because their
effects are anti-dilutive.
(2) Property and Equipment
A summary of property and equipment at cost is as follows:
June 30, 1997 March 31, 1998
------------- --------------
Leasehold improvements $ 4,351 $ 4,351
Furniture and fixtures 20,026 21,764
Computer equipment and software 81,509 103,762
Office equipment 16,270 16,270
--------- ---------
$ 122,156 $ 146,147
Less accumulated depreciation
and amortization (24,632) (49,350)
--------- ---------
$ 97,524 $ 96,797
========= =========
(3) Notes Receivable
On September 17, 1996, the President and the majority stockholder of
the Company borrowed $922,020 from the Company. The note bears interest
at 8%. Principal is due on demand and interest payments are due
monthly. At June 30, 1997, the outstanding amount of the note was
$417,020. In November 1997, the note was paid off entirely. The
remaining notes receivable of $2,550 represent interest-free loans to
other employees and was paid in full subsequent to year end.
(4) Income Taxes
Income tax expense is comprised of the minimum state franchise tax. The
difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the U.S. federal
statutory rate of 34% is due to net operating losses not being
benefited.
The Company has gross deferred tax assets relating principally to tax
effects of net operating loss carryforwards. In assessing the
recoverability of deferred tax assets, management considers whether it
is more likely than not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers projected future taxable income and
tax planning strategies in making this assessment. Based upon the level
of historical taxable income and projections for future taxable income
over the periods in which the deferred
F-10
<PAGE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Notes to Financial Statements, continued
(Information as of March 31, 1998 and for the nine months ended March 31, 1997
and 1998 is unaudited)
tax items are recognizable for tax reporting purposes, management does
not believe it is more likely than not the Company will realize the
benefits of these differences at June 30, 1997. As such, management has
recorded a valuation allowance for the full amount of deferred tax
assets at June 30, 1997.
At June 30, 1997 and March 31, 1998, the Company has available net
operating losses of approximately $585,000 and $1,000,000,
respectively, for both Federal income tax purposes and state tax
purposes to offset future taxable income, if any, and expire at various
dates through the year 2012. However, the utilization of net operating
losses may be subject to certain limitations as prescribed by Section
382 of the Internal Revenue Code.
(5) Commitments
The Company leases office space under a noncancelable operating lease
that expires on October 27, 1999.
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) as of
June 30, 1997 are as follows:
Year ending June 30:
1998 $ 37,968
1999 37,968
2000 12,248
--------------------------------------------------
Total minimum lease payments $ 88,184
Rent expense for the year ended June 30, 1997 was approximately $26,000
and $28,000 for the nine months ended March 31, 1998.
(6) Stockholders' Equity
On January 29, 1998, the Company's Board of Directors approved a
2-for-1 reverse split of the Company's common stock. All common share
amounts in the accompanying financial statements have been adjusted
retroactively. On March 24, 1998, the Company's amended its articles of
incorporation to have authorized capital stock of 40,000,000 shares of
common stock and 10,000,000 shares of preferred stock.
On October 15, 1997, the Company entered into an agreement with
Burlington Coat Factory Warehouse Corporation (BCF). Under the
agreement, the Company and BCF will jointly develop a network whereby
participants of the network can do business through Internet. BCF
agrees to use this proprietary network as their main sourcing method.
BCF agrees to assist in marketing and promoting this network service to
its vendors. In return, BCF is free to use the
F-11
<PAGE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Notes to Financial Statements, continued
(Information as of March 31, 1998 and for the nine months ended March 31, 1997
and 1998 is unaudited)
network designed and maintained by the Company and will share a certain
portion of the fee revenue generated by this network with the Company.
In addition, the Company granted a warrant to BCF to allow BCF to
purchase up to 10% of the outstanding shares of common stock of the
Company, subject to certain conditions as defined in the warrant
agreement. The common stock if issued to BCF will have certain
registration rights. BCF and the Company also agreed to develop an
Internet Electronic Data Interchange (EDI) to replace the standard EDI.
The Company's stock option plan provides for the granting of stock
options to employees. The Company has reserved 250,000 shares of common
stock for issuance under the plan. The terms and conditions of grants
of stock options are determined by the Board of Directors. Generally,
one-half of the granted option is exercisable within 15 days after the
employee's first year of employment. The remaining option is
exercisable within 15 days after the end of the employee's second year
of employment.
A summary of stock option activity is as follows:
Weighted
Number of average
shares exercise price
Balance at June 30, 1996 -- $ --
Options granted 155,000 0.21
Options terminated -- --
-------- --------
Options exercised -- --
-------- --------
Balance at June 30, 1997 155,000 0.21
======== ========
Options granted -- --
Options terminated (10,000) 0.20
Options exercised -- --
-------- --------
Balance at March 31, 1998 145,000 0.19
======== ========
At June 30, 1997 and March 31, 1998, there were no options exercisable.
F-12
<PAGE>
WORLD WIDE MAGIC NET, INC.,
dba CYBER MERCHANTS EXCHANGE
Notes to Financial Statements, continued
(Information as of March 31, 1998 and for the nine months ended March 31, 1997
and 1998 is unaudited)
The Company applies APB Opinion No.25 in accounting for its stock
options. All options, except for options granted to two employees for
150,000 shares of common stock, were granted at an exercise price equal
to the fair value of the common stock, and accordingly, no compensation
cost has been recognized for these stock options in the financial
statements. Compensation expense aggregating $30,000 was recorded for
the issuance of the remaining options for 150,000 shares of common
stock. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would have been increased to the pro forma amount
for the year ended June 30,1997 indicated below:
Net loss:
As reported $ (587,611)
Pro forma (643,411)
===============
The compensation cost was calculated using the assumptions of a 1.5
year weighted average expected life of the options and a 6.5% risk-free
interest rate.
(7) Contingency (Unaudited)
The Company has been named as a defendant, along with Burlington Coat
Factory Warehouse, in a lawsuit brought by Stanley Rosner ("Rosner"),
an individual. In March, 1998, Rosner commenced an action in the
Supreme Court of the State of New York alleging breach of oral and
written contracts between the Company and Rosner and between Burlington
Coat Factory Warehouse and Rosner in 1997. Rosner claims that he is due
certain fees from both the Company and Burlington Coat Factory
Warehouse for services allegedly rendered in connection with certain
transactions involving the Company and Burlington Coat Factory
Warehouse. These transactions relate to the Internet services that the
Company has and will provide to Burlington Coat Factory Warehouse, and
current and anticipated transactions arising from vendors of Burlington
Coat Factory Warehouse. Rosner claims that he is due damages in an
amount not less than $5,000,000 plus unspecified punitive damages from
both the Company and Burlington Coat Factory Warehouse. The Company
intends to vigorously defend this action. The Company believes that it
is not obligated to make any payments to Rosner and has meritorious
defenses to all of Rosner's allegations.
However, if held liable for the entire amount, this would have a
materially adverse effect upon the Company.
F-13
1787326
ENDORSED
FILED
In the office of the Secretary of State
of the State of California
JUL 16 1996
/s/ Bill Jones
BILL JONES, Secretary of State
ARTICLES OF INCORPORATION
OF
WORLD WIDE MAGIC NET, INC.
*****
FIRST: That the name of the corporation is WORLD WIDE MAGIC NET, INC.
SECOND: This corporation is a close corporation. All of the
corporation's issued shares of all classes shall be held of
record by not more than thirty-five persons.
THIRD: The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking
business, the trust business or the practice of a profession
permitted to be incorporated by the California Corporations
Code.
FOURTH: The name of this corporation's initial agent for service of
process in the State of California is: Frank Yuan, 815 South
Fremont Avenue, Alhambra, CA 91803
<PAGE>
FIFTH: The total number of shares which the corporation is authorized
to issue is fifty million (50,000,000); all of such shares
shall be without par value.
IN WITNESS WHEREOF, the undersigned have executed these Articles this
Fifteenth day of July, 1996.
/s/ David I. Farber
-----------------------------
David I. Farber, Incorporator
/s/ Edith C. Shannon
-----------------------------
Edith C. Shannon, Incorporator
/s/ Maria J. Sandoval
-----------------------------
Maria J. Sandoval, Incorporator
CERTIFICATE OF RESTATED AND AMENDED
ARTICLES OF INCORPORATION OF
WORLD WIDE MAGIC NET, INC.
Frank Yuan and Alan Chang certify that:
1. They are the President and Secretary, respectively, of World Wide Magic
Net, Inc., a California corporation.
2. The articles of incorporation of the corporation are amended and
restated to read in their entirety as follows:
I. NAME.
The name of the corporation is WORLD WIDE MAGIC NET, INC.
II. PURPOSE.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporation by the California
Corporations Code.
III. AUTHORIZED SHARES.
(a) This corporation is authorized to issue two classes of shares
designated respectively as "common shares" and "preferred shares". The number of
authorized common shares is forty million shares (40,000,000); the number of
authorized preferred shares is ten million (10,000,000). On the amendment of
this Article III to read as set forth above, each outstanding common share is
reclassified and converted to one-half of one common share.
(b) The preferred shares may be divided into such number of series as
the Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of preferred shares, and
to fix the number of shares and the designation of any series of preferred
shares. The Board of Directors may increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
wholly unissued series subsequent to the issue of those shares.
(c) The total number of outstanding common shares just prior to this
amendment is 11,500,000. On the amendment of this Article, each outstanding
common share is combined and changed to one-half of one common share for a total
number of outstanding common shares of 5,750,000.
<PAGE>
IV. INDEMNIFICATION.
(a) Directors. The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
(b) Directors and Officers. The corporation is authorized to indemnify
the directors and officers of the corporation to the fullest extent permissible
under California law.
3. This Certificate, restating and amending the articles of incorporation,
has been approved by the Board of Directors.
4. The amendment was approved by the required vote of the shareholders in
accordance with Corporations Code Sections 902 and 903. The total number of
outstanding shares entitled to vote on this amendment was 11,500,000. The
favorable vote of 66.66% of the outstanding shares (7,665,900 shares) was
required to approve this amendment. The number of shares voting in favor of the
amendment equaled or exceeded the required vote.
We declare under penalty of perjury that the statements set forth in
this certificate are true and correct of our own knowledge, and that this
declaration was executed on March 24, 1998 at Alhambra, California.
/s/ Frank S. Yuan
-----------------
Frank S. Yuan
President
/s/ Alan Chang
-----------------
Alan Chang
Secretary
BYLAWS
OF
WORLD WIDE MAGIC NET, INC.
ARTICLE I. OFFICES
1.01 The corporation shall have its principal executive office in the City
and State designated in the Articles of Incorporation. The corporation may also
maintain offices at such other places within or without the United States as the
Board of Directors may, from time to time, determine.
ARTICLE II. DIRECTORS
Responsibility of Board
2.01 Subject to the provisions of the General Corporation Law and to any
limitations in the Articles of Incorporation of the corporation relating to
action required to be approved by the shareholders, as that term is defined in
California Corporations Code Section 153, or by the outstanding shares, as that
term is defined in California Corporations Code Section 152 or by less than a
majority vote of a class or series of preferred shares, as that term is defined
in California Corporations Code Section 402.5, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors. The Board may delegate the
management of the day-to-day operation of the business of the corporation to a
management company or other person, provided that the business and affairs of
the corporation are managed and all corporate powers are exercised under the
ultimate direction of the Board.
Number of Directors
2.02 The number of directors of this corporation shall be six (6), unless
and until otherwise determined by vote of a majority of the entire Board of
Directors. The number of Directors shall not be less than three, unless all of
the outstanding shares are owned beneficially and of record by less than three
shareholders, in which event the number of Directors shall not be less than the
number of shareholders permitted by statute.
Election and Term of Office
2.03 Except as may otherwise be provided herein or in the Articles of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election. Each Director shall hold office until
the annual meeting of the shareholders next succeeding his election, and until
his successor is elected and qualified, or until his prior death, resignation or
removal.
1
<PAGE>
Removal of Directors
2.04 Any individual Director or the entire Board of Directors may be removed
from office in the manner provided by law.
Filling Vacancies
-- By Board
2.05(a) Except as otherwise provided in the Articles of Incorporation of the
corporation or in these Bylaws, and except for a vacancy created by the removal
of a Director, vacancies on the Board may be filled by approval of the Board of
Directors pursuant to California Corporations Code Section 151, or, if the
number of Directors then in office is less that a quorum, by (1) the unanimous
written consent of the Directors then in office; (2) the affirmative vote of a
majority of the Directors then in office at a meeting held pursuant to notice or
waivers of notice complying with California Corporations Code Section 307; or
(3) a sole remaining Director.
-- By Shareholders
2.05(b) Unless the Articles of Incorporation of the corporation are amended, or
a Bylaw is adopted by the shareholders to provide that vacancies occurring in
the Board by reason of the removal of Directors may be filled by the Board, any
vacancies may be filled only by approval of the shareholders as that term is
defined in California Corporations Code Section 153. Any vacancies authorized to
be filled but not filled by the Directors may be filled by the shareholders and
any election by written consent requires the consent of a majority of the
outstanding shares entitled to vote; provided however, that no Director shall be
elected by written consent to fill a vacancy created by removal of any Director
except by the unanimous written consent of all shares entitled to vote for the
election of Directors.
Call of Meetings
2.06 Meetings of the Board may be called by the Board Chairperson, if any,
or the President, or any Vice President, or the Secretary, or any two Directors
of the corporation.
Place of Meetings
2.07 All meetings of the Board shall be held at the corporation's principal
executive office.
Time of Regular Meetings
2.08 Regular meetings of the Board shall be held, without call or notice,
immediately following each annual meeting of the shareholders of this
corporation.
Notice of Special Meeting and Waiver of Notice
2.09 Notice of any special meeting of the Board shall be given to each
Director by first-class mail, postage prepaid, at least four days in advance of
the meeting, or delivered in person or by telephone, including a voice messaging
system or other system or technology designed to record
2
<PAGE>
and communicate messages, telegraph, facsimile, electronic mail, or other
electronic means at least 48 hours in advance of the meeting. Notice need not be
given to any Director who signs, before or after the meeting, either a waiver of
notice, a consent to the holding of the meeting, or an approval of the minutes
of the meeting, or who attends the meeting without protesting the lack of notice
before or at the commencement of the meeting. All waivers, consents, and
approvals shall be filed with the corporate records or made a part of the
minutes of the meetings to which they pertain.
Quorum
2.10 A majority of the authorized number of Directors constitutes a quorum
of the Board for the transaction of business except as provided below.
Transactions of Board
2.11 Except as otherwise provided in the Articles, in these Bylaws, or by
law, every act or decision done or made by a majority of the Directors present
at a duly held meeting at which a quorum is present is the act of the Board,
provided, however, that any meeting at which a quorum was 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 the
meeting.
Adjournment
2.12 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 the
meeting is adjourned for more than 24 hours, notice of the adjournment to
another time or place must be given before the time of the adjourned meeting to
the Directors who were not present at the time of the adjournment.
Conduct of Meetings
2.13 The Board Chairperson, or if there is no such person, the President,
or, in the Chairperson's absence, any Director selected by the Directors
present, shall preside at meetings of the Board of Directors. The Secretary of
the corporation, or, in the Secretary's absence, any person appointed by the
presiding officer shall act as Secretary of the Board. Board members may
participate at board meetings by conference telephone, electronic video screen
communication, or other communications equipment, whenever the board authorizes
this type of participation by adopting a resolution. The resolution must require
that the corporation (1) verify the identity of any director communicating by
telephone, electronic video screen, or other communication equipment and that
director's right to participate in board meetings and (2) verify that all
statements, questions, actions, and votes made by telephone, electronic video
screen, or other communications equipment were made by that director and not by
someone not permitted to participate as a director.
Participation in a meeting pursuant to this Paragraph
constitutes presence in person at the meeting if all the following are true:
(1) Each board member participating in the meeting can communicate
with all of the other members concurrently.
(2) Each member is provided the means of participating in all
matters before the board, including the capacity to propose,
or interpose an objection, to a specific action to be taken by
the corporation.
3
<PAGE>
(3) The board adopts a resolution pursuant to this Paragraph.
Compensation
2.14 Director's shall not receive any stated salary for their services as
directors but, by resolution of the Board, a fixed fee, with or without expenses
of attendance, may be allowed for attendance at each meeting. Nothing contained
in these Bylaws shall 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 the service.
Indemnification
2.15 The corporation has the power to indemnify any person who is or was a
director, officer, employee, or other agent of this corporation or of its
predecessor, or is or was serving as such of another corporation, partnership,
joint venture, trust, or other enterprise, at the request of this corporation
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any threatened, pending, or completed
action or proceeding, whether civil, criminal, administrative, or investigative,
as provided in California Corporations Code Section 317 as that section now
exists or may from time to time be amended to provide.
ARTICLE III. SHAREHOLDERS' MEETINGS
Place of Meetings
3.01 Meetings of the shareholders shall be held at the corporation's
principal executive office.
Time of Meeting
3.02 The annual meeting of the shareholders of the corporation shall be held
within five months after the close of the fiscal year of the corporation, for
the purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Persons Entitled to Call Special Meetings
3.03 Special meetings of the shareholders may be call at any time by the
Board of Directors, the Board Chairperson, if any, the President of the
corporation, or the holders of shares entitled to cast not less than 10 percent
of the votes of the meeting.
Notice of Meeting
3.04 Notice of annual and special meetings of the shareholders shall be
given as provided in California Corporations Code Section 601 as that section
now exists or may from time to time be amended to provide.
4
<PAGE>
Waiver of Notice and Other Defects
3.05 The transactions of any meeting of shareholders, however called and
notice and wherever held, are 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 the meeting or an approval of the minutes of the
meeting. All such waivers, consents, and approvals must be filed with the
corporate records or made a part of the minutes of the meeting. Attendance by a
person at the meeting also constitutes a waiver of notice to that person if he
or she fails to object at the beginning of the meeting to the transaction of
business because the meeting was not lawfully called or convened, but such
attendance does not constitute a waiver of the right to object to the
consideration of matters required by law or these Bylaws to be included in the
notice but not so included if the objection is expressly made at the meeting.
Quorum
3.06 A majority of the shares entitled to vote, represented in person or by
proxy, constitutes a quorum for the transaction of business. Business may be
continued after withdrawal of enough shareholders to leave less than a quorum,
provided any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum. In the absence of a
quorum, any meeting may be adjourned by a majority vote of the shares
represented in person or by proxy.
Election by Ballot
3.07 Elections for directors need not be by ballot unless a shareholder
demands election by ballot at the meeting and before voting begins.
Voting
3.08 Except as otherwise provided in the Articles of Incorporation or by
agreement or by the General Corporation Law, shareholders at the close of
business on the record date are entitled to notice and to vote, notwithstanding
the transfer of any shares on the books of the corporation after the record
date.
ARTICLE IV. OFFICERS
Titles, Appointment, Terms, and Compensation
4.01 This corporation shall have both a Board Chairperson and a President, a
Secretary, and a Chief Financial Officer who may also be called Treasurer. The
Board of Directors may designate and appoint any other officers that may be
necessary to enable the corporation to sign instruments and share certificates,
including one or more Vice Presidents, one or more Assistant Secretaries, and
one or more Assistant Treasurers. These other officers shall hold office for the
period, have the authority, and perform duties that the Board may, be
resolution, determine. One person may hold any two or more offices. In its
discretion, the Board of Directors may leave unfilled, for any period it may
fix, any offices except those of Board Chairperson,
5
<PAGE>
President, Secretary, and Chief Financial Officer. All officers shall be chosen
by, and, subject to any rights an officer may have under an employment contract
with the corporation, hold office at the pleasure of, the Board. The Board shall
fix each officer's compensation.
Board Chairperson
4.02 The Board Chairperson, if there is such an officer, shall, if present,
preside at all meetings of the Board and perform any other powers and duties
that may from time to time be assigned by the Board or prescribed by law or by
these Bylaws.
President
4.03 Subject to any supervisory powers that may be given by the Board of
Directors to the Board Chairperson, if there is such an officer, the President
shall be the chief executive officer of the corporation and shall perform all
the duties commonly incident to that office. The President shall preside at all
meetings of the shareholders and, if there is no Board Chairperson, at all
meetings of the Board.
Vice President
4.04 The Vice President, or the Vice Presidents in the order of seniority,
may assume and perform the duties of the President in the absence or disability
of the President or whenever the office of President is vacant, and shall
perform any other duties and have any other powers that the Board or the
President shall from time to time designate.
Secretary
4.05 The Secretary shall ensure that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; shall keep
the minutes of all proceedings of shareholders and of the Board; and shall
perform any other duties that are incident to the office of Secretary or that
are assigned from time to time by the Board or by the President.
Chief Financial Officer
4.06 The Chief Financial Officer shall receive and have custody of all funds
and securities of the corporation; keep and maintain adequate and correct books
and records of account and of the corporation's assets and liabilities; and
shall perform any other duties that may be assigned from time to time by the
Board of by the President.
ARTICLE V. EXECUTION OF INSTRUMENTS
5.01 The Board of Directors may, in its discretion, determine the method and
by resolution designate the signatory officer or officers, or other person or
persons, to execute any corporate instrument or document, or to sign the
corporate name without limitation, except as otherwise provided by law, and that
execution or signature shall be binding on the corporation.
6
<PAGE>
ARTICLE VI. ISSUANCE AND TRANSFER OF SHARES
Shareholder's Right to Certificate
6.01 Every holder of shares in the corporation shall be entitled to a
certificate certifying the number of shares and the class or series of shares
owned by him or her. This right extends to fractional shares and partly paid
shares if those shares are issued by the corporation.
Share Certificates
6.02 The certificates shall be in the form provided by the Board of
Directors and shall fully comply with the provisions of the California
Corporations Code. The certificates shall be signed by the Board Chairperson or
Vice Chairperson, if any, or the President or a Vice President, and by the Chief
Financial Officer or an Assistant Treasurer or the Secretary or any Assistant
Secretary of the corporation, and the seal of the corporation shall be affixed
to the certificates.
Exchange of Certificates
6.03 If the Articles of Incorporation are amended in any way affecting the
statements contained in the certificates for outstanding shares, or it becomes
desirable for any reason, in the discretion of the Board of Directors, to cancel
any outstanding certificate for shares and issue a new certificate conforming to
the rights of the holder, the Board may order any holders or outstanding
certificates to surrender and exchange them for new certificates within a
reasonable time to be fixed by the Board.
Replacement of Certificates
6.04 No new certificate shall be issued until the former certificate for the
shares represented has been surrendered and canceled. However, if the
certificate is lost, stolen, or destroyed, the corporation must, if so requested
by the shareholder, issue a new certificate, provided it has received no notice
that the certificate has been acquired by a bona fide purchaser, but it may
require the giving or a bond, undertaking, or other security sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
new certificate.
Transfer of Shares
6.05 Shares of the corporation may be transferred by endorsement by the
signature of the owner, the owner's authorized agent, attorney, or legal
representative, and the delivery of the certificate; but a transfer is not
valid, except as to the parties to the transfer, until it is entered on the
books of the corporation so as to show the names of the parties by whom and to
whom transferred, the number of the certificate, and the number or designation
of the shares and the date of the transfer, and until the old certificate is
surrendered to the corporation and canceled.
Duty of the Corporation to Register Transfer
6.06 The corporation is under a duty to register the transfer when the
certificate, properly endorsed, is presented to it with a request to register
transfer; reasonable assurance is given that the endorsements are genuine and
effective; the corporation has no duty to inquire into
7
<PAGE>
adverse claims or it has discharged any such duty; and any applicable law
relating to the collection of taxes has been complied with.
Liability for Partly Paid Shares
6.07 The transferor and transferee of partly paid shares, if any are issued,
shall be liable to the corporation for the unpaid balance of those shares as
provided by law.
ARTICLE VII. CORPORATE RECORDS AND REPORTS
Keeping Records
7.01 The corporation shall keep adequate and correct books and records of
account and shall keep minutes of the proceedings of its shareholders, Board of
Directors, and Board committees, and shall keep at its principal executive
office, or at the office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of shares held by each. The minutes must be kept either in written
form or in any other form capable of being converted into written form.
Inspection by Shareholders and Directors
7.02 Any shareholder shall have the right on written demand to inspect and
copy the record of shareholders, the accounting books and records, and the
minutes as provided by law. Each director shall have the absolute right at any
reasonable time to inspect and copy all books, records, and documents of every
kind and to inspect the physical properties of the corporation.
Waiver of Annual Report
7.03 So long as this corporation has less than 100 holders of record of its
shares, determined as provided in California Corporations Code Section 605, no
annual report shall be sent to shareholders or be required.
ARTICLE VIII. AMENDMENTS OF BYLAWS
By Shareholders and Directors
8.01 These Bylaws may, from time to time and at any time, be amended or
repealed, and new or additional bylaws adopted, by approval of the outstanding
shares, as that term is defined in California Corporations Code Section 152, or,
subject to any restrictions imposed by the Articles of Incorporation on the
power of the Board of Directors to adopt, amend, or repeal Bylaws, by approval
of the Board, provided, however, that such Bylaws may not contain any provision
in conflict with law or with the Articles of this corporation, and, provided
further, that: (1) after shares are issued a Bylaw changing the number of
directors or from a fixed to a variable Board can be adopted only by approval of
the outstanding shares; and (2) any such Bylaw reducing the number of directors
below five cannot be adopted if the votes cast against its adoption at a
shareholder's meeting, or the shares not consenting in the case or action by
written consent, are equal to more than 16 2/3 percent of the outstanding shares
entitled to vote.
8
<PAGE>
CERTIFICATE OF SECRETARY
I certify that:
1. I am the Secretary of World Wide Magic Net, Inc.
2. The attached Bylaws are the Bylaws of the corporation approved by
the Board of Directors on February 2, 1997, at a meeting duly held.
Dated: 2/2/97 /S/ Alan Chang
---------------------
Alan Chang, Secretary
9
Exhibit 4.2
NUMBER SHARES
[ 0 ] [ ]
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA JUL 16, 1996
See Reverse for
Certain Definitions
WORLD WIDE MAGIC NET, INC.
TOTAL AUTHORIZED ISSUE
50,000,000 SHARES WITHOUT PAR VALUE
COMMON STOCK
This is to Certify that__________________________________________is the owner of
__________________________________________________________________fully paid and
non-assessable shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated
- ----------------------------------- -----------------------------------
SECRETARY PRESIDENT
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS WARRANT AND SUCH SHARES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
EXEMPTION THEREFROM UNDER SAID ACT. THIS WARRANT AND SUCH SHARES MAY NOT BE
TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS WARRANT, AND NO
TRANSFER OF THIS WARRANT OR SUCH SHARES SHALL BE VALID OR EFFECTIVE UNLESS AND
UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
WARRANT
To Purchase Stock of
WORLD WIDE MAGIC NET, INC.
Expiring October 15, 2002
World Wide Magic Net, Inc., a California corporation (the "Company"),
hereby certifies that, for value received, Burlington Coat Factory Warehouse
Corporation ("BCF") or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time during the
Exercise Period (as defined in Section 2), that number of fully paid and
nonassessable shares of the Company's Common Stock, no par value (the "Common
Stock"), which equals 10% of the outstanding shares of Common Stock, on a fully
diluted basis, immediately following the closing of that certain offering the
Company is currently planning to conduct either pursuant to Regulation A of the
Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
exemption from registration under the Securities Act based on Section 25102(n)
of the California Corporate Securities Law of 1968 (the "Offering"). The
purchase price per share for the shares of Common Stock underlying this Warrant
will be set equal to the lesser of (i) $2.00 or (ii) the lowest sales price of a
share sold in the Offering (the "Purchase Price"); provided, however, that if
the Initial Price (as defined in Section 2 below) is less than the then current
Purchase Price, as adjusted, the Purchase Price with respect to the unexercised
portion of this Warrant will be reduced to a price equal to 90% of the Initial
Price. Upon the final closing of the Offering or abandonment, the Company shall
notify BCF of the number of shares of Common Stock covered by this Warrant and
the Purchase Price thereof. Such notice shall be in writing and shall indicate
the number of shares sold in the Offering and outstanding after the offering on
a fully diluted basis and the lowest price at which any shares were sold in the
Offering.
The number and character of the shares of Common Stock covered by this
Warrant and the Purchase Price thereof are subject to adjustment as is
hereinafter provided. The term "Stock"
<PAGE>
shall mean, unless the context otherwise requires, the shares of Common Stock
and/or any other securities and property at the time receivable upon the
exercise of this Warrant and, when the context requires, the term the "Company"
shall mean the Company or any successor thereto.
I. The Warrant. This Warrant is issued under and pursuant to the terms
of that certain agreement dated October 15, 1997 (the "Agreement") entered into
by the Company and BCF, and this Warrant and the holders hereof are entitled to
the benefits provided for by, or referred to in, and are subject to the terms
of, the Agreement.
2. Exercise Period; Purchase Price Adjustment. This Warrant shall be
exercisable during the period (the "Exercise Period") commencing on October 15,
1997 and ending at 5:00 p.m., Alhambra, California time, on the earliest of the
following dates: (i) October 15, 2002; or (ii) 30 days after the closing of a
firmly underwritten public offering of the Company's securities (other than a
Regulation A offering, intrastate offering or similar offering) pursuant to an
effective registration statement filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act, with respect to which
the aggregate gross proceeds to the Company are at least $5,000,000 (the "Public
Offering"), but only if the initial price per share to the public in the Public
Offering (the "Initial Price") is at least $4.00. The Company shall give BCF at
least 30 days prior written notice of the closing of the Public Offering. Any
exercise of this Warrant after receipt of such notice may be conditioned upon
the actual occurrence of the closing of the Public Offering in which event if
such Public Offering is abandoned or if the closing otherwise does not occur,
for any reason, such exercise of the Warrant shall be null and void, and of no
force and effect. If the last day on which this Warrant may be exercised shall
be a Saturday, Sunday or a legal holiday or a day on which banking institutions
doing business in the City of Alhambra and State of California, are authorized
by law to close, this Warrant may be exercised prior to 5:00 p.m., Alhambra,
California time, on the next succeeding full business day in said City of
Alhambra with the same force and effect and at the same purchase price, as if
exercised on the last day herein.
3. Exercise of Warrant; Partial Exercise. This Warrant may be exercised
during the Exercise Period for the full number of shares of Stock at the time
called for hereby by the holder surrendering this Warrant, properly endorsed, to
the Company at its principal office in Alhambra, California or as otherwise
specified pursuant to Section 15 hereof, accompanied by a completed subscription
agreement in the form attached hereto and payment of an amount equal to the
product of (a) the number of shares of Stock called for on the face of this
Warrant (without giving effect to any adjustment therein) and (b) the Purchase
Price, which payment or payments shall be made, at the option of such holder, by
check in such amount, payable to the order of the Company.
This Warrant may be exercised during the Exercise Period for less than
the full number of shares of Stock at the time called for hereby by such a
surrender. Upon any such partial
2
<PAGE>
exercise, the Company at its expense will forthwith, and in any event within 10
days of such partial exercise, issue to the holder hereof a new Warrant or
Warrants of like tenor calling in the aggregate on their face for the number of
shares of Stock for which this Warrant shall not have been exercised, issued in
the name of the holder hereof or of such person as such holder (upon payment by
such holder of any applicable transfer taxes) may direct.
4. Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant and payment of the appropriate amount payable
upon the exercise hereof, and in any event within 10 days thereafter, the
Company at its expense (including the payment by it of any applicable issue tax)
will cause to be issued in the name of and delivered to the holder hereof, or to
such person as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of full
shares of Stock to which such holder would be entitled upon such exercise, plus
cash in lieu of each fractional share to which such holder would otherwise be
entitled; provided, however, that, in case such shares or Stock shall not have
been registered under the Securities Act, (i) the Company may require that such
holder furnish to the Company a written statement that such holder is purchasing
such shares for such holder's own account for investment and not with a view to
the distribution thereof (other than sales permitted by the Securities Act or
the rules and regulations thereunder to be made without registration), subject,
nevertheless, to any requirement of law that the disposition of the property of
such holder shall at all times be within its own control, and (ii) the Company
shall not be obligated to issue and deliver any certificate for Stock to or in
the name of any person other than the holder of this Warrant, unless, in the
opinion of counsel to the holder of this Warrant, (concurred in by counsel to
the Company), such certificate may be so issued and delivered without
registration under the Securities Act.
5. Restrictions on Transfer. Holder shall not sell, transfer (with or
without consideration), assign, pledge, hypothecate or otherwise dispose of
(collectively, "Transfer") this Warrant or any Stock (collectively, the
"Securities") unless the Securities are disposed of pursuant to and in
conformity with an effective registration statement filed with the Commission
pursuant to the Securities Act, or pursuant to an available exemption from the
registration and prospectus delivery requirements of the Securities Act, and the
proposed disposition will not result in a violation of the securities laws of
any state of the United States. If requested by the Company, holder shall, prior
to the transfer of such Securities, deliver to the Company a written opinion of
counsel, satisfactory to the Company and its counsel, that the proposed
disposition will comply with the requirements set forth in this Section 5. Any
attempted Transfer which is not in full compliance with this Section 5 shall be
null and void ab initio, and of no force or effect. In furtherance thereof, any
certificate evidencing the Securities shall bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE
3
<PAGE>
SECURITIES ACT OF 1933, AS AMENDED, HAVE BEEN TAKEN FOR
INVESTMENT, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE REGISTERED HOLDER HEREOF, A COPY OF WHICH AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY.
The Company may, at its option, place notations evidencing the
foregoing restrictions on transfer in its shareholders register, and may place
appropriate "stop transfer" instructions with its transfer agent, if any.
6. Adjustment for Dividends in Other Stock, Property;
Reclassifications. In case at any time or from time to time after October 15,
1997 (the "Issue Date") the holders of shares of the Common Stock of the Company
(or any shares of stock or other securities at the time receivable upon the
exercise of this Warrant) shall have received, or, on or after the record date
fixed for the determination of eligible shareholders, shall have become entitled
to receive, without payment therefor:
(i) additional stock or other securities or property (other than
cash) by way of dividend; or
(ii) any cash paid or payable out of capital or paid-in surplus or
surplus created as a result of a revaluation of property; or
(iii) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, split-up, reclassification,
combination of shares or similar corporate rearrangement;
(other than additional shares of Common Stock or any other stock or securities
into which such Common Stock shall have been changed, or any other stock or
securities convertible into or exchangeable for such Common Stock or such other
stock or securities, issued in connection with a transaction covered by the
terms of Section 7), then in each such case the holder of this warrant, upon the
exercise hereof as provided in Section 3, shall be entitled to receive the
amount of stock or other securities and property (including cash in the cases
referred to in clause (ii) and (iii) above) to which such holder would have been
entitled on the date of such exercise if on the Issue Date he had been the
holder of record of the number of shares of Common Stock called for on the face
of this Warrant and had thereafter, during the period from the Issue Date to and
including the date of such exercise, retained such shares and/or such other or
additional stock and other securities and property (including cash in the cases
referred to in clause (ii) and (iii) above)
4
<PAGE>
receivable by him as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 7.
7. Adjustment for Reorganization, Consolidation, Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities or property of which are at the time receivable on the exercise of
this Warrant) after the Issue Date or in case, after the Issue Date, the Company
(or any such other corporation) shall consolidate with or merge with or into
another corporation or convey all or substantially all its assets to another
corporation, then and in each such case the holder of this Warrant, upon the
exercise hereof as provided in Section 3 at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock or other securities or property receivable
upon the exercise of this Warrant prior to such consummation, the securities or
property to which such holder would have been entitled upon such consummation if
such holder had exercised this Warrant immediately prior thereto and received
Common Stock or such other securities or property at the time receivable upon
the exercise of this Warrant, all subject to further adjustment as provided in
Section 6; in each such case, the terms of this Warrant shall be applicable to
the shares of stock or other securities or property receivable upon the exercise
of this Warrant after such consummation.
8. No Dilution or Impairment. The Company will not, by amendment of its
Certificate 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 reasonably
necessary or appropriate in order to protect the rights of the holder of this
Warrant. Without limiting the generality of the foregoing, the Company (a) will
not increase the par value of any shares of Stock receivable upon the exercise
of this Warrant above the amount payable therefor upon such exercise and (b)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Stock upon the exercise of this Warrant at such time.
9. Accountants' Certificate as to Adjustments. In each case of an
adjustment in the shares of Stock receivable on the exercise of this Warrant,
the Company shall, or at the written request of BCF, shall cause, at the
Company's expense, independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to, compute such adjustment in accordance
with the terms of this Warrant and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to the holder of
this Warrant.
10. Notices of Record Date. In case
5
<PAGE>
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend (other
than a cash dividend) or other distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or
(iii) of any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; then, and in each case, the Company will mail or
cause to be mailed to the holder of this Warrant a notice specifying, as the
case may be, (a) the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, or (b) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such other
stock or securities at the time receivable upon the exercise of this Warrant)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 30
days prior to the date therein specified.
11. Reservation of Stock Issuable on Exercise of Warrants. The Company
will at all times reserve and keep available, solely for issuance and delivery
upon the exercise of this Warrant, all such shares of Common Stock, and/or other
stock, securities and property as from time to time might be receivable upon the
exercise of this Warrant.
12. Right of First Refusal. If at any time and from time to time during
the Exercise Period of this Warrant, the Company proposes to issue or offer for
sale Common Stock or any other class or series of its equity securities or
securities convertible into equity securities, the Company shall upon each such
occasion at least thirty (30) days prior thereto send written notice thereof to
the holder of this Warrant specifying (a) the date on which the proposed issue
or sale shall take place, (b) the number and kind of securities proposed to be
issued or sold, (c) the purchase price or exercise price thereof, and (d) any
prospectus, offering memorandum or other material describing the Company and the
securities and the terms of such offering, including without limitation, the
financial statements and other information delivered or to be delivered to
offerees of the proposed issue or offering. Simultaneously therewith, the
Company shall offer to the holder the right to acquire the securities proposed
to be issued, at the proposed sale or
6
<PAGE>
exercise price thereof, in an amount equal to the proportion that the number of
shares of Stock underlying this Warrant bears to the total number of shares of
the Company's equity securities that are outstanding, on a fully diluted basis,
as of such date. If the holder of this Warrant shall fail to notify the Company
of its intention to participate in such issue or offering within fifteen (15)
days after receipt of the Company's notice of issue or offering, or if such
holder shall have notified the Company of its intention to participate but the
total number of shares proposed to be issued or sold which such holder desires
to acquire shall be in the aggregate less than number of shares the holder may
purchase, then the Company may offer such securities which shall not have been
subscribed for by the holder of this Warrant, to the other offerees in the
proposed issue or offering. If the holder exercises its right of first refusal
to purchase securities in such issue or offering, the holder shall participate
in the closing thereof with respect to the securities subscribed for by it at
the same time, in the same manner and on the same terms and conditions as the
other purchasers in such offering. If the purchase or exercise of the securities
in such offering shall change or otherwise be adjusted prior to closing, then on
each such occasion, the Company shall again offer to the holder of this Warrant
the right to purchase such securities upon such revised terms and conditions
exercisable by notice to the Company within ten (10) days after receipt of
written notice of the revised terms thereof in the same manner as aforesaid.
The rights established by this Section 12 shall have no application to
any of the following:
(i) the issuance of securities amounting to or exercisable for up to
10% of the Company's fully diluted outstanding equity pursuant to options or
purchase rights granted under the Company's employee incentive or option plans;
(ii) the issuance of securities of the Company or any subsidiary in
connection with a merger or consolidation or an acquisition by the Company or
such subsidiary which has been approved by the shareholders;
(iii) securities issued pursuant to any rights or agreements
including, without limitation, convertible securities, options and warrants,
provided that the rights established by this Section 12 applied with respect to
the initial sale or grant by the Company of such rights or agreements; or
(iv) any securities that are issued by the Company in a firmly
underwritten public offering registered under the Securities Act.
13. Additional Warrants. Subject to the limitations set forth below, if
at any time and from time to time during the Exercise Period of this Warrant,
the Company proposes to issue or offer for sale Common Stock or any other class
or series of its equity securities or options or warrants to purchase equity
securities, other than in connection with non-convertible debt financing, and
BCF does not exercise its first refusal right granted by Section 12 above, the
7
<PAGE>
Company shall, upon the closing of such offering, issue to BCF a warrant to
purchase the type of securities sold in such offering. The terms of such warrant
shall be identical to the terms of this Warrant, except that such warrant will
entitle BCF to purchase that number of shares equal to 10% of the shares sold in
such offering and the exercise price per share shall be equal to the sales price
per share of the securities sold in such offering.
Notwithstanding the foregoing, the Company shall not issue BCF an
additional warrant and the rights established by this Section 13 shall have no
application, with respect to any of the following:
(i) the issuance of securities amounting to or exercisable for up to
10% of the Company's fully diluted outstanding equity pursuant to options or
purchase rights granted under the Company's employee incentive or option plans;
(ii) the issuance of securities of the Company or any subsidiary in
connection with a merger or consolidation or an acquisition by the Company or
such subsidiary which has been approved by the shareholders;
(iii) securities issued pursuant to any rights or agreements
including, without limitation, convertible securities, options and warrants,
provided that the rights established by this Section 13 applied with respect to
the initial sale or grant by the Company of such rights or agreements; or
(iv) any securities that are issued by the Company in a Public
Offering (as defined in Section 2).
14. Listing on Securities Exchanges; Registration. In case at any time
any Common Stock, or other stock or securities of a character at the time
receivable upon the exercise of this Warrant shall be listed on any securities
exchange, the Company will also list and keep listed thereon, on official notice
of issuance upon the exercise of this Warrant (provided that the rules of such
exchange shall permit shall listing), all shares of Common Stock, and other
stock or securities from time to time receivable upon the exercise of this
Warrant which are so registered, and will register the same and keep the same
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and will timely file all reports which may be required to be filed under
the Exchange Act by companies having a class of equity securities so registered.
15. Register of Warrants; Exchange of Warrants. The Company shall
maintain at its principal office in Alhambra, California, or such other
principal office of the Company as the Company may specify to the holder hereof
in writing, a register and appropriate books for the register of this Warrant
and the transfer thereof. Upon surrender for exchange of this Warrant (in
negotiable form, if not surrendered by the holder named on the face hereof) to
the Company
8
<PAGE>
at its principal office, the Company at its expense will issue and deliver a new
Warrant or Warrants of like tenor, calling in the aggregate on their face for
the same number of shares of Common Stock as are called for on the face of this
Warrant, in the denomination or denominations requested, to or on the order of
such holder and in the name of such holder or of such person as such holder
(upon payment by such holder of any applicable transfer taxes) may direct;
provided, however, that, in case the Warrant or Warrants so surrendered shall
not have been registered under the Securities Act, the Company shall not be
obligated to issue and deliver any Warrant or Warrants to or in the name of any
person other than the holder or holders of the Warrant or Warrants so
surrendered or in denominations other than the denomination of this Warrant or
Warrants so surrendered unless, in the opinion of counsel to the holder of this
Warrant (concurred in by counsel to the Company), such Warrant or Warrants may
be so issued and delivered without registration under the Securities Act.
16. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement in such reasonable amount as the Company may determine, or
(in the case of mutilation) upon surrender and cancellation thereof, the Company
at its expense will issue, in lieu thereof, a new Warrant of like tenor.
17. Compliance with Hart-Scott Act. In the event that any exercise of
this Warrant pursuant to Section 3 hereof shall be subject to pre-merger
notification and related filings with the Federal Trade Commission (the "FTC")
and the Antitrust Division of the Department of Justice (the "Department of
Justice") (or any other governmental agency) pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (or any similar act at the time in effect)
(the "Hart-Scott Act"), the Company shall, upon receipt of notice thereof from
the holder hereof, promptly prepare and make any required filings with, and
shall thereafter promptly make any required submission to, the FTC and the
Department of Justice (or such other governmental agency) pursuant to the
Hart-Scott Act with respect to such exercise. The Company shall cooperate with
and assist the holder hereof in the preparation of any filings and the making of
any submissions required so to be filed or submitted by the holder hereof
pursuant to the Hart-Scott Act in connection with such exercise. In addition, if
so requested by the holder hereof, the Company shall join in any request of the
holder hereof to the FTC or the Department of Justice (or such other
governmental agency) for early termination of the Hart-Scott Act waiting period
applicable to such exercise.
18. Negotiability. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(i) subject to Section 5, title to this Warrant may be transferred,
by endorsement (by the holder hereof executing the form of assignment attached
hereto) and
9
<PAGE>
delivered in the same manner as in the case of a negotiable instrument
transferrable by endorsement and delivery;
(ii) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby; and
(iii) until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder of this Warrant as the absolute
owner hereof for all purposes without being affected by any notice to the
contrary.
19. Registration Rights.
19.1 Registration on Request. (a) If, at any time when the Company is
entitled to file a registration statement on a Form S-3 Registration Statement,
the holders of Registrable Stock propose to dispose of at least 10% of the
shares of Registrable Stock pursuant to a Form S-3 Registration Statement, then
such holders may request the Company in writing to effect such registration. The
Company agrees that it will, as soon as practicable after receipt of such
notice, use its best efforts to effect such registration (and keep the same
effective for 120 days) and use its best efforts to effect such qualification
and compliance as would permit or facilitate the distribution of such
Registrable Stock in New York and California. The Company shall not be obligated
to effect any registration, qualification and/or compliance pursuant to this
Section 19.1, (i) more than ten times; (ii) which would become effective within
180 days following the effective date of a registration statement (other than a
registration statement filed on Form S-8) filed by the Company with the
Commission pertaining to an underwritten public offering of securities for cash
for the account of the Company or its other shareholders; or (iii) if, in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement; provided, the Company shall have the right to defer
taking action with respect to such filing for a period of not more than 90 days.
"Registrable Stock" means (x) the Common Stock issued upon the exercise of this
Warrant and the other Warrants resulting from an assignment this Warrant, (y)
any Common Stock received upon exercise of a right of first refusal granted
pursuant to Section 12 of this Warrant and the other Warrants resulting from an
assignment this Warrant and (z) any other securities issued upon exercise of
this Warrant or after exercise of a right of first refusal if securities of the
same class have been registered by the Company. Each share of Registrable Stock
shall continue to be Registrable Stock in the hands of each subsequent holder
thereof; provided, that each share of Registrable Stock shall cease to be
Registrable Stock when transferred to any person pursuant to a
10
<PAGE>
registered public offering or pursuant to Rule 144 promulgated by the Commission
under the Securities Act.
(a) Promptly upon receipt of any request for registration pursuant to
Section 19.1(a), the Company agrees that it will give written notice of such
request to all holders of Registrable Stock at the time outstanding and will
afford to all such holders an opportunity to join in such request. If the
registration is to be firmly underwritten, only securities which are to be
included in the underwriting may be included in the registration.
(b) Any holder of Registrable Stock, who shall make or join in any
request to the Company pursuant to Section 19.1(a) shall furnish to the Company
in writing such information as the Company may reasonably require for inclusion
in the registration statement (and the prospectus included therein) and shall
not (until further notice) effect sales of the shares covered by the
registration statement after receipt of telecopied or written notice from the
Company to suspend sales to permit the Company to correct or update a
registration statement or prospectus.
(c) No security to be newly issued by the Company or held by any
other security holders of the Company shall be included in a registration
statement filed pursuant to this Section 19 and the Company shall not file a
registration statement, other than on Form S-8, until 60 days after the
effective date of any registration statement filed pursuant to Section 19.
(d) Notwithstanding anything to the contrary contained in this
Section 19, no person (as defined, for these purposes, in Rule 144(a)(2) of the
Commission) who then beneficially owns 1% or less of the then outstanding Common
Stock (including the Registrable Stock) of the Company may include any of its
shares of Registrable Stock in any registration statement filed by the Company
pursuant to this Section 19 unless, in the opinion of counsel for the Company,
such person's intended disposition of Registrable Stock could not be effected
within 90 days of the date of said opinion without registration of such shares
under the Securities Act (assuming, for this purpose, that if "current public
information" (as defined in Rule 144(c) of the Commission under the Securities
Act) is available with respect to the Company as of the date of such opinion, it
will remain so available for such 90-day period).
19.2 Piggyback Registration. Prior to the Company's initial public
offering ("IPO"), the Company agrees that it will give written notice of the IPO
to all holders of Registrable Stock at the time outstanding and will afford to
all such holders an opportunity to join in the IPO; provided, however, that the
number of shares of Registrable Stock that each such holder may include shall in
no event exceed that number obtained by multiplying the number of shares of
Registrable Stock owned by such holder by a fraction (a) the numerator of which
shall be the number of shares of Common Stock the Company proposes to include in
the IPO (excluding the shares to be disposed of in the IPO by the holders of
Registrable Stock); and (b) the denominator
11
<PAGE>
of which shall be the total number of shares of Common Stock (on a fully diluted
basis) that will be outstanding after the IPO. If the IPO is to be firmly
underwritten, all holders of Registrable Stock participating in the IPO must
sell their shares to the underwriter on the same terms and conditions as the
Company and all other selling shareholders. Any holder of Registrable Stock, who
shall join in the IPO shall furnish to the Company in writing such information
as the Company may reasonably require for inclusion in the registration
statement (and the prospectus included therein) and shall not (until further
notice) effect sales of the shares covered by the registration statement after
receipt of telecopied or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or prospectus.
Notwithstanding anything to the contrary contained in this Section 19, no person
(as defined, for these purposes, in Rule 144(a)(2) of the Commission) who then
beneficially owns 1% or less of the then outstanding Common Stock (including the
Registrable Stock) of the Company may include any of its shares of Registrable
Stock in the IPO unless, in the opinion of counsel for the Company rendered
prior to the IPO, such person's intended disposition of Registrable Stock could
not be effected within 90 days after the closing of the IPO without registration
of such shares under the Securities Act (assuming, for this purpose, that
"current public information" (as defined in Rule 144(c) of the Commission under
the Securities Act) will be available with respect to the Company and that it
will remain so available for such 90-day period). Notwithstanding anything to
the contrary contained in this Section 19, the Company may decide, in its sole
and absolute discretion, not to proceed with or to discontinue the IPO.
19.3 Registration Procedures. The Company agrees that it will furnish
to each holder of Registrable Stock such number of prospectuses, offering
circulars or other documents incident to any registration, qualification or
compliance referred to in this Section 19 as any such holder from time to time
reasonably may request, and will indemnify each such holder and any underwriter
of Registrable Stock (and any person who controls such holder or underwriter
within the meaning of Section 15 of the Securities Act) against all claims,
losses, damages, liabilities and expenses resulting from any untrue statement or
alleged untrue statement of a material fact contained therein (or in any related
registration statement, notification or the like) or from any 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
the same may have been based upon information furnished in writing to the
Company by such holder or underwriter expressly for use therein, and with
respect to such information furnished to the Company such holder will indemnify
the Company, its directors, each of its officers who signs the registration
statement, offering circular or any other document incident to such
registration, qualification or compliance, the underwriter (if any) and each
person who controls such underwriter or the Company (within the meaning of
Section 15 of the Securities Act) against all claims, losses, damages,
liabilities and expenses resulting from any untrue statement or alleged untrue
statement of a material fact contained therein or from any omission or alleged
omission to state a material fact required to be stated or necessary to make the
information not misleading. In addition, the Company will enter into an
underwriting agreement in the form then currently in use by
12
<PAGE>
underwriters and consistent with provisions of this Section 19 with the
underwriters (if any) of the Registrable Stock.
19.4 Registration Expenses. All expenses incurred in effecting any
registration pursuant to this Section 19, including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
Blue Sky laws, fees and disbursements of counsel for the Company, and expenses
of any audits incidental to or required by such registration shall be borne by
the Company; provided, that each holder of Registrable Stock shall bear its own
legal expenses (if it retains separate counsel) and all underwriting discounts
or brokerage fees or commissions relating to the sale of its Registrable Stock.
20. Market Stand-Off. The holder of this Warrant agrees that, in
connection with any underwritten public offering by the Company of its
securities pursuant to an effective registration statement filed under the
Securities Act, as amended, including the Company's initial public offering, the
holder shall not sell, make any short sale of, loan, hypothecate, pledge, grant
any option for the repurchase of, or otherwise dispose or transfer for value or
otherwise engage in any of the foregoing transactions with respect to any
securities of the Company without the prior written consent of the Company or
its underwriters, for such period of time from and after the effective date of
such registration statement as may be requested by the Company or such
underwriters; provided, such period shall not exceed 270 days.
21. Notice. All notices and other communications from the Company to
the holder of this Warrant shall be sufficiently given or made if sent by
first-class registered or certified mail, postage prepaid, addressed to the
registered holder of such Warrant at such holder's last known address appearing
on the register for the registration of the Warrants referred to in Section 15.
22. Change; Waiver. Neither this Warrant not any term hereof may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party against which the enforcement of the change, waiver,
discharge or termination is sought.
23. Headings. The headings in this Warrant are for purposes of
convenience only and shall not be deemed to constitute a part hereof.
24. Law Governing. THIS WARRANT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE
TO PRINCIPLES OF CONFLICT OF LAW.
[SIGNATURES APPEAR ON NEXT PAGE]
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal.
Dated: October 15, 1997
WORLD WIDE MAGIC NET, INC.
By: /S/
President
ATTEST:
/S/
Secretary
14
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ____________* shares of Common Stock of World Wide Magic
Net, Inc. and herewith makes payment of $_______________ therefor, and requests
that the certificates for such shares be issued in the name of, and be delivered
to, ____________________________________________________________________________
________________________, whose address is _____________________________________
_______________________________.
Dated:
_____________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant or name of assignee as
specified in form of assignment
below)
__________________________________
Address
___________________
*Insert here all or such portion of the number of shares called for on the face
of the within Warrant with respect to which the holder desires to exercise the
purchase right represented thereby, without adjustment for any other or
additional stock or other securities or property or cash which may be
deliverable on such exercise.
15
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________ the right represented by the within Warrant to
purchase __________ shares of Common Stock of World Wide Magic Net, Inc. to
which the within Warrant relates, and appoints
___________________________________ attorney to transfer such right on the books
of (__________) with full power of substitution in the premises.
Dated:
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
_________________________________
Address
In the presence of:
16
Evers &
Hendrickson, LLP
Lawyers and Counselors At Law
- ------------------------------------
July 21, 1998
William D. Evers
Jay P. Hendrickson
Paul E. Manasian
Philip J. Nicholsen, PC
---------
Rafael Aguirre-Sacasa
Kevin F. Barrett
Kenneth A. Brunetti
Antoine M. Devine
Darcy Pertcheck
---------
Of Counsel
Frederick K. Koenen
Phone (415) 352-0693
Fax (415) 391-4292
Frank Yuan
President
World Wide Magic Net, Inc.
320 S. Garfield Ave., Suite 318
Alhambra, California 91801
Re: Legality of Shares
------------------
Dear Mr. Yuan:
You have asked us as counsel for World Wide Magic Net, Inc., a California
corporation (the "Company"), for our opinion regarding the legality of the
shares being cleared for registration with the Securities and Exchange
Commission pursuant to the filing of a Form SB-2 Registration Statement, under
the Securities Act of 1933, dated July 22, 1998. The Registration Statement is
on behalf of the Company and covers 2,500,000 shares of the Common Stock of the
Company.
We have been asked to opine as to the legality of the securities being
cleared. We have made reasonable inquiry and are of the opinion that the
securities being cleared, will, when sold, be legally issued, fully paid and
non-assessable.
We are not opining as to any other statements contained in the Registration
Statement, nor as to matters that occur after the date thereof.
Very truly yours,
EVERS & HENDRICKSON, LLP
By: William D. Evers, Partner
155 Montgomery Street, 12th Floor San Francisco California 94104 415 391 4291
LEASE AGREEMENT
BY AND BETWEEN
CONFEDERATION REAL ESTATE (U.S.), INC.
AS LANDLORD
AND
FRANK S. YUAN
AS TENANT
<PAGE>
TABLE OF CONTENTS
ARTICLE 1: BASIC LEASE INFORMATION............................................ 1
1.1 Basic Lease Information ......................................... 1
1.2 Other Definitions ............................................... 2
1.3 Exhibits ........................................................ 3
ARTICLE 2: AGREEMENT ......................................................... 3
ARTICLE 3: DELIVERY OF PREMISES............................................... 3
3.1 Delivery of Possession........................................... 3
3.2 Early Entry...................................................... 4
ARTICLE 4: MONTHLY RENT ...................................................... 4
4.1 Payment.......................................................... 4
ARTICLE 5: OPERATING EXPENSES................................................. 4
5.1 General.......................................................... 4
5.2 Estimated Payments............................................... 6
5.3 Annual Settlement................................................ 7
5.4 Final Proration.................................................. 7
5.5 Other Taxes...................................................... 7
5.6 Additional Rent.................................................. 7
ARTICLE 6: INSURANCE.......................................................... 8
6.1 Landlord's Insurance............................................. 8
6.2 Tenant's Insurance............................................... 8
6.3 Forms of Policies; Insurers...................................... 9
6.4 Waiver of Subrogation............................................ 9
6.5 Adequacy of Coverage............................................. 9
ARTICLE 7: USE................................................................ 9
ARTICLE 8: REQUIREMENTS OF LAW;
HAZARDOUS MATERIALS; FIRE INSURANCE................................. 10
8.1 General......................................................... 10
8.2 Hazardous Materials............................................. 10
8.3 Certain Insurance Risks......................................... 10
ARTICLE 9: ASSIGNMENT AND SUBLETTING......................................... 11
9.1 General......................................................... 11
9.2 Submission of Information....................................... 11
9.3 Payments to Landlord............................................ 11
9.4 Prohibited Transfers............................................ 11
9.5 Permitted Transfer.............................................. 11
9.6 Remedies........................................................ 12
ARTICLE 10: RULES AND REGULATIONS............................................ 12
i
<PAGE>
ARTICLE 11: COMMON AREAS..................................................... 12
ARTICLE 12: LANDLORD'S SERVICES.............................................. 13
12.1 Landlord's Repair and Maintenance.............................. 13
12.2 Landlord's Other Services...................................... 13
12.3 Tenant's Costs................................................. 13
12.4 Limitation of Liability........................................ 14
ARTICLE 13: TENANT'S CARE OF THE PREMISES.................................... 14
ARTICLE 14: ALTERATIONS...................................................... 15
14.1 General........................................................ 15
14.2 Free-Standing Partitions....................................... 15
ARTICLE 15: MECHANICS' LIENS................................................. 15
15.1 Indemnity and Discharge........................................ 15
ARTICLE 16: END OF TERM...................................................... 16
ARTICLE 17: EMINENT DOMAIN................................................... 16
ARTICLE 18: DAMAGE AND DESTRUCTION........................................... 17
ARTICLE 19: SUBORDINATION.................................................... 18
19.1 General........................................................ 18
ARTICLE 20: ENTRY BY LANDLORD................................................ 18
ARTICLE 21: INDEMNIFICATION, WAIVER, AND RELEASE............................. 19
21.1 Indemnification................................................ 19
21.2 Waiver and Release............................................. 20
ARTICLE 22: SECURITY DEPOSIT................................................. 20
ARTICLE 23: QUIET ENJOYMENT.................................................. 20
ARTICLE 24: EFFECT OF SALE................................................... 21
ARTICLE 25: DEFAULT.......................................................... 21
25.1 Events of Default.............................................. 21
25.2 Landlord's Remedies............................................ 22
25.3 Continuing Liability After Termination......................... 22
25.4 Cumulative Remedies............................................ 23
ARTICLE 26: PARKING.......................................................... 23
ii
<PAGE>
ARTICLE 27: MISCELLANEOUS.................................................... 23
27.1 No Offer....................................................... 23
27.2 Joint and Several Liability.................................... 23
27.3 No Construction Against Drafting Party......................... 24
27.4 Time of the Essence............................................ 24
27.5 No Recordation................................................. 24
27.6 No Waiver...................................................... 24
27.7 Limitation on Recourse......................................... 24
27.8 Estoppel Certificates.......................................... 24
27.9 Waiver of Jury Trial........................................... 24
27.10 No Merger..................................................... 25
27.11 Holding Over.................................................. 25
27.12 Notices....................................................... 25
27.13 Severability.................................................. 25
27.14 Written Amendment Required.................................... 25
27.15 Entire Agreement.............................................. 25
27.16 Captions...................................................... 26
27.17 Notice of Landlord's Default.................................. 26
27.18 Authority..................................................... 26
27.19 Brokers....................................................... 26
27.20 Governing Law................................................. 26
27.21 Interest...................................................... 26
27.23 No Easements for Air or Light................................. 26
27.24 Tax Credits................................................... 26
27.25 Financial Reports; Termination Right.......................... 27
27.26 Landlord's Fees............................................... 27
27.27 Binding Effect................................................ 27
27.28 Additional Rent............................................... 27
27.29 Approval of Mortgagee......................................... 27
27.30 Late Charge................................................... 27
27.31 Rent Covenant Independent..................................... 28
27.32 Certain Terms................................................. 28
Exhibits:
"A" - THE PREMISES............................................ i
"B" - RENT ADJUSTMENTS........................................ ii
"C" - WORK LETTER AGREEMENT...................................iii
"D" - RULES AND REGULATIONS................................... iv
"E" - COMMENCEMENT DATE CERTIFICATE........................... v
"F" - GUARANTY OF LEASE....................................... vi
"G" - OPTION TO EXTEND........................................vii
iii
<PAGE>
OFFICE LEASE
-------------------------------
THIS OFFICE LEASE is entered into by Landlord and Tenant as described
in the following basic lease information on the date that is set forth for
reference only in the following basic lease information. Landlord and Tenant
agree:
ARTICLE 1: BASIC LEASE INFORMATION
1.1 Basic Lease Information. In addition to the terms that are defined
elsewhere in this Lease, these terms are used in this Lease:
(a) LEASE DATE: September 1, 1996
(b) LANDLORD: Confederation Real Estate
(U.S.), Inc.
(c) LANDLORD'S ADDRESS: 260 Interstate North, Atlanta, Georgia
30339
with a copy at the same time to: The Carlson Company
#3 Corporate Plaza, Ste. 100
Newport Beach, CA 92660
(d) TENANT: Frank S. Yuan
dba: World Wide Magic Net, Inc.
(e) TENANT'S ADDRESS: 815 S. Fremont
Alhambra, CA 91803
with a copy at the same time to: 320 S. Garfield Ave.
Suite 318
Alhambra, CA 91801
(f) BUILDING ADDRESS: 320 S. Garfield Ave.
Alhambra, CA 91801
(g) PREMISES: The premises shown on Exhibit A to
this Lease, known as Suite 318.
(h) RENTABLE AREA OF THE PREMISES: Approximately 2,260 square feet.
(i) RENTABLE AREA OF THE BUILDING: Approximately 52,684 square feet.
(j) TERM: 36 months, beginning on the
Commencement Date and expiring on
the Expiration Date unless properly
extended or renewed pursuant to a
right granted Tenant in any
Addendum hereto.
(k) COMMENCEMENT DATE: October 1, 1996 or as extended
pursuant to the Commencement Date
Certificate, but no later than
October 16, 1996.
1
<PAGE>
(l) EXPIRATION DATE: Thirty-six months from the
Commencement Date.
(m) SECURITY DEPOSIT: $3,164.00
(n) MONTHLY RENT: The initial Monthly Rent is
$3,164.00. The initial Monthly Rent
shall be adjusted as provided in
Exhibit B.
(o) BASE YEAR: 1996
(p) TENANT'S SHARE: 4.29% (determined by dividing the
Rentable Area of the Premises by the
Rentable Area of the Building,
multiplying the resulting quotient by
100, and rounding to the 3rd decimal
place).
(q) PARKING SPACES: 2 assisgned spaces.
(r) PARKING CHARGE: $0.00 per parking space per month,
subject to adjustments specified in
Article 26.
(s) LANDLORD'S BROKER: Lee & Associates
(t) TENANT'S BROKER: Uni-Fortune Company, Inc.
1.2 Other Definitions: In addition to the terms that are defined
elsewhere in this Lease, these terms are used in this Lease:
(a) ADDITIONAL RENT: Any amounts that this Lease requires Tenant to
pay in addition to Monthly Rent.
(b) BUILDING: The Building located on the Land and of which the
Premises are a part.
(c) COMMON AREAS: As defined in Section 11. 1.
(d) HAZARDOUS MATERIALS: As defined in Section 8.2.
(e) LAND: The Land on which the Project is located.
(f) LAWS: As defined in Section 3.2.
(g) OPERATING EXPENSES: As defined in Section 5. 1(b).
(h) PRIME RATE: The rate of interest last announced by Bank of America,
NT & SF, at its headquarters office, or any successor to it, as its reference
rate for purposes of pricing commercial loans. If Bank of America or any
successor to it ceases to announce its Prime Rate, the Prime Rate will be a
comparable interest rate designated by Landlord to replace the Prime Rate.
2
<PAGE>
(i) PROJECT: The development consisting of the Land and all
improvements built on the Land, including without limitation the Building,
Premises, parking lot, parking structure, if any, walkways, driveways, fences,
and landscaping.
(j) RENT: The Monthly Rent and Additional Rent.
(k) WORKLETTER: The Tenant Workletter attached to this Lease as Exhibit
C (if any).
If any other provision of this Lease contradicts any definition of this
Article, the other provision will prevail.
1.3 Exhibits. The following Exhibits are attached to this Lease and are
made part of this Lease:
EXHIBIT A - The Premises
EXHIBIT B - Rent Adjustments
EXHIBIT C - Workletter
EXHIBIT D - Rules and Regulations
EXHIBIT E - Commencement Date Certificate
EXHIBIT F - Guaranty of Lease
EXHIBIT G - Option to Extend
ARTICLE 2: AGREEMENT
2.1 Landlord leases the Premises to Tenant, and Tenant leases the
Premises from Landlord, according to this Lease. The duration of this Lease will
be the Term. The Term will commence on the Commencement Date and will expire on
the Expiration Date. If Tenant properly extends or renews this Lease under any
right provided for in any Addendum hereto, the Term will include the extension
or renewal term.
ARTICLE 3: DELIVERY OF PREMISES
3.1 Delivery of Possession. Landlord shall be deemed to have delivered
possession of the Premises to Tenant on the Commencement Date, as it may be
adjusted pursuant to the Workletter. Landlord shall construct or install in the
Premises the improvements to be constructed or installed by Landlord according
to the Workletter. If no Workletter is attached to this Lease, it shall be
deemed that Landlord delivered to Tenant possession of the Premises "as is" in
its present condition on the Commencement Date. Tenant acknowledges that neither
Landlord nor its agents or employees have made any representations or warranties
as to the suitability or fitness of the Premises for the conduct of Tenant's
business or for any other purpose, nor has Landlord or its agents or employees
agreed to undertake any alterations or construct any Tenant improvements to the
Premises except as expressly provided in this Lease and the Workletter. If for
any reason Landlord cannot deliver possession of the Premises to Tenant on the
Commencement Date, this Lease will not be void or voidable, Landlord will not be
liable to Tenant for any resulting loss or damage and the Term of this Lease
shall not be extended by a delayed delivery of possession. The preceding
sentence notwithstanding, if Landlord fails to deliver possession to Tenant
within sixty (60) days after the Commencement Date for any reason other than a
Delay Caused by Tenant, as defined in the Workletter, Tenant, as its sole
remedy, shall have the right to terminate this Lease and receive a refund of all
prepaid Rent and Security Deposits provided Tenant gives written notice of
termination to Landlord within three (3) days after that date. Tenant will
execute the Commencement Date Certificate attached to this Lease as Exhibit E,
appropriately completed, within fifteen (15) days of Landlord's request.
3
<PAGE>
3.2 Early Entry. If Tenant is permitted entry to the Premises prior to
the Commencement Date for the purpose of installing fixtures or any other
purpose permitted by Landlord, the early entry shall be at Tenant's sole risk
and subject to all the terms and provisions of this Lease as though the
Commencement Date had occurred, except for the payment of Rent, which shall
commence on the Commencement Date. Tenant, its agents, or employees shall not
interfere with or delay Landlord's completion of construction of the
improvements. All rights of Tenant under this Section 3.2 shall be subject to
the requirements of all applicable building codes, zoning requirements, and
federal, state, and local statutes, ordinances, laws, rules, regulations and
orders (collectively "Laws") so as not to interfere with Landlord's compliance
with all Laws, including the obtaining of a certificate of occupancy for the
Premises. Landlord has the right to impose additional conditions on Tenant's
early entry that Landlord, in its reasonable discretion, deems appropriate, and
shall further have the right to require that Tenant execute an early entry
agreement containing those conditions prior to Tenant's early entry.
ARTICLE 4: MONTHLY RENT
4.1 Payment. Throughout the Term of this Lease, Tenant shall pay
Monthly Rent to Landlord as rent for the Premises. Monthly Rent shall be paid in
advance on or before the first day of each calendar month of the Term. If the
Term commences on a day other than the first day of a calendar month or ends on
a day other than the last day of a calendar month, then Monthly Rent shall be
appropriately prorated by Landlord based on the actual number of calendar days
in such month. If the Term commences on a day other than the first day of a
calendar month, then the prorated Monthly Rent for such month shall be paid on
or before the first day of the Term. Monthly Rent shall be adjusted as provided
in Exhibit B.
ARTICLE 5: OPERATING EXPENSES
5.1 General.
(a) In addition to Monthly Rent, Tenant shall pay when due
under Section 5.2 Tenant's Share of the amount by which the Operating Expenses
paid, payable, or incurred by Landlord in each calendar year or partial calendar
year after the Base Year exceeds the Operating Expenses of the Building incurred
or to be incurred by Landlord for the Base Year. Landlord shall have the right
from time to time to allocate equitably some of the Operating Expenses among
particular tenants of the Building or Project (e.g., retail tenants as opposed
to office tenants).
(b) As used in this Lease, the term "Operating Expenses"
means:
(1) All costs of management, operation, and
maintenance of the Project reasonably incurred by Landlord, including without
limitation: real and personal property taxes and assessments assessed against
the Project and all increases therein whether under Proposition 13 or otherwise
(and any tax levied in whole or in part in lieu of or in addition to real
property taxes); all other governmental taxes, fees, charges and impositions on
or related to the ownership, operation or leasing of the Building or Project;
wages, salaries, benefits, compensation and payroll taxes of employees; fees and
costs for consulting, accounting, legal, janitorial, maintenance, guard, and
other services; management fees and costs (charged by Landlord, any affiliate of
Landlord, or any other entity managing the Project and determined at a rate
consistent with prevailing market rates for comparable services and projects in
the vicinity of the Project); reasonable reserves for Operating Expenses; that
part of office rent or rental value of space in the
4
<PAGE>
Project used or furnished by Landlord to enhance, manage, operate, and maintain
the Project; power, water, waste disposal, and other utilities; costs of
materials and supplies; costs of maintenance and repairs; costs of insurance
obtained with respect to the Project; depreciation on personal property and the
cost of equipment, except as set forth in (c) below or which is or should be
capitalized on the books of Landlord; the cost of licenses, permits, inspections
and the like; the cost of implementation or management of a tenant
transportation system if required by Laws; and any other costs, charges, and
expenses that under generally accepted accounting principles would be regarded
as management, maintenance and operating expenses; and
(2) The cost (amortized on a straight line basis over such
useful life as Landlord reasonably determines) together with interest at the
greater of the Prime Rate adjusted on the first day of each calendar quarter
plus one percent (1%) or Landlord's actual borrowing rate, for such capital
improvements that are made to the Project by Landlord (I) for the purpose of
reducing Operating Expenses, or (ii) after the Lease date and by requirement of
any Law that was not applicable to the Project at the time it was constructed
and not as a result of an unusual use or nature of occupancy of the Premises by
any tenant.
(c) The Operating Expenses shall not include:
(1) depreciation on the Project (other than depreciation on
personal property, fixtures, equipment, window coverings on exterior windows
provided by Landlord, and carpeting in public corridors and common areas);
(2) costs of alterations of space or other improvements made
for tenants of the Project;
(3) finders' fees and real estate brokers' commissions;
(4) ground lease payments, mortgage principal or interest;
(5) capital items other than those referred to in clause
(b)(2) above;
(6) costs of replacements of personal property and equipment
for which depreciation costs are included as an Operating Expense, but only as
to the amount which has been depreciated at the time of any such replacement;
(7) costs of excess or additional utilities or services
provided to any tenant in the Building that are directly billed to such tenants;
(8) the cost of repairs due to casualty or condemnation that
are reimbursed by third parties, to the extent and in the actual amount of such
reimbursement. If a risk required to be insured against is self-insured under
Section 6.1, the amount of a reasonable deductible by reference to similar
buildings in the vicinity of the Project shall be an Operating Expense.
(9) any cost incurred solely as a result of Landlord's breach
of this Lease;
(10) any income, estate, inheritance, or other transfer tax
and any excess profit, franchise, or similar taxes on Landlord's business;
(11) all costs, including legal fees, relating to activities
for the solicitation and execution of leases of space in the Building; and
(12) any legal fees incurred by Landlord in enforcing its
rights under other leases for premises in the Building.
5
<PAGE>
(13) Landlord's general overhead and administrative expenses
to the extent not recouped by the permitted management fees if Landlord or an
affiliate is providing management services.
(14) bad debt losses or reserves.
(15) costs for which amounts have been previously reserved as
Operating Expenses to the extent of the actual reserve.
(d) The Operating Expenses that vary with occupancy levels and that
are attributable to any part of the Term in which less than ninety-five percent
(95%) of the Rentable Area of the Building is occupied by tenants will be
adjusted by Landlord to the amount that Landlord reasonably believes they would
have been if ninety-five percent (95%) of the Rentable Area of the Building had
been so occupied for the entire year in question.
(e) Tenant acknowledges that Landlord has not made any representation
or given Tenant any assurances that the Operating Expenses for the Base Year
will equal or approximate the actual Operating Expenses for any calendar year
after the Base Year.
5.2 Estimated Payments. During each calendar year or partial calendar
year after the Base Year, in addition to Monthly Rent, Tenant shall pay to
Landlord on the first day of each month an amount equal to one-twelfth (1/12) of
the product of Tenant's Share multiplied by the "Estimated Operating Expenses"
(defined below) for such calendar year. "Estimated Operating Expenses" for any
calendar year means Landlord's reasonable estimate of Operating Expenses for
such calendar year, less the Operating Expenses for the Base Year and shall be
subject to revision according to the further provisions of this Section 5.2 and
Section 5.3. During any partial calendar year, Estimated Operating Expenses
shall be estimated on a full-year basis. During each December in which this
Section 5.2 is applicable, or as soon after each December as practicable,
Landlord shall give Tenant written notice of the Estimated Operating Expenses
for the ensuing calendar year. On or before the first day of each month during
the ensuing calendar year (or each month of the Term if the Term will expire
before the end of the calendar year), Tenant shall pay to Landlord one-twelfth
(1/12) of the product of Tenant's Share multiplied by the Estimated Operating
Expenses for such calendar year; however, if such written notice is not given in
December, Tenant shall continue to make monthly payments on the basis of the
prior year's Estimated Operating Expenses until the month after such written
notice is given, at which time Tenant shall commence making monthly payments
based upon the revised Estimated Operating Expenses. In the month Tenant is
first required to make a payment based upon the revised Estimated Operating
Expenses, Tenant shall pay to Landlord for each month which has elapsed since
December the difference between the amount payable based upon the revised
Estimated Operating Expenses and the amount payable based upon the prior year's
Estimated Operating Expenses. If at any time or times it reasonably appears to
Landlord that the actual Operating Expenses for any calendar year will vary from
the Estimated Operating Expenses for such calendar year, Landlord may, by
written notice to Tenant, revise the Estimated Operating Expenses for such
calendar year, and subsequent payments by Tenant in such calendar year shall be
based upon such revised Estimated Operating Expenses.
5.3 Annual Settlement. Within one hundred twenty (120) days after the
end of each calendar year in which Section 5.2 was applicable, or as soon after
such one hundred twenty (120) day period as practicable, Landlord shall deliver
to Tenant a statement of amounts payable under Section 5.1 for such calendar
year prepared and certified by Landlord. Such certified statement shall be final
and binding upon Landlord and Tenant unless Tenant objects to it in writing to
Landlord within thirty (30) days after it is given to Tenant. If such statement
shows an amount owing by Tenant that is less than the estimated payments
previously made by Tenant for such calendar year, the excess shall be held by
Landlord and credited against the next payment of Rent; however, if the Term has
ended and Tenant was not in default at its end, Landlord shall refund the
6
<PAGE>
excess to Tenant. If such statement shows an amount owing by Tenant that is more
than the estimated payments previously made by Tenant for such calendar year,
Tenant shall pay the deficiency to Landlord within thirty (30) days after the
delivery of such statement. Within the thirty (30) day period for Tenant's
objection to the certified statement, Tenant may review Landlord's records of
the Operating Expenses, at Tenant's sole cost and expense, at the place Landlord
normally maintains such records during Landlord's normal business hours, upon
reasonable advance written notice.
5.4 Final Proration. If the Term of this Lease ends on a day other than
the last day of a calendar year, the amount of increase (if any) in the
Operating Expenses payable by Tenant applicable to the calendar year in which
the Term ends shall be calculated on the basis of the number of days of the Term
falling within such calendar year, and Tenant's obligation to pay any increase
or Landlord's obligation to refund any overage shall survive the expiration or
other termination of this Lease.
5.5 Other Taxes.
(a) Tenant shall reimburse Landlord upon demand for any and all taxes
payable by Landlord (except to the extent that such taxes are to be included in
Operating Expenses under Section 5.1 and other than as set forth in subparagraph
(b) below), whether or not now customary or within the contemplation of Landlord
and Tenant:
(1) upon or measured by Rent, including without limitation,
any gross revenue tax, excise tax, or value added tax levied by the federal
government or any other governmental body with respect to the receipt of Rent;
and
(2) upon this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises.
(b) Tenant shall not be obligated to pay any inheritance tax, gift
tax, transfer tax, franchise tax, income tax (based on net income), profit tax,
or capital levy imposed upon Landlord.
(c) Tenant shall pay promptly when due all personal property taxes on
Tenant's personal property in the Premises and any other taxes payable by Tenant
that if not paid might give rise to a lien on the Premises or Tenant's interest
in the Premises.
5.6 Additional Rent. Amounts payable by Tenant according to this
Article 5 shall be payable as Rent, without deduction or offset. If Tenant fails
to pay any amounts due according to this Article 5, Landlord shall have all the
rights and remedies available to it on account of Tenant's failure to pay Rent.
ARTICLE 6: INSURANCE
6.1 Landlord's Insurance. At all times during the Term, Landlord shall
carry and maintain:
(a) Fire and extended coverage insurance covering the Project, its
equipment, Common Area furnishings, and leasehold improvements in the Premises
to the extent of the Tenant finish allowance (as that term is defined in the
Workletter); flood and earthquake may, but are not required to be, insured
casualties;
(b) Comprehensive form general public liability insurance; and
(c) Such other insurance as Landlord reasonably determines is
necessary from time to time.
7
<PAGE>
The insurance coverages and amounts in this Section 6.1 shall be
determined reasonably by Landlord based on coverages carried by prudent owners
of comparable buildings in the vicinity of the Project. The foregoing
notwithstanding, so long as Landlord is (1) Confederation Life Insurance Company
or (2) any other corporation having net assets as per its most recent year-end
audited balance sheet in excess of $50 million, it may self-insure all or any of
the required coverages.
6.2 Tenant's Insurance. At all times during the Term, Tenant shall
carry and maintain, at Tenant's expense, whether or not such insurance is
readily available at a commercially reasonable price, the following insurance,
in the amounts specified below or such other amounts as Landlord may from time
to time reasonably request, and on forms reasonably satisfactory to Landlord:
(a) Bodily injury and property damage liability insurance,
with a combined single occurrence limit of not less than $2,000,000. All such
insurance shall be equivalent to coverage offered by a commercial general
liability form, including without limitation personal injury and contractual
liability coverage for the performance by Tenant of the indemnity agreements set
forth in Article 21 of this Lease;
(b) Insurance covering all of Tenant's furniture and fixtures,
machinery, equipment, stock, and any other personal property owned and used in
Tenant's business and found in, on, or about the Project, and any leasehold
improvements to the Premises in excess of the finish allowance, if any, provided
pursuant to the Workletter in an amount not less than the full replacement cost.
Property forms shall provide coverage on a broad form basis insuring against
"all risks of direct physical loss." All policy proceeds shall be used for the
repair or replacement of the property damaged or destroyed; however, if this
Lease terminates under the provisions of Article 18, Tenant shall be entitled to
any proceeds resulting from damage to Tenant's furniture and fixtures,
machinery, equipment, stock, and any other personal property;
(c) Worker's compensation insurance insuring against and
satisfying Tenant's obligations and liabilities under the worker's compensation
laws of the State of California, including employer's liability insurance in the
limits required by applicable laws; and
(d) If Tenant operates owned, hired, or nonowned vehicles on
the Project, comprehensive automobile liability at a limit of liability not less
than $500,000 combined bodily injury and property damage.
Anything to the contrary herein notwithstanding, Landlord shall not
increase the required limits of the insurance required by subsection (b) or (d)
by more than ten percent (10%) per calendar year cumulatively.
6.3 Forms of Policies; Insurers. Certificates of insurance, together
with copies of the endorsements, when applicable, naming Landlord and any others
specified by Landlord as additional insureds, shall be delivered to Landlord
prior to Tenant's occupancy of the Premises and from time to time at least ten
(10) days prior to the expiration of the term of each such policy. All
commercial general liability or comparable policies maintained by Tenant shall
name Landlord and such other persons or firms as Landlord specifies from time to
time as additional insureds, entitling them to recover under such policies for
any loss sustained by them, their agents, and employees as a result of the
negligent acts or omissions of Tenant. All such policies maintained by Tenant
shall provide that they may not be terminated nor may coverage be reduced except
after thirty (30) days' prior written notice to Landlord. All commercial general
liability and property policies maintained by Tenant shall be written as primary
policies, not contributing with and not supplemental to the coverage that
Landlord may carry. All policies required to be maintained by Tenant shall be
issued by insurers admitted in the
8
<PAGE>
State of California and having a current Best's Key Rating Guide rating of at
least "A-XII".
6.4 Waiver of Subrogation. Landlord and Tenant each waives on its own
behalf, and to the extent not prohibited by its issued insurance policies, on
behalf of its insurers, any and all rights to recover against the other or
against any other Tenant or occupant of the Project, or against the officers,
directors, shareholders, partners, joint venturers, employees, agents,
customers, invitees, or business visitors of such other party or of such other
Tenant or occupant of the Project, for any loss or damage to such waiving party
arising from any cause covered by any property insurance required to be carried
by such party pursuant to this Article 6 or any other property insurance
actually carried by such party, to the extent of the actual limits of such
policy. Landlord and Tenant from time to time shall request their respective
insurers to issue appropriate waiver of subrogation rights endorsements to all
property insurance policies carried in connection with the Project or the
Premises or the contents of the Project or the Premises. Tenant agrees to cause
all other occupants of the Premises claiming by, under, or through Tenant to
execute and deliver to Landlord such a waiver of claims and to obtain such
waiver of subrogation rights endorsements.
6.5 Adequacy of Coverage. Landlord, its agents, and employees make no
representation that the limits of liability specified to be carried by Tenant
pursuant to this Article 6 are adequate to protect Tenant. If Tenant believes
that any of such insurance coverage is inadequate, Tenant shall obtain such
additional insurance coverage as Tenant deems adequate, at Tenant's sole
expense. The minimum insurance requirements of this Lease shall not be construed
as a limitation of Tenant's liability to Landlord for indemnity or otherwise.
ARTICLE 7: USE
7.1 The Premises shall be used only for general business office
purposes and purposes incidental to that use and for no other purpose. Tenant
shall use the Premises in a careful, safe and proper manner. Tenant shall not
use or permit the Premises to be used or occupied for any purpose or in any
manner prohibited by Laws. Tenant shall not commit waste or suffer or permit
waste to be committed in, on, or about the Premises or other parts of the
Project. Tenant shall conduct its business and control its employees, agents,
and invitees in such a manner as to comply with all provisions of this Lease and
so as not to create any nuisance or interfere with, annoy, or disturb any other
Tenant or occupant of the Project or Landlord in its operation of the Project.
ARTICLE 8: REQUIREMENTS OF LAW; HAZARDOUS MATERIALS; FIRE INSURANCE
8.1 General. At its sole cost and expense, Tenant shall promptly comply
with all Laws now in force or in force after the Lease Date, with the
requirements of any board of fire underwriters or other similar body constituted
now or after the date, with any direction or occupancy certificate issued
pursuant to an law by any public officer or officers, as well as with the
provisions of all recorded documents affecting the Premises, insofar as they
relate to the condition, use, or occupancy of the Premises, excluding
requirements of structural changes to the Premises or the Building, unless
required by Tenant's breach of this Lease or an unusual use or nature of
occupancy of the Premises by Tenant.
8.2 Hazardous Materials.
(a) For purposes of this Lease, "Hazardous Materials" means any
explosives, radioactive materials, hazardous wastes, or hazardous substances,
including without limitation substances defined as "hazardous substances" in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42
9
<PAGE>
U.S.C. ss.ss.9601-9657; the Hazardous Materials Transportation Act of 1975, 49
U.S.C. ss.ss.1801-1812; the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss.ss.6901-6987; or now or hereafter defined as a toxic or hazardous
material or substance or other pollutant or contaminant by any applicable Law.
(b) Tenant shall not cause or permit the storage, use,
generation, or disposition of any Hazardous Materials in, on, or about the
Premises or the Project by Tenant, its agents, employees, or contractors,
provided, however, that Tenant may store and use products which typically are
used by general office tenants provided that such products be stored only in
such quantities and used only in such manner as will pose no threat of any
material contamination of the Project. Tenant shall immediately advise Landlord
in writing of (1) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed, or threatened pursuant
to any Laws relating to any hazardous materials affecting the Project; and (2)
all claims made or threatened by any third party against Tenant, Landlord, or
the Premises relating to damage, contribution, cost recovery, compensation,
loss, or injury resulting from any Hazardous Materials on or about the Premises.
Without Landlord's prior written consent, Tenant shall not take any remedial
action or enter into any agreements or settlements in response to the presence
of any Hazardous Materials in, on, or about the Project.
(c) Tenant shall be solely responsible for and shall defend,
indemnify and hold Landlord, its agents, and employees harmless from and against
all claims, costs, and liabilities, including attorneys' fees and costs, arising
out of or in connection with Tenant's breach of its obligations under this
Article 8. In the event of such breach, Tenant shall be solely responsible for
and shall defend, indemnify, and hold Landlord, its agents, and employees
harmless from and against any and all claims, costs, and liabilities, including
attorneys' fees and costs, arising out of or in connection with the containment,
removal, cleanup and restoration work and materials necessary to return the
Project and any other property of whatever nature located on the Project to
their condition existing prior to Tenant's breach of this Article 8. Tenant's
obligations under this Article 8 shall survive the expiration or other
termination of this Lease.
8.3 Certain Insurance Risks. Tenant shall not do or permit to be done
any act or thing upon the Premises or the Project which would (a) jeopardize or
be in conflict with fire insurance policies covering the Project and fixtures
and property in the Project; (b) increase the rate of fire insurance applicable
to the Project to an amount higher than it otherwise would be for general office
use of the Project; or subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on upon the Premises.
ARTICLE 9: ASSIGNMENT AND SUBLETTING
9.1 General. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors, and assigns, covenants that
it will not assign, mortgage, or encumber this Lease, nor sublease, nor permit
the Premises or any part of the Premises to be used or occupied by others,
without the prior written consent of Landlord in each instance, which consent
shall not be unreasonably withheld or delayed. Any assignment or sublease in
violation of this Article 9 shall be void. If this Lease is assigned, or if the
Premises or any part of the Premises are subleased or occupied by anyone other
than Tenant, Landlord shall have the right, after default by Tenant, to collect
Rent from the assignee, subtenant, or occupant, and apply the net amount
collected to Rent. No assignment, sublease, occupancy, or collection shall be
deemed (a) a waiver of the provisions of this Section 9. 1; (b) the acceptance
of the assignee, subtenant, or occupant as Tenant; or (c) a release of Tenant
from the further performance by Tenant of covenants on the part of Tenant
contained in this Lease. The consent by Landlord to an assignment or sublease
shall not be construed to relieve Tenant from obtaining Landlord's prior written
consent in writing to any further assignment or sublease. No permitted subtenant
shall have the right to assign or encumber its sublease
10
<PAGE>
or further sublease all or any portion of its subleased space, or otherwise
permit the subleased space or any part of its subleased space to be used or
occupied by others, without Landlord's prior written consent in each instance.
9.2 Submission of Information. If Tenant requests Landlord's consent to
a specific assignment or subletting, Tenant shall submit in writing to Landlord
(a) the name and address of the proposed assignee or subtenant; (b) the business
terms of the proposed assignment or sublease; (c) reasonably satisfactory
information as to the nature and character of the business of the proposed
assignee or subtenant, and as to the nature of its proposed use of the space;
(d) banking, financial, or other credit information reasonably sufficient to
enable Landlord to determine the financial responsibility and character of the
proposed assignee or subtenant; and (e) the proposed form of assignment or
sublease for Landlord's review and reasonable approval or disapproval.
9.3 Payments to Landlord. If Landlord consents to a proposed assignment
or sublease, Landlord shall have the right to require Tenant to pay to Landlord
a sum equal to (a) any Rent or other consideration paid to Tenant by any
proposed transferee that (after deducting the costs of Tenant, if any, in
effecting the assignment or sublease, including reasonable alterations costs,
commissions and legal fees) is in excess of the Rent allocable to the
transferred space then being paid by Tenant to Landlord pursuant to this Lease;
(b) any other profit or gain (after deducting any necessary expenses incurred)
realized by Tenant from any such sublease or assignment; and (c) Landlord's
reasonable attorneys' fees and costs incurred in connection with negotiation,
review, and processing of the transfer. All such sums payable shall be payable
to Landlord at the time the next payment of Monthly Rent is due.
9.4 Prohibited Transfers. The transfer of a majority of the issued and
outstanding capital stock of any corporate Tenant or subtenant of this Lease, or
a majority of the total interest in any partnership Tenant or subtenant, however
accomplished, and whether in a single transaction or in a series of related or
unrelated transactions, shall be deemed an assignment of this Lease or of such
sublease requiring Landlord's consent in each instance. For purposes of this
Article 9, the transfer of outstanding capital stock of any corporate Tenant
shall not include any sale of such stock by persons other than those deemed
"insiders" within the meaning of the Securities Exchange Act of 1934, as
amended, effected through the "over-the-counter market" or through any
recognized stock exchange.
9.5 Permitted Transfer. Landlord consents to an assignment of this
Lease or sublease of all or part of the Premises to a wholly-owned subsidiary of
Tenant, to a corporation of which Tenant is a wholly-owned subsidiary, or to a
corporation which is a wholly-owned subsidiary of Tenant's parent corporation;
provided that Tenant promptly provides Landlord with a fully executed copy of
such assignment or sublease. Tenant shall not thereby be released from liability
under this Lease.
9.6 Remedies. If Tenant believes that Landlord has withheld its consent
pursuant to this Article 9 unreasonably, Tenant's sole remedy shall be to seek a
declaratory judgment that Landlord has unreasonably withheld its consent or an
order of specific performance or mandatory injunction of the Landlord's
agreement to give its consent.
ARTICLE 10: RULES AND REGULATIONS
10.1 Tenant shall at all times observe faithfully, and comply with, the
rules and regulations set forth in Exhibit D and shall cause its employees,
agents, licensees, and visitors to do likewise. Landlord shall have the right
from time to time reasonably to amend, delete, or modify existing rules and
regulations, or adopt reasonable new rules and regulations for the use, safety,
cleanliness, and care of the Premises, the Building, and the Project, and the
comfort, quiet, and convenience of occupants of the Project. Modifications or
additions to the rules and regulations shall be effective upon thirty (30)
11
<PAGE>
days' prior written notice to Tenant from Landlord. In the event of any breach
of any rules or regulations or any amendments or additions to such rules and
regulations, Landlord shall have all remedies that this Lease provides for
default by Tenant, and shall in addition have any remedies available at law or
in equity, including the right to enjoin any breach of such rules and
regulations. Landlord shall not be liable to Tenant for violation of such rules
and regulations by any other tenant, its employees, agents, visitors, or
licensees or any other person. In the event of any conflict between the
provisions of this Lease and the rules and regulations, the provisions of this
Lease shall govern.
ARTICLE 11: COMMON AREAS
11.1 As used in this Lease, the term "Common Areas" means, without
limitation, the hallways, entryways, stairs, elevators, driveways, parking
areas, walkways, terraces, docks, loading areas, restrooms, trash facilities,
and all other areas and facilities in the Project that are provided and
designated from time to time by Landlord for the general nonexclusive use and
convenience of Tenant with Landlord and other tenants of the Project and their
respective employees, invitees, licensees or other visitors. Landlord grants
Tenant, its employees, invitees, licensees and other visitors a nonexclusive
license for the Term to use the Common Areas in common with others entitled to
use the Common Areas, subject to the terms and conditions of this Lease.
Landlord shall have the right, without advance written notice to Tenant, and
without any liability to Tenant, or Tenant's employees, invitees, licensees and
other visitors, but, subject to the condition that Landlord shall take no action
permitted under this Article 11 in such a manner as to materially impair or
adversely affect Tenant's substantial benefit and enjoyment of the Premises,
Landlord shall have the right to:
(a) Close off any of the Common Areas to whatever extent required
in the opinion of Landlord and its counsel to prevent a dedication of any of the
Common Areas or the accrual of any rights by any person or the public to the
Common Areas;
(b) Temporarily close any of the Common Areas for maintenance,
alteration, or improvement purposes; and
(c) Change the size, use, shape, or nature of any such Common
Areas, including erecting additional buildings on the Common Areas, expanding
the existing Building or other buildings to cover a portion of the Common Areas,
converting Common Areas to a portion of the Building or other buildings, or
converting any portion of the Building (excluding the Premises) or other
buildings to common areas. Upon erection of any additional buildings or change
in common areas, the portion of the Project upon which buildings or structures
have been erected will no longer be deemed to be a part of the Common Areas. In
the event of any such changes in the size or use of the Building or Common Areas
of the Building or Project, Landlord shall make an appropriate adjustment in the
Rentable Area of the Building or the Building's prorata share of exterior Common
Areas of the Project, as appropriate, and a corresponding adjustment to Tenant's
Share of the Operating Expenses payable pursuant to Article 5 of this Lease.
ARTICLE 12: LANDLORD'S SERVICES
12.1 Landlord's Repair and Maintenance. Subject to Article 18, Landlord
shall maintain, repair and restore the Common Areas of the Building and Project,
including lobbies, stairs, elevators, corridors, and restrooms, the windows in
the Building, the mechanical, heating, ventilation and air conditioning,
plumbing and electrical equipment serving the Building (excluding, however, any
plumbing in the Premises or any above building standard heating, air
conditioning or lighting equipment in the Premises, which repair shall be
Tenant's sole responsibility), and the structure of the Building in reasonably
good order and condition; provided, however, that any such work necessitated by
the negligence or wilful misconduct of Tenant, or Tenant's employees, agents,
invitees or licenses, shall be paid for in full by Tenant.
12
<PAGE>
12.2 Landlord's Other Services.
(a) Landlord shall furnish the Premises with: (1) electricity for
lighting and the operation of low-wattage office machines (such as desktop
micro-computers, desktop calculators, and typewriters) during Business Hours (as
that term is defined below), although Landlord shall not be obligated to furnish
more power to the Premises than is proportionally allocated to the Premises
under the Building design; (2) heat and air conditioning reasonably required for
the comfortable occupation of the Premises during Business Hours; (3) access and
elevator service; (4) lighting replacement during Business Hours (for building
standard lights, but not for any special Tenant lights, which will be replaced
at Tenant's sole cost and expense); (5) restroom supplies; (6) window washing
with reasonable frequency, as determined by Landlord; and (7) daily janitorial
service on weekdays. Landlord may provide, but will not be obligated to provide,
any such services (except access and elevator service) at times other than
Business Hours.
(b) Tenant shall have the right to purchase for use during Business
Hours and non-business hours the services described in clauses (a)(1) and (2) in
excess of the amounts Landlord has agreed to furnish so long as (1) Tenant gives
Landlord reasonable prior written notice of its desire to do so; (2) the excess
services are reasonably available to Landlord and to the Premises; and (3)
Tenant pays as Additional Rent (at the time the next payment of Monthly Rent is
due) Landlord's then applicable standard charge for such excess service or if no
standard charge then applies, a reasonable charge as determined by Landlord; all
subject to the notice and other procedures established by Landlord from time to
time for providing such additional or excess services.
(c) The term "Business Hours" means 8:00 a.m. to 6:00 p.m. on
Monday through Friday, except holidays (as that term is defined below), and 8:00
a.m. to 12:00 noon on Saturdays, except holidays. The term "holidays" means New
Year's Day, Presidents Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day, or other day generally observed if one of
the holidays specified above falls on a Saturday or Sunday.
12.3 Tenant's Costs. Whenever equipment or lighting (other than
building standard lights) is used in the Premises by Tenant and such equipment
or lighting affects the temperature otherwise normally maintained by the design
of the Building's air conditioning system, Landlord shall have the right, after
prior written notice to Tenant, to install supplementary air conditioning
facilities in the Premises or otherwise modify the ventilating and air
conditioning system serving the Premises; and the cost of such facilities,
modifications, and additional service shall be paid by Tenant, within thirty
(30) days of receipt of Landlord's invoice, as Additional Rent. If Landlord
reasonably believes that Tenant is using more power than Landlord is required to
furnish pursuant to Section 12.2, Landlord shall have the right to install
separate meters of Tenant's power usage, and Tenant shall pay for the cost of
such excess power as Additional Rent, together with the cost of installing any
risers, meters, or other facilities that may be necessary to furnish or measure
such excess power to the Premises, such payment to be made within thirty (30)
days of receipt of Landlord's invoice.
12.4 Limitation on Liability. Landlord shall not be in default under
this Lease or liable to Tenant or persons claiming through Tenant for a failure
to supply, or interruption of, utility services, for power surges or a failure
to supply or interruption of other services required to be provided by Landlord
unless caused by Landlord's gross negligence. Landlord shall, however, use
reasonable efforts to restore such utilities or other services as soon as is
reasonably practicable. Landlord reserves the right temporarily to discontinue
such services at such times as may be necessary by reason of accident; repairs,
alterations or improvements; strikes; lockouts; riots; acts of God; governmental
preemption in connection with a national or local emergency; any rule,
13
<PAGE>
order, or regulation of any governmental agency; conditions of supply and demand
that make any product or material unavailable; Landlord's compliance with any
mandatory governmental energy conservation or environmental protection program,
or any voluntary governmental energy conservation program at the request of or
with consent or acquiescence of Tenant; or any other happening beyond the
control of Landlord. Landlord shall not be liable for damages to person or
property or for injury to, or interruption of, business for any discontinuance
permitted under the preceding sentence, nor shall such discontinuance in any way
be construed as an eviction of Tenant or cause an abatement of Rent or operate
to release Tenant from any of Tenant's obligations under this Lease. Landlord
shall not be liable to Tenant for any theft or mysterious disappearance of
property of Tenant or its employees from the Premises or Project unless
attributable to Landlord's gross negligence. In the event of invasion, mob,
riot, public excitement, strikes, lockouts, or other circumstances rendering
such action advisable in Landlord's sole opinion, Landlord shall have the right
to prevent access to the Building or Project during the continuance of the same
by such means as Landlord, in its sole discretion, may deem appropriate,
including without limitation locking doors and closing parking areas and other
Common Areas.
ARTICLE 13: TENANT'S CARE OF THE PREMISES
Subject to Article 18, Tenant shall maintain the Premises (including
Tenant's equipment, personal property, and trade fixtures located in the
Premises) in their condition at the time they were delivered to Tenant,
reasonable wear and tear excluded. Tenant shall immediately advise Landlord of
any damage to the Premises, Building or the Project. Tenant shall be liable for
all damage or injury to the Premises, Building, the Project, or the fixtures,
appurtenances, and equipment in the Premises, Building or the Project that is
caused by Tenant, its agents, employees, or invitees to the extent: (1) not
attributable to risk required by this Lease to be insured against, or actually
insured against, by Landlord under Section 6.1(a) and (b); or (ii) Landlord
otherwise fails to receive full reimbursement for any such damage or injury
under the policies insuring risks required to be insured, or actually insured
against by Landlord under Section 6.1 (a) and (b). Under clause (ii) above, and
without limiting the generality thereof, Tenant shall be liable for Landlord's
deductible amounts under applicable insurance policies, and if Landlord elects
to self-insure under Section 6.1, Tenant shall be liable for an amount which
would be a reasonable deductible amount by reference to the insurance maintained
in similar projects in the vicinity of the Project. Landlord shall have the
right but not the obligation to repair such damage at Tenant's expense, and such
expense (plus fifteen percent (15%) of such expense for Landlord's overhead)
will be collectible as Additional Rent and will be paid by Tenant within thirty
(30) days after receipt of Landlord's invoice.
ARTICLE 14: ALTERATIONS
14.1 General.
(a) Except for the work contemplated by the Workletter, during the
Term, Tenant shall not make or allow to be made any alterations, additions,
improvements or installation (collectively "Alterations") to or of the Premises
or any part of the Premises, or attach any fixtures or equipment to the
Premises, without first obtaining Landlord's written consent. Landlord agrees
not to withhold or delay its consent unreasonably to proposed Alterations which
are not "material". Alterations shall be deemed "material" if they affect
structural elements of the Building, are visible from the exterior of the
Premises, affect Building systems (i.e., HVAC, electrical, plumbing or
mechanical systems), involve an expenditure of more than $5,000 for all related
work or if the installation or removal of the Alteration would cause more than
minor damage to the Premises. All alterations shall be performed by contractors
approved by Landlord and
14
<PAGE>
be subject to conditions reasonably specified by Landlord (which if the
reasonably estimated cost of the work exceeds $5,000 may include requiring the
posting of a payment and completion bond with Landlord named as obligee); and
(b) All Alterations, whether temporary or permanent in character,
made in or upon the Premises by Landlord, shall be and remain Landlord's
property. All Alterations made by Tenant shall be and remain the property of
Tenant during the Term, and subject to Tenant's rights under Article 16, to
remove trade fixtures and equipment the removal of which will not cause
structural damage or material non-structural damage to the Premises ("Removable
Trade Fixtures"), at the end of the Term shall remain on the Premises without
compensation to Tenant, unless when consenting to such Alterations, additions or
improvements, Landlord has advised Tenant in writing that such alterations,
additions or improvements must be removed at the expiration or other termination
of this Lease.
14.2 Free-Standing Partitions. Tenant shall have the right to install or
relocate free-standing work station partitions without Landlord's prior written
consent, so long as no building or other governmental permit is required for
their installation or relocation; however, if a permit is required, Landlord
shall not unreasonably withhold its consent to such relocation or installation.
Free-standing work station partitions for which Tenant pays shall be part of
Tenant's Removable Trade Fixtures for all purposes under this Lease.
ARTICLE 15: MECHANICS' LIENS
15.1 Indemnity and Discharge: Tenant shall pay or cause to be paid all
costs and charges (a) for work done by Tenant or caused to be done by Tenant in
or to the Premises, and (b) for all materials furnished for or in connection
with such work. Tenant shall indemnify Landlord against and hold Landlord, the
Premises and the Project free and harmless from all mechanics' liens and claims
of liens, and all other liabilities, liens, claims and demands on account of
such work by or on behalf of Tenant, other than work performed by Landlord
pursuant to the Workletter. If any such lien, at any time, is filed against the
Premises or any part of the Project, Tenant shall cause such lien to be
discharged of record within ten (10) days after the filing of such lien, except
that if Tenant desires to contest such lien, it shall furnish Landlord, within
such ten (10) day period, security reasonably satisfactory to Landlord of at
least one hundred fifty percent (150%) of the amount of the claim, plus
estimated costs and interest, or comply with such statutory procedures as may be
available to release the lien. If a final judgment establishing the validity or
existence of a lien for any amount is entered, Tenant shall pay and satisfy the
same at once. If Tenant fails to pay any charge for which a mechanics' lien has
been filed, and has not given Landlord security as described above, or has not
complied with such statutory procedures as may be available to release the lien,
Landlord shall have the right, at its option, to pay such charge and related
costs and interest, and the amount so paid, together with reasonable attorneys'
fees incurred in connection with such lien, shall be immediately due from Tenant
to Landlord as Additional Rent. Nothing contained in this Lease shall be deemed
the consent or agreement of Landlord to subject Landlord's interest in the
Project to liability under any mechanics' or other lien law. If Tenant receives
written notice that a lien has been or is about to be filed against the Premises
or the Project, or that any action affecting title to the Project has been
commenced on account of work done by or for or materials furnished to or for
Tenant, it shall immediately give Landlord written notice of such notice. At
least fifteen (15) days prior to the commencement of any work (including but not
limited to any maintenance, repairs, Alterations or installations) in or to the
Premises, by or for Tenant, Tenant shall give Landlord written notice of the
proposed work and the names and addresses of the persons supplying labor and
materials for the proposed work. Landlord shall have the right to post notices
of non-responsibility or similar written notices on the
15
<PAGE>
Premises in order to protect the Premises against any such liens.
ARTICLE 16: END OF TERM
16.1 At the end of the Term, Tenant shall promptly quit and surrender the
Premises broom-clean and in good order and repair, ordinary wear and tear and
damage from casualty which Tenant is not required by other provisions of this
Lease to repair excepted. If Tenant is not then in default, Tenant shall have
the right to remove from the Premises any Removable Trade Fixtures (as defined
in Section 14.1 (b)), unattached equipment, and movable furniture placed in the
Premises by Tenant. Whether or not Tenant is in default, Tenant shall remove
such Alterations, equipment, and furniture as Landlord has required under
Article 14. Tenant shall fully and properly repair any damage occasioned by the
removal of any Removable Trade Fixtures, equipment, furniture and Alterations.
All trade fixtures, equipment, furniture, inventory, effects and Alterations
left on the Premises after the end of the Term shall be deemed conclusively to
have been abandoned and may be appropriated, sold, stored, destroyed, or
otherwise disposed of by Landlord without written notice to Tenant or any other
person and without obligation to account for them. Alternatively, Landlord, at
its option, shall have the right to declare the Term to be continuing until all
such property is removed and the Premises surrendered to Landlord in the
condition required by this Lease, and Monthly Rent (at the rate specified in
Section 27.11) and Additional Rent shall continue to accrue and shall be payable
upon demand. Tenant shall pay Landlord for all expenses incurred in connection
with the removal of such property, including but not limited to the cost of
repairing any damage to the Building or Premises caused by the removal of such
property. Tenant's obligation to observe and perform this covenant shall survive
the expiration or other termination of this Lease.
ARTICLE 17: EMINENT DOMAIN
17.1 If all of the Premises are taken by exercise of the power of eminent
domain (or conveyed by Landlord in lieu of such exercise) this Lease shall
terminate on a date (the "Termination Date") which is the earlier of the date
upon which the condemning authority takes possession of the Premises or the date
on which title to the Premises is vested in the condemning authority. If more
than twenty-five percent (25%) of the Rentable Area of the Premises is so taken,
Tenant shall have the right to cancel this Lease by written notice to Landlord
given within twenty (20) days after the Termination Date. If less than
twenty-five percent (25%) of the Rentable Area of the Premises is so taken, or
if the Tenant does not cancel this Lease according to the preceding sentence,
the Monthly Rent shall be abated in the proportion of the Rentable Area of the
Premises so taken to the Rentable Area of the Premises immediately before such
taking, and Tenant's Share shall be appropriately recalculated. If twenty-five
percent (25%) or more of the Building or the Project is so taken, Landlord may
cancel this Lease by written notice to Tenant given within thirty (30) days
after the Termination Date. In the event of any such taking, the entire award
shall be paid to Landlord and Tenant shall have no right or claim to any part of
such award; however, Tenant shall have the right to assert a claim against the
condemning authority in a separate action, so long as Landlord's award is not
otherwise reduced, for Tenant's moving expenses and leasehold improvements owned
by Tenant.
ARTICLE 18: DAMAGE AND DESTRUCTION
18.1 (a) If the Premises or the Building are damaged by fire or other
casualty, Landlord shall give Tenant written notice of the time which will be
needed to repair such damage, as determined by Landlord in its reasonable
discretion, and the election (if any) which Landlord has made pursuant to this
Article 18. Such notice shall be given before the 30th day (the "Notice Date")
after the fire or other casualty.
16
<PAGE>
(b) If the Premises or the Building are damaged by fire or
other casualty to an extent which can be repaired within one hundred twenty
(120) days after the Notice Date without incurring overtime or extraordinary
charges, as reasonably determined by Landlord, Landlord shall promptly begin to
repair the damage after the Notice Date and will pursue the completion of such
repair with reasonable diligence. In that event this Lease shall continue in
full force and effect except that Monthly Rent shall be abated on a prorata
basis from the date of the damage until the date of the completion of such
repairs (the "Repair Period") based on the proportion of the Rentable Area of
the Premises Tenant is unable to use and does not actually use during the Repair
Period.
(c) If the Premises or the Building are damaged by fire or
other casualty to an extent that they cannot be repaired within one hundred
twenty (120) days after the notice date without incurring overtime or
extraordinary charges, as reasonably determined by Landlord, then (1) Landlord
shall have the right to cancel this Lease as of the date of such damage by
written notice given to Tenant on or before the Notice Date; or (2) Tenant may
cancel this Lease as of the date of such damage by written notice given to
Landlord within ten (10) days after Landlord's delivery of a written notice that
the repairs cannot be made within such one hundred twenty (120) day period
provided, however, that Tenant shall not have a cancellation right if the damage
is confined to parts of the Building other than the Premises and those parts of
the Common Area reasonably necessary for Tenant's access to, and enjoyment of,
the Premises. If neither Landlord nor Tenant so elects to cancel this Lease,
Landlord shall proceed with reasonable diligence to repair the Building and
Premises and Monthly Rent shall be abated on a prorata basis during the repair
period based in the proportion of the Rentable Area of the Premises Tenant is
unable to use and does not actually use during the Repair Period.
(d) If any such damage by fire or other casualty is the result
of the willful conduct or negligence or failure to act of Tenant, its agents,
contractors, employees, or invitees, there shall be no abatement of Monthly Rent
as otherwise provided for in this Article 18 and Tenant shall have no right to
cancel this Lease. Tenant shall have no rights to terminate this Lease on
account of any damage to the Premises, the Building, or the Project, except as
set forth in this Lease.
ARTICLE 19: SUBORDINATION
19.1 General. This Lease and Tenant's rights under this Lease are subject
and subordinate to any ground or underlying lease, mortgage, indenture, deed of
trust, or other lien encumbrance (each a "Superior Lien"), together with any
renewals, extensions, modifications, consolidations, and replacements of such
Superior Lien, now or after the date affecting or placed, charged, or enforced
against the Land, the Building, or all or any portion of the Project or any
interest of Landlord in them or Landlord's interest in this Lease and the
leasehold estate created by this Lease (except to the extent any such instrument
expressly provides that this Lease is superior to such instrument or the holder
of any such Superior Lien elects to treat this Lease as Superior). This
provision shall be self-operative and no further instrument of subordination
shall be required in order to effect it. Notwithstanding the foregoing, Tenant
shall execute, acknowledge, and deliver to Landlord, within twenty (20) days
after written demand by Landlord, such documents as may be reasonably requested
by Landlord or the holder of any Superior Lien to confirm or further effect any
such subordination.
19.2 Attornment and Nondisturbance. Tenant agrees that in the event that
any holder of a Superior Lien succeeds to Landlord's interest in the Premises,
Tenant shall pay to such holder all Rents subsequently payable under this Lease.
Furthermore, if the Superior Lien instrument provides that this Lease is
superior to the Superior Lien or if the holder of the Superior Lien elects to so
treat this Lease, Tenant agrees that in the event of the enforcement by the
holder of a Superior Lien of the remedies provided for
17
<PAGE>
by law or by such Superior Lien, Tenant shall, upon request of any person or
party succeeding to the interest of Landlord as a result of such enforcement,
automatically become the Tenant of and attorn to such successor in interest
without change in the terms or provisions of this Lease. Such successor in
interest shall not be bound by or liable for:
(a) Any payment of Rent for more than one month in advance,
except prepayments in the nature of security for the performance by Tenant of
its obligations under this Lease;
(b) Any amendment or modification of this Lease made without
the written consent of such successor in interest (if such consent was required
under the terms of such Superior Lien);
(c) Any claim against Landlord arising prior to the date on
which such successor in interest succeeded to Landlord's interest; or
(d) Any claim or offset against Rent.
Upon request by such successor in interest and without cost to Landlord or
such successor in interest, Tenant shall, within twenty (20) days after written
demand, execute, acknowledge, and deliver an instrument or instruments
confirming the attornment, so long as such instrument provides that such
successor in interest will not disturb Tenant in its use of the Premises in
accordance with, and as long as no event of default has occurred or continues
under, this Lease.
ARTICLE 20: ENTRY BY LANDLORD
20.1 Landlord, its agents, employees, and contractors may enter the
Premises at any time in response to an emergency and at otherwise reasonable
hours to:
(a) Inspect the Premises;
(b) Exhibit the Premises to prospective purchasers, lenders,
or tenants;
(c) Determine whether Tenant is complying with all of its
obligations in this Lease;
(d) Supply janitorial service and any other service to be
provided by Landlord to Tenant according to this Lease;
(e) Post written notices of nonresponsibility or similar
notices; or
(f) Make repairs required of Landlord under the terms of this
Lease or make repairs to any adjoining space or utility services or make
repairs, alterations, or improvements to any other portion of the Building;
however, all such work will be done as promptly as reasonably possible and so as
to cause as little interference to Tenant as reasonably possible.
Tenant, by this Article 20, waives any claim against Landlord, its agents,
employees, or contractors for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, or any other loss occasioned by any entry in accordance with this
Article 20. Landlord shall at all times have and retain a key with which to
unlock all of the doors in, on, or about the Premises (excluding Tenant's
vaults, safes, and similar areas designated in writing by Tenant in advance).
Landlord shall have the right to use any and all means Landlord may deem proper
to open doors in and to the Premises in an emergency in order to obtain
18
<PAGE>
entry to the Premises, provided that Landlord shall promptly repair any damages
caused by any forced entry. Any entry to the Premises by Landlord in accordance
with this Article 20 shall not be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion of the Premises, nor
shall any such entry entitle Tenant to damages or an abatement of Monthly Rent,
Additional Rent, or other charges that this Lease requires Tenant to pay.
ARTICLE 21: INDEMNIFICATION, WAIVER, AND RELEASE
21.1 Indemnification. Except for any injury or damage to persons on the
Premises that is proximately caused by or results proximately from the gross
negligence or wilful misconduct of Landlord, its employees, or agents, and
subject to the provisions of Section 6.4, Tenant shall neither hold nor attempt
to hold Landlord, its employees, officers, directors or agents liable for, and
Tenant shall indemnify and hold harmless Landlord, its employees, and agents
from and against, any and all demands, claims, causes of action, fines,
penalties, damages (including consequential damages), liabilities, judgments,
and expenses (including without limitation reasonable attorneys' fees) incurred
in connection with or arising from:
(a) the use or occupancy or manner of use or occupancy of the
Premises by Tenant or any person claiming under Tenant;
(b) any activity, work, or thing done or permitted by Tenant, its
employees, agents, contractors, or invitees in or about the Premises, the
Building, or the Project;
(c) any breach by Tenant or its employees, agents, contractors, or
invitees of this Lease; and
(d) any injury or damage to the person, property, or business of
Tenant, its employees, agents, contractors, or invitees entering upon the
Premises, the Building or the Project under the express or implied invitation of
Tenant.
If any action or proceeding is brought against Landlord, its employees,
officers, directors or agents by reason of any such claim for which Tenant has
indemnified Landlord, Tenant, upon written notice from Landlord, shall defend
the same at Tenant's expense, with counsel reasonably satisfactory to Landlord.
21.2 Waiver and Release. Tenant, as a material part of the consideration
to Landlord for this Lease, by this Section 21.2 waives and releases all claims
against Landlord, its employees, officers, directors and agents with respect to
all matters for which Landlord has disclaimed liability pursuant to the
provisions of this Lease. It is the intention of the parties that Landlord shall
have no liability for, and shall be indemnified by Tenant from, damages and
liabilities incurred by Tenant or any third party caused by Landlord's ordinary
negligence, or that of persons for whom Landlord is legally responsible, and
which arise from or in connection with the use and occupancy of the Premises and
Project by Tenant, its employees, agents, contractors or employees. The
provisions of Section 27.13 are expressly made applicable to all waiver,
indemnity and other exculpatory provisions contained in this Lease.
ARTICLE 22: SECURITY DEPOSIT
22.1 Tenant has deposited the Security Deposit with Landlord as security
for the full, faithful, and timely performance of every provision of this Lease
to be performed by Tenant. If Tenant defaults with respect to any provision of
this Lease, including but not limited to the provisions relating to the payment
of Rent, Landlord may but shall not
19
<PAGE>
be obligated to use, apply, or retain all or any part of the Security Deposit
for the payment of any Rent, or any other sum in default, or for the payment of
any other amount Landlord may spend or become obligated to spend by reason of
Tenant's default, or to compensate Landlord for any other loss or damage
Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is so used, applied, or retained, Tenant shall within five (5)
days after written demand deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. The Security
Deposit shall not be deemed a limitation on Landlord's damages or a payment of
liquidated damages or a payment of the Monthly Rent due for the last month of
the Term. If Tenant fully, faithfully, and timely performs every provision of
this Lease to be performed by it, the Security Deposit or any balance of the
Security Deposit will be returned to Tenant within sixty (60) days after the
expiration of the Term. Landlord shall have the right to deliver the funds
deposited under this Lease by Tenant to the purchaser of the Building in the
event the Building is sold, and after such time Landlord shall have no further
liability to Tenant with respect to the Security Deposit.
ARTICLE 23: QUIET ENJOYMENT
23.1 Landlord covenants and agrees with Tenant that so long as Tenant pays
the Rent and observes and timely performs all the terms, covenants, and
conditions of this Lease on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises subject, nevertheless, to the terms
and conditions of this Lease, and Tenant's possession shall not be disturbed by
anyone claiming by, through, or under Landlord.
ARTICLE 24: EFFECT OF SALE
24.1 A sale, conveyance, or assignment of the Building or the Project
shall operate to release Landlord from liability from and after the effective
date of such sale, conveyance, or assignment upon all of the covenants, terms,
and conditions of this Lease, express or implied, except those liabilities that
arose prior to such effective date, and, after the effective date of such sale,
conveyance, or assignment, Tenant shall look solely to Landlord's successor in
interest in and to this Lease. This Lease will not be affected by any such sale,
conveyance, or assignment, and Tenant shall attorn to Landlord's successor in
interest to this lease subject to the provisions of Section 19.2.
ARTICLE 25: DEFAULT
25.1 Events of Default. The following events are referred to,
collectively, as "Events of Default" or, individually, as an "Event of Default":
(a) Tenant defaults in the due and punctual payment of Rent,
and such default continues for five (5) days after written notice from Landlord.
Such notice shall be in form and content sufficient to satisfy the notice
requirement of California Code of Civil Procedure ss.1161(2) and shall
constitute the notice required by that section. Tenant shall not be entitled to
more than one five (5) day written notice for monetary defaults during any
consecutive twelve (12) month period, and if after such written notice any Rent
is not paid when due, an Event of Default shall be considered to have occurred
and Landlord may give a three (3) day notice to pay or quit under California
Code of Civil Procedure ss.1161(2);
(b) Tenant vacates or abandons the Premises;
(c) This Lease or the Premises or any part of the Premises are
taken upon execution or by other process of law directed against Tenant, or are
taken upon or subject to any attachment by any creditor of Tenant or claimant
against Tenant, and said
20
<PAGE>
attachment is not discharged or disposed of within fifteen (15) days after its
levy;
(d) Tenant or any guarantor of this Lease files a voluntary
petition in bankruptcy or insolvency or for reorganization or arrangement under
the bankruptcy laws of the United States or under any insolvency act of any
state, or admits the material allegations of any such petition by answer or
otherwise, or is dissolved or makes an assignment for the benefit of creditors;
(e) Involuntary proceedings under any such bankruptcy law or
insolvency act or for dissolution are instituted against Tenant or any guarantor
of the Lease, or a receiver or trustee is appointed for all or substantially all
of the property of Tenant or any guarantor, and such proceeding is not dismissed
or such receivership or trusteeship vacated within sixty (60) days after such
institution or appointment;
(f) Tenant fails to take possession of the Premises on the
Commencement Date of the Term;
(g) Tenant breaches any of the other agreements, terms,
covenants, or conditions that this Lease requires Tenant to perform, and such
breach either cannot be cured or, if curable, continues for a period of fifteen
(15) days after written notice from Landlord to Tenant or, if such breach is
curable but cannot be cured reasonably within such fifteen (15) day period,
Tenant fails to diligently commence to cure such breach within fifteen (15) days
after written notice from Landlord and to complete such cure within a reasonable
time thereafter. Such fifteen (15) day notice of a curable breach shall be in
form and content sufficient to satisfy the notice requirement of California Code
of Civil Procedure ss.1161(3) and shall constitute the notice required by that
Section;
(h) Any financial statement or certificate, or representation
or warranty at any time furnished or made to Landlord by Tenant or any guarantor
of this Lease was false or misleading in any material respect as of the date
thereof or omits any information necessary to make such statement, certificate,
representation and warranty not materially misleading; or
(i) Any guarantor of this Lease commits a material breach of
the provisions of the guaranty agreement.
25.2 Landlord's Remedies. If any one or more Events of Default set forth
in Section 25.1 occurs, Landlord shall have the right, at its election, to
exercise one or more of the following remedies, which shall be cumulative and
not exclusive:
(a) To terminate Tenant's rights under this Lease, re-enter
the Premises, remove all persons and personal property therefrom, and recover
from Tenant the amounts specified by Section 25.3.
(b) Even though Tenant has breached this Lease or abandoned
the Premises, to continue the Lease in effect for so long as Landlord does not
terminate Tenant's right to possession and to enforce all of Landlord's rights
and remedies under the Lease, including the right to recover all Rent and other
sums due Landlord as they become due. Landlord shall also have the right to
recover from Tenant, whether before or after Tenant's right to possession of the
Premises is terminated, all expenses incurred by Landlord in reletting the
Premises or attempting to do so, including without limitation, reasonable legal
expenses, remodeling costs and brokerage commissions.
(c) Without further demand or notice to cure any Event of
Default and to charge Tenant for the cost of effecting such cure, including
without limitation reasonable attorneys' fees and interest on the amount so
advanced at the rate set forth in Section
21
<PAGE>
27.21, provided that Landlord shall have no obligation to cure any such Event of
Default.
(d) To exercise all other remedies available to Landlord under
law. If Landlord elects the remedy provided in subsection (b), neither acts of
maintenance or preservation of efforts to relet the Premises nor the appointment
of a receiver upon Landlord's initiative shall constitute a termination of
Tenant's right to possession. If a reletting occurs, Tenant's right to
possession shall terminate upon execution of the new lease, whereupon this Lease
shall terminate and Landlord shall be entitled to recover from Tenant the
amounts provided for in Section 25.3.
25.3 Continuing Liability After Termination. Upon termination of this
Lease, Landlord shall have the right to recover from Tenant:
(a) The worth at the time of award of the unpaid Rent that had
been earned at the time of termination;
(b) The worth at the time of award of the amount by which the
unpaid Rent that would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(c) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term of this Lease (had the same not been so
terminated by Landlord) after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; and
(d) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including without limitation all reasonable legal expenses,
remodeling costs and brokerage commissions in reletting the Premises or
attempting to do so.
The "worth at the time of award" of the amounts referred to in clauses
(a) and (b) above is computed by adding interest at the per annum interest rate
described in Section 27.21 on the date on which this Lease is terminated from
the date of termination until the time of the award. The "worth at the time of
award" of the amount referred to in clause (c) above is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco,
at the time of award Plus one percent (1%).
25.4 Cumulative Remedies. Each right and remedy provided for in this Lease
is cumulative and is in addition to every other right or remedy provided for in
this Lease or now or after the Lease Date existing at law or in equity or by
statute or otherwise, and the exercise or beginning of the exercise by Landlord
of any one or more of the rights or remedies provided for in this Lease or now
or after the Lease Date existing at law or in equity or by statute or otherwise
will not preclude the simultaneous or later exercise by Landlord of any or all
other rights or remedies provided for in this Lease or now or after the Lease
Date existing at law or in equity or by statute or otherwise. All costs incurred
by Landlord in collecting any amounts and damages owing by Tenant pursuant to
the provisions of this Lease or to enforce any provision of this Lease,
including reasonable attorneys' fees from the date any such matter is turned
over to an attorney, whether or not one or more actions are commenced by
Landlord, shall also be recoverable by Landlord from Tenant.
ARTICLE 26: PARKING
26.1 Tenant shall be entitled to use the Parking Spaces during the Term
subject to the rules and regulations set forth in Exhibit D, and any amendments
or additions to
22
<PAGE>
them. The Parking Charges set forth in Section 1.1(r), if any, will be due and
payable in advance at the same time and place as Monthly Rent. The Parking
Spaces will be unassigned, non-reserved, and non-designated unless stated
otherwise in Section 1.1(q). Landlord reserves the right to adjust the Parking
Charges in Landlord's sole discretion at any time after thirty (30) days' prior
written notice, provided that a Parking Charge increase shall not exceed ten
percent (10%) per calendar year cumulatively.
ARTICLE 27: MISCELLANEOUS
27.1 No Offer. This Lease is submitted to Tenant on the understanding that
it will not be considered an offer and will not bind Landlord in any way until
Tenant has duly executed and delivered duplicate originals to Landlord and
Landlord has executed and delivered one of such originals to Tenant.
27.2 Joint and Several Liability. If Tenant is composed of more than one
signatory to this Lease, each signatory shall be jointly and severally liable
with each other signatory for payment and performance according to this Lease.
The act of, written notice to, written notice from, refund to, or signature of
any signatory to this Lease (including without limitation modifications of this
Lease made by fewer than all such signatories) will bind every other signatory
as though every other signatory had so acted, or received or given the written
notice or refund, or signed.
27.3 No Construction Against Drafting Party. Landlord and Tenant
acknowledge that each of them and their counsel have had an opportunity to
review this Lease and that this Lease will not be construed against Landlord
merely because Landlord has prepared it.
27.4 Time of the Essence. Time is of the essence of each and every
provision of this Lease.
27.5 No Recordation. Tenant's recordation of this Lease or any memorandum
or short form of it shall be void and shall constitute a non-curable default
under this Lease.
27.6 No Waiver. The waiver by Landlord of any agreement, condition or
provision contained in this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or any other agreement, condition, or provision
contained in this Lease, nor shall any custom or practice that may grow up
between the parties in the administration of the terms of this Lease be
construed to waive or to lessen the right of Landlord to insist upon the
performance by Tenant in strict accordance with the terms of this Lease. The
subsequent acceptance of Rent by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any agreement, condition, or provision of this
Lease, other than the failure of Tenant to pay the particular Rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such Rent. No waiver of any agreement, condition or provision of
this Lease shall be binding on Landlord unless contained in a writing executed
by a duly authorized officer or agent of Landlord.
27.7 Limitation on Recourse. Tenant specifically agrees to look solely to
Landlord's interest in the Project for the recovery of any judgments against
Landlord and no other assets of Landlord whatsoever shall be available for
satisfaction of any judgment, or be subject to levy, seizure, distraint or other
similar legal proceeding in connection with any such judgment. It is agreed that
Landlord (and its shareholders, venturers, and partners, and their shareholders,
venturers, and partners and all of their officers, directors, and employees)
shall not be personally liable for any such judgments. The provisions contained
in the preceding sentences are not intended to and shall not limit any right
that Tenant might otherwise have to obtain injunctive relief against Landlord or
relief in any suit or action in connection with enforcement or collection from
third parties
23
<PAGE>
of amounts that may become owing or payable under or on account of insurance
maintained by Landlord.
27.8 Estoppel Certificates. At any time and from time to time but within
ten (10) days after written request by Landlord, Tenant shall execute,
acknowledge, and deliver to Landlord, promptly upon request, a certificate
certifying: (a) that this Lease is unmodified and in full force and effect or,
if there have been modifications, that this Lease is in full force and effect,
as modified, and stating the date and nature of each modification; (b) the date,
if any, to which Monthly Rent and other sums payable under this Lease have been
paid; (c) that no written notice of any default has been delivered to Landlord
which default has not been cured, except as to defaults specified in said
certificate; (d) that there is no Event of Default under this Lease or an event
which, with notice or the passage of time, or both, would result in an Event of
Default under this Lease, except for defaults specified in said certificate; and
(e) such other matters as may be reasonably requested by Landlord. Any such
certificate may be relied upon by any prospective purchaser or existing or
prospective mortgagee or beneficiary under any deed of trust of the Building or
any part of the Project. Tenant's failure to deliver such a certificate within
such time shall be conclusive evidence of the matters set forth in the proposed
certificate sent to Tenant by Landlord.
27.9 Waiver of Jury Trial. Landlord and Tenant by this Section 27.9 waive
trial by jury in any action, proceeding, or counterclaim brought by either of
the parties to this Lease against the other on any matters whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any other claims (except
claims for personal injury) and with respect to any statutory remedy.
27.10 No Merger. The voluntary or other surrender of this Lease by Tenant
or the cancellation of this Lease by mutual agreement of Tenant and Landlord or
the termination of this Lease on account of Tenant's default shall not work a
merger, and shall, at Landlord's option, either (a) terminate all or any
subleases and subtenancies or (b) operate as an assignment to Landlord of all or
any subleases or subtenancies. Landlord's option under this Section 27.10 shall
be exercised by written notice to Tenant and all known sublessees or subtenants
in the Premises or any part of the Premises.
27.11 Holding Over. Tenant shall have no right to remain in possession of
all or any part of the Premises or Project after the expiration of the Term. If
Tenant remains in possession of all or any part of the Premises or Project after
the expiration of the Term, with the express or implied consent of Landlord: (a)
such tenancy will be deemed to be a periodic tenancy from month-to-month only;
(b) such tenancy will not constitute a renewal or extension of this Lease for
any further term; and (c) such tenancy may be terminated by Landlord upon ten
(10) days written notice. In such event, Monthly Rent shall be increased to an
amount equal to one hundred fifty percent (150%) of the Monthly Rent payable
during the last month of the Term, and any other sums due under this Lease shall
be payable in the amount and at the times specified in this Lease. Such
month-to-month tenancy shall be subject to every other term, condition, and
covenant contained in this Lease.
27.12 Notices. Any notice, request, demand, consent, approval, or other
communication required or permitted under this Lease must be in writing and
shall be deemed to have been given: (a) when personally delivered to an officer
or partner of the party to whom the notice is directed; (b) sent by facsimile
with hard copy dispatched within twenty-four (24) hours by overnight carrier or
mail as provided below; (c) deposited with any nationally recognized overnight
carrier that routinely issues receipts; or (d) deposited in any depository
regularly maintained by the United States Postal Service, postage prepaid,
certified mail, return receipt requested, addressed to the party
24
<PAGE>
for whom it is intended at its address set forth in Section 1.1. Notice so given
shall be deemed to have been received on the date of actual receipt (or the date
on which delivery is refused by the intended recipient). Either Landlord or
Tenant may add additional addresses or change its address for purposes of
receipt of any such communication by giving 10 days' prior written notice of
such change to the other party in the manner prescribed in this Section 27.12.
27.13 Severability. If any provision of this Lease proves to be illegal,
invalid, or unenforceable, the remainder of this Lease will not be affected by
such finding, and in lieu of each provision of this Lease that is illegal,
invalid, or unenforceable a provision will be added as a part of this Lease as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid, and enforceable.
27.14 Written Amendment Required. No amendment, alteration, modification
of, or addition to the Lease will be valid or binding unless expressed in
writing and signed by Landlord and Tenant. Tenant agrees to make any
modifications of the terms and provisions of this Lease required or requested by
any lending institution providing financing for the Building, or Project, as the
case may be, provided that no such modifications materially adversely affect
Tenant's rights and obligations under this Lease.
27.15 Entire Agreement. This Lease, the exhibits and addenda, if any,
contain the entire agreement between Landlord and Tenant. No promises or
representations, except as contained in this Lease, have been made to Tenant
respecting the condition or the manner of operating the premises, the Building,
or the Project.
27.16 Captions. The captions of the various articles and sections of this
Lease are for convenience only and do not necessarily define, limit, describe,
or construe the contents of such articles or sections.
27.17 Notice of Landlord's Default. In the event of any alleged default in
the obligation of Landlord under this Lease, Tenant shall deliver to Landlord
written notice listing the reasons for Landlord's default and Landlord shall
have thirty (30) days following receipt of such notice to cure such alleged
default or, in the event the alleged default cannot reasonably be cured within a
thirty (30) day period, to commence action and proceed to cure such alleged
default with reasonable diligence. Tenant shall send a copy of such notice to
Landlord to any holder of a mortgage or other encumbrance on the Building or
Project of which Tenant has been notified in writing, and any such holder shall
also have the same time period plus an additional thirty (30) days to cure such
alleged default.
27.18 Authority. Tenant and the party executing this Lease on behalf of
Tenant represent to Landlord that such party is authorized to do so by requisite
action of the board of directors or partners, as the case may be, and agree upon
request to deliver to Landlord a resolution or similar document to that effect.
27.19 Brokers. Landlord and Tenant respectively represent and warrant to
each other that neither of them has consulted or negotiated with any broker or
finder with regard to the premises except their respective brokers named in
Section 1.1, if any. Each party shall indemnify the other against and hold the
other harmless from any claim or action for fees or commissions by anyone with
whom it has consulted or negotiated with regard to the premises except that
party's broker named in Section 1.1 and from all resulting liabilities,
judgments, losses, costs and expenses. Landlord shall pay any fees or
commissions due Landlord's Broker. Tenant's Broker shall look solely to
Landlord's Broker or Tenant for payment of any fees or commissions due it with
respect to this Lease.
25
<PAGE>
27.20 Governing Law. This Lease shall be governed by and construed
pursuant to the laws of the State of California.
27.21 Interest. Any Rent or Additional Rent that is not paid when due
shall accrue interest at an annual rate of interest equal to the Prime Rate on
the date the payment was due plus three percent (3%) per annum (but in no event
in an amount in excess of the maximum rate allowed by applicable law) from the
date on which it was due until the date on which it is paid in full with accrued
interest. This interest charge is in addition to any applicable late charge
under Section 27.30.
27.23 No Easements for Air or Light. Any diminution or shutting off of
light, air, or view by any structure that may be erected on lands adjacent to
the Building shall in no way affect this Lease or impose any liability on
Landlord.
27.24 Tax Credits. Landlord is entitled to claim all tax credits and
depreciation attributable to leasehold improvements in the Premises except for
Alterations made by Tenant at its expense. Promptly after Landlord's demand,
Landlord and Tenant shall prepare a detailed list of the leasehold improvements
and fixtures and their respective costs for which Landlord or Tenant has paid.
Landlord shall be entitled to all credits and depreciation for those items for
which Landlord has paid by means of any Tenant finish allowance or otherwise.
Tenant shall be entitled to any tax credits and depreciation for all items for
which Tenant has paid with funds not provided by Landlord.
27.25 Financial Reports; Termination Right. Within fifteen (15) days after
Landlord's request at any time during the Term, Tenant shall furnish Tenant's
most recent audited financial statements (including any notes to them) to
Landlord, or, if no such audited statements have been prepared, such other
financial statements (and notes to them) as may have been prepared by an
independent certified public accountant or, if none, Tenant's internally
prepared financial statements. Tenant shall discuss its financial statements
with Landlord and shall give Landlord access to Tenant's books and records in
order to enable Landlord to verify the financial statements. Landlord shall not
disclose any aspect of Tenant's financial statements that Tenant designates to
Landlord as confidential except (a) to Landlord's lenders or prospective
purchasers of the Project, (b) in litigation between Landlord and Tenant, and
(c) if required by court order. If based on such financial statements, other
information provided by Tenant, or other information in Landlord's possession
reasonably deemed reliable by Landlord, Landlord reasonably determines that
Tenant is or is about to become insolvent within the meaning of the bankruptcy
laws of the United States or the State of California, Landlord shall have the
right to terminate this Lease and all of Tenant's estate hereunder forthwith
upon written notice to Tenant.
27.26 Landlord's Fees. Whenever Tenant requests Landlord to take any
action or give any consent required or permitted under this Lease, Tenant shall
reimburse Landlord for all of Landlord's reasonable costs incurred in reviewing
the proposed action or consent, including without limitation reasonable
attorneys', engineers' or architects' fees, within ten (10) days after
Landlord's delivery to Tenant of a statement of such costs. Tenant shall be
obligated to make such reimbursement without regard to whether Landlord consents
to any such proposed action.
27.27 Binding Effect. The covenants, conditions, and agreements contained
in this Lease will bind and inure to the benefit of Landlord and Tenant and
their respective heirs, distributees, executors, administrators, successors,
and, except as otherwise provided in this Lease, their assigns.
27.28 Additional Rent. All sums payable by Tenant to or on behalf of
Landlord under this Lease other than Monthly Rent under Section 4.1 constitute
Additional Rent
26
<PAGE>
for purposes of the Bankruptcy Act, any unlawful detainer action brought against
Tenant and all other purposes.
27.29 Approval of Mortgagee. If at the time this Lease is executed, the
Project is encumbered by a mortgage or deed of trust, this Lease is subject to
the approval of the mortgagee or beneficiary of the trust deed and Tenant agrees
to make such modifications to this Lease as are requested by said mortgagee or
beneficiary provided such modifications do not alter the Rent or otherwise
adversely affect Tenant in a material way.
27.30 Late Charge. If any payment of Rent or Additional Rent due Landlord
is not received by Landlord within ten (10) days of the due date (without regard
to any notice under Section 25.1), Tenant shall pay to Landlord on demand, as
liquidated damages, a late charge equal to five percent (5%) of the delinquent
payment to compensate Landlord for the damages it so incurs in the form of
increased accounting and administrative costs. The parties agree that such late
charge represents a reasonable attempt to determine such damages under the
circumstances now existing. Only one late charge may be imposed with respect to
any one delinquent payment, but the late charge due under this section is in
addition to interest due under Section 27.21. The acceptance of a late charge
shall not constitute a waiver of Tenant's default with respect to the delinquent
payment on which the late charge was imposed or of any right or remedy available
to Landlord.
27.31 Rent Covenant Independent. Tenant's covenants to pay Monthly Rent
and Additional Rent are independent of Landlord's covenants under this Lease.
27.32 Certain Terms. If Tenant validly exercises any option to renew or
extend the Term of this Lease (such renewal or extension rights existing only if
set forth in the Addendum, if applicable), all references in this Lease to the
Term shall include the renewal or extension Term. All such renewal or extension
options are personal to Tenant and cannot be assigned or transferred except as
part of an assignment of this Lease made in conformance with Article 9.
Landlord and Tenant have executed this Lease as of the day and year first
above written.
"LANDLORD"
CONFEDERATION REAL ESTATE (U.S.),
INC.
By: /s/ Kevin Ellis By: /s/ Roy L. Hanlin
---------------------------------- ------------------------
Its: Director, Real Estate Investments Its: Manager, Real Estate
---------------------------------- ------------------------
"TENANT"
FRANK S. YUAN DBA: WORLD WIDE
MAGIC NET, INC.
By: /s/
-------------------------
Its: President
------------------------
REVIEWED
FOR EXECUTION
/s/
----------------
CONFED R.E. DEPT.
27
<PAGE>
The Premises
[OBJECT OMITTED]
EXHIBIT "A"
1
<PAGE>
Rent Adjustments
Base rent shall be fixed at $3,164.00 for the entire term of the lease.
Provided Tenant fully performs its obligatins under this Lease, Base Rent shall
be abated in full for October 1996, November 1996, December 1996 and half of
January 1997 of this Lease. In the event this Lease is terminated by reason of
Tenant's default, the conditionally abated rent for said months shall be due and
payable to Landlord in full and shall be part of Landlord's recoverable damages.
EXHIBIT "B"
2
<PAGE>
Work Letter Agreement
Tenant accepts premises in an "as-is" condition.
EXHIBIT "C"
3
<PAGE>
RULES AND REGULATIONS
1. Landlord may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, any persons occupying, using, or
entering the Building, or any equipment, finishings, or contents of the
Building, and Tenant shall comply with Landlord's reasonable requirements
relative to such systems and procedures.
2. The sidewalks, halls, passages, exits, entrances, elevators, and
stairways of the Building shall not be obstructed by Tenant or used for any
purpose other than for ingress to and egress from the Premises. The halls,
passages, exits, entrances, elevators, escalators, and stairways are not for the
general public, and Landlord shall in all cases retain the right to control and
prevent access to such halls, passages, exits, entrances, elevators, and
stairways of all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation, and interests of the Building
and its tenants, provided that nothing contained in these rules and regulations
shall be construed to prevent such access to persons with whom any Tenant
normally deals in the ordinary course of its business, unless such persons are
engaged in illegal activities. Neither Tenant nor any employee or invitee of
Tenant shall go upon the roof of the Building except such roof or portion of
such roof as may be contiguous to the Premises of Tenant and may be designated
in writing by Landlord as a roof deck or roof garden area. Tenant shall not be
permitted to place or install any object (including without limitation radio and
television antennas, loudspeakers, sound amplifiers, microwave dishes, solar
devices, or similar devices) on the exterior of the Building or on the roof of
the Building.
3. No sign, placard, picture, name, advertisement, or written notice
visible from the exterior of Tenant's Premises shall be inscribed, painted,
affixed, or otherwise displayed by Tenant on any part of the Building or the
premises without the prior written consent of Landlord. Landlord shall adopt and
furnish to Tenant general guidelines relating to signs inside the Building on
the office floors. Tenant agrees to conform to such guidelines. All approved
signs or lettering on doors shall be printed, painted, affixed, or inscribed at
the expense of Tenant by a person approved by Landlord. Other than draperies
expressly permitted by Landlord and Building standard mini-blinds, material
visible from outside the Building shall not be permitted. In the event of the
violation of this rule by Tenant, Landlord shall have the right to remove the
violating items without any liability, and may charge the expense incurred by
such removal to Tenant.
4. No cooking shall be done or permitted by Tenant on the Premises, except
in areas of the Premises which are specially constructed for cooking and except
that use by the Tenant of microwave ovens and Underwriters' Laboratory approved
equipment for brewing coffee, tea, hot chocolate, and similar beverages shall be
permitted, provided that such use is in accordance with all applicable federal,
state, and city laws, codes, ordinances, rules, and regulations.
5. Tenant shall not employ any person or persons other than the cleaning
service of Landlord for the purpose of cleaning the Premises, unless otherwise
agreed to by Landlord in writing. Except with the written consent of Landlord,
no person or persons other than those approved by Landlord shall be permitted to
enter the Building for the purpose of cleaning it. Tenant shall not cause any
unnecessary labor by reason of such Tenant's carelessness or indifference in the
preservation of good order and cleanliness. Should Tenant's actions result in
any increased expense for any required cleaning, Landlord reserves the right to
assess Tenant for such expenses.
6. The toilet rooms, toilets, urinals, wash bowls and other plumbing
fixtures shall not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other foreign substances will
be thrown in such plumbing
EXHIBIT "D"
4
<PAGE>
fixtures. Tenant shall bear all damages resulting from any misuse of the
fixtures will be borne by Tenant, its servants employees, agents, visitors, or
licensees.
7. Tenant shall not in any way deface any part of the Premises or the
Building of which they form a part. In those portions of the Premises where
carpet has been provided directly or indirectly by Landlord, Tenant shall at its
own expense install and maintain pads to protect the carpet under all furniture
having casters other than carpet casters.
8. Tenant shall not alter, change, replace, or rekey any lock or install a
new lock or a knocker on any door of the Premises. Landlord, its agents, or
employees will retain a pass (master) key to all door locks on the Premises. Any
new door locks required by Tenant or any change in keying of existing locks
shall be installed or changed by Landlord following Tenant's written request to
Landlord and shall be at Tenant's expense. All new locks and rekeyed locks shall
remain operable by Landlord's pass (master) key. Landlord shall furnish Tenant,
free of charge, with two (2) keys to each door lock on the Premises. Landlord
shall have the right to collect a reasonable charge for additional keys
requested by Tenant. Upon termination of its tenancy, Tenant shall deliver to
Landlord all keys for the Premises and Building that have been furnished to such
Tenant.
9. The elevator designated for freight by Landlord will be available for
use by Tenant during the hours and pursuant to such procedures as Landlord may
determine from time to time. The persons employed to move Tenant's equipment,
material, furniture, or other property in or out of the Building must be
acceptable to Landlord. The moving company must be a locally recognized
professional mover, whose primary business is the performing of relocation
services, and must be bonded and fully insured. A certificate or other
verification of such insurance must be received and approved by Landlord prior
to the start of any moving operations. Insurance must be sufficient, in
Landlord's sole opinion, to cover all personal liability, theft or damage to the
Project, including but not limited to floor coverings, doors, walls, elevators,
stairs, foliage, and landscaping. Special care must be taken to prevent damage
to foliage and landscaping during adverse weather. All moving operations shall
be conducted at such times and in such a manner as Landlord will direct, and all
moving shall take place during non-business hours unless Landlord agrees in
writing otherwise. Tenant shall be responsible for the provision of Building
security during all moving operations, and shall be liable for all losses and
damages sustained by any party as a result of the failure to supply adequate
security. Landlord shall have the right to prescribe the weight, size, and
position of all equipment, materials, furniture, or other property brought into
the Building. Heavy objects shall, if considered necessary by Landlord, stand on
wood strips of such thickness as is necessary to properly distribute the weight.
Landlord shall not be responsible for loss of or damage to any such property
from any cause, and all damage done to the Building by moving or maintaining
such property will be repaired at the expense of Tenant. Landlord reserves the
right to inspect all such property to be brought into the Building and to
exclude from the Building all such property which violates any of these rules
and regulations or the Lease of which these rules and regulations are a part.
Supplies, goods, materials, packages, furniture, and all other items of every
kind delivered to or taken from the premises shall be delivered or removed
through the entrance and route designated by Landlord, and Landlord shall not be
responsible for the loss or damage of any such property unless such loss or
damage results from the negligence of Landlord, its agents, or employees.
10. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline, or inflammable or combustible or explosive fluid or material
or chemical substance other than limited quantities of such materials or
substances reasonably necessary for the operation or maintenance of office
equipment or limited quantities of cleaning fluids and solvents required in
Tenant's normal operations in the premises.
EXHIBIT "D"
5
<PAGE>
Without Landlord's prior written approval, Tenant shall use no method of heating
or air conditioning other than that supplied by Landlord. Tenant shall not use
or keep or permit to be used or kept any foul or noxious gas or substance in the
premises.
11. Landlord shall have the right, exercisable upon written notice and
without liability to any Tenant, to change the name and street address of the
Building.
12. Landlord shall have the right to prohibit any advertising by Tenant
mentioning the Building that, in Landlord's reasonable opinion, tends to impair
the reputation of the Building or its desirability as a building for offices,
and upon written notice from Landlord, Tenant shall refrain from or discontinue
such advertising.
13. Tenant shall not bring any animals (except "Seeing Eye" dogs) or birds
into the Building, and shall not permit bicycles or other vehicles inside or on
the sidewalks outside the Building except in areas designated from time to time
by Landlord for such purposes.
14. All persons entering or leaving the Building between the hours of 7
p.m. and 7 a.m. Monday through Friday, and at all hours on Saturdays, Sundays,
and holidays shall comply with such off-hour regulations as Landlord may
establish and modify from time to time. Landlord reserves the right to limit
reasonably or restrict access to the Building during such time periods.
15. Tenant shall store all its trash and garbage within its Premises. No
material shall be placed in the trash boxes or receptacles if such material is
of such nature that it may not be disposed of in the ordinary and customary
manner of removing and disposing of trash and garbage without being in violation
of any law or ordinance governing such disposal. All garbage and refuse disposal
shall be made only through entryways and elevators provided for such purposes
and at such times as Landlord designates. Removal of any furniture or
furnishings, large equipment, packing crates, packing materials, and boxes shall
be the responsibility of each Tenant and such items may not be disposed of in
the Building trash receptacles nor shall they be removed by the Building's
janitorial service, except at Landlord's sole option and at the Tenant's
expense. No furniture, appliances, equipment, or flammable products of any type
may be disposed of in the Building trash receptacles.
16. Canvassing, peddling, soliciting, and distributing handbills or any
other written materials in the Building are prohibited, and Tenant shall
cooperate to prevent the same.
17. The requirements of Tenant will be attended to only upon application by
written, personal, or telephone notice at the office of the Building. Employees
of Landlord will not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
18. A directory of the Building will be provided for the display of the
name and location of Tenants, but Landlord shall not in any event be obligated
to furnish more than one (1) directory strip for each 2,500 square feet of
rentable area in the Premises. Any additional name(s) that Tenant desires to
place in such directory must first be approved by Landlord, and if so approved,
Tenant shall pay to Landlord a charge, set by Landlord, for each such additional
name. All entries on the Building directory display shall conform to standards
and style set by Landlord in its sole discretion.
19. Tenant shall see that the doors of the Premises are closed and locked
and that all water faucets, water apparatus, electrical equipment and utilities
are shut off before Tenant or Tenant's employees leave the Premises, so as to
prevent waste or damage, and for any default or carelessness in this regard
Tenant shall make good all injuries sustained
EXHIBIT "D"
6
<PAGE>
by other tenants or occupants of the Building or Landlord. On multiple-tenancy
floors, all tenants shall keep the doors to the Building corridors closed at all
times except for ingress and egress.
20. Tenant shall not conduct itself in any manner that is inconsistent with
the character of the Building as a first quality building or that will impair
the comfort and convenience of other tenants in the Building.
21. Neither Landlord nor any operator of the parking areas within the
Project, as the same are designated and modified by Landlord, in its sole
discretion, from time to time (the "parking areas") shall be liable for loss of
or damage to any vehicle or any contents of such vehicle or accessories to any
such vehicle, or any property left in any of the parking areas, resulting from
fire, theft, vandalism, accident, conduct of other users of the parking areas
and other persons, or any other casualty or cause. Further, Tenant understands
and agrees that: (a) Landlord shall not be obligated to provide any traffic
control, security protection or operator for the parking areas; (b) Tenant uses
the parking areas at its own risk; and (c) Landlord shall not be liable for
personal injury or death, or theft, loss of, or damage to property. Tenant
waives and releases Landlord from any and all liability arising out of the use
of the parking areas by Tenant, its employees, agents, invitees, and visitors,
whether brought by any of such persons or any other person. The foregoing
provisions are intended to exculpate Landlord from its ordinary negligence or
that of any person for whose actions Landlord is legally responsible but are not
intended to relieve Landlord of liability for gross negligence or willful
misconduct.
22. Tenant (including Tenant's employees, agents, invitees, and visitors)
shall use the Parking Spaces solely for the purpose of parking passenger model
cars, small vans, and small trucks and shall comply in all respects with any
rules and regulations that may be promulgated by Landlord from time to time with
respect to the parking areas. The parking areas may be used by Tenant, its
agents, or employees, for occasional overnight parking of vehicles. Tenant shall
ensure that any vehicle parked in any of the Parking Spaces will be kept in
proper repair and will not leak excessive amounts of oil or grease or any amount
of gasoline. If any of the Parking Spaces are at any time used (a) for any
purpose other than parking as provided above; (b) in any way or manner
reasonably objectionable to Landlord; or (c) by Tenant after default by Tenant
under the Lease, Landlord, in addition to any other rights otherwise available
to Landlord, shall have the right to consider such default an Event of Default
under the Lease.
23. Tenant's right to use the parking areas will be in common with other
tenants of the Project and with other parties permitted by Landlord to use the
parking areas. Landlord reserves the right to assign and reassign, from time to
time, particular Parking Spaces for use by persons selected by Landlord,
provided that Tenant's rights under the Lease are substantially preserved.
Landlord shall not be liable to Tenant for any unavailability of Tenant's
designated spaces, if any, nor shall any unavailability entitle Tenant to any
refund, deduction, or allowance. Tenant shall not park in any numbered space or
any space designated as: RESERVED, HANDICAPPED, VISITORS ONLY, or LIMITED TIME
PARKING (or similar designation).
24. If the parking areas are damaged or destroyed, or if the use of the
parking areas is limited or prohibited by any governmental authority, or the use
or operation of the parking areas is limited or prevented by strikes or other
labor difficulties or other causes beyond Landlord's control, Tenant's inability
to use the Parking Spaces shall not subject Landlord or any operator of the
parking areas to any liability to Tenant and shall not relieve Tenant of any of
its obligations under the Lease and the Lease shall remain in full force and
effect.
EXHIBIT "D"
7
<PAGE>
25. Tenant has no right to assign or sublicense any of its rights in the
Parking Spaces, except as part of a permitted assignment or sublease of the
Lease; however, Tenant may allocate the Parking Spaces among its employees.
26. No act or thing done or omitted to be done by Landlord or Landlord's
agent during the Term of the Lease in connection with the enforcement of these
rules and regulations shall constitute an eviction by Landlord of any Tenant nor
will it be deemed an acceptance of surrender of the Premises by Tenant, and no
agreement to accept such termination or surrender will be valid unless in a
writing signed by Landlord. The delivery of keys to any employee or agent of
Landlord shall not operate as a termination of the Lease or a surrender of the
Premises unless such delivery of keys is done in connection with a written
instrument executed by Landlord approving the termination or surrender.
27. In these rules and regulations, "Tenant" includes the employees,
agents, invitees, and licensees of Tenant and others permitted by Tenant to use
or occupy the Premises.
28. Landlord shall have the right to waive any one or more of these rules
and regulations for the benefit of any particular tenant or tenants, but no such
waiver by Landlord will be construed as a waiver of such rules and regulations
in favor of any other tenant or tenants, nor prevent Landlord from enforcing any
such rules and regulations against any or all of the Tenants of the Building
after such waiver.
29. These rules and regulations are in addition to, and shall not be
construed to modify or amend, in whole or in part, the terms, covenants,
agreements, and conditions of the Lease.
Tenant's Initials:__________
EXHIBIT "D"
8
<PAGE>
GUARANTY OF LEASE
WHEREAS, CONFEDERATION REAL ESTATE (U.S.), INC. hereinafter referred to
as "Landlord" and FRANK S. YUAN, hereinafter referred to as "Tenant", are about
to execute a document entitled "Lease" dated September 1, 1996 concerning the
premises commonly known as Garfield Center 320 S. Garfield Avenue, Suite 318,
Alhambra, CA 91801 wherein Landlord will lease the premises to Tenant, and
WHEREAS, Frank S. Yuan hereinafter referred to as "Guarantor" has a
financial interest in Tenant and
WHEREAS, Landlord would not execute the Lease if Guarantor did not
execute and deliver to Landlord this Guaranty of Lease.
NOW THEREFORE, for and in consideration of the execution of the
foregoing Lease by Landlord and as a material inducement to Landlord to execute
said Lease, Guarantor hereby jointly, severally, unconditionally and irrevocably
guarantee the prompt payments by Tenant of all rentals and all other sums
payable to Tenant under said Lease and the faithful and prompt performance by
Tenant of each and every one of the terms, conditions and covenants of said
Lease to be kept and performed by Tenant.
It is specifically agreed and understood that the terms of the
foregoing Lease may be altered, affected, modified or changed by agreement
between Landlord and Tenant, or by a course of conduct, and said Lease may be
assigned by Landlord or any assignee of Landlord without consent or notice to
Guarantor and that this Guaranty shall thereupon and thereafter guarantee the
performance of said Lease as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified, or affected by failure
or delay on the part of Landlord to enforce any of the rights or remedies of the
Landlord under said Lease whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantor, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Landlord may proceed forthwith and immediately against
Tenant or against Guarantor following any breach or default by Tenant or for the
enforcement of any rights that Landlord may have as against Tenant pursuant to
or under the terms of the within Lease or at law or in equity.
Landlord shall have the right to proceed against Guarantor hereunder
following any breach or default by Tenant without first proceeding against
Tenant and without previous notice to or demand upon either Tenant or Guarantor.
Guarantor hereby waives (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Landlord to proceed against the Tenant or any other
Guarantor or any other person or entity liable to Landlord, (a) any right to
require Landlord to apply to any default any security deposit or other security
it may hold under the Lease, (f) any right Landlord to proceed under any other
remedy Landlord may have before proceeding against Guarantor, (g) any right of
subrogation.
Guarantor does hereby subrogate all existing or future indebtedness of
Tenant to Guarantor to the obligations owed to Landlord under the Lease and this
Guaranty.
The obligations of Tenant under the Lease to execute and deliver
estoppel statements and financial statements, as therein provided, shall be
deemed to also require the Guarantor hereunder to do and provide the same
relative to Guarantor.
The term "Landlord" whenever hereinabove used refereed to and means the
Landlord in the foregoing Lease specifically named and also any assignee of said
Landlord, whether by outright assignment or by assignment for security, and also
any successor to the interest of said Landlord or of any assignee in such Lease
or any part thereof, whether by assignment or otherwise. So long as Landlord's
interest in or to the leased premises or the rent, issues and profits therefrom,
or in, to or under said Lease are subject to any mortgage or deed of trust or
assignment for security, no acquisition by Guarantor of the Landlord's interest
in the leased premises or under said Lease shall affect the continuing
obligation of Guarantor under this Guaranty which shall nevertheless continue in
full force and effect for the benefit of the mortgage, beneficiary, trustee or
assignee under such mortgage, deed of trust or assignment, of any purchase at
sale by judicial foreclosure or under private power of sale and of the
successors and assigns of any such mortgage, beneficiary, trustee, assignee or
purchaser.
Exhibit F
<PAGE>
The term "Tenant" whenever hereinafter used refers to and means the
Tenant in the foregoing Lease specifically named and also any assignee or
sublessee of said lease and also any successor to the interests of said Tenant,
assignee or sublessee of such Lease or any part thereof, whether by assignment,
sublease or otherwise.
In the event any action be brought by said Landlord against Guarantor
hereunder to enforce the obligation of Guarantor hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
GUARANTOR
Date: 9-9-96 By: /s/ Frank S. Yuan
------------------
Frank S. Yuan
Exhibit F
<PAGE>
Option to Extend: (a) Option. Landlord hereby grants to Tenant an
option ("Extension Option") to extend the Term of
the Lease for a period of three (3) years ("Option
Period") upon and subject to the terms and
conditions set forth hereinbelow. If Tenant desires
to exercise its Extension Option granted herein,
Tenant shall deliver to Landlord written notice of
such election ("Extension Notice") no later than one
hundred eighty (180) days nor earlier than three
hundred sixty (360) days prior to the expiration of
the initial Term of the Lease.
(b) Proper Exercise. Despite a timely exercise by
Tenant, Tenant's Extension Option shall not, at
Landlord's option, be deemed to be properly
exercised if at the time Tenant exercises its
Extension Option or at the end of the initial Term
of the Lease, an event of default has occurred and
is continuing under the Lease. Provided Tenant
properly exercises the Extension Option, the Term of
the Lease shall be extended for the Option Period,
and all of the terms, covenants, and conditions of
the Lease shall remain unmodified and in full force
and effect during the Option Period, except that the
Annual Base Rent shall be modified as set forth in
Subparagraphs (c) and (d) below.
(c) Rent. The Annual Base Rent payable during the
option Period shall be one hundred percent (100%) of
the fair market rental value of the Premises, as
determined herein. The fair market rental value of
the Premises shall be determined by Landlord based
on prevailing market rentals then being paid on new
leases of similar space, for a three (3) year term,
in the Project, or if there have been no reasonably
comparable new leases made within the Project during
the preceding six (6) months, in projects comparable
to the Project in the Alhambra area and under
economic lease terms similar to those of this Lease.
In determining the fair market rental value of the
Premises, Landlord shall specifically exclude any
consideration of (i) Tenant's use of the Premises or
of the fact that Tenant has an option to extend the
term for three (3) years at 100% of full fair market
rental value and (ii) the value of any improvements
to the Premises made by Tenant which Tenant has
negotiated for the right to remove at the and of the
Lease Term. References herein to "fair market rental
value" shall not include any Lease concessions
offered by landlords within the above-described area
for leased premises including, without limitation,
free rent, tenant improvement allowances or any
other payments or concessions of any kind. Landlord
shall provide Tenant with written notice of its
determination of the fair market rental value of the
Premises within sixty (60) days after Landlord's
receipt of Tenant's Extension Notice. Tenant shall
have fifteen (15) days ("Tenant Review Period")
after receipt of Landlord's notice of the new Annual
Base Rent within which to accept such new Annual
Base Rent or to object thereto in writing. If Tenant
fails to respond to Landlord within Tenant's Review
Period, Tenant shall conclusively be deemed to have
approved of the new Annual Base Rent determined by
Landlord. In the event Tenant objects to the fair
market rental value submitted by Landlord, Landlord
and Tenant shall attempt to agree upon the fair
market rental value for the Premises, using their
best good faith efforts. If Landlord and Tenant fail
to reach agreement of the fair market rental value
of the Premises within fifteen (15) days following
the expiration of Tenant's Review Period (the
"Outside Agreement Date"), then the fair market
rental value for the premises shall be determined by
appraisal (an arbitration not being binding
intended) in accordance with Subparagraph (d) below.
Exhibit G
<PAGE>
(d) Appraisal. Landlord and Tenant shall each,
within fifteen (15) days of the Outside Agreement
Date, appoint one appraiser who shall by profession
be a real estate appraiser who shall have been
active over the five (5) year period ending on the
date of such appointment of the appraisal of
commercial properties in the Alhambra area. The two
appraisers so appointed shall, within fifteen (15)
days of the date the appointment of the last
appointed appraiser, agree upon and appoint a third
appraiser who shall be qualified under the same
criteria set forth hereinabove for qualifications of
the initial two appraisers. Once the three
appraisers have been selected, each appraiser shall
determine the fair market rental value of the
Premises in accordance with the assumptions and
requirements applicable to Landlord's determination
of the fair market rental value under Subparagraph
(c) above and give written notice of his/her
determination to Landlord and Tenant within thirty
(30) of his/her appointment. The average of the
three appraisals shall determine the fair market
rental value of the Premises for purposes of setting
the Annual Base Rent for the Option Period.
Landlord shall pay the charges of its appraiser,
Tenant shall pay the charges of its appraiser and
Landlord and Tenant shall share the charges of the
third appraiser equally.
If either Landlord or Tenant fails to appoint an
appraiser within the time period set forth above,
the appraiser appointed by one of them shall reach a
decision in accordance with this Subparagraph (d),
notify Landlord and Tenant thereof, and such
appraiser's decision shall be binding upon Landlord
and Tenant. If the two appraisers fail to agree upon
and appoint a third appraiser, both appraisers shall
be dismissed and the matter shall be decided by
submission to binding arbitration under the
commercial arbitration rules of the American
Arbitration Association. All costs of arbitration
shall be shared equally by Landlord and Tenant.
Notwithstanding the foregoing provisions of this
Lease Rider, in no event shall the Annual Base Rent
during the Option Period be less than the Annual
Base Rent payable by Tenant during the initial term
of this Lease or the preceding Option Period, as
applicable.
Exhibit G
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (this "Agreement") is made on the 15th day
of October, 1997 (the "Effective Date"), by and between Burlington Coat Factory
Warehouse Corporation, a Delaware corporation, on behalf of itself and its'
Affiliates (collectively, "BCF"), with offices at 1830 Route 130, Burlington,
New Jersey 08016, and World Wide Magic Net, Inc., a California corporation,
d/b/a Cyber Merchants Exchange ("C-ME"), with offices at 320 South Garfield
Avenue, Suite 318, Alhambra, California 91801.
RECITALS
WHEREAS, C-ME has developed technology, and desires to engage in the
business of providing a service which utilizes such technology, whereby C-ME
collects text, graphic images, and other data and information including, without
limitation, electronic pictures from manufacturers, vendors and other suppliers
of goods and services ("Network Vendors"), and transmits the same via various
Internet or other electronic means to the web sites of retailers and other users
of goods and services ("Network Users"), thereby creating an electronic showroom
and catalogue of goods and services. Each of such web sites shall be either a
private Internet Sourcing Network ("ISN"), designed and built for the exclusive
use of a retailer, or a public ISN designed for others (such ISN is hereinafter
referred to as a "Network," individually, and "Networks," collectively);
WHEREAS, the collection of services and Networks to be provided by C-ME
are hereinafter referred to as the "Magic Net;"
1
<PAGE>
WHEREAS, C-ME desires BCF to become a Network Participant and assist
C-ME in the promotion and marketing of the Magic Net to Network Vendors, and BCF
is willing to do so on the terms and conditions hereinafter contained;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Terms in this Agreement which are capitalized shall have the meanings
set forth below or defined elsewhere in this Agreement:
1.1 "Additional Network" shall mean any Network subscribed to by a
Network Vendor in addition to its Base Network.
1.2 "Additional Network Hosting Fee" shall mean the monthly fee payable
to C-ME by any Network Vendor for the hosting of promotional data on fifteen
(15) of such Network Vendor's products and/or services on each of such Network
Vendor's Additional Networks.
1.3 "Additional Network Set-Up Fee" shall mean the initial set-up fee
payable to C-ME by any Network Vendor for subscription to any Network other than
such Network Vendor's Base Network.
1.4 "Additional Service Fee" shall mean the fee payable to C-ME for any
consulting services C-ME is requested to provide in connection with the
installation, hosting or maintenance of the hardware and software required for
the Internet E.D.I.
2
<PAGE>
1.5 "Affiliate" shall mean BCF and any corporation, partnership or
joint venture, which directly or indirectly is controlled by, or is under common
control with BCF. As used herein "control" is defined as directly or indirectly
beneficially controlling, owning or holding of record more than 50% of all
classes of voting securities of a corporation, or, in the case of an entity
which is not a corporation, more than 50% of the equity interest.
1.6 "BCF Industry Group" shall mean the apparel, linens, juvenile
furniture and footwear industries in which, or with which, BCF conducts its
business.
1.7 "Base Network" shall mean the first Network subscribed to by a
Network Vendor.
1.8 "Base Network Hosting Fee" shall mean the monthly fee payable to
C-ME by any Network Vendor for the hosting of promotional data on fifteen (15)
of such Network Vendor's products and/or services on such Network Vendor's Base
Network.
1.9 "Base Network Set-Up Fee" shall mean the initial set-up fee payable
to C-ME by a Network Vendor for subscribing to such Network Vendor's Base
Network.
1.10 "Change Fees" shall mean the fees payable to C-ME by any Network
Vendor for changes including, but not limited to, additions, deletions, or
modifications made by C-ME to such Network Vendor's product information and/or
product images.
1.11 "Excess Hosting Fee" shall mean the monthly fee payable to C-ME by
any Network Vendor for the display of any products in excess of the fifteen (15)
products included in the Base or Additional Network Hosting Fees.
3
<PAGE>
1.12 "FOCASTING" shall mean the proprietary technology developed by
C-ME whereby Network Users can create their own private web pages by selecting
categories and product lines which fall within their specific areas of interest
to be pushed and broadcast to such web pages.
1.13 "Internet Electronic Data Interchange" or "Internet E.D.I." shall
mean the electronic exchange of business documents, from computer to computer,
between trading partners over the Internet.
1.14 "Hosting Fees" shall mean any of the Base Network Hosting Fee, the
Additional Network Hosting Fee, or any other periodic fee charged to a Network
Vendor for the hosting of such Network Vendor's promotional data on the Magic
Net.
1.15 "Net Additional Network Hosting Fee" shall mean the Additional
Network Hosting Fees payable to C-ME by any Network Vendor listed on the BCF
Vendor List, which Network Vendor participates in an Additional Network other
than the BCF Network, minus any share of such fee payable by C-ME to the Network
User (other than BCF).
1.16 "Net Base Network Hosting Fee" shall mean the Base Network Hosting
Fees payable to C-ME by any Network Vendor listed on the BCF Vendor List, which
Network Vendor participates in a Base Network other than the BCF Network, minus
any share of such fee payable by C-ME to the Network User (other than BCF).
1.17 "Net Excess Hosting Fee" shall mean the Excess Hosting Fees
payable to C-ME by any Network Vendor listed on the BCF Vendor List, which
Network Vendor
4
<PAGE>
participates in either a Base or Additional Network other than the BCF Network,
minus any share of such fee payable by C-ME to the Network User (other than
BCF).
1.18 "Set-Up Fees" shall mean any of the Base Network Set-Up Fee and
the Additional Network Set-Up Fee charged to a Network Vendor in order to
establish any of the services offered by C-ME on the Magic Net.
ARTICLE 2
RIGHTS AND OBLIGATIONS OF C-ME
2.1 C-ME shall use reasonable commercial efforts to provide for BCF a
Network consisting of (a) promotional materials provided by Network Vendors who
have subscribed to a Network designed with the assistance of BCF and for its
exclusive use (the "BCF Network"), and (b) the various specifications and
services listed on Exhibit A hereto, incorporated herein by reference. C-ME
shall maintain the BCF Network and allow BCF access thereto free of charge. C-ME
shall also ensure that no person other than itself and authorized BCF employees
shall have access to data on the BCF Network. C-ME shall exercise reasonable
commercial efforts to develop and provide an interchange facility for electronic
data transmission between BCF and Network Vendors, and between BCF and Network
Users, free of charge to BCF for the duration of this Agreement.
2.2 C-ME shall make available to BCF each new product, service,
enhancement or additional feature of the Magic Net as soon as the same shall
become available, provided, however, that nothing contained herein shall
obligate C-ME to develop any such additional features, products or services.
5
<PAGE>
2.3 C-ME shall provide BCF with the FOCASTING, ISN and Internet E.D.I.
software required for data design, storage and transmission on the BCF Network
(the "C-ME Software") free of charge, provided, however, that C-ME may charge a
reasonable consulting fee to facilitate the connection of the BCF Network to
BCF's existing mainframe and network for use of the Internet E.D.I., if C-ME's
assistance is requested by BCF. C-ME will exercise reasonable commercial efforts
to maintain and provide training and instructional materials for the operation
of any C-ME Software or other aspects of the BCF Network (C-ME's obligation
under Sections 2.1, 2.2 and 2.3 are collectively referred to herein as the "C-ME
Services").
2.4 To the extent applicable, C-ME hereby grants BCF, for the duration
of the term of this Agreement, a royalty-free license to use, solely in
connection with the BCF Network, the C-ME Software included or used in
connection with the BCF Network, including all updates thereof, and shall
indemnify, defend, save and hold BCF harmless from and against any damages
finally awarded against BCF (without any limitation of liability) in favor of a
third party in a claim by a third party of patent or copyright infringement in
connection with the use of the C-ME Software forming the Magic Net, and the use
and exploitation of images and data received via the BCF Network and
transmission or re-broadcast of images and data.
2.5 With respect to transmissions received, directly or indirectly, by
BCF from Network Vendors through the BCF Network, C-ME hereby grants to BCF a
non-exclusive license to capture, copy, reproduce, display, publish, exploit,
and print color images and other such data supplied by Network Vendors. C-ME
shall require each Network Vendor to supply C-ME such images and data for use by
BCF. C-ME shall provide to BCF, upon finalization,
6
<PAGE>
its proposed agreement for use with Network Vendors in order to allow BCF the
opportunity to comment thereon.
2.6 In addition, upon execution of this Agreement, C-ME shall issue to
BCF the warrant to purchase shares of C-ME's Common Stock attached hereto as
Exhibit B.
2.7 C-ME shall have the power to negotiate, in its sole discretion, the
fees itemized on Exhibit C hereto with other Network Participants and Network
Vendors; provided however, C-ME shall seek prior approval from BCF, which
approval shall not be unreasonably withheld, of any changes to the fees in which
BCF shall share as specified in Article 4.
2.8 C-ME shall pay to BCF any and all fees as provided in Article 4
hereof.
ARTICLE 3
RIGHTS AND OBLIGATIONS OF BCF
3.1 BCF shall provide to C-ME a list of its Network Vendors and other
potential participants in the BCF Network ("BCF Vendor List"). BCF may amend
and/or supplement the BCF Vendor List from time to time with supplemental lists
of vendors, contractors, suppliers and other parties. C-ME acknowledges and
agrees that the BCF Vendor List and its contents are trade secrets and
proprietary information of BCF which must be accorded confidential treatment.
3.2 BCF shall exercise commercially reasonable efforts to assist C-ME
in marketing and promoting the Magic Net to potential Network Vendors. In
connection with the foregoing, BCF may, in its reasonable discretion, undertake
the following:
7
<PAGE>
a) assign project leaders in BCF's management information and vendor
compliance departments to work with C-ME personnel to set up and implement the
BCF Network, to give input on the development of an electronic data interchange
system on the Magic Net as well as assist in marketing efforts;
b) send mailings to potential Network Vendors to promote
participation by such vendors in the Magic Net (such mailing may also encourage
and request use of C-ME's electronic data interchange system when such system
has been fully developed);
c) provide the services, from time to time, of Monroe G. Milstein
and/or Mark Nesci to contact vendors, selected by said persons in their sole
discretion, to promote participation in the Magic Net;
d) instruct BCF's buyers to utilize the BCF Network;
e) after the electronic data interchange system on Magic Net has been
fully developed and is fully operational to BCF's satisfaction, encourage and
request vendor use of such system;
f) if advisable, hold meetings with vendors (in the form of seminars,
breakfast meetings, and the like) in order to market and promote the Magic Net;
and
g) if advisable, issue a joint press release with C-ME after giving
due regard to the burdens and responsibilities imposed on a public company in
connection with such a release (it being understood that C-ME may not issue any
press release naming or otherwise identifying BCF without BCF's prior written
consent).
8
<PAGE>
The enumeration of specific actions above is by way of example and not
of requirement or limitation. BCF may, in the exercise of its judgment,
determine the appropriate actions to be taken to market and promote the Magic
Net under the circumstances existing from time to time. C-ME may consult with
BCF concerning marketing and promotional efforts but the final determination
thereon shall be made by BCF.
3.3 BCF shall provide C-ME with specifications and data for the
creation of the BCF Network. In addition, BCF will work with C-ME to design the
BCF Network and provide any and all training and/or instructional materials to
C-ME regarding industrial categories and other systems integral to BCF's
marketing methods.
3.4 Neither C-ME nor any other person shall be authorized to use BCF's
name to solicit any party to participate in the program, without BCF's prior
written approval, in each instance of the content of any communications, written
or oral or in any other format, with prospective participants which includes the
use of BCF's name.
3.5 BCF shall acquire, install and maintain the hardware and software,
as specified on Exhibit A hereto, necessary for BCF to participate in the BCF
Network and the Internet E.D.I.
3.6 Once the Internet E.D.I. capabilities are implemented with the BCF
Network, BCF may develop and implement a system, (with the assistance of C-ME to
ensure conformity throughout its Networks), to (a) transmit orders from BCF
buyers and other related personnel to each of its Network Vendors, (b) issue
invoices for merchandise sold via the BCF Network and (c) facilitate and track
the shipping of merchandise between Network Vendors and BCF.
9
<PAGE>
3.7 BCF shall indemnify, defend, save and hold C-ME harmless from and
against any claim of any Network Vendor arising as a result of BCF's failure to
perform its obligations under a contract with that Network Vendor.
3.8 BCF shall use its reasonable efforts to use the ISN and Internet
E.D.I. services provided by C-ME. BCF shall not promote, endorse, support, have
an ownership interest in or receive any revenues from, any competing online
electronic showroom or vendor web site service similar to Magic Net during the
term of this Agreement.
ARTICLE 4
FEES AND CHARGES
4.1 C-ME shall pay BCF the following shares of fees:
a. Fifty percent (50%) of all Base Network Hosting Fees, including
Excess Hosting Fees, if any, collected by C-ME with respect to each Network
Vendor, including Foreign Vendors, which subscribes to the BCF Network as its
Base Network through C-ME's U.S. offices for the duration of such subscription;
b. Fifty percent (50%) of all Additional Network Hosting Fees,
including Excess Hosting Fees, if any, collected by C-ME with respect to each
Network Vendor, including Foreign Vendors, which subscribes to the BCF Network
as an Additional Network through C-ME's U.S. offices for the duration of such
subscription;
c. Fifty percent (50%) of the Net Base Network Hosting Fees, Net
Additional Network Hosting Fees, and Net Excess Hosting Fees collected by C-ME
with respect to each Network Vendor listed on the BCF Vendor List and vendors in
BCF's Industry
10
<PAGE>
Group, which participates in Magic Net but subscribes to another Network as its
Base Network or Additional Network during the first two years after the date of
this Agreement; provided, however, that such share shall not be less than
thirty-three percent (33%) of the total Base Network Hosting, Additional Network
Hosting Fees, and Excess Hosting Fees collected from such Network Vendor for the
duration of such subscription. The fees described in this Paragraph 4.1(c) shall
be payable by C-ME to BCF for the duration for such subscription of a Network
Vendor;
d. Five percent (5%) of all Base Network Hosting Fees, Additional
Network Hosting Fees, and Excess Hosting Fees collected by C-ME with respect to
each Network Vendor listed on the BCF Vendor List and vendors in BCF's Industry
Group which participates in Magic Net, after the first two of this Agreement,
but which does not subscribe to the BCF Network as its Base Network or
Additional Network; and
e. Thirty-Three percent (33%) of all Base Network Hosting Fees,
Additional Network Hosting Fees, and Excess Hosting Fees collected by C-ME from
each Network Vendor not (i) having its primary place of business within the
United States, and (ii) originating transactions from within the United States
(a "Foreign Vendor"), which subscribes to the BCF Network as its Base Network or
Additional Network; provided, however, that should such Foreign Vendor subscribe
to the BCF Network through a foreign affiliate of C-ME in which C-ME does not
own a controlling interest and is therefore unable to control the pricing of its
services, C-ME shall make no warranties herein as to the share of such fees
payable to BCF, but shall exercise its best efforts to obtain up to thirty-three
percent (33%) of
11
<PAGE>
the Base Network Hosting Fee, Additional Network Hosting Fees, and Excess
Hosting Fee for BCF. In the event that BCF's share of the fees collected in this
Paragraph 4.1(e) is less than 33%, then BCF shall have the right to approve such
lower percentage share or disapprove of such vendor's participation in the BCF
Network.
4.2 Such payments shall be made on a monthly basis, for as long as this
Agreement shall be in effect, within thirty (30) days after the end of the
immediately preceding month, together with a statement showing revenues and a
computation of fees payable for such preceding month. BCF shall not receive any
share of any Set-Up Fees, Change Fees, or Additional Service Fees. BCF shall
have the right to audit C-ME's books and records from time to time to ensure
accuracy of statements provided, and payments made, by C-ME to BCF.
4.3 With regard to any other monthly recurring fees that may be
collected from any Network Vendor, BCF share of such fees shall be in the same
percentage as referenced in Paragraph 4.1, as the case may be.
12
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 BCF represents and warrants to C-ME that:
a. BCF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
b. BCF has full corporate authority and power to enter into this
Agreement and to perform its obligations under this Agreement.
c. BCF will not sell to, purchase from, provide or exchange with any
third party any Network Vendor information identified as confidential
information in the agreement for services between C-ME and each such Network
Vendor. Notwithstanding, the above no such information shall be deemed
confidential to the extent it is otherwise in the possession of BCF without any
obligation of confidentiality, is now or hereafter in the public domain, is
lawfully obtained from a third party, or is required to be disclosed by law. BCF
will maintain limited access to such information and a complete record of all
individuals with access thereto.
d. BCF's performance of this Agreement will not violate any
applicable law or regulation or any agreement to which BCF may now or hereafter
be bound.
e. This Agreement represents a valid obligation of BCF and is fully
enforceable against BCF according to its terms.
5.2 C-ME represents and warrants to BCF that:
a. C-ME is a corporation duly organized, validly existing and in good
standing under the laws of the State of California.
13
<PAGE>
b. C-ME has full corporate authority and power to enter into this
Agreement and to perform its obligations under this Agreement.
c. C-ME's performance of this Agreement will not violate any
applicable law or regulation or any agreement to which C-ME may now or hereafter
be bound.
d. This Agreement represents a valid obligation of C-ME and is fully
enforceable against C-ME according to its terms.
e. The C-ME Services shall be completed in a workmanlike manner.
f. C-ME does not represent or warrant that the C-ME Services will be
uninterrupted or error free, nor will C-ME be liable for damages resulting
therefrom. C-ME disclaims liability for loss of data in transit between BCF and
Network Vendors and between BCF and Network Users.
g. C-ME does not represent or warrant that information provided by
the Network Vendors will be accurate or error free.
THE WARRANTIES SET FORTH ABOVE CONSTITUTE THE ONLY WARRANTIES WITH RESPECT TO
THE SERVICES AND ARE IN LIEU OF ANY OTHER WARRANTIES WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
14
<PAGE>
ARTICLE 6
TERMINATION; DEFAULT; REMEDIES
6.1 This Agreement may be terminated by the non-defaulting party upon
the occurrence of any of the following events of default:
a. either party fails to pay the other when due any amount due under
this Agreement, and such failure continues for a period of fifteen (15) business
days after notice has been sent to the non-paying party;
b. any party (i) files for bankruptcy, receivership, insolvency,
reorganization, dissolution, liquidation or any similar proceedings, as
applicable, or (ii) has a proceeding instituted against it and such proceeding
is not dismissed within sixty (60) days; and
c. a party fails to observe any material obligation specified in this
Agreement and such failure is not cured within thirty (30) days of a notice
specifying the breach, unless such failure cannot be cured within thirty (30)
days but the defaulting party has commenced action to effect such cure within
the thirty (30) day period and thereafter is diligently pursuing the same.
ARTICLE 7
LIMITATION OF LIABILITY AND INDEMNIFICATION
7.1 BCF will indemnify, defend and hold C-ME harmless from and against
any and all obligations, charges, liabilities, costs, fees, increased taxes or
expenses, including without limitation, court costs and reasonable attorneys'
fees (including allocated costs of internal
15
<PAGE>
counsel), which C-ME may incur or which may be claimed against C-ME by any
person or as a result of acts or omissions of BCF, its employees or agents
relating to the exercise of, or the failure to exercise, BCF's obligations under
this Agreement; provided however, BCF's total cumulative liability shall not
exceed the aggregate fees received from C-ME during the six (6) month period
prior to the date of such claim.
7.2 C-ME will indemnify, defend and hold BCF harmless from and against
any and all obligations, charges, liabilities, costs, fees, increased taxes of
expenses, including without limitation, court costs and reasonable attorneys'
fees (including allocated costs of internal counsel), which BCF may incur or
which may be claimed against BCF by any person as a result of acts or omissions
of C-ME, its directors, officers, employees or agents relating to the exercise
of, or the failure to exercise, C-ME's obligations under this Agreement;
provided, however, that the total cumulative liability of C-ME for damages
(except in the case of willful or intentional acts or omissions) arising from
any breach of C-ME's obligations related to or arising from C-ME Services,
including claims for indemnity related thereto, shall not exceed an amount equal
to the aggregate fees payable to C-ME from Network Vendors participating in the
BCF Network during the six-month period previous to the date of such claim.
7.3 This Section will survive termination of this Agreement.
NEITHER BCF NOR C-ME SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOSS OF PROFITS OF ANY NATURE OR FOR ANY
REASON WHATSOEVER ARISING OUT OF, OR RELATED TO, THE PROVISION OR FAILURE TO
PROVIDE BCF OR C-ME
16
<PAGE>
SERVICES, AS THE CASE MAY BE, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT, BREACH OF WARRANTY OR OTHERWISE EVEN IF BCF OR C-ME HAS BEEN
NOTIFIED OF THE POSSIBILITIES THEREOF, OTHERWISE THE PARTIES SHALL BE LIABLE FOR
SUCH DAMAGES.
THE FEES SET FORTH IN ARTICLE 4 HEREOF REFLECT THE ALLOCATION OF RISKS
BETWEEN THE PARTIES. BY SIGNING THIS AGREEMENT, THE PARTIES HERETO ACKNOWLEDGE
AND UNDERSTAND THESE ALLOCATIONS OF RISK LIMITING THE RESPECTIVE LIABILITY OF
THE PARTIES HERETO, AND THAT A CHANGE IN THE ALLOCATION OF RISKS SET FORTH IN
THIS AGREEMENT WOULD AFFECT SUCH FEES.
ARTICLE 8
CONFIDENTIALITY
8.1 Both parties agree that each will reveal Confidential Information
only to those of its directors, officers, agents or employees with a need to
know. "Confidential Information" means all confidential or proprietary
information about any other party, including but not limited to software,
customer and vendor names, addresses, and account numbers; retail locations;
sales volume(s); merchandise mix or other information of the business affairs of
either party or Network Vendor, its parent company or its affiliated and
subsidiary companies, which that party reasonably considers confidential and/or
proprietary. Confidential Information will not include information in the public
domain, information already known by the party receiving the information prior
to commencing the discussions that led to this
17
<PAGE>
Agreement, information lawfully obtained from a third party, and information
required to be disclosed by law.
8.2 Each party agrees not to use Confidential Information nor to
disclose Confidential Information to any third party, except as may be necessary
for that party to perform its obligations pursuant to this Agreement, unless
otherwise agreed upon by the parties or required by law. If either party should
disclose Confidential Information to a third party, such party will cause the
third party to agree to the confidentiality provisions set forth in this
Paragraph. The provisions of this Paragraph will survive the termination of this
Agreement.
8.3 Each party agrees that any violation in breach of the provisions of
this Article shall result in irreparable harm to the party to which the
Confidential Information belongs and such party shall be entitled to such
injunctive relief from any court of competent jurisdiction without the necessity
of any undertaking, bond or proof or evidence of injury or damage. Such remedy
shall be in addition to, and not in lieu of, any other right or remedy available
to each party under law or equity.
ARTICLE 9
MISCELLANEOUS
9.1 All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent by
prepaid telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail, or reputable overnight courier service and shall be
deemed given when so delivered by hand, telexed, cabled, or telecopied, or if
mailed, three days after mailing (one business day in the case of express mail
18
<PAGE>
or overnight courier service), to the address of the party for whom intended at
such address as is set forth at the beginning of this Agreement, Attention:
President, or at such other address as such party may hereafter specify by
written notice to the other party.
9.2 In the event that any provision (or any portion of any provision)
of this Agreement shall be held to be void or unenforceable, the remaining
provisions of this Agreement (and the remaining portion of any provision found
void or unenforceable in part only) shall continue in full force and effect.
Additionally, in the event this Agreement or any provision or portion thereof
shall be held to violate any rule against perpetuities or any other rule
limiting the duration of the term of this Agreement, then this Agreement or any
such provision or portion thereof shall be automatically amended (and any court
of competent jurisdiction is hereby requested to amend it) so as to extend for
the longest period possible, including extension, which shall not be in
violation of any such rule, it being the intent of the parties to provide the
longest term possible.
9.3 This Agreement, and the Exhibits attached hereto, constitute the
entire understanding and contract among the parties with respect to the subject
matter hereof, supersedes all prior agreements and understanding between them,
written or oral, and may not be modified, amended or terminated orally.
9.4 A waiver of any breach or violation of any term, provision,
agreement, covenant or condition herein contained shall not be deemed to be a
continuing waiver or a waiver of any future or past breach or violation.
19
<PAGE>
9.5 This Agreement may not be assigned by any party without the prior
written consent of the other party, which consent may be withheld or denied in
the non-assigning party's sole discretion.
9.6 This Agreement shall be binding upon and shall inure to the benefit
of all representatives, nominees, transferees, successors and assigns.
9.7 The following procedure will be adhered to in all disputes that
arise under this Agreement, except in circumstances in which a party seeks
injunctive relief to protect its trademarks or other intellectual property and
its Confidential Information. Either party to this Agreement must notify the
other party of the nature of the dispute with as much detail as possible about
the deficient performance of the other party. Each party shall have a
representative who is knowledgeable of the services and empowered to represent
the respective party in dispute negotiations ("Project Manager"). The Project
Managers shall meet telephonically or in person as soon as possible, but no
later than thirty (30) days after the date of the written notification, to reach
an agreement about the nature of the deficiency and the corrective action to be
taken by the respective parties. The Project Managers shall within fifteen (15)
days after such meeting produce a report about the nature of the dispute in
detail to their respective management. If the Project Managers are unable to
agree on corrective action, the respective managers to whom the Project Managers
report or their successors ("Management") shall meet telephonically or in person
to facilitate an agreement as soon as possible, but no later than fifteen (15)
days after the date of the report. If Management cannot resolve the dispute with
a written plan of corrective action as soon as possible, but no later
20
<PAGE>
than sixty (60) days after their initial meeting, or if the agreed upon
completion dates in the written plan of corrective action are exceeded, either
party may proceed with its respective rights under this Agreement.
9.8 In the event of any dispute, claim, question or disagreement
between the parties arising out of or relating to the Agreement, the parties
shall use their best efforts to settle such dispute, claims, questions or
disagreements. To this effect, they shall consult and negotiate with each other
and in good faith and, recognizing their mutual interests, attempt to reach a
just and equitable solution satisfactory to the parties. If they do not reach
such solution, then upon notice by either party to the other, claims, questions
or disagreements shall be settled by final and binding arbitration in accordance
with the Expedited Procedures of the Commercial Rules of the American
Arbitration Association, or such other procedures applicable to disputes of this
type.
Within fifteen (15) days after the notice of election to arbitrate by
either party to the other as described above, each party shall select one person
to act as arbitrator, and the two selected shall select a third arbitrator
within ten (10) days of their appointment. If the arbitrators selected by the
parties are unable or fail to agree upon the third arbitrator, the parties or
their attorneys may request the American Arbitration Association to appoint the
third neutral arbitrator. Prior to the commencement of hearings, each of the
arbitrators appointed shall take an oath of impartiality. The arbitrators must
be members of the State Bar actively engaged in the practice of law with
expertise in the process of deciding disputes and interpreting contracts in
computer services. The arbitrators shall award to the prevailing party,
21
<PAGE>
if any, as determined by the arbitrators, all of its costs and fees. "Costs and
fees" means all reasonable pre-award expenses of the arbitration, including the
arbitrators' fees, administrative fees, travel expenses, out-of-pocket expenses
such as copying and telephone, court costs, witness fees and attorney's fees.
Upon the request of a party, the arbitrators' award shall include findings of
fact and conclusion of law. The arbitrators shall provide copies of such award
to the parties. Any award may be entered by the prevailing party in any court of
competent jurisdiction.
9.9 No breach of any obligation of a party to this Agreement shall
constitute an event of default or breach to the extent it arises out of a cause,
existing or future, that is beyond the control and without negligence of the
party otherwise chargeable with breach or default, including without limitation:
action or strike; lockout or other labor dispute; flood; war; riot; theft;
earthquake or natural disaster. Either party desiring to rely upon any of the
foregoing as an excuse for default or breach shall, when the cause arises, give
to the other party prompt notice of the facts which constitute such cause; and,
when the cause ceases to exist, give prompt notice thereof to the other party.
This section shall in no way limit the right of either party to this Agreement
to make any claim against third parties for any damages suffered due to said
causes.
9.10 This Agreement shall be governed by and construed in accordance
with the laws of the State of California, applicable to Agreements made and
wholly to be performed within said state.
22
<PAGE>
9.11 Whenever used in this Agreement, words denoting the masculine
gender shall include the feminine and neuter gender and vice versa, as
appropriate, and words denoting the singular number shall include the plural and
vice versa, as appropriate.
9.12 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
WORLD WIDE MAGIC NET, INC.
d/b/a Cyber Merchants Exchange
By: /S/
Frank Yuan
President and Chief Executive Officer
BURLINGTON COAT FACTORY
WAREHOUSE CORPORATION
By: /S/
Mark A. Nesci
Vice President/ Chief Operating Officer
23
<PAGE>
EXHIBIT A
Service Specifications for the BCF Network
What C-ME will provide:
C-ME will create a private ISN for BCF which will function similar to
C-ME's existing web site (http://www.c-me.com) and feature C-ME's Focused
Broadcasting (FOCASTING) software.
The private ISN will have a database of products broken down in product
categories according to BCF's specifications. C-ME will take the information
provided to it by vendors who join BCF's ISN and create uniform web listings.
The uniform web listing can include the following information: a picture of the
product, product descriptions, fabric content, sizes, packing ratios, delivery
terms, and country of origin. The uniform web listings will then be placed in
product categories furnished by BCF.
BCF's buyers can access this information through the use of C-ME's
FOCASTING software. Similar to PointCast(TM) services, FOCASTING will enable
BCF's buyers to create individual web pages which contain only those product
categories that fall within their specific areas of interest. After their
customized web page is created, the FOCASTING software will "push" or broadcast
directly to the buyer's desktop all products within BCF's ISN that fall within
the product categories selected by the buyer. For example, if a Men's Jeans
buyer created a customized web page using FOCASTING and selected "Men's Jeans,"
the FOCASTING software will transmit all the information and images relating to
Men's Jeans within BCF's ISN to the buyer each time he/she logs on.
C-ME will also provide support to BCF's buyers and other personnel in
order to educate them on how to use BCF's ISN and FOCASTING software.
Lastly, once created, C-ME will provide BCF with Internet E.D.I.
software and, if requested, provide a for-fee consulting on how to incorporate
the Internet E.D.I. software with BCF's existing computer network and mainframe.
What BCF needs to use the ISN:
BCF must acquire and maintain as many work stations as are necessary
for BCF's buyers to access BCF's ISN and use the FOCASTING software. The work
stations must have Internet access and be equipped with the appropriate web
browser software. BCF may also acquire and maintain a web server which will
enable it to
24
<PAGE>
capture and store all information, including but not limited to, data, pictures,
and images, contained on BCF's ISN.
25
<PAGE>
EXHIBIT B
Warrant Agreement
26
<PAGE>
EXHIBIT C
SCHEDULE OF FEES PAYABLE TO C-ME BY NETWORK VENDORS
1. Base Network Set-Up Fee: $300.00
2. Base Network Hosting Fee: $150.00/month
3. Additional Network Set-Up Fee: $100.00
4. Additional Network Hosting Fee: $20.00/month
5. Excess Hosting Fee: $1.00/month/product
6. Change Fees:
a. Changes to product description and product image: $5.00/change
b. Changes to product image: $3.00/change
c. Changes to product description: $2.00/change
7. Base Network Set-Up Fee with Internet EDI: $500.00
8. Base Network Hosting Fee with Internet EDI: $200.00 - 300.00
27
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (this "Agreement") is made on the 27th day
of January, 1998 (the "Effective Date"), by and between General Textiles/FBC
Stores, Factory 2-U, Inc., a California corporation, on behalf of itself and
its' Affiliates (collectively, "FBC"), with offices at 4000 Ruffin Road, San
Diego, California 92123-1866, and World Wide Magic Net, Inc., a California
corporation, d/b/a Cyber Merchants Exchange ("C-ME"), with offices at 320 South
Garfield Avenue, Suite 318, Alhambra, California 91801.
RECITALS
WHEREAS, C-ME has developed technology, and desires to engage in the
business of providing a service which utilizes such technology, whereby C-ME
collects text, graphic images, and other data and information including, without
limitation, electronic pictures from manufacturers, vendors and other suppliers
of goods and services ("Network Vendors"), and transmits the same via various
Internet or other electronic means to the web sites of retailers and other users
of goods and services ("Network Users"), thereby creating an electronic showroom
and catalogue of goods and services. Each of such web sites shall be a private
Internet Sourcing Network ("ISN"), designed and built for the exclusive use of a
retailer, and/or a public ISN designed for others (such ISN is hereinafter
referred to as a "Network," individually, and "Networks," collectively);
WHEREAS, C-ME desires FBC to become a Network User and assist C-ME in
the promotion and marketing of the FBC Network to Network Vendors, and FBC is
willing to do so on the terms and conditions hereinafter contained;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises contained herein, the parties hereto agree as follows:
1
<PAGE>
ARTICLE 1
DEFINITIONS
Terms in this Agreement which are capitalized shall have the meanings
set forth below or defined elsewhere in this Agreement:
1.1 "Additional Service Fee" shall mean the fee payable to C-ME for any
consulting services C-ME is requested to provide in connection with the
installation, hosting or maintenance of the hardware and software required for
the Internet E.D.I.
1.2 "Affiliate" shall mean FBC and any corporation, partnership or
joint venture, which directly or indirectly is controlled by, or is under common
control with FBC. As used herein "control" is defined as directly or indirectly
beneficially controlling, owning or holding of record more than 50% of all
classes of voting securities of a corporation, or, in the case of an entity
which is not a corporation, more than 50% of the equity interest.
1.3 "Base Network" shall mean the first Network subscribed to by a
Network Vendor.
1.4 "Base Network Hosting Fee" shall mean the monthly fee payable to
C-ME by any Network Vendor for the hosting of promotional data on fifteen (15)
of such Network Vendor's products and/or services on such Network Vendor's Base
Network.
1.5 "Base Network Set-Up Fee" shall mean the initial set-up fee payable
to C-ME by a Network Vendor for subscribing to such Network Vendor's Base
Network.
1.6 "Change Fees" shall mean the fees payable to C-ME by any Network
Vendor for changes including, but not limited to, additions, deletions, or
modifications made by C-ME to such Network Vendor's product information and/or
product images.
1.7 "Dynamic End-User Portfolio System" or "DEPS." shall mean the
proprietary technology developed by C-ME whereby Network Users can: (i)
independently manipulate
2
<PAGE>
information contained within their databases including, but not limited to,
selectively deleting, restoring, and archiving information, without affecting
the databases created by other Network Users, and (ii) receive notifications of
new information transmitted to their databases.
1.8 "Excess Hosting Fee" shall mean the monthly fee payable to C-ME by
any Network Vendor for the display of any products in excess of the fifteen (15)
products included in the Base or Additional Network Hosting Fees.
1.9 "FBC Network" shall mean the Network created and maintained by C-ME
for FBC's exclusive use.
1.10 "FOCASTING" shall mean the proprietary technology developed by
C-ME whereby Network Users can create their own private web pages by selecting
categories and product lines which fall within their specific areas of interest
to be pushed and broadcast to such web pages.
1.11 "Internet Electronic Data Interchange" or "Internet E.D.I." shall
mean the electronic exchange of business documents, from computer to computer,
between trading partners over the Internet.
ARTICLE 2
RIGHTS AND OBLIGATIONS OF C-ME
2.1 C-ME shall use reasonable commercial efforts to provide for FBC a
Network consisting of (a) promotional materials provided by Network Vendors who
have subscribed to a Network designed with the assistance of FBC and for its
exclusive use, and (b) the various specifications and services listed on Exhibit
A hereto, incorporated herein by reference. C-ME shall maintain the FBC Network
and allow FBC access thereto free of charge.
2.2 C-ME shall make available to FBC each new product, service,
enhancement or additional feature of the FBC Network as soon as the same shall
become available, provided,
3
<PAGE>
however, that nothing contained herein shall obligate C-ME to develop any such
additional features, products or services.
2.3 C-ME shall provide FBC with the FOCASTING, ISN, DEPS, and Internet
E.D.I. software required for data design, storage and transmission on the FBC
Network (the "C-ME Software") free of charge, provided, however, that C-ME may
charge a reasonable consulting fee to facilitate the connection of the FBC
Network to FBC's existing mainframe and network for use of the Internet E.D.I.,
if C-ME's assistance is requested by FBC. C-ME will exercise reasonable
commercial efforts to maintain and provide training and instructional materials
for the operation of any C-ME Software or other aspects of the FBC Network
(C-ME's obligation under Sections 2.1, 2.2 and 2.3 are collectively referred to
herein as the "C-ME Services").
2.4 To the extent applicable, C-ME hereby grants FBC, for the duration
of the term of this Agreement, a royalty-free license to use, solely in
connection with the FBC Network, the C-ME Software included or used in
connection with the FBC Network, including all updates thereof, and shall
indemnify, defend, save and hold FBC harmless from and against any damages
finally awarded against FBC (without any limitation of liability) in favor of a
third party in a claim by a third party of patent or copyright infringement in
connection with the use of the C-ME Software forming the FBC Network, and the
use and exploitation of images and data received via the FBC Network and
transmission or re-broadcast of images and data.
2.5 With respect to transmissions received, directly or indirectly, by
FBC from Network Vendors through the FBC Network, C-ME hereby grants to FBC a
non-exclusive license to capture, copy, reproduce, display, publish, exploit,
and print color images and other such data supplied by Network Vendors. C-ME
shall require each Network Vendor to supply C-ME such images and data for use by
FBC. C-ME shall provide to FBC, upon finalization, its proposed
4
<PAGE>
agreement for use with Network Vendors in order to allow FBC the opportunity to
comment thereon.
2.6 C-ME shall have the power to negotiate, in its sole discretion, the
fees itemized on Exhibit B hereto with other Network Participants and Network
Vendors.
2.7 C-ME shall pay to FBC any and all fees as provided in Article 4
hereof.
ARTICLE 3
RIGHTS AND OBLIGATIONS OF FBC
3.1 FBC shall provide to C-ME a list of its Network Vendors and other
potential participants in the FBC Network ("FBC Vendor List"). FBC may amend
and/or supplement the FBC Vendor List from time to time with supplemental lists
of vendors, contractors, suppliers and other parties.
3.2 FBC shall exercise its best efforts to assist C-ME in marketing and
promoting the FBC Network to potential Network Vendors. In connection with the
foregoing, FBC shall undertake the following:
a) assign project leaders in FBC's management information and
vendor compliance departments or other departments which perform a similar role
to work with C-ME personnel to set up and implement the FBC Network, to give
input on the development of an electronic data interchange system on the FBC
Network as well as assist in marketing efforts;
b) send mailings to potential Network Vendors encouraging and
requesting participation by such vendors in the FBC Network and follow-up said
mailings with telephone calls by FBC employees and/or agents including, but not
limited to, general merchandise managers, division merchandise managers, buyers
or other persons to said potential Network Vendors to promote vendor
participation in the FBC Network;
5
<PAGE>
c) instruct FBC's buyers to utilize the FBC Network on a daily
basis;
d) after the electronic data interchange system on the FBC
Network has been fully developed and is fully operational, encourage and request
vendor use of such system;
e) hold meetings with vendors (in the form of seminars,
breakfast meetings, and the like) in order to market and promote the FBC
Network; and
f) issue a joint press release with C-ME to market and promote
the FBC Network.
3.3 FBC shall provide C-ME with specifications and data for the
creation of the FBC Network. In addition, FBC will work with C-ME to design the
FBC Network and provide any and all training and/or instructional materials to
C-ME regarding industrial categories and other systems integral to FBC's
marketing methods.
3.4 Neither C-ME nor any other person shall be authorized to use FBC's
name to solicit any party to participate in the program, without FBC's prior
written approval, in each instance of the content of any communications, written
or oral or in any other format, with prospective participants which includes the
use of FBC's name.
3.5 FBC shall acquire, install and maintain the hardware and software
necessary for FBC to participate in the FBC Network and the Internet E.D.I. If
requested by FBC, C-ME shall advance FBC reasonable sums of money for the
purpose of purchasing computer equipment necessary to use the C-ME Software.
C-ME shall seek FBC's prior written approval before any money is advanced
pursuant to this Section.
3.6 Once the Internet E.D.I. capabilities are implemented with the FBC
Network, FBC may develop and implement a system, (with the assistance of C-ME to
ensure conformity throughout its Networks), to (a) transmit orders from FBC
buyers and other related personnel to
6
<PAGE>
each of its Network Vendors, (b) issue invoices for merchandise sold via the FBC
Network and (c) facilitate and track the shipping of merchandise between Network
Vendors and FBC.
3.7 FBC shall indemnify, defend, save and hold C-ME harmless from and
against any claim of any Network Vendor arising as a result of FBC's failure to
perform its obligations under a contract with that Network Vendor.
3.8 FBC shall use its best efforts to use the C-ME Software and FBC
Network provided by C-ME. FBC shall not promote, endorse, support, have an
ownership interest in or receive any revenues from, any competing on-line
electronic showroom or vendor web site service similar to the C-ME Software or
FBC Network during the term of this Agreement.
3.9 FBC grants C-ME an irrevocable license to include any promotional
data provided by any Network Vendor which is contained in the FBC Network on any
web site developed by C-ME including, but not limited to http://www.c-me.com.
This Section will survive termination of this Agreement.
3.10 If any money is advanced pursuant to Section 3.5 above, FBC grants
C-ME the right to deduct from FBC's share of the fees specified in Article 4 the
full amount of the advanced money until all advanced money has been paid. In no
event shall FBC be liable for any advanced money. However, if FBC's share of the
fees specified in Article 4 are not enough to fully reimburse C-ME the advanced
money or if this Agreement is terminated pursuant to Article 6 before FBC has
reimbursed C-ME the full sum of the advanced money, FBC must return to C-ME all
computer equipment purchased with the advanced money without offset or credit.
7
<PAGE>
ARTICLE 4
FEES AND CHARGES
4.1 C-ME shall pay FBC thirty-three percent (33%) of all Base Network
Hosting Fees, including Excess Hosting Fees, if any, collected by C-ME with
respect to each Network Vendor, including Foreign Vendors, which subscribes to
the FBC Network as its Base Network through C-ME's U.S. offices for the duration
of such subscription. FBC shall not share in any Base Network Hosting Fees,
including Excess Hosting Fees, if any, collected from Foreign Vendors which
subscribes to the FBC Network as its Base Network through a foreign affiliate of
C-ME.
4.2 Such payments shall be made on a monthly basis, for as long as this
Agreement shall be in effect, within thirty (30) days after the end of the
immediately preceding month, together with a statement showing revenues and a
computation of fees payable for such preceding month. FBC shall not receive any
share of any Set-Up Fees, Change Fees, Additional Service Fees, or any other
fees. FBC shall have the right to audit C-ME's books and records from time to
time to ensure accuracy of statements provided, and payments made, by C-ME to
FBC.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 FBC represents and warrants to C-ME that:
a. FBC is a corporation duly organized, validly existing and
in good standing under the laws of the State of California.
b. FBC has full corporate authority and power to enter into
this Agreement and to perform its obligations under this Agreement.
c. FBC will not sell to, purchase from, provide or exchange
with any third party any Network Vendor information identified as confidential
information in the agreement for
8
<PAGE>
services between C-ME and each such Network Vendor. Notwithstanding, the above
no such information shall be deemed confidential to the extent it is otherwise
in the possession of FBC without any obligation of confidentiality, is now or
hereafter in the public domain, is lawfully obtained from a third party, or is
required to be disclosed by law. FBC will maintain limited access to such
information and a complete record of all individuals with access thereto.
d. FBC's performance of this Agreement will not violate any
applicable law or regulation or any agreement to which FBC may now or hereafter
be bound.
e. This Agreement represents a valid obligation of FBC and is
fully enforceable against FBC according to its terms.
5.2 C-ME represents and warrants to FBC that:
a. C-ME is a corporation duly organized, validly existing and
in good standing under the laws of the State of California.
b. C-ME has full corporate authority and power to enter into
this Agreement and to perform its obligations under this Agreement.
c. C-ME's performance of this Agreement will not violate any
applicable law or regulation or any agreement to which C-ME may now or hereafter
be bound.
d. This Agreement represents a valid obligation of C-ME and is
fully enforceable against C-ME according to its terms.
e. The C-ME Services shall be completed in a workmanlike
manner.
f. C-ME does not represent or warrant that the C-ME Services
will be uninterrupted or error free, nor will C-ME be liable for damages
resulting therefrom. C-ME disclaims liability for loss of data in transit
between FBC and Network Vendors and between FBC and Network Users.
9
<PAGE>
g. C-ME does not represent or warrant that information
provided by the Network Vendors will be accurate or error free.
THE WARRANTIES SET FORTH ABOVE CONSTITUTE THE ONLY WARRANTIES WITH RESPECT TO
THE SERVICES AND ARE IN LIEU OF ANY OTHER WARRANTIES WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 6
TERMINATION; DEFAULT; REMEDIES
6.1 This Agreement may be terminated by the non-defaulting party upon
the occurrence of any of the following events of default:
a. either party fails to pay the other when due any amount due
under this Agreement, and such failure continues for a period of fifteen (15)
business days after notice has been sent to the non-paying party;
b. any party (i) files for bankruptcy, receivership,
insolvency, reorganization, dissolution, liquidation or any similar proceedings,
as applicable, or (ii) has a proceeding instituted against it and such
proceeding is not dismissed within sixty (60) days; and
c. a party fails to observe any material obligation specified
in this Agreement and such failure is not cured within thirty (30) days of a
notice specifying the breach.
6.2 This Agreement may be terminated by either party upon thirty (30)
days written notice by the terminating party to the other party.
6.3 Upon termination of this Agreement, all data contained within FBC's
ISN shall remain the property of FBC and the C-ME Software shall remain the
property of C-ME.
10
<PAGE>
ARTICLE 7
LIMITATION OF LIABILITY AND INDEMNIFICATION
7.1 FBC will indemnify, defend and hold C-ME harmless from and against
any and all obligations, charges, liabilities, costs, fees, increased taxes or
expenses, including without limitation, court costs and reasonable attorneys'
fees (including allocated costs of internal counsel), which C-ME may incur or
which may be claimed against C-ME by any person or as a result of acts or
omissions of FBC, its employees or agents relating to the exercise of, or the
failure to exercise, FBC's obligations under this Agreement; provided however,
FBC's total cumulative liability shall not exceed the aggregate fees received
from C-ME during the six (6) month period prior to the date of such claim.
7.2 C-ME will indemnify, defend and hold FBC harmless from and against
any and all obligations, charges, liabilities, costs, fees, increased taxes of
expenses, including without limitation, court costs and reasonable attorneys'
fees (including allocated costs of internal counsel), which FBC may incur or
which may be claimed against FBC by any person as a result of acts or omissions
of C-ME, its directors, officers, employees or agents relating to the exercise
of, or the failure to exercise, C-ME's obligations under this Agreement;
provided, however, that the total cumulative liability of C-ME for damages
(except in the case of willful or intentional acts or omissions) arising from
any breach of C-ME's obligations related to or arising from C-ME Services,
including claims for indemnity related thereto, shall not exceed an amount equal
to the aggregate fees payable to C-ME from Network Vendors participating in the
FBC Network during the six (6) month period previous to the date of such claim.
11
<PAGE>
7.3 This Section will survive termination of this Agreement.
NEITHER FBC NOR C-ME SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOSS OF PROFITS OF ANY NATURE OR FOR ANY
REASON WHATSOEVER ARISING OUT OF, OR RELATED TO, THE PROVISION OR FAILURE TO
PROVIDE FBC OR C-ME SERVICES, AS THE CASE MAY BE, REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT, TORT, BREACH OF WARRANTY OR OTHERWISE EVEN IF FBC
OR C-ME HAS BEEN NOTIFIED OF THE POSSIBILITIES THEREOF, OTHERWISE THE PARTIES
SHALL BE LIABLE FOR SUCH DAMAGES.
THE FEES SET FORTH IN ARTICLE 4 HEREOF REFLECT THE ALLOCATION OF RISKS
BETWEEN THE PARTIES. BY SIGNING THIS AGREEMENT, THE PARTIES HERETO ACKNOWLEDGE
AND UNDERSTAND THESE ALLOCATIONS OF RISK LIMITING THE RESPECTIVE LIABILITY OF
THE PARTIES HERETO, AND THAT A CHANGE IN THE ALLOCATION OF RISKS SET FORTH IN
THIS AGREEMENT WOULD AFFECT SUCH FEES.
ARTICLE 8
CONFIDENTIALITY
8.1 Both parties agree that each will reveal Confidential Information
only to those of its directors, officers, agents or employees with a need to
know. "Confidential Information" means all confidential or proprietary
information about any other party, including but not limited to software,
customer and vendor names, addresses, and account numbers; retail locations;
sales volume(s); merchandise mix or other information of the business affairs of
either party or Network Vendor, its parent company or its affiliated and
subsidiary companies, which that party reasonably
12
<PAGE>
considers confidential and/or proprietary. Confidential Information will not
include information in the public domain, information already known by the party
receiving the information prior to commencing the discussions that led to this
Agreement, information lawfully obtained from a third party, and information
required to be disclosed by law.
8.2 Each party agrees not to use Confidential Information nor to
disclose Confidential Information to any third party, except as may be necessary
for that party to perform its obligations pursuant to this Agreement, unless
otherwise agreed upon by the parties or required by law. If either party should
disclose Confidential Information to a third party, such party will cause the
third party to agree to the confidentiality provisions set forth in this
Section. The provisions of this Section will survive the termination of this
Agreement.
8.3 Each party agrees that any violation in breach of the provisions of
this Article shall result in irreparable harm to the party to which the
Confidential Information belongs and such party shall be entitled to such
injunctive relief from any court of competent jurisdiction without the necessity
of any undertaking, bond or proof or evidence of injury or damage. Such remedy
shall be in addition to, and not in lieu of, any other right or remedy available
to each party under law or equity.
ARTICLE 9
MISCELLANEOUS
9.1 All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent by
prepaid telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail, or reputable overnight courier service and shall be
deemed given when so delivered by hand, telexed, cabled, or telecopied, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier
13
<PAGE>
service), to the address of the party for whom intended at such address as is
set forth at the beginning of this Agreement, Attention: President, or at such
other address as such party may hereafter specify by written notice to the other
party.
9.2 In the event that any provision (or any portion of any provision)
of this Agreement shall be held to be void or unenforceable, the remaining
provisions of this Agreement (and the remaining portion of any provision found
void or unenforceable in part only) shall continue in full force and effect.
Additionally, in the event this Agreement or any provision or portion thereof
shall be held to violate any rule against perpetuities or any other rule
limiting the duration of the term of this Agreement, then this Agreement or any
such provision or portion thereof shall be automatically amended (and any court
of competent jurisdiction is hereby requested to amend it) so as to extend for
the longest period possible, including extension, which shall not be in
violation of any such rule, it being the intent of the parties to provide the
longest term possible.
9.3 This Agreement, and the Exhibits attached hereto, constitute the
entire understanding and contract among the parties with respect to the subject
matter hereof, supersedes all prior agreements and understanding between them,
written or oral, and may not be modified, amended or terminated orally.
9.4 A waiver of any breach or violation of any term, provision,
agreement, covenant or condition herein contained shall not be deemed to be a
continuing waiver or a waiver of any future or past breach or violation.
9.5 This Agreement may not be assigned by any party without the prior
written consent of the other party, which consent may be withheld or denied in
the non-assigning party's sole discretion.
14
<PAGE>
9.6 This Agreement shall be binding upon and shall inure to the benefit
of all representatives, nominees, transferees, successors and assigns.
9.7 The following procedure will be adhered to in all disputes that
arise under this Agreement, except in circumstances in which a party seeks
injunctive relief to protect its trademarks or other intellectual property and
its Confidential Information. Either party to this Agreement must notify the
other party of the nature of the dispute with as much detail as possible about
the deficient performance of the other party. Each party shall have a
representative who is knowledgeable of the services and empowered to represent
the respective party in dispute negotiations ("Project Manager"). The Project
Managers shall meet telephonically or in person as soon as possible, but no
later than thirty (30) days after the date of the written notification, to reach
an agreement about the nature of the deficiency and the corrective action to be
taken by the respective parties. The Project Managers shall within fifteen (15)
days after such meeting produce a report about the nature of the dispute in
detail to their respective management. If the Project Managers are unable to
agree on corrective action, the respective managers to whom the Project Managers
report or their successors ("Management") shall meet telephonically or in person
to facilitate an agreement as soon as possible, but no later than fifteen (15)
days after the date of the report. If Management cannot resolve the dispute with
a written plan of corrective action as soon as possible, but no later than sixty
(60) days after their initial meeting, or if the agreed upon completion dates in
the written plan of corrective action are exceeded, either party may proceed
with its respective rights under this Agreement.
9.8 In the event of any dispute, claim, question or disagreement
between the parties arising out of or relating to the Agreement, the parties
shall use their best efforts to settle such dispute, claims, questions or
disagreements. To this effect, they shall consult and negotiate with
15
<PAGE>
each other and in good faith and, recognizing their mutual interests, attempt to
reach a just and equitable solution satisfactory to the parties. If they do not
reach such solution, then upon notice by either party to the other, claims,
questions or disagreements shall be settled by final and binding arbitration in
accordance with the Expedited Procedures of the Commercial Rules of the American
Arbitration Association, or such other procedures applicable to disputes of this
type.
Within fifteen (15) days after the notice of election to arbitrate by
either party to the other as described above, each party shall select one person
to act as arbitrator, and the two selected shall select a third arbitrator
within ten (10) days of their appointment. If the arbitrators selected by the
parties are unable or fail to agree upon the third arbitrator, the parties or
their attorneys may request the American Arbitration Association to appoint the
third neutral arbitrator. Prior to the commencement of hearings, each of the
arbitrators appointed shall take an oath of impartiality. The arbitrators must
be members of the State Bar actively engaged in the practice of law with
expertise in the process of deciding disputes and interpreting contracts in
computer services. The arbitrators shall award to the prevailing party, if any,
as determined by the arbitrators, all of its costs and fees. "Costs and fees"
means all reasonable pre-award expenses of the arbitration, including the
arbitrators' fees, administrative fees, travel expenses, out-of-pocket expenses
such as copying and telephone, court costs, witness fees and attorney's fees.
Upon the request of a party, the arbitrators' award shall include findings of
fact and conclusion of law. The arbitrators shall provide copies of such award
to the parties. Any award may be entered by the prevailing party in any court of
competent jurisdiction.
9.9 No breach of any obligation of a party to this Agreement shall
constitute an event of default or breach to the extent it arises out of a cause,
existing or future, that is beyond the control and without negligence of the
party otherwise chargeable with breach or default, including without
16
<PAGE>
limitation: action or strike; lockout or other labor dispute; flood; war; riot;
theft; earthquake or natural disaster. Either party desiring to rely upon any of
the foregoing as an excuse for default or breach shall, when the cause arises,
give to the other party prompt notice of the facts which constitute such cause;
and, when the cause ceases to exist, give prompt notice thereof to the other
party. This section shall in no way limit the right of either party to this
Agreement to make any claim against third parties for any damages suffered due
to said causes.
9.10 This Agreement shall be governed by and construed in accordance
with the laws of the State of California, applicable to Agreements made and
wholly to be performed within said state.
9.11 Whenever used in this Agreement, words denoting the masculine
gender shall include the feminine and neuter gender and vice versa, as
appropriate, and words denoting the singular number shall include the plural and
vice versa, as appropriate.
9.12 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
WORLD WIDE MAGIC NET, INC.
d/b/a Cyber Merchants Exchange
By: /s/ Frank Yuan
------------------------
Frank Yuan
President and Chief Executive Officer
GENERAL TEXTILES/FBC STORES,
FACTORY 2-U, INC.
By: /s/ Mary McNabb
------------------------
Mary McNabb
Vice President/General Merchandise
Manager
17
<PAGE>
EXHIBIT A
Service Specifications for the FBC Network
What C-ME will provide:
C-ME will create a private ISN for FBC which will function similar to
C-ME's existing web site (http://www.c-me.com) and feature C-ME's Focused
Broadcasting (FOCASTING) software.
The private ISN will have a database of products broken down in product
categories according to FBC's specifications. C-ME will take the information
provided to it by vendors who join FBC's ISN and create uniform web listings.
The uniform web listing can include the following information: a picture of the
product, product descriptions, fabric content, sizes, packing ratios, delivery
terms, and country of origin. The uniform web listings will then be placed in
product categories furnished by FBC.
FBC's buyers can access this information through the use of C-ME's
FOCASTING software. Similar to PointCast(TM) services, FOCASTING will enable
FBC's buyers to create individual web pages which contain only those product
categories that fall within their specific areas of interest. After their
customized web page is created, the FOCASTING software will "push" or broadcast
directly to the buyer's desktop all products within FBC's ISN that fall within
the product categories selected by the buyer. For example, if a Men's Jeans
buyer created a customized web page using FOCASTING and selected "Men's Jeans,"
the FOCASTING software will transmit all the information and images relating to
Men's Jeans within FBC's ISN to the buyer each time he/she logs on.
C-ME will also provide support to FBC's buyers and other personnel in
order to educate them on how to use FBC's ISN and FOCASTING software.
Lastly, once created, C-ME will provide FBC with Internet E.D.I.
software and, if requested, provide a for-fee consulting on how to incorporate
the Internet E.D.I. software with FBC's existing computer network and mainframe.
18
<PAGE>
EXHIBIT B
SCHEDULE OF FEES PAYABLE TO C-ME BY NETWORK VENDORS
1. Base Network Set-Up Fee: $300.00
2. Base Network Hosting Fee: $150.00/month
3. Excess Hosting Fee: $1.00/month/product
4. Change Fees:
a. Changes to product description
and product image: $5.00/change
b. Changes to product image: $3.00/change
c. Changes to product description: $2.00/change
5. Base Network Set-Up Fee with Internet EDI: $500.00
6. Base Network Hosting Fee with Internet EDI: $200.00 - 300.00
19
EMPLOYMENT CONTRACT FOR SENIOR EXECUTIVE
THE WORLD WIDE MAGIC NET, INC., a California corporation, located at
320 S. Garfield Avenue, Alhambra, California 91803, hereinafter referred to as
the Employer, and ALAN CHANG, 2704 Birch Street, Apt. B, Alhambra, California
91801, hereinafter referred to as the Employee, in consideration of the mutual
promises made herein, agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Specified Term
Section 1.01. The Employer hereby employs Employee and Employee hereby
accepts employment with Employer for two (2) years beginning on September 16,
1996.
Earlier Termination
Section 1.02. This agreement may be terminated earlier as hereinafter
provided.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
Title and Description of Duties
Section 2.01. Employee shall serve as Vice President for Administration
and General Counsel of THE WORLD WIDE MAGIC NET, INC. In that capacity, Employee
shall do and perform all services, acts, or things necessary or advisable to
fulfill the duties of a corporate vice president and General Counsel. However,
Employee shall at all times be subject to the direction of the President, and to
the policies established by the Board of Directors, of Employer.
Loyal and Conscientious Performance of Duties
Section 2.02. Employee agrees that to the best of his ability and
experience he will at all times loyally and conscientiously perform all of the
duties and obligations required of him either expressly or implicitly by the
terms of this agreement.
Devotion of Entire Time to Employer's Business
Section 2.03. (a) Employee shall devote his entire productive time,
ability, and attention to the business of Employer during the term of this
contract.
-1-
<PAGE>
(b) During the term of this agreement, Employee shall not engage in any
other business duties or pursuits whatsoever. Furthermore, during the term of
this agreement, Employee shall not, whether directly or indirectly, render any
services of a commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of Employer's President. However, the expenditure of reasonable amounts
of time for educational, charitable, or professional activities, including
pursuit of a legal practice, 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 Employer's
President.
(c) This agreement shall not be interpreted to prohibit Employee from
making passive personal investments or conducting private business affairs if
those activities do not materially interfere with the services required under
this agreement. However, Employee shall not, directly or indirectly, acquire,
hold, or retain any interest in any business competing with or similar in nature
to the business or Employer.
Competitive Activities
Section 2.04. During the terms of this contract and six (6) months
after termination, Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any other individual or representative
capacity, engage or participate in any business that is in competition in any
manner whatsoever with the business of Employer.
Uniqueness of Employee's Services
Section 2.05. Employee hereby represents and agrees that the services
to be performed under the terms of this contract are of a special, unique,
unusual, extraordinary, and intellectual character that gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in
damages in an action at law. Employee therefore expressly agrees that Employer,
in addition to any other rights or remedies which Employer may possess, shall be
entitled to injunctive and other equitable relief to prevent or remedy a breach
of this contract by Employee.
Trade Secrets
Section 2.06. (a) The parties acknowledge and agree that during the
term of this agreement and in the course of the discharge of his duties
hereunder, Employee shall have access to and become acquainted with information
concerning the operation of Employer, including without limitation, financial,
personnel,
-2-
<PAGE>
sales, planning, and other information that is owned by Employer and regularly
used in the operation of Employer's business and that this information
constitutes Employer's trade secrets.
(b) Employee agrees that he shall not disclose any such trade secrets,
directly or indirectly, to any other person or use them in any way, either
during the term of this agreement or at any other time thereafter, except as is
required in the course of his employment with Employer.
(c) Employee further agrees that all files, records, documents,
equipment, and similar items relating to Employer's business, whether prepared
by Employee or others, are and shall remain exclusively the property of Employer
and that they shall be removed from the premises of Employer only with the
express prior consent of Employer's President.
ARTICLE 3. OBLIGATIONS OF EMPLOYER
General Description
Section 3.01. Employer shall provide Employee with the compensation,
incentives, benefits, and business expense reimbursement specified elsewhere in
this agreement.
Office and Staff
Section 3.02. Employer shall provide Employee with a office,
stenographic help, office equipment and supplies, and other facilities and
services, suitable to Employee's position and adequate for the performance of
his duties.
Indemnification of Losses of Employee
Section 3.03. Employer shall indemnify Employee for all losses
sustained by Employee in direct consequence of the discharge of his duties on
Employer's behalf.
ARTICLE 4. COMPENSATION OF EMPLOYEE
Annual Salary
Section 4.01. (a) As compensation for the services to be rendered by
Employee hereunder, Employer shall pay Employee an `annual salary at the rate
per annum $70,000.00, payable in equal semi-monthly installments of $2,916.67
on the fifteenth (15th) and final days of each month during the period of
employment, prorated for any partial employment period.
-3-
<PAGE>
(b) Employee shall receive such annual increases in salary as may be
determined by Employer's president in his sole discretion at least annually on
or about each anniversary of the execution of this contract or at the meeting of
the shareholders or Board of Directors.
Tax Withholding
Section 4.02. Employer shall have the right to deduct or withhold from
the compensation due to Employee hereunder any and all sums required for federal
income and Social Security taxes and all state or local taxes now applicable or
that may be enacted and become applicable in the future.
ARTICLE 5. EMPLOYEE INCENTIVES
Cash Bonus Based on Profitability
Section 5.01. (a) in any fiscal year in which the net income of
Employer exceeds twelve (12) percent of capital investment in Employer, Employee
shall receive a share of a five (5) percent cash bonus on all amounts exceeding
twelve (12) percent of capital investment in Employer for his services in
addition to any other compensation which he is entitled to receive hereunder.
This bonus is for administrative staff only. Employee's share of such cash bonus
shall be decided by Employer.
(b) For the purpose of this provision, the net income of Employer is
defined as net income after expenses but before taxes as determined by the firm
of certified public accountants retained by Employer in accordance with sound
accounting principles and consistent with the prior accounting practices of
Employer.
(c) For purpose of this provision, the capital investment in Employer
shall be based on the weighted average capital invested in Employer during the
year of Employee's employment.
Restricted Stock Option
5.02. (a) As additional compensation, Employer agrees to provide
Employee with the option to purchase 100,000 shares of common stock at $.20 per
share. This restricted stock option shall vest six months after the execution of
this employment agreement. However, the Employee may only purchase fifty (50)
percent of the restricted stock option at the end of his first year of
employment (i.e., 50,000 shares). Employee shall have fifteen (15) business days
after the end of his first year of employment to exercise this restricted stock
option. The Employee may purchase the remaining fifty (50) percent of the
restricted stock option at the end of his second year of
-4-
<PAGE>
employment. Employee shall have fifteen (15) business days after the end of his
second year of employment to exercise this restricted stock option.
(b) Employee will have no right to this restricted stock option upon
Employer's termination of this agreement for or without cause.
Reimbursement of Professional Fees
5.03. (a) Employer agrees to reimburse Employee for all fees incurred
by Employee in order for Employee to maintain his status as an active member of
the State Bar of California, including but not limited to State Bar dues and
fees for MCLE classes. Employee will receive a maximum reimbursement of $500.00
for State Bar dues and a maximum reimbursement of $500.00 for MCLE classes.
ARTICLE 6. EMPLOYEE BENEFITS
Annual Vacation
Section 6.01. After completing one year of employment, Employee shall
be entitled to fifteen (15) working days vacation time each year with full pay.
Employee may be absent from his employment for vacation only at such times as
Employer's President shall determine from time to time. If Employee is unable
for any reason to take the total amount of authorized vacation time during any
year, he may accrue that time and add it to vacation time for any following year
up to a maximum of twenty (20) vacation days or may receive a cash payment in an
amount equal to the amount of annual salary attributable to that period.
Illness
Section 6.02. Upon completion of six (6) months in the service of
Employer, Employee shall be entitled to five (5) days per year as sick leave
with full pay. Sick leave may be accrued up to a maximum of eight (8) days per
year.
Group Medical Insurance
Section 6.03. Employer agrees to include Employee under Employer's
group medical insurance coverage. For the first six (6) months after the
execution of this employment agreement, Employee shall not receive any group
medical insurance coverage from Employer.
-5-
<PAGE>
ARTICLE 7. BUSINESS EXPENSES
Business Expenses
Section 7.01. (a) Employer shall promptly reimburse Employee for all
reasonable business expenses incurred by Employee in promoting the business of
Employer, including expenditures for entertainment, gifts, and travel.
(b) Each such expenditure shall be reimbursable only if it is of a
nature qualifying it as a proper deduction on the federal or state income tax
return of Employer.
(c) Each such expenditure shall be reimbursable only if Employee
furnishes to Employer adequate records and other documentary evidence required
by federal or state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of that expenditure as an income tax
deduction.
Repayment by Employee of Disallowed Business Expenses
Section 7.02. In the event that any expenses paid for Employee or any
reimbursement of expenses paid to Employee, shall, on audit or other examination
of Employer's income tax returns, be determined not to be allowable deductions
from Employer's gross income, and in the further event that any such
determination is acceded to by the Employer or made final by the appropriate
federal or state taxing authority or a final judgment of a court of competent
jurisdiction, and no appeal is taken from the judgment or the applicable period
for filing notice of appeal has expired, Employee shall repay to Employer the
amount of the disallowed expenses.
ARTICLE 8. TERMINATION OF EMPLOYMENT
Termination for Cause
Section 8.01. (a) Employer reserves the right to terminate this
agreement if employee (1) willfully breaches or habitually neglects the duties
which he is required to perform under the terms of this agreement, or (2)
commits acts of dishonesty, fraud, misrepresentation, or other acts of moral
turpitude, that would prevent the effective performance of his duties.
(b) Employer may at its option terminate this agreement for the reasons
stated in this section by giving written notice of termination to Employee
without prejudice to any other remedy to which Employer may be entitled either
at law, in equity, or under this agreement.
(c) The notice of termination required by this section
-6-
<PAGE>
shall specify the ground for the termination and shall be supported by a
statement of all relevant facts.
(d) Termination under this section shall be considered "for cause" for
the purposes of this agreement.
Termination Without Cause
Section 8.02. (a) This agreement shall be terminated upon the death of
Employee.
(b) Employer reserves the right to terminate this agreement not less
than three months after Employee suffers any physical or mental disability that
would prevent the performance of his duties under this agreement. Such a
termination shall be effected by giving 10 days' written notice of termination
to Employee.
(c) Employer reserves the right to terminate Employee without cause
within the first six (6) months after the execution of this employment
agreement.
(d) Termination under this section shall be considered "without cause"
for the purposes of this agreement.
Effect of Merger, Transfer of Assets, or Dissolution
Section 8.03. (a) This agreement shall not be terminated by any
voluntary or involuntary dissolution of Employer resulting from either a merger
or consolidation in which Employer is not the consolidated or surviving
corporation, or a transfer of all or substantially all of the assets of
Employer.
(b) In the event of any such merger or consolidation or transfer of
assets, Employer's rights, benefits, and obligations hereunder shall be assigned
to the surviving or resulting corporation or the transferee of Employer's
assets.
(c) This agreement shall be terminated by any voluntary of involuntary
dissolution of Employer not resulting from either a merger or consolidation. In
the even of such dissolution, Employer will provide Employee with one (1) month
severance pay.
Termination by Employee
Section 8.04. Employee may terminate his obligations under this
agreement by giving Employer at least one month notice in advance.
-7-
<PAGE>
Effect on Compensation
Section 8.05. In the event that this agreement is terminated prior to
the completion of the term of employment specified herein, Employee shall be
entitled to the compensation earned by and vested in him prior to the date of
termination as provided for in this agreement, computed pro rata up to and
including that date. Employee shall be entitled to no further compensation as of
the date of termination.
ARTICLE 9. GENERAL PROVISIONS
Notices
Section 9.01. Any notices to be given by either party to the other
shall be in writing and may be transmitted either by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses appearing in
the introductory paragraph of this agreement, but each party may change that
address by written notice in accordance with this section. Notices delivered
personally shall be deemed communicated as of the date of actual receipt; mailed
notices shall be deemed communicated as of the date of mailing.
Arbitration
Section 9.02. (a) Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions, or
conditions of this agreement shall on the written request of either party served
on the other be submitted to arbitration. Arbitration shall comply with and be
governed by the provisions of the California Arbitration Act.
(b) Employer and Employee shall each appoint one person to hear and
determine the dispute. If the two persons so appointed are unable to agree, then
those persons shall select a third impartial arbitrator whose decision shall be
final and conclusive upon both parties.
(c) The cost of arbitration shall be borne by the losing party or in
such proportions as the arbitrators decide.
Attorneys's Fees and Costs
Section 9.03. If any legal action based in contract law is necessary to
enforce or interpret the terms of this agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which that party may be entitled. This provision
shall be construed as applicable to the entire contract.
-8-
<PAGE>
Entire Agreement
Section 9.04. This agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer, and contains all of the covenants and
agreements between the parties with respect to that employment in any manner
whatsoever. Each party to this agreement acknowledges that no representations,
inducements, promises, or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
agreement shall be valid or binding.
Modifications
Section 9.05. Any modification of this agreement will be effective only
if it is in writing signed by the party to be charged.
Effect of Waiver
Section 9.06. The failure of either party to insist on strict
compliance with any of the terms, covenants, or conditions of this agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall any waiver or relinquishment of any right of power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
Partial Invalidity
Section 9.07. If any provision in this agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
-9-
<PAGE>
Law Governing Agreement
Section 9.08 This agreement shall be governed by and construed in
accordance with the laws of the State of California.
Executed on October 8, 1996, at Alhambra, California.
EMPLOYER
THE WORLD WIDE MAGIC NET, INC.
By: /S/ FRANK YUAN
-----------------------------
FRANK YUAN, PRESIDENT
EMPLOYEE
/S/ ALAN CHANG
-----------------------------
ALAN CHANG
-10-
EMPLOYMENT AGREEMENT
THE WORLD WIDE MAGIC NET, INC., a California corporation, located at
320 S. Garfield Avenue, Alhambra, California 91803, hereinafter referred to as
Employer, and DAVID RAU, 5831 Lancashire Avenue, Westminster, California 92683,
hereinafter referred to as Employee, in consideration of the mutual promises
made herein, agree as follows:
Employment and Title
1. Employer hereby employs Employee and Employee accepts tmployment as
part-time treasurer for Employer. The parties agree that Employee's employment
with Employer is "at will."
Duties
2. Employee shall report to Employer's President. Employee shall be
responsible for maintaining Employers accounts and finances, including but not
limited to paying Employer's employees, accounts payable, . . . etc., and
performing all duties incidental thereto, including supervision of employees
within that department and such other work as may be required of him in
connection with the business of Employer.
Trade Secrets
3. (a) The parties acknowledge and agree that during the term of this
agreement and in the course of the discharge of his duties hereunder, Employee
shall have access to and become acquainted with information concerning the
operation of Employer, including without limitation, financial, personnel,
sales, planning, and other information that is owned by Employer and regularly
used in the operation of Employer's business and that this information
constitutes Employer's trade secrets.
(b) Employer agrees that he shall not disclose any such trade
secrets, directly or indirectly, to any other person or use them in any way,
either during the term of this agreement or at any other time thereafter, except
as is required in the course of his employment for Employer.
Annual Salary
4. As compensation for the services to be rendered by Employee
hereunder, Employer shall pay Employee an annual salary at the rate of
$33,600.00 per annum, payable in equal semi(a)monthly installments of $1,400.00
on the fifteenth (15th) and final days of each month during the period of
employment,
1
<PAGE>
prorated for any partial employment period.
Restricted Stock Option
5. (a) As additional compensation, Employer agrees to provide Employee
with the option to purchase 50,000 shares of common stock for a total cost of
$10.00. This restricted stock option shall vest six months after the execution
of this employment agreement. However, the Employee may only purchase fifty (50)
percent of the restricted stock option at the end of his first year of
employment (i.e., 25,000 shares). Employee shall have fifteen (15) business days
after the end of his first year of employment to exercise this restricted stock
option. The Employee may purchase the remaining fifty (50) percent of the
restricted stock option at the end of his second year of employment. Employee
shall have fifteen (15) business days after the end of his second year of
employment to exercise this restricted stock option.
(b) Employee will have no right to this restricted stock option upon
Employer's termination of this agreement for or without cause and/or upon
Employee's resignation.
Vacation
6. (a) Employee will be entitled to an annual vacation leave of fifteen
(15) working days at full pay.
(b) Although vacations will be granted at times most desired by
Employee, Employer reserves the right to determine or approve the vacation time
in order to ensure its efficient and orderly operation.
(c) Employee is ordinarily expected to use all vacation time in the
year earned. However, Employee may accumulate up to a maximum of twenty (20)
vacation days.
Illness
7. After completing one year of employment, Employee shall be entitled
to five (5) days per year as sick leave with full pay. Sick leave may be accrued
to a maximum of eight (8) days per year.
Business Expenses
8. Employee shall be entitled to receive, within 10 days after delivery
to Employer of an itemized statement thereof, reimbursement for all justified
and reasonable expenses incurred in connection with the performance of
Employee's duties.
2
<PAGE>
Entire Time and Efforts
9. During the term of this agreement, Employee shall devote his entire
time and efforts to the business and affairs of Employer and do his utmost to
promote its interest.
Competitive Activities
10. During the term of this agreement, Employee shall not, directly or
indirectly, own, manage, operate, join, control, be employed by, or participate
in the ownership, management, operation, or control of, or be connected in any
manner with, any business that is competitive to the business of Employer.
Termination
11. (a) Employer may terminate this agreement and the employment
hereunder at any time on ten (10) business days written notice to Employee.
Employee may terminate this agreement and the employment hereunder at any time
on ten (10) business days written notice to Employer.
(b) If Employee is unable to perform his duties by reason of
illness or disability for a continuous period of 30 days, Employer may terminate
this agreement and the employment hereunder without further notice. Termination
of this reason shall not be deemed "for cause" as that term is used in this
section.
(c) In the event of termination under this section, Employer's
obligations to Employee under this agreement shall cease except for annual
salary accrued to the date on which termination becomes effective.
Probation
12. The first six (6) months after the execution of this employment
agreement will be a probationary period during which Employee can be terminated
for or without cause by Employer. During this probationary period, Employee will
not receive any group medical or term life insurance coverage from Employer.
Notices
13. Any notices to be given hereunder by either party to the other
shall be in writing and may be transmitted by personal delivery or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to Employer at 320 S. Garfield Avenue, Alhambra,
California 91803, and to Employee at 5831 Lancashire Avenue, Westminster,
California 92683, but each party may change that address by written notice in
accordance with this section. Notices
3
<PAGE>
delivered personally shall be deemed communicated as of the date of actual
receipt; mailed notices shall be deemed communicated as of the date of mailing.
Arbitration
14. (a) Any controversy between Employer and Employee involving the
construction or application of any of the terms, provisions, or conditions of
this agreement shall on the written request of either party served on the other
be submitted to arbitration. Arbitration shall comply with and be governed by
the provisions of the California Arbitration Act.
(b) Employer and Employee shall each appoint one person to hear and
determine the dispute. If the two persons so appointed are unable to agree, then
those persons shall select a third impartial arbitrator whose decision shall be
final and conclusive upon both parties.
(c) The cost of arbitration shall be borne by the losing party or
in such proportions as the arbitrators decide.
Attorney's Fees and Costs
15. If any legal action is necessary to enforce or interpret the terms
of this agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs, and necessary disbursements in addition to any other
relief to which that party may be entitled. This provision shall be construed as
applicable to the entire contract.
Entire Agreement
16. This agreement supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the employment of
Employee by Employer and contains all of the covenants and agreements between
the parties with respect to that employment in any manner whatsoever. Each party
to this agreement acknowledges that no representation, inducements, promises, or
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this agreement shall be valid
or binding on either party. Any modification of this agreement will be effective
only if it is in writing and signed by the party to be charged.
Effect of Waiver
17. The failure of either party to insist on strict compliance with any
terms, covenants, or conditions of this agreement by the other party shall not
be deemed a waiver of that
4
<PAGE>
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power at any one time or times be deemed a waiver or relinquishment of
that right or power for all or any other times.
Partial Invalidity
18. If any provision in this agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining provisions
shall nevertheless continue in full force without being impaired or invalidated
in any way.
Law Governing Agreement
19. This agreement shall be governed by and construed in accordance
with the laws of the State of California.
Executed on October 28, 1996, at Alhambra, California.
EMPLOYER
THE WORLD WIDE MAGIC NET, INC.
By /S/ FRANK YUAN
-------------------------
FRANK YUAN, PRESIDENT
EMPLOYEE
/S/ DAVID RAU
-------------------------
DAVID RAU
5
ESCROW INSTRUCTIONS
These ESCROW INSTRUCTIONS are given by World Wide Magic Net, Inc.
d.b.a. Cyber Merchants Exchange, a California corporation with its principal
offices at 320 South Garfield Avenue, Suite 318, Alhambra, California 91801 (the
"Company") to Imperial Trust Company ("Escrow Agent") in connection with the
offering hereinafter set forth and in compliance with Rule 240.10b-9 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended.
1. Offering.
The Company will offer for sale to the public 2,500,000 shares of its
Common Stock at $4.00 per share pursuant to a SB-2 filing with the Securities
and Exchange Commission on _____________, 1998 (the "Offering"). The Offering
will be made on a "best efforts" basis requiring that a minimum of 100,000
shares be sold within twelve months of the commencement date of the offering,
which may be extended for an additional ninety (90) days by the Company upon
furnishing of written notice thereof to the Escrow Agent. Escrow Agent is not to
be concerned with the documents filed by the Company in connection with the
Offering. (the "Offering Documents"), except as specifically set forth below.
2. Establishment of the Escrow.
Escrow Agent will open one or more escrow accounts (the "Escrow"), and
the Company will deliver to Escrow Agent from time to time for deposit into the
Escrow the full amount of each cash payment received from each subscriber (the
"Subscription Price"), together with a copy of the Subscription Agreement
executed by such subscriber, showing the name, address, and taxpayer
identification number of such subscriber, the number of shares subscribed for,
and the amount paid therefore. All monies so deposited will be in the form of a
subscriber's personal check in favor of "World Wide Magic Net, Inc. Escrow
Account." Should any such check be returned to Escrow Agent as uncollectible for
any reason, Escrow Agent will charge the amount of such returned check, the name
of the subscriber and the reason for return, and hold such check subject to
further instructions from the Company. Escrow Agent will hold all monies and
other property which shall not become the property of the Company, nor be
subject to the debts thereof, unless and until disbursed to the Company pursuant
to instructions provided to the Escrow Agent by the Company as set forth herein.
3. Investment.
All funds will be held by Escrow Agent in Monarch Government Money
Market Fund, an interest-bearing account.
4. Cancellation.
a. Cancellation by the Company.
The Company may reject or cancel any subscription in whole or in part.
If the Subscription Price for such rejected or canceled subscription has been
delivered to Escrow Agent, the Company will inform Escrow Agent of the rejection
or cancellation, and Escrow Agent, upon receiving such notice, will refund to
the subscriber the Subscription Price or any part thereof plus any accrued
interest as calculated pursuant to Paragraph 5(c) below; provided however, if
the Company rejects or cancels the subscription within thirty (30) calendar days
of being advised by Escrow Agent of such subscription, the subscriber shall only
be entitled to a refund of the Subscription price without any accrued interest.
b. Cancellation by Subscriber.
All subscriptions shall be irrevocable, and no subscriber will have any
right to cancel or rescind the subscription.
<PAGE>
5. Closing.
a. The Escrow will remain open until the earliest to
occur of the following (the "Closing Date"):
(1) Receipt by Escrow Agent of aggregate Subscription
Prices for 100,000 shares offered pursuant to the Offering, together with a
written instruction from the Company that the Escrow be closed; or
(2) Five o'clock p.m. on the date twelve months after
the commencement date of the offering, provided that the Company may extend the
Closing Date by written instructions to Escrow Agent for a period of up to
ninety (90) days.
b. If, upon the Closing Date, Escrow Agent has received
the Subscription Prices for all the shares offered pursuant to the Offering,
Escrow Agent will disburse all monies plus interest, instruments, and other
documents in the Escrow as directed by the Company pursuant to written
instructions.
c. If, upon the Closing Date, Escrow Agent has not
received the Subscription Prices for a minimum of 100,000 shares, Escrow Agent
will, unless otherwise instructed in writing by the Company, refund all monies
in the Escrow to the subscribers plus any accrued interest the subscriber may be
entitled to. As used herein, the amount of accrued interest to be refunded shall
depend upon the amount of the Subscription Price and the date upon which the
Subscription Price was collected in good funds by Escrow Agent. For example, if
a subscription for 5,000 shares is made by a subscriber on January 1, 1999 and
good funds were collected on the same day, Escrow Agent shall refund interest
accrued on the subscriber's Subscription Price since January 1, 1999.
Calculation as to the amount of accrued interest to be refunded shall be done by
the Company.
d. Notwithstanding the foregoing, Escrow Agent is not
required to disburse any monies until the check thereof has been collected in
good funds.
6. Instructions and Amendments.
All notices and instructions to Escrow Agent must be in writing and may
be delivered personally, by facsimile or mailed, certified or registered mail,
to:
Imperial Trust Company
201 N. Figueroa, Suite 610
Los Angeles, California 90012
Attn: Karyn Salman
All such notice and instructions will be deemed given when received by
Escrow Agent, as shown on a receipt therefor. All instructions from the Company
will be signed by Frank Yuan on behalf of the Company or such other
representative of the Company as provided by notice. Unless otherwise provided
herein, these instructions may be amended or further instructions given only to
the extent that such amendments or instructions are consistent with, and do not
add materially to, the description of the Escrow contained in the Offering
Documents, unless consented to in writing by all subscribers whose Subscription
Prices have been received by Escrow Agent therefore and unless disclosed to all
subscribers thereafter.
7. Escrow Fees.
The Company will pay Escrow Agent's fees and expenses, which will be
deducted directly from the Company's escrow account. However, upon the close of
the Escrow, Escrow Agent may withhold from any amount disbursed to the Company
the amount of its then earned but unpaid fees and expenses and any uncollected
funds. (Schedule "A" attached hereto and made part hereof sets forth Escrow
Agent's escrow fees.)
<PAGE>
8. Exculpation.
Escrow Agent will not be liable for:
a. the genuineness, sufficiency, correctness as to form,
manner of execution or validity of any instrument deposited in the Escrow, or
the identity, authority or rights of any person executing the same;
b. any misrepresentation or omission in the Offering Documents
or any failure to keep or comply with any of the provisions of any agreement,
contract or other instrument referred to therein; and
c. the failure of the Company to transmit, or any delay in
transmitting any subscriber's Subscription Price to Escrow Agent.
Escrow Agent's duties hereunder shall be limited to the safekeeping of
monies, instruments or other documents received by the Escrow Agent into the
Escrow, and for the disposition of same in accordance with these Escrow
Instructions and any amendments thereto.
9. Interpleader.
In the event conflicting demands are made or notices served upon Escrow
Agent with respect to the Escrow, Escrow Agent shall have the absolute right at
its election to do either or both of the following:
a. withhold and stop all further proceedings in, and
performance of, these Escrow Instructions, or
b. file a suit in interpleader in any court of competent
jurisdiction and obtain an order from the court requiring the parties to
litigate their several claims and rights among themselves. In the event such
interpleader suit is brought, Escrow Agent shall be fully released from any
obligation to perform any further duties imposed upon it pursuant to these
Escrow Instructions and any amendments thereto, and the Company shall pay Escrow
Agent all costs, expenses and reasonable attorney's fees expended or incurred by
Escrow Agent, the amount thereof to be fixed and judgment thereof to be rendered
by the court in suit.
10. Indemnity.
The Company further agrees to pay on demand, and to indemnify and hold
Escrow Agent harmless from and against all costs, damages, judgments, attorney's
fees, expenses, obligations and liabilities of any kind or nature which, in good
faith, Escrow Agent may incur or sustain in connection with or arising out of
the Escrow, and Escrow Agent is hereby given a lien upon all rights, titles, and
interest of the Company in all monies and other property deposited in the
Escrow, to protect Escrow Agent's rights and to indemnify and reimburse Escrow
Agent under these Escrow Instructions and any amendments thereto.
11. Resignation of the Escrow Agent.
The Escrow Agent reserves the right to resign as the Escrow Agent at
any time by giving thirty (30) days written notice thereof to all parties at the
last known address. Upon notice of resignation by the Escrow Agent, the
undersigned agree that the Escrow Agent may deliver deposited funds, upon
payment in full of all fees due the Escrow Agent to such replacement Escrow
Agent. If no notice is promptly received from the undersigned and the
replacement Escrow Agent, the Escrow Agent may petition any court of competent
jurisdiction for disposition of the assets and the Escrow Agent shall thereby be
released from any and all responsibility and liability to the parties hereto.
<PAGE>
12. Other.
a. Time is of the essence of these and all additional or
changed instructions.
b. These Escrow Instructions may be executed in counterparts,
each of which so executed shall irrespective of the date of its execution and
delivery, be deemed an original, and said counterparts together shall constitute
one and the same instrument.
c. These Escrow Instructions shall be governed by, and shall
be construed according to the laws of the State of California.
d. The Company will not make any reference to Imperial Trust
Company in connection with the Offering except with respect to its role as
Escrow Agent hereunder, and in no event will the Company state or imply that
Escrow Agent has investigated or endorsed the Offering in any manner whatsoever.
e. In the event of any dispute, claim, question or
disagreement between the parties arising out of or relating to the Escrow
Instructions or any amendment thereto, the parties shall use their best efforts
to settle such dispute, claims, questions or disagreements. To this effect, they
shall consult and negotiate with each other and in good faith and, recognizing
their mutual interests, attempt to reach a just and equitable solution
satisfactory to the parties. If they do not reach such solution, then upon
notice by either party to the other, claims, questions or disagreements shall be
settled by final and binding arbitration in accordance with the Expedited
Procedures of the Commercial Rules of the American Arbitration Association, or
such other procedures applicable to disputes of this type. Within fifteen (15)
days after the notice of election to arbitrate by either party to the other as
described above, each party shall select one person to act as arbitrator, and
the two selected shall select a third arbitrator within ten (10) days of their
appointment. If the arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator, the parties or their attorneys may request the
American Arbitration Association to appoint the third neutral arbitrator. Prior
to the commencement of hearings, each of the arbitrators appointed shall take an
oath of impartiality. The arbitrators must be members of the State Bar actively
engaged in the practice of law with expertise in the process of deciding
disputes and interpreting contracts in computer services. The arbitrators shall
award to the prevailing party, if any, as determined by the arbitrators, all of
its costs and fees. "Costs and fees" means all reasonable pre-award expenses of
the arbitration, including the arbitrators' fees, administrative fees, travel
expenses, out-of-pocket expenses such as copying and telephone, court costs,
witness fees and attorney's fees. Upon the request of a party, the arbitrators'
award shall include findings of fact and conclusion of law. The arbitrators
shall provide copies of such award to the parties. Any award may be entered by
the prevailing party in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed these Escrow Instructions
as of the date set forth besides such parties' signatures below:
"Company" World Wide Magic Net, Inc.,
a California corporation
Dated: ____________________ By: ____________________________
Frank S. Yuan
President
"Escrow Agent" Imperial Trust Company
Dated: _____________________ By: ____________________________
Karyn Salman
<PAGE>
SCHEDULE "A"
IMPERIAL TRUST COMPANY FEE SCHEDULE
FOR WORLD WIDE MAGIC NET, INC.
ESCROW ACCOUNT
BASIC ANNUAL FEE (or any part thereof): $2,500.00
FEE PER DISBURSEMENT: $10.00
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
World Wide Magic Net, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report dated October 17, 1997 contains an explanatory paragraph that states
that the Company's recurring losses from operations raise substantial doubt
about the entity's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
Los Angeles, California
July 29, 1998
Evers &
Hendrickson, LLP
Lawyers and Counselors At Law
- ------------------------------------
July 21, 1998
William D. Evers
Jay P. Hendrickson
Paul E. Manasian
Philip J. Nicholsen, PC
---------
Rafael Aguirre-Sacasa
Kevin F. Barrett
Kenneth A. Brunetti
Antoine M. Devine
Darcy Pertcheck
---------
Of Counsel
Frederick K. Koenen
Phone (415) 352-0693
Fax (415) 391-4292
Frank Yuan
President
World Wide Magic Net, Inc.
320 S. Garfield Ave., Suite 318
Alhambra, California 91801
Dear Mr. Yuan:
This law firm consents to the incorporation of its name and its opinion
letter re the legality of the securities being cleared for registration with the
Securities and Exchange Commission pursuant to filing of the Form SB-2
Registration Statement on July 22, 1998.
Sincerely,
EVERS & HENDRICKSON, LLP
By: William D. Evers, Partner
155 Montgomery Street, 12th Floor San Francisco California 94104 415 391 4291
SHARE PURCHASE AGREEMENT
[To purchase any of the shares, you must be a resident of one of the following
states: California, Colorado, The District of Columbia, Florida, Illinois,
Massachusetts, Nevada, New Jersey, New York, Texas, Citizens of other countries
are eligible to purchase shares.]
To: World Wide Magic Net, Inc., 320 S. Garfield Ave, Suite 118, Alhambra,
California 91801 USA
Phone (626) 588-3660 Fax: (626) 588-3655
I have received and had an opportunity to read the Prospectus by which the
shares are offered. I represent that I am purchasing for investment.
Signature:_________________________________ ____________________________
Date
Enclosed is payment for _____________ shares, at $4.00 per share, totaling
$__________________.
Register the shares in the following name(s) and amount(s):
Name(s):_________________________________ Number of shares ______________
as (check one):
Individual_____ Joint Tenants____ Trust ____
Tenants in Common_____ Corporation _____ Other_____
For the person(s) who will be registered shareowner(s):
Mailing Address: _______________________________________________________________
City, State & Zip Code:_________________________________________________________
Telephone Number: Business ( )_____________________ Home: ( )____________
Social Security or Taxpayer ID Number: _________________________________________
(Please attach any special mailing instructions other than shown above)
NO SHARE PURCHASE AGREEMENT IS EFFECTIVE UNTIL ACCEPTANCE
(You will be mailed a signed copy of this agreement to retain for your records.)
Subscription accepted by World Wide Magic Net, Inc.:
________________________________ ____________________________
Frank S. Yuan, President Date
