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As filed with the Securities and Exchange Commission on September 20, 1999.
File No. ___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
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General Form for Registration of Securities
of Small Business Issuers under Section 12(b) or (g)
of the Securities Exchange Act of 1934
GOURMETMARKET.COM, INC.
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(Name of Small Business Issuer in its Charter)
Delaware 51-0347728
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(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
507 Howard Street, Suite 200, San Francisco, California 94105
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(Address of Principal Executive Offices) (Zip Code)
(415) 979-0990
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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GOURMETMARKET.COM, INC.
FORM 10 - GENERAL FORM FOR REGISTRATION OF SECURITIES
Table of Contents
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Part I
Item 1. Description of Business.............................................4
Item 2. Management's Discussion and Analysis
or Plan of Operation......................................17
Item 3. Description of Property............................................20
Item 4. Security Ownership of Certain Beneficial
Owners and Management.....................................21
Item 5. Directors, Executive Officers, Promoters
and Control Persons.......................................23
Item 6. Executive Compensation.............................................25
Item 7. Certain Relationships and Related Transactions.....................26
Item 8. Description of Securities..........................................30
Part II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters...............31
Item 2. Legal Proceedings..................................................32
Item 3. Changes in and Disagreements with Accountants......................32
Item 4. Recent Sales of Unregistered Securities............................32
Item 5. Indemnification of Directors and Officers..........................33
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Part F/S
Financial Statements........................................................34
Part III
Item 1. Index to Exhibits..................................................36
Item 2. Description of Exhibits............................................36
Signatures..................................................................37
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This Registration Statement contains certain forward-looking
statements. These forward looking statements include statements regarding (i)
research and development plans, marketing plans, capital and operations
expenditures, and results of operations; (ii) potential financing arrangements;
(iii) potential utility and acceptance of the Registrant's existing and proposed
products; and (iv) the need for, and availability of, additional financing.
The forward-looking statements included herein are based on current
expectations and involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions regarding the business of
GourmetMarket.Com, Inc. (the "Company") which involve judgments with respect to,
among other things, future economic and competitive conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
actual results may differ materially from those set forth in the forward-looking
statements. In light of the significant uncertainties inherent in the
forward-looking information contained herein, the inclusion of such information
should not be regarded as any representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
PART I
Item 1. Description of Business
Background
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The Company is a Delaware corporation organized in April 1993 under the
name Sterling Partners, Inc. Upon its organization, the Company engaged in the
business of acquiring tax lien certificates of redemption from various county
governments located in Maryland. In May 1996 the Company acquired Sterling Real
Estate Company, a Delaware corporation, which owned a commercial property in
Cecil County, Maryland. The property was subsequently sold and, in October 1998,
the Company distributed all of the shares in its subsidiary, then known as
Sterling Global, Ltd., to the Company's shareholders.
On January 29, 1999, GourmetMarket.Com, a California corporation
("GourmetMarket"), merged with and into the Company, with the Company being the
surviving corporation. Pursuant to its merger agreement with GourmetMarket, the
shareholders of GourmetMarket received 7,421,220 shares of the Company's common
stock, or approximately 47.4% of the Company's common stock outstanding after
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the merger. Also pursuant to the merger agreement, persons holding options for
the purchase of GourmetMarket common stock exchanged their options for options
to purchase 2,298,780 shares of the Company's common stock. The merger agreement
also gave the GourmetMarket shareholders control of the Company's board of
directors, subject to the Company's meeting business projections to be agreed
upon by the parties to the merger. The merger agreement also provided for the
resignation of substantially all of the Company's officers and directors, who
were replaced by designated officers and directors, most of whom were then
officers or directors of GourmetMarket.
The Company owns and operates two web sites, GourmetMarket.Com and
Travlang.com, which are referred to by those names in this Registration
Statement. The GourmetMarket.Com web site is an online culinary marketplace for
gourmet and specialty food, wine and cookware. The GourmetMarket.Com site has
been in full operation since September 1998. Since the commencement of the
GourmetMarket.Com web site in 1997, GourmetMarket, and subsequently the Company,
have developed the technology used in the web site, established relationships
with leading culinary suppliers, and developed revenue- and traffic-building
partnerships. The software used in the GourmetMarket.Com web site enables the
Company to instantly update the web site with new merchandise, unique internet
addresses, special pricing and promotions. The Company's state-of-the-art
back-office software package can handle thousands of orders per day.
In February 1999 the Company acquired Travlang.com, an Internet
travel-related service company. The Travlang.com web site, which was started in
1995, offers language translations (text and audio) for travelers in more than
70 languages, real-time currency exchanges, and a database of more than 130,000
hotels in more than 120 countries from which travelers can book reservations.
While the Company maintains the Travlang.com web site, its business is focused
almost exclusively on the GourmetMarket.Com web site, and the Company does not
intend to devote management or technical time, nor capital resources, to the
Travlang.com website in the foreseeable future.
The Company's office is located at 507 Howard Street, Suite 200, San
Francisco, California 94105. Its telephone number is 415-979-0990.
Business
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The Company's sole business is the maintenance and operation of two web
sites, GourmetMarket.Com and Travlang.com. The Travlang.com web site is
discussed under the caption "Travlang.com." The discussion which follows until
that caption is directed to the Company's GourmetMarket.Com web site.
The GourmetMarket.Com Web Site
------------------------------
GourmetMarket.Com delivers not only products, but also a
lifestyle. By offering superior quality products along with expert information
and resources via the Internet, GourmetMarket.Com provides customers with easy
accessibility to the "good life." The Company intends to expand the range of
products and services offered through its GourmetMarket.Com web site to
encompass other high-end lifestyle products and services.
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GourmetMarket.Com targets busy professionals with substantial
disposable income who are seeking premium culinary products. The Company
believes that GourmetMarket.Com's targeted audience is making a lifestyle
decision -- not simply seeking to purchase culinary items, but to find the finer
things in life. This segment is relatively quality-sensitive and relatively less
price-sensitive. The Company believes that customers come to GourmetMarket.Com
for several reasons, including:
o Finest quality, hard-to-find products. GourmetMarket.Com is
committed to searching the world for premium food and wine.
GourmetMarket.Com only selects products that are of the
highest quality. Many of the products on GourmetMarket.Com
are only available on its site and cannot be found in even
the highest-end grocery and specialty stores.
o Convenience. Shoppers can browse GourmetMarket.Com's store,
search through listings of frequently updated recipes and
explore its extensive wine database, 24 hours a day, 7 days
a week, without ever leaving their computers.
o Expert advice. GourmetMarket.Com is the only online premium
culinary marketplace that features expert advice and
recommendations. GourmetMarket.Com only carries wines that
have been rated very good or better by Bon Appetit Wine &
Spirits Editor Anthony Dias Blue. His extensive tasting
notes are available to both GourmetMarket.Com wine club
members and the general public on the site. Renowned pastry
chef and author Alice Medrich also selects all chocolate for
GourmetMarket.Com's chocolate clubs and determines many of
the products that are sold on the site.
o Content. The Company believes that the more information
consumers are offered, the more satisfied they are with
their purchases and the more likely they are to keep buying
online. GourmetMarket.Com's abundance of culinary
information is intended to lead customers to make purchases.
The Company's marketing strategy is to build the
GourmetMarket.Com web site's reputation on the Company's commitment to
best-of-best product and service quality. While many e-commerce web sites stress
their ability to offer tens of thousands of products, GourmetMarket.Com focuses
on a limited number of premium products in each product family.
GourmetMarket.Com has established more than 150 business and co-marketing
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partnerships, which enables it to offer more than 4,500 products, including
wines, chocolates, cigars, coffee and specialty kitchenware.
GourmetMarket.Com seeks partnerships with industry experts,
such as Anthony Dias Blue, Wine and Spirits Editor of Bon Appetit magazine, and
world-renowned pastry-chef and author Alice Medrich, who respectively make the
wine and chocolate selections for the site. More product experts will be added
to GourmetMarket.Com's consulting staff in 1999 and 2000.
E-Commerce and the Specialty Food Industry
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E-commerce, which is a term used to describe commerce done
over the Internet, is expected to be one of the fastest-growing markets over the
next five years. Jupiter Communications predicts that United States consumer Web
revenue will grow to $40 billion by 2002, while the Yankee Group is anticipating
that the consumer e-commerce market will grow to $123.6 billion by 2003 from
$11.5 billion in 1998. According to International Data Corporation, corporate
Internet spending is expected to grow to $203 billion by 2002. Several sources,
including International Data Corporation, believe that the number of online
users will grow from about 150 million worldwide now to about 500 million by
2003, with the United States accounting for more than half of the online users.
The United States, Europe and Asia presently account for nearly 90% of the
online users worldwide.
The specialty food industry in which GourmetMarket.Com operates is an
important segment of the U.S. food market, accounting for almost 10 percent of
the total U.S. food industry. According to the consumer research firm Find/SVP,
sales of specialty foods are projected to reach $50 billion by the year 2000.
Growth in the on-line food and beverage market is expected to jump from
about $90 million in 1998 to $463 million by 2001, according to Forrester
Research. While the growth of the on-line food and beverage market is projected
to grow rapidly, on-line sales will still represent only 1 to 2 % of total
industry figures in the U.S. alone. Traditional retail grocery stores have an
advantage over e-commerce food sites as direct food providers because of
consumers prefer a name they know and trust. The Company does not believe that
this advantage will last, however, as today's emerging consumer direct
providers, including GourmetMarket.Com, become more established.
GourmetMarket.Com's interactive library includes nearly 10,000 pictures
of foods, kitchenware and travel destinations, as well as over 5,000 recipes and
related articles. This database will become very important as web access becomes
faster and full motion video becomes more viable. The Company believes that its
GourmetMarket.Com interactive media are particularly attractive to its targeted
audience. Instead of simply linking to a photo and text of sauteing onions,
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visitors to the Company's GourmetMarket.Com web site will be able to view a full
video demonstrating how to saute onions and, at the same time, link to
manufacturers of products featured in the demonstration or even purchase all the
items used in the demonstration or recipe with one click of the mouse.
Promotional Agreements
----------------------
On April 28, 1999, the Company signed an agreement with @Home
to be @Home's exclusive "food channel." @Home Network has affiliate partnerships
with 16 leading cable companies in the United States and Canada. These companies
include Bresnan Communications, Cablevision Systems, Century Communications,
Cogeco Cable, Comcast, Cox Communications, Garden State Cable, Insight
Communications, InterMedia Partners, Jones Intercable, Marcus Cable,
Midcontinent Cable, Prime Cable, Rogers Cablesystems, Shaw Communications,
Suburban, and Tele-Communications, with access to over 65 million households.
Anyone whose cable service is provided by any of the companies listed above and
who wants a cable modem must use the @Home interface; and anyone who clicks on
"food" in the cable system's lifestyle channel will go to the GourmetMarket.Com
web site. Just like any new television network, @Home needs new product,
particularly product which can take advantage of @Home's broadband technology
available through cable systems. As the Company's product was developed to take
advantage of broadband technology, it is particularly well-suited to @Home's
product needs.
In March 1999, the Company established a partnership with
Great Chefs Television to license Great Chefs' content through the
GourmetMarket.Com site. Great Chefs, which is aired daily on the Discovery
Channel, is seen by millions of viewers nationwide and is the only culinary
television show that consistently features world renowned chefs cooking on
location in their own restaurant kitchens. The Company maintains the Great Chefs
web site as a condition of its agreement.
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In May 1999 the Company entered into an agreement with America
Online ("AOL"), a provider of content and internet services. The agreement
provides that the Company will have a promotional placement within AOL's
shopping channel. The agreement is for a term of ten months commencing with the
launch date of AOL's commerce center, which is September 1999.
The Company has also entered into a series of other agreements
intended to promote its GourmetMarket.Com web site and increase sales of the
Company's products and services. Among the parties with which the Company has
such agreements are e-Cal, a leading provider of internet calendar solutions;
Infospace, an active shopping internet portal; MSN, which will list
GourmetMarket.Com as an anchor tenant with the MSN Network; Inktomi, an internet
shopping engine, which will list GourmetMarket.Com as a gourmet food and wine
merchant; e-Greetings, an online greeting card provider, with which the Company
has a revenue sharing agreement; a contract with e-Centives, a provider of
discount coupons that appear on sites such as Excite and USA Today; an agreement
with CollegeClub.com, a web site for college students; Snap.com, an internet
content provider; ShopNow, an internet shopping mall site; NetZero, an internet
service provider; and CyberGold, a consumer shopping web site. The Company also
continues to expand its relationships with magazines to provide large and
continuing print advertising space in those magazines in exchange for the
magazine's exposure on our site.
Experts
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While many sites sell products, the selection is either so
limited that the consumer feels unsatisfied or so vast that the consumer is
lost. GourmetMarket.Com offers a large selection as well as expert product
advice. Leading culinary experts Anthony Dias Blue and Alice Medrich provide
product reviews and product selections for visitors to GourmetMarket.Com, as
well as offer advice and information about the best products in their respective
fields.
Clubs
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To encourage repeat and large orders, the Company has created
food and beverage clubs which give subscribers a monthly selection of choice
products.
o Wine Lovers Club entitles members to two bottles each month
of Mr. Blue's selection of delicious and exemplary versions
of the world's great wine varieties. Each month will bring
another opportunity to compare examples of the same wine
variety. Chardonnay, Merlot, Pinot Noir, Cabernet Sauvignon,
Sauvignon Blanc and many more will be featured.
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o Premier Tasting Wine Club is designed especially for
individuals who are interested in giving their palates an
unusual, exciting treat by the wines this club has to offer.
o Chocolate Lover's Club is for the unabashed hedonist--anyone
who simply enjoys feasting on exquisite, handcrafted
chocolates. Each month's shipment features assorted
chocolates (typically one-half pound or more) or a special
creation from a single chocolatier chosen especially for the
club.
o Couverture Club is designed for the serious nibbler and
cook. Each month members receive bars of world-class
chocolate couverture--either from a single manufacturer or
from a chocolatier who has created a custom blend of
chocolate from different manufacturers. These bars
(typically 1.5 pounds or more) are perfect for eating,
baking or dessert making.
o Premier Chocolate Club members receive chocolate from the
Chocolate Lover's Club and the Couverture Club.
Marketing and Distribution
--------------------------
The Company's partnership program with other web sites plays a
key role in driving traffic to its GourmetMarket.Com site. The Company has
established more than 250 key partnerships which it divides into five
categories, as follows:
1. Portals. The Company's GourmetMarket.Com web site has
established relationships with major portals, including AOL, MSN, Yahoo
shopping, Excite @home and Infoseek.
2. Large Content or Shopping Sites. The Company has created
partnerships with many content and commerce companies like Greeting Cards, xoom,
GTE.net, Let's Shop, Sparks, Amazon.com, Cox, Indigo City, Mindspring, Infobeat
and others. For Mother's Day in 1999 GourmetMarket.Com teamed up with Amazon.com
to deliver Mother's Day gift baskets. The baskets were featured in Amazon.com's
gift store, giving GourmetMarket.Com exposure to nearly 8 million customers.
3. Affiliates. The Company pays a fifteen percent (15%)
commission to affiliates who send customers to its GourmetMarket.Com web site.
The Company has about 150 affiliates. The Company estimates that this number
will grow to about 1,500 by mid-2000 as a result of the Company's agreement with
LinkShare Network(TM), the leader in partnership-based marketing programs on the
Web, which the Company has retained to identify, secure and manage new affiliate
web sites.
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4. Miscellaneous Partners. The Company has established other
partnerships that help drive traffic and sales. The Company is a featured
merchant with Merrill Lynch credit card holders. The Company also has agreements
with CyberGold, E-centives, Netcentives, Junglee, coolsavings and many others
for its GourmetMarket.Com web site.
5. Print Media Partnerships. The Company has established
co-promotional relationships with off-line media partners. These include a
non-profit radio station for which the Company provides goods for fund-raising,
and more than 25 leading print magazines focusing on the culinary and lifestyle
categories. This represents an immediate marketing opportunity for
GourmetMarket.Com because these publications provide GourmetMarket.Com with
significant additional advertising exposure in exchange for the Company listing
them on the GourmetMarket.Com web site.
Other parts of the Company's GourmetMarket.Com distribution
program include:
o Search Engine Registration. The Company is working to
registering different parts of its GourmetMarket.Com web
site and product offerings with the principal search
engines.
o Corporate Program. This program caters to corporate need
gifts to employees and others.
o Public Relations. The Company employs a full-time public
relations person responsible for promoting and exposing the
Company and promoting the Company's GourmetMarket.Com
product offerings.
Technology
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The Company employs technology developed by i-Labs, Ltd.
("i-Labs"), one of the founders of GourmetMarket, to maintain its
GourmetMarket.Com web site, process orders and, in general, make the online
experience easy and satisfying. i-Labs customers, which include Apple Computers,
among others, are generally much larger, better-capitalized, and handle more
transactions than the Company. The Company believes that its relationship with
i-Labs, which is a founder of GourmetMarket.Com, has enabled the Company to not
only compete with better capitalized web sites, but has also positioned
GourmetMarket.Com to be able to provide better service than virtually any
competitor, regardless of size.
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Through its i-Labs relationship, the Company also has begun
using MarketDrive(TM), a sophisticated technological tool that helps convert
site visitors to buyers. The software enables the GourmetMarket.Com web site to
offer more of what the site's customers want today, as well as forecast trends
in products, prices and required delivery times.
Vendors
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The specialty food industry is dependent on the craftsmanship
necessary to produce many of its products. Many of its vendors need significant
planning and guidance to handle dramatic increases in order volume. The Company
has focused on vendor relationships and order procedures, quality assurance,
packaging requirements, and exclusive product offerings.
The Company is confident in its vendors' abilities to handle
GourmetMarket.Com's increases in product sales. To help mitigate supply
concerns, the Company's technology incorporates an overflow system that allows
the Company to anticipate and use maximum daily quantities from individual
vendors. Once a vendor has reached its maximum quantity, the Company's system
will roll over to a back-up vendor which fulfills similar products. This
approach will assist the Company in managing vendor bottlenecks associated with
limitations in supply.
Inventory
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Non-perishable foods and kitchenware orders will be fulfilled
via two third-party warehouses through the last quarter of 1999. The Company
intends to shift to an internal warehouse solution in 2000. Perishable food
orders will be fulfilled directly to customers via drop-ship by the
manufacturers for the foreseeable future. The Company intends to include some
perishable items in a centralized warehouse when the Company learns more about
consumer buying patterns.
Travlang.com
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Travlang.com is a popular web site for information on foreign language
on the Internet. The site focuses on two areas of interest: travel and language.
Travlang.com has been in existence since 1995, has won several awards for
excellence in the travel and leisure categories. (See
http://www.travlang.com/languages/awards.html.) Features included on the site
are 73 different foreign language tutorials, translation dictionaries, detailed
information on planning and touring Europe, hotel reservations, and over 7,000
links to other web sites related to both travel and foreign language topics.
This service is targeted to both business users and vacationers. The Company has
no plan to promote or expand this web site in the foreseeable future.
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Competition
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The Company believes that five web sites compete with its
GourmetMarket.Com web site: cooking.com, tavolo.com (known as Digital Chef),
greatfoods.com, virtual vinyards.com, and 911 gifts.com. In addition there are
different retail and catalog businesses that have a web presence (for example,
Balducci's, Williams Sonoma, and Crate and Barrel). Many of these competitors
are better-funded than the Company and have better brand recognition. The
Company believes that its GourmetMarket.Com web site has four major advantages
over these competitors:
o GourmetMarket.Com's merchandizing strategy consists of becoming a
one-stop shop for the customer's every gourmet need. Competitors do
not offer the same range of gourmet foods and products.
o GourmetMarket.Com offers superior product quality. The gourmet and
specialty food industry is, above all, about taste. The Company sifts
through the entire universe of gourmet products to deliver only the
highest quality products. Because GourmetMarket.Com's customers will
not give it a second chance, the Company intends to provide high
quality products and services. This focus differentiates
GourmetMarket.Com from some of its online competitors, which often
sacrifice quality for quantity.
o GourmetMarket.Com offers a comprehensive selection of gourmet foods
and products, including an in-depth assortment of perishable foods.
At the same time, GourmetMarket.Com is able to accommodate
large-volume orders.
o GourmetMarket.Com's content offering surpasses its competitors. The
Company owns a large library of rich media content and, internally,
has the knowledge to create and handle this content in a way which
the Company anticipates will allow it to dominate the broadband space
in the gourmet e-commerce marketplace.
Numerous travel web sites compete with Travlang.com. However, the
Company does not believe that any competitor offers comparable language
information and translations with more customary travel information and
services.
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Trademarks
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In the course of its business, the Company employs, and intends to
increase the use of, various trademarks, trade names and service marks,
including its logo, in the packaging and advertising of its products. The
Company believes that the use of service marks, trademarks and trade names are
of considerable value and importance to its business and intends to continue to
protect and promote its marks as appropriate. The Company does not have any
trademark registered with the United States Patent and Trademark Office, but
intends in the immediate future to file trademark registrations for
GourmetMarket.Com and Travlang.com. The Company owns the domain names for both
of its web sites.
Regulation
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E-commerce is new and rapidly changing, and federal and state
regulation relating to the Internet and e-commerce is evolving. Currently, there
are few laws or regulations directly applicable to the access of the Internet or
e-commerce on the Internet. Due to the increasing popularity of the Internet, it
is possible that laws and regulations may be enacted with respect to the
Internet, covering issues such as user privacy, pricing, taxation, content,
copyrights, distribution, antitrust and quality of products and services.
Additionally, the rapid growth of e-commerce may trigger the development of
tougher consumer protection laws. The adoption of such laws or regulations could
reduce the rate of growth of the Internet, which could potentially decrease the
usage of the Company's online stores or could otherwise have a material adverse
effect on the Company's business. In addition, applicability to the Internet of
existing laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies.
Further, several telecommunications carriers have requested the Federal
Communications Commission ("FCC") to regulate telecommunications over the
Internet. Due to the increasing use of the Internet and the burden it has placed
on the current telecommunications infrastructure, telephone carriers have
requested the FCC to regulate Internet service providers and online service
providers and impose access fees on those providers. If the FCC imposes access
fees, the costs of using the Internet could increase dramatically. This could
result in the reduced use of the Internet as a medium for commerce, which could
adversely effect the Company's business.
GourmetMarket.Com ships anywhere in the United States and Canada. Due
to alcohol shipping restrictions in certain states, wine orders are shipped
directly from the winery to California, Oregon, Washington, Colorado, New
Mexico, Idaho, Missouri, Minnesota, Iowa, Illinois, Wisconsin and West Virginia.
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Although the Company does not, at present, distribute wine in all 50 states, the
Company is continuously expanding its network as its resources and governmental
regulation allow.
The sale of alcoholic beverages even within state lines to minors is
also of great concern. GourmetMarket.Com takes every precaution to prevent
selling alcohol to minors, including the following steps:
o When a customer attempts to purchase wine, GourmetMarket.Com issues
an online warning notifying the customer that he/she must be over 21
to purchase alcohol from the site.
o An adult signature and identification is required to receive the
order.
o A valid credit card is required to place the order.
o All local laws related to the protection of minors are followed.
Employees
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The Company has sixteen employees. None of the employees belongs to a
union. The Company believes that its employee relationship is excellent.
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Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction
with the Financial Statements appearing elsewhere in this Registration
Statement. Sterling Partners, Inc. (which is referred to in this Registration
Statement as the "Company") was substantially inactive in the years ended
December 31, 1997, and 1998, and became active upon its merger on January 29,
1999, with GourmetMarket.Com, when it began to operate GourmetMarket.Com's
business. Accordingly, the information which follows reflects the business and
operations of GourmetMarket.Com from its inception on November 7, 1997, until
its merger into the Company on January 29, 1999. Information provided for any
period after January 29, 1999, including information with respect to the six
months ended June 30, 1999, is provided on a pro forma basis as if the Company's
merger with GourmetMarket.Com had occurred as of January 1, 1999.
Results of Operations
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Years Ended December 31, 1997 and 1998
--------------------------------------
The Company had nominal sales in 1997 and sales of $132,693 in the year
ended December 31, 1998. The Company had a gross profit of $462 in the year
ended December 31, 1997, compared to a gross profit of $9,306 in the year ended
December 31, 1998. The Company had a loss from operations of $78,398 in the year
ended December 31, 1997, compared to a loss of $722,898 of the comparable 1998
period. In the year ended December 31, 1997, the Company had significant
organizational expenses as well as expenses associated with the start up of the
Company's GourmetMarket.Com web site, including costs of acquisition of content
and technology, and other expenses of the start-up of the Company's web site.
These expenses continued during calendar year 1998 as selling, general and
administrative expenses increased from $78,860 for the year ended December 31,
1997, to $707,448 for the year ended December 31, 1998.
Six Months Ended June 30, 1998 and 1999
---------------------------------------
The Company's revenues increased from $2,787 for the six months ended
June 30, 1998, to $293,017 for the six months ended June 30, 1999, as a result
of the Company's increased marketing efforts, web site development, and addition
of products. Selling, general and administrative expenses increased from
$304,120 for the six months ended June 30, 1998, to $2,261,023 for the six
months ended June 30, 1999, as the Company added staff, increased marketing, and
entered into third party agreements with America Online, Excite, @Home, and
other business partners. The Company had a loss from operations of $303,804 for
the six months ended June 30, 1998, compared to a loss of $2,279,985 for the
comparable 1999 period, primarily as a consequence of the substantial costs
associated with its business expansion and other non-recurring expenses.
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In January 1999, the Company completed its merger with
GourmetMarket.Com. At the time of the merger, the Company also completed a
private placement for 950,000 shares of its common stock and realized gross
proceeds of $950,000 from the sale of such shares. The proceeds from the sale of
these shares provided the Company with capital necessary to develop its web
sites, invest in new technology and hardware, hire additional personnel, and
enter into significant marketing contracts. The cost of these purchases and
expenses, which were necessary to grow the Company's business, was significant
compared to the increase in sales for the comparable period. However, management
anticipates that these expenses will lead to significant increases in sales in
the balance of 1999 and in 2000. The Company also incurred significant one-time
expenses in the six months ended June 30, 1999, including stock-based
compensation of $950,000 from the sale of shares at a price below the price of
the Company's January 1999 private placement, and also $150,000 in consulting
fees incurred in connection with the Company's merger with GourmetMarket. The
Company also incurred substantial advertising and promotional costs for the six
months ended June 30, 1999. The Company believes that the expenses for
stock-based compensation, contract services and professional fees were mostly
non-recurring and that they were necessary to the Company's initial efforts to
attract outside capital and prepare for significant business growth.
Liquidity and Capital Resources
- -------------------------------
The Company had total current assets of $42,600 at December 31, 1998,
compared to total current assets of $93,888 at June 30, 1999. Total assets
increased from $450,212 at December 31, 1998, to $650,126 at June 30, 1999,
primarily as a result of an increase in license agreements. During the same
period, the Company's total current liabilities increased form $369,083 to
$857,675 as the Company borrowed to pay operating expenses and significantly
increased accounts payable and accrued expenses. The Company used net cash for
operations of $73,769 from November 7, 1997, to December 31, 1997, compared to
$640,746 for the year ended December 31, 1998. Net cash used for operations
increased from $292,813 for the six months ended June 30, 1998, to $1,119,720
for the six months ended June 30, 1999, as the Company paid costs associated
with its substantial business expansion in 1999.
During the period from November 7, 1997, to December 31, 1997, the
Company paid for operations by borrowing $100,000 from its founders. In
September 1998 the Company acquired certain assets from one of the one of its
founders, Arome, Ltd., for stock and a $300,000 purchase money note. During the
six months ended June 30, 1999, the Company borrowed $275,000 to meet operating
expenses. In the year ended December 31, 1998, the Company also provided cash to
meet operating expenses by net proceeds from the sale of common stock of
$658,916. The Company realized $964,129 from the sale of common stock on a
private placement in the six months ended June 30, 1999, but did not sell stock
in the first six months of 1998.
17
<PAGE>
The Company has incurred significant net losses and negative cash flows
from operations since November 1997 as a result of the development of its
GourmetMarket business operations. The Company has funded these losses primarily
from the issuance of common stock to the Company's founders, loans by related
parties, and the private placement of the Company's securities to individuals.
At June 30, 1999, the Company had used substantially all of the proceeds of the
private placement completed in January 1999, and had net cash reserves of
$65,086 at June 30, 1999. In August 1999, the Company had insubstantial cash but
completed a loan financing of $300,000 due March 2000. The Company has received
commitments for an additional $200,000 of short-term loan financing and
anticipates receiving the proceeds of such loans in September 1999. The Company
believes that its cash reserves at September 1, 1999, together with income from
operations will be sufficient to carry on its business through December 1999.
The Company will be dependent in the foreseeable future on raising capital on a
debt or equity basis to meet its operating expenses, as it will in all
probability continue to incur operating losses through calendar year 2000. The
Company anticipates that it will be able to continue to obtain working capital
through the proceeds of equity or debt financing on a private basis, and is also
exploring the availability of equity financing through a public offering.
Year 2000 Compliance
- --------------------
The Company's web system was designed to be year 2000 ("Y2K")
compatible. The system was tested for its ability to accept orders for dates
beyond January 1, 2000, and verify credit cards with year 2000 dates. In certain
areas, where Y2K issues were discovered, it was considered a minor fix to fix
the system. Therefore the Company does not consider Y2K issues to be of high
risk or expensive to fix.
The major Y2K risk may come from the Company's usage of third-party
products. The Company's system is based on Microsoft Windows NT operating system
running on the Intel Pentium Pro Processor, an Oracle database, and a NetScape
WWW server. In addition, the Company is using external credit card processors,
CyberSource online credit card transaction processing, an external server
co-location hosting service (Exodus), and a third party accounting system for
the purpose of billing, invoicing and reporting. These third-party vendors claim
their products to be Y2K compatible, and the system, during testing, did not
show any reason to question this claim. However, in the unlikely event that any
of these vendor's products fail to be Y2K compatible, and the vendor does not
offer any upgrade path to solve this failure, the Company will be required to
upgrade its system. This upgrade may result in an expense of anywhere between
$50,000 to $250,000. The Company believes that as its testing did not reveal any
Y2K problems, it is unlikely that the Company's operation will be disturbed
significantly, and the Company should be able to replace any incompatible
component or fix any similar bug in a matter of days.
18
<PAGE>
Item 3. Description of Property
The Company occupies a 2,500 square foot office at 507 Howard Street,
Suite 200, San Francisco, California 94105, on a lease basis. The Company
anticipates that it will require new and expanded space in the near future, but
has not estimated the location or cost of any such space.
19
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
The table below sets forth information with respect to the anticipated
beneficial ownership of the Common Stock by (i) each of the directors of the
Company, (ii) each person known by the Company to be the beneficial owner of
five percent or more of the outstanding Common Stock, and (iii) all executive
officers and directors as a group, as of August 1, 1998. Unless otherwise
indicated, the Company believes that the beneficial owner has sole voting and
investment power over such shares.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage
Beneficial Owner of Beneficially Owned Ownership of Class
- ---------------- --------------------- ------------------
<S> <C> <C>
Chanan Steinhart(1)(2) 3,011,200 18.02%
507 Howard Street
San Francisco, CA 94105
Gideon Shalom-Ben Dor(3)(4) 1,215,000 7.26%
21C Yegia Kapayim St Kiryat-Arie
Petach-Tikva, 49130 ISRAEL
Yishai Steinhart(3) 1,215,000 7.26%
21C Yegia Kapayim St Kiryat-Arie
Petach-Tikva, 49130 ISRAEL
Gideon Stein(3) 1,215,000 7.26%
21C Yegia Kapayim St Kiryat-Arie
Petach-Tikva, 49130 ISRAEL
MCG Partners, Inc.(5) 5,200,000 31.11%
7777 Glades Road #211
Boca Raton, FL 33434
Janis Johnson 1,360,800 8.14%
360 Turtle Creek Blvd. #4
Dallas, Texas 75219
All Executive Officers
and Directors as a group
(2 persons) 4,224,200 25.27%
</TABLE>
Footnotes continued on next page.
20
<PAGE>
- ----------------------------
(1) Officer and Director.
(2) Includes 1,942,000 shares of which Mr. Steinhart is the record owner.
Pursuant to Rule 13d-3, Mr. Steinhart may be deemed the beneficial
owner of an aggregate of 1,069,200 shares of common stock held by the
following corporations of which he is a principal shareholder, officer
and director: Arome Publishing U.S., Inc. (85,864 shares); Arome, Ltd
(583,200 shares); and Market Street Publishing (400,136 shares).
(3) Messrs. Shalom-Ben Dor, Yishai Steinhart and Gideon Stein are
shareholders, officers and directors of i-Labs, which is one of the
founders of GourmetMarket. Yishai Steinhart is the brother of Chanan
Steinhart.
(4) Director.
(5) Pursuant to Securities and Exchange Commission Rule 13d-3, C. Lawrence
Rutstein and Neil Swartz, both of whom are principal shareholders of
MCG Partners, Inc. ("MCG"), may each be deemed the beneficial owner of
the shares of common stock held by MCG.
- ----------------------------
21
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons
The following sets forth the names and ages of the Company's officers
and directors. The directors of the Company are elected annually by the
shareholders, and the officers are appointed annually by the board of directors.
Name Age Position
- ---- --- --------
Chanan Steinhart 43 President, Director
Gideon Shalom-Ben Dor 42 Director
Chanan Steinhart. Mr. Steinhart was a co-founder and president of
Arome, Ltd., a founder of GourmetMarket.Com, from 1992 until 1998. Arome, Ltd.,
is an Israeli corporation engaged in publishing culinary CD-ROMS. While at
Arome, Ltd., Mr. Steinhart was responsible for development of business partner
relationships and distribution of the Company's product in more than twenty
countries. Also while employed by Arome, he participated in the development of
Apple Computers e.commerce. Mr. Steinhart has received his undergraduate and law
degrees from Tel Aviv University in Israel.
Gideon Shalom-Ben Dor. From 1984 until 1989, Mr. Shalom-Ben Dor managed
research and development and localization projects at Yeda Computers, Israel. In
1990 he joined Apple Computers and was responsible for the shipment of the
Hebrew MacOperatingSystems. From 1994-1995 Mr. Shalom-Ben Dor was employed by
Pineapple Multimedia in Israel, where he managed various international projects
for large telecommunication companies. Since 1995 he has been president of
i-Labs. Mr. Shalom- Ben Dor received B.A. degrees in computer science and
economics from Bar-Ilan University in Israel and an M.B.A. degree from San Jose
State University in California, through the Apple Management Masters Program.
Board of Directors
- ------------------
All directors of the Company hold office until the next annual meeting
of stockholders or until their successors are elected and qualified.
The Company's By-Laws eliminate the personal liability of officers and
directors to the fullest extent permitted by Delaware Law. The effect of such
provision is to require the Company to indemnify the officers and directors of
the Company for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was lawful. See "Description of Securities."
22
<PAGE>
There are no committees of the Board, which acts as the full Board with
respect to any matter. No director receives any compensation for serving as a
member of the Board of Directors.
23
<PAGE>
Item 6. Executive Compensation
The following tables and notes present for the three years ended
December 31, 1998, the compensation paid by the Company to the Company's chief
executive officer. No executive officer received compensation of at least
$100,000 in 1996, 1997 or 1998.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
------------------------------------------------------------------
Awards Payouts
- -------------------------------------------------------------------------------------------------------------------------------
Restricted Securities
Name and Stock Underlying All Other
Principal Position Year Salary ($) Award(s)($) Options/SARs(#) Compensation($)
(a)(1) (b) (c)(2) (f) (g)(3) (i)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Chanan Steinhart, 1998 $27,000 --- 75,000 ---
President, 1997 $8,000 --- --- ---
Treasurer and a 1996 $-0- --- --- ---
Director
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes information with respect to GourmetMarket.Com, a California
corporation merged into the Company in January 1999. No compensation
was paid to any officer or director of the Company (then known as
Sterling Partners, Inc.) during calender years 1996, 1997, and 1998.
(2) Includes $8,000 of compensation paid to Mr. Steinhart through Market
Street Publishing, a company controlled by Mr. Steinhart in 1997 and
$27,000 paid to Mr. Steinhart through Arome Publishing U.S., Inc., in
1998. Mr. Steinhart was not paid any salary directly by the Company
during the three years ended December 31, 1998.
(3) In January 1997 GourmetMarket.Com issued options for 75,000 shares of
GourmetMarket common stock exercisable at a price of $.01 per share for
a period of ten years. Pursuant to the merger agreement between
GourmetMarket and the Company, in January 1999 the options issued to
Mr. Steinhart were exchanged for an option issued by the Company for
the purchase of 729,000 shares of common stock at an exercise price of
$.001 per share. The option has been exercised in full. Also pursuant
to the merger agreement, Mr. Steinhart is entitled to receive a
performance-based option for the purchase of 900,000 shares of common
stock exercisable at $1.00 per share. These options are exercisable
over a period of ten years and vest over three years based on
performance criteria which remain to be determined by the Company.
- ------------------
As of December 31, 1998, Mr. Steinhart did not own any shares of the
Company's common stock.
24
<PAGE>
Item 7. Certain Relationships and Related Transactions
The following discussion includes certain transactions by both the
Company and GourmetMarket prior to their merger on January 29, 1999, and by the
Company after that date.
GourmetMarket was formed in November 1997 by i-Labs, Arome, Ltd., and
Janis Johnson. i-Labs and its wholly-owned subsidiary, i-Labs-e.commerce, Inc.,
are controlled by Gideon Shalom-Ben Dor, a Director of the Company, and Yishai
Steinhart, a brother of Chanan Steinhart, the Company's President. Chanan
Steinhart is a principal shareholder, officer and director of Arome, Ltd. The
founders of GourmetMarket had an oral agreement to provide capital, technology,
content and services as they deemed necessary on a start-up basis. In
consideration of their organizing GourmetMarket and their agreement to provide
capital, services, technology and content, GourmetMarket issued shares of its
common stock to each of its three founders. Prior to the merger of GourmetMarket
into the Company, GourmetMarket had 763,500 shares of its common stock
outstanding as follows: Arome , 123,500 shares; Janis Johnson, 140,000 shares;
and i-Labs, 500,000 shares. These shares were each exchanged for 9.72 shares of
common stock of the Company pursuant to the merger.
On September 25, 1998, Arome Publishing U.S., Inc., assigned to
GourmetMarket its copyright interest in certain wine programming content and
contracts, including an agreement with Anthony Diaz Blue, for 63,500 shares of
common stock. Also on September 25, 1998, Arome, Ltd., sold GourmetMarket
recipes, videos, articles and other content described under the caption
"Business--E-Commerce and the Specialty Food Industry" for 60,000 shares of
common stock and GourmetMarket's 7.5% promissory note in the amount $300,000
payable from 10% of the proceeds of any financing in an amount greater than
$1,500,000 completed after January 29, 1999. The note, which was assumed by the
Company upon its merger with GourmetMarket, is secured by certain intellectual
property and tangible personal property of the Company.
At December 31, 1998, GourmetMarket had issued options for the purchase
of 236,500 shares of its common stock at an exercise price of $.01 per share. Of
this total, 185,667 options were vested but had not been exercised. Pursuant to
the merger agreement between the Company and GourmetMarket, options for the
purchase of GourmetMarket common stock were exchanged for options to purchase
2,298,780 shares of the common stock of the Company. Among those persons whose
options were exchanged were Mr. Steinhart, who holds an option to purchase
729,000 shares of the Company's common stock; Josh Dickman, who at the time of
the completion of the merger was an officer of the Company and who holds an
option to purchase 194,400 shares of the Company's common stock; and Eric Ott,
who was a director of the Company at the time of the merger and who holds an
option to purchase 388,800 shares of the Company's common stock.
25
<PAGE>
In January 1999, MCG Partners, Inc., a newly-organized business
consulting firm ("MCG"), agreed with GourmetMarket and the Company that MCG
would assume certain obligations of Marblehead Capital Group, Inc., a firm which
had provided guidance to the Company and Marblehead in connection with their
proposed merger. Pursuant to that agreement, the Company issued MCG 100,000
shares of the Company's preferred stock in payment of the par value thereof and,
upon the completion of the merger on January 29, 1999, paid MCG a $100,000
merger completion fee. MCG subsequently converted all of its shares of preferred
stock into 6,030,000 shares of common stock. At the time of the merger, the
Company entered into a consulting agreement with MCG pursuant to which it
appointed MCG its exclusive agent through December 1, 2004, to provide financial
advisory services to the Company. As compensation for its services, MCG is paid
a monthly fee of $6,000 and will be entitled to receive a fee of 5% of the fair
market value of any merger or acquisition arranged for the Company through MCG,
together with a fee of ten percent (10%) of any debt financing arranged through
MCG.
On January 22, 1999, the Company entered into an employment agreement
with Chanan Steinhart effective as of the date of the merger between the Company
and GourmetMarket pursuant to which Mr. Steinhart is employed as the Company's
President and Chief Executive Officer. The agreement continues unless terminated
in accordance with its terms. The agreement provides for base compensation to
Mr. Steinhart of $150,000 per year and for a ten year non-statutory stock option
to purchase 900,000 shares of the Company's common stock at an exercise price of
$1.00, subject to vesting in accordance with criteria to be designated by the
Company's Board of Directors. As of the date of this Registration Statement, no
criteria had been designated and none of the options had vested. The salary
payable to Mr. Steinhart is subject to an agreement by MCG to purchase from Mr.
Steinhart common stock of the Company owned by him at a price of $1.00 per share
to the extent necessary to provide him with cash compensation of $150,000 in the
first year of his employment.
On February 1, 1999, the Company entered into a technical support
agreement with i-Labs pursuant to which i-Labs agreed to provide support and
maintenance of the Company's software in consideration of a monthly fee of
$10,000.
On February 1, 1999, the Company entered into an agreement with
Rainmaker Capital, LLC ("Rainmaker"), a company owned by Eric Ott, who was then
a director of the Company, pursuant to which Rainmaker agreed to provide
investment banking services to the Company in consideration of a retainer of
$5,000 per month for a period of twelve months ending February 1, 2000. Under
the agreement Rainmaker is entitled to a fee of five percent (5%) of proceeds of
any debt or equity financing, or merger or acquisition, for which it is
responsible. Also on or about February 1, 1999, the Company paid Rainmaker an
advisory fee of $50,000 for its advice to GourmetMarket in connection with
the merger.
26
<PAGE>
In March 1999 the Company issued 1,000,000 shares of common stock to
JNG & Associates, Inc., for cash of $50,000. JNG is wholly-owned by Joshua
Greenberg, the stepson of C. Lawrence Rutstein, who was then a director of the
Company and a principal shareholder, officer and director of MCG. In May 1999
the Company executed a revolving loan note with JNG & Associates, Inc., in the
maximum principal amount of $1,000,000. The Company had borrowed $340,000 from
JNG through August 31, 1999, pursuant to this note.
27
<PAGE>
Item 8. Description of Securities
The following statements do not purport to be complete and are
qualified in their entirety by reference to the detailed provisions of the
Company's Articles of Incorporation and Bylaws, which are exhibits to this
Registration Statement.
Common Stock
- ------------
The Company is authorized to issue 25,000,000 shares of Common Stock,
par value $.001 per share. As of September 2, 1999, the Company had 18,025,921
shares of common stock issued and outstanding. In January 1999, the Company's
shares were reverse-split on a 1 share for 4 share basis and the Company's
authorized shares of Common Stock were reduced at the same time from 100,000,000
shares to 25,000,000 shares.
The holders of shares are entitled to equal dividends and distributions
per share with respect to the Common Stock when, as and if declared by the Board
of Directors from funds legally available therefor. No holder of any shares has
a pre-emptive right to subscribe for any securities of the Company nor are any
common shares subject to redemption or convertible into other securities of the
Company. Upon liquidation, dissolution or winding up of the Company, and after
payment of creditors and preferred stockholders, if any, the assets will be
divided pro-rata on a share-for-share basis among the holders of the shares. All
shares now outstanding are fully paid, validly issued and non-assessable. Each
share is entitled to one vote with respect to the election of any director or
any other matter upon which shareholders are required or permitted to vote.
Holders of the Company's common shares do not have cumulative voting rights, so
that the holders of more than 50% of the combined shares voting for the election
of directors may elect all of the directors, if they choose to do so and, in
that event, the holders of the remaining shares will not be able to elect any
members to the Board of Directors. The election of directors is subject to a
voting provision of the merger agreement between the Company and GourmetMarket.
Under that provision the former holders of GourmetMarket common stock have the
right to elect three of the five board members unless the Company fails to meet
performance criteria not established as of the date of this Registration
Statement.
Preferred Stock
- ---------------
The Company has authorized 100,000 shares of $.001 par value preferred
stock, all of which are designated Series A Preferred Stock ("Preferred Stock")
and none of which were issued and outstanding at September 1, 1999.
28
<PAGE>
Each holder of shares of Preferred Stock is entitled to the number of
votes equal to the number of whole shares of common stock into which the shares
of preferred stock are convertible. Except as otherwise provided by law, holders
of Preferred Stock vote together with holders of Common Stock as a single class.
The consent of not less than two-thirds of the outstanding shares of Preferred
Stock, voting separately as a class, is necessary for the Company to sell all or
substantially all of its assets or to effect any merger, consolidation, share
exchange or similar transaction to which the Company is a party, or to enter
into any other transaction resulting in the acquisition of a majority of the
outstanding voting stock of the Company by another corporation or entity.
Holders of the Preferred Stock have the right to convert their shares
into shares of Common Stock on the basis of 60.3 shares of Common Stock for each
share of Preferred Stock. The conversion rate is subject to adjustment for
certain stock splits and combinations, a stock dividend or distribution by the
Company, and certain other changes in the Company's capital structure, including
any change on merger or reorganization.
The holders of Preferred Stock have a liquidation preference equal to
$.10 per share of Preferred Stock, plus accrued and unpaid dividends, if any,
and interest thereon. The Preferred Stock does not have a dividend preference.
The Preferred Stock has no sinking or redemption fund.
Dividend Policy
- ---------------
The Company has not paid any dividend to its shareholders for any class
of stock and does not anticipate paying any such dividend in the foreseeable
future.
Transfer Agent
- --------------
The Company's registrar and transfer agent is Florida Atlantic Stock
Transfer, 7130 Knob Hill Road, Tamarac, Florida 33321.
Stock Option Plan
- -----------------
The Company has adopted a 1999 Stock Option Plan and has reserved
4,800,000 Shares of Common Stock for issuance upon the exercise of options which
the Board of Directors has the authority to grant to key employees, officers,
directors and consultants of the Company as part of the Plan. To date the
Company has issued 1,506,600 incentive stock options and 792,180 non-statutory
stock options outstanding, none of which have been exercised. All outstanding
options are exercisable at $.001 per share of Common Stock. The vesting
provisions and other material provisions of the options vary.
29
<PAGE>
PART II
-------
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company's Common Stock is traded on the NASD OTC Bulletin Board
under the symbol WINE.
The following bid quotations have been reported for the period
beginning January 15, 1999, when the Company's common stock commenced trading on
the OTC Bulletin Board, and ending June 30, 1999. The Company's common stock was
not quoted on the OTC Bulletin Board prior to January 15, 1999.
Bid Prices
----------
Period High Low
------ ---- ----
Quarter Ended March 31, 1999 5.7500 0.3750
Quarter Ended June 30, 1999 2.9375 0.9375
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission. Such quotes are not necessarily representative of
actual transactions or of the value of the Company's securities, and are in all
likelihood not based upon any recognized criteria of securities valuation as
used in the investment banking community.
The Company has been advised that eight member firms of the NASD are
currently acting as market makers for the common stock. There is no assurance
that an active trading market will develop which will provide liquidity for the
Company's existing shareholders or for persons who may acquire common stock
through the exercise of warrants.
As of September 2, 1999, there were 109 holders of record of the
Company's common stock. Certain of the shares of common stock are held in
"street" name and may, therefore, be held by several beneficial owners.
As of September 2, 1999, there were 18,025,921 shares of Common Stock
issued. Of those shares 15,950,920 shares are "restricted" securities of the
Company within the meaning of Rule 144(a)(3) promulgated under the Securities
Act of 1933, as amended, because such shares were issued and sold by the Company
in private transactions not involving a public offering.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (in general, a person who has a control relationship with the
company) who has owned restricted securities of common stock beneficially for at
least one year is entitled to sell, within any three-month period, that number
of shares of a class of securities that does not exceed the greater of (i) one
30
<PAGE>
percent (1%) of the shares of that class then outstanding or, if the common
stock is quoted on NASDAQ, (ii) the average weekly trading volume of that class
during the four calendar weeks preceding such sale. A person who has not been an
affiliate of the company for at least the three months immediately preceding the
sale and has beneficially owned shares of common stock for at least two (2)
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
No prediction can be made as to the effect, if any, that future sales
of shares of common stock or the availability of common stock for future sale
will have on the market price of the common stock prevailing from time-to-time.
Sales of substantial amounts of common stock on the public market could
adversely affect the prevailing market price of the common stock.
The Company has not paid a cash dividend on the common stock since
current management joined the Company in 1996. The payment of dividends may be
made at the discretion of the Board of Directors of the Company and will depend
upon, among other things, the Company's operations, its capital requirements,
and its overall financial condition.
Item 2. Legal Proceedings
The Company is not a party to any legal proceeding.
Item 3. Changes In and Disagreements With Accountants
None.
Item 4. Recent Sales of Unregistered Securities.
In December 1998 the Company issued 2,900,000 shares of its common
stock (calculated on a pre-reverse stock split basis) for a subscription
receivable of $29,000. Shares were issued to a sophisticated investor pursuant
to the exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act").
In January 1999 the Company issued 100,000 shares of its Series A
Convertible Preferred Stock to MCG Partners, Inc., a related party and a
sophisticated investor, for a subscription receivable of $10,000 pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act.
31
<PAGE>
In January 1999 the Company issued 950,000 shares of common stock for
cash consideration of $950,000 to sophisticated investors pursuant to the
exemption from registration provided by Regulation D, Rule 504.
In March 1999 the Company issued 1,000,000 shares of common stock for
cash consideration of $50,000 to a sophisticated investor pursuant to the
exemption from registration provided by Regulation D, Rule 504.
Item 5. Indemnification of Directors and Officers
The statutes, charter provisions, by-laws, contracts or other
arrangements under which controlling persons, directors or officers of the
Company are insured or indemnified in any manner against any liability which may
occur in such capacity are as follows:
The General Corporation Law of Delaware (the "DGCL") provides that a
corporation may limit the liability of each director to the corporation or its
stockholders for monetary damages except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, and (iv) for any transaction from which the
director derives an improper personal benefit. The Company's by-laws provide for
the elimination and limitation of the personal liability of directors of the
Company for monetary damages to he fullest extent permitted by the DGCL. The
effect of this provision is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligence or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
ro any stockholder to seek non-monetary relief such as an injunction or recision
in the event of a breach of a director's duty of care. The by-laws also provide
that the Company shall, to the full extent permitted by the DGCL, as amended
from time-to-time, indemnify and advance expenses to each of its currently
acting and former directors, officers, employees and agents.
32
<PAGE>
PART F/S
--------
Index to Financial Statements
-----------------------------
GourmetMarket.Com, Inc. (formerly GourmetMarket.Com)
- ----------------------------------------------------
Report of Independent Certified Public
Accountants.................................................................F-2
Balance Sheet - June 30, 1999 (unaudited)
and December 31, 1998.......................................................F-3
Statement of Operations - Six Months Ended
June 30, 1999 and 1998 (unaudited), Year Ended
December 31, 1998, and From November 5, 1997
(date of inception) to December 31, 1997....................................F-4
Statement of Stockholders Equity - From November
5, 1997 (date of inception) to December 31, 1997,
Year Ended December 31, 1998, and Six Months
Ended June 30, 1999 (unaudited).............................................F-5
Statement of Cash Flows - Six Months Ended
June 30, 1999 and 1998 (unaudited), Year Ended
December 31, 1998, and From November 5, 1997
(date of inception) to December 31, 1997....................................F-6
Notes to Financial Statements................................................F-7
Sterling Partners, Inc.
- -----------------------
Report of Independent Certified Public
Accountants................................................................F-19
Balance Sheet - January 29, 1999 (unaudited)
and December 31, 1998......................................................F-21
Statement of Operations - Twenty-Nine Days Ended
January 29, 1999 (unaudited) and Years Ended
December 31, 1998 and 1997.................................................F-22
33
<PAGE>
Statement of Stockholders Equity - Twenty-Nine
Days Ended January 29, 1999 (unaudited) and
Years Ended December 31, 1998 and 1997.....................................F-23
Statement of Cash Flows - Twenty-Nine Days
Ended January 29, 1999 (unaudited) and Years
Ended December 31, 1998 and 1997...........................................F-25
Notes to Financial Statements...............................................F-26
34
<PAGE>
PART III
Item 1. Index to Exhibits
Exhibit No. Description Page No.
- ----------- ----------- --------
2.1 Merger Agreement among Sterling Partners Inc.,
GourmetMarket.Com, and Marblehead Capital Group, Inc.
3.1 Articles of Incorporation, as amended
3.2 By-Laws
10.1 1999 Stock Plan
10.2 Agreement with Rainmaker Capital dated February 1, 1999
10.3 Technical Support Agreement with i-Labs, Ltd., dated
February 1, 1999
10.4 Letter Agreement with Richmond House Marketing and
Promotions dated February 15, 1999
10.5 Consulting Agreement, as amended, dated as of
January 29, 1999
10.6 Agreement with At Home Corporation dated April 29, 1999
10.7 Shopping Channel Promotional Agreement dated May 6, 1999
10.8 Employment Agreement with Chanan Steinhart dated
January 22, 1999
10.9 Assignment and Transfer Agreement dated
September 25, 1998
10.10 Development and License Agreement dated March 31, 1997
10.11 Assignment Agreement dated November 6, 1997
10.12 Stock Purchase and Assignment Agreement dated
September 25, 1998
Item 2. Description of Exhibits
None.
35
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
GOURMETMARKET.COM, INC.
Dated: September 18, 1999 By: /s/ Chanan Steinhart
-------------------------- --------------------------------
Chanan Steinhart, President
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
GOURMETMARKET.COM, INC. (formerly GourmetMarket.com)
Report of Independent Certified Public Accountants F-2
Balance Sheet - June 30, 1999 (unaudited) and December 31, 1998 F-3
Statement of Operations - Six Months Ended June 30, 1999 F-4
and 1998 (unaudited), Year ended December 31, 1998,
and From November 5, 1997 (date of inception) to December 31, 1997
Statement of Stockholders' Equity - From November 5, 1997 F-5
(date of inception ) to December 31, 1997,
Year ended December 31, 1998, and
Six Months Ended June 30, 1999 (unaudited)
Statement of Cash Flows - Six Months Ended June 30, 1999 F-6
and 1998 (unaudited), Year ended December 31, 1998,
and From November 5, 1997 (date of inception) to December 31, 1997
Notes to financial statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC CERTIFIED ACCOUNTANTS
To the Shareholders and
Board of Directors
GourmetMarket.Com, Inc.
We have audited the accompanying balance sheet of GourmetMarket.com, Inc. as of
December 31, 1998 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the year ended December 31, 1998, and from November
5, 1997 (date of inception) to December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GourmetMarket.com, Inc. as of
December 31, 1998 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the year ended December 31, 1998, and from November
5, 1997 (date of inception) to December 31, 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
GourmetMarket.com, Inc. will continue as a going concern. As discussed in note 2
to the financial statements, the Company has suffered recurring losses from
operations and has working capital and total stockholders' deficiencies at
December 31, 1998. Furthermore, at December 31, 1998 the Company could not
demonstrate that it had sufficient liquidity to meet its routine operating costs
for the next year. These circumstances raise substantial doubt about the
entity's ability to continue as a going concern. Management's plans in regard to
these matters are described in note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Margolies, Fink and Wichrowski
June 5, 1999
F-2
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS June 30,
1999 December 31
(unaudited) 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) $ 65,086 $ 41,378
Accounts receivable 28,802 1,222
------------ -------------
Total current assets 93,888 42,600
Property and equipment
less accumulated depreciation (Notes 1 & 2) 40,700 673
License agreements, less accumulated amortization 514,173 405,350
Other assets 1,365 1,589
------------ ------------
$ 650,126 $ 450,212
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 602,705 $ 300,000
Accounts payable and accrued expenses 254,970 69,083
------------ ------------
Total current liabilities 857,675 369,083
------------ ------------
Long-term debt less current maturities 14,678 -
------------ -------------
Stockholders' equity (deficit):
Convertible preferred stock (Series A), par value $.001
authorized 10,000,000, issued 0 - -
Common stock, $.001 par value; authorized
25,000,000 shares;16,713,720 and 7,421,220 shares (restated) issued
and outstanding at March 31, 1999
and December 31, 1998, respectively 16,189 764
Additional paid-in capital 2,881,866 881,662
Retained deficit (3,081,282) (801,297)
------------ ------------
(183,227) 81,129
Less subscriptions receivable (39,000) -
------------ ------------
Total stockholders' equity (deficit) (222,227) 81,129
------------- -------------
$ 650,126 $ 450,212
============= ============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-3
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
From
Six Months Six Months November 5,
Ended Ended Year 1997 (date of
June 30, June 30, Ended inception) to
1999 1998 December 31, December 31,
(unaudited) (unaudited) 1998 1997
---------- ---------- ---- ----
<S> <C> <C> <C> <C>
Sales $ 293,017 $ 2,787 $ 132,693 $ 1,000
Cost of sales 255,307 2,471 123,387 538
------------ -------------- ------------ ------------
Gross profit 37,710 316 9,306 462
------------ -------------- ------------ ------------
Selling, general and administrative expenses:
Payroll and payroll taxes 240,769 127,637 264,811 30,802
Stock based compensation 950,000 100,000
Occupancy & office expenses 26,158 16,583 41,368 7,240
Contract services and professional fees 535,244 87,211 166,672 24,666
Internet servicing expenses 72,704 21,754 28,652 2,144
General and administrative expenses 118,215 21,845 48,508 11,191
Advertising and promotion 265,975 28,866 38,719 2,614
Depreciation and amortization 51,958 224 18,718 203
------------ -------------- ------------ ------------
2,261,023 304,120 707,448 78,860
------------ -------------- ------------ ------------
Income (loss) from operations (2,223,313) (303,804) (698,141) (78,398)
------------ -------------- ------------ ------------
Other income (expenses):
Interest expense
(16,672) (24,757)
Loan extension fee (40,000) - - -
------------ -------------- ------------ ------------
Total other income (expenses) (56,672) - (24,757) -
------------ -------------- ------------ ------------
Income (loss) before income taxes (2,279,985) (303,804) (722,898) (78,398)
Income tax expense - - - -
------------ -------------- ------------ ------------
Net loss $(2,279,985) $ (303,804) $ (722,898) $ (78,398)
=========== ============ ============ ============
Net loss per common share:
Basic:
Net loss per common share $ (.15) $ (3.13) $ (.52) $ (.82)
=========== ============ ============ ============
Weighted average shares outstanding (restated) 14,902,933 97,200 1,398,187 97,200
=========== ============ ============ ============
Diluted:
Net loss per common share $ (.15) $ (3.13) $ (.52) $ (.82)
=========== ============ ============ ============
Weighted average shares outstanding (restated) 14,902,933 97,200 1,398,187 97,200
=========== ============ ============ ============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-4
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
STATEMENT OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
Number of Par paid-in Subscriptions Retained
Shares Value Capital Receivable (deficit) Total
<S> <C> <C> <C> <C> <C> <C>
Balance, November 5, 1997
(Date of inception) 10,000 $ 10 $ - $ - $ - $ 10
Net loss - - - - (78,398) (78,398)
---------- --------- ----------- ------------- ----------- -----------
Balance, December 31, 1997 10,000 10 (78,398) (78,388)
-
Issuance of common for cash 138,000 138 138
Issuance of stock in exchange for
rights & services 223,500 224 223,276 223,500
Issuance of stock in exchange for
debt extinguishment 392,000 392 658,386 658,778
Net loss - - - - (722,899) (722,899)
---------- --------- ----------- ------------- ----------- -----------
Balance, December 31, 1998 763,500 764 881,662 - (801,297) 81,129
Shares held by former Sterling
Partners, Inc. shareholders 8,230,000 7,705 945,424 (39,000) 914,129
Issuance of additional shares
Pursuant to merger agreement 6,657,720 6,658 (6,658) -
Proceeds of private placement 1,000,000 1,000 999,000 1,000,000
of stock
Acquisition of Travlang 62,500 62 62,438 62,500
Net loss - - - - (2,279,985) (2,279,985)
---------- --------- ----------- ------------- ----------- -----------
Balance, June 30, 1999 (unaudited) 16,713,720 $ 16,189 $ 2,881,866 $ (39,000) $(3,081,282) $ (222,227)
========== ========= =========== ============= =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-5
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
From
Six Months Six Months November 5,
Ended Ended Year 1997 (date of
June 30, June 30, Ended Inception) to
1999 1998 December 31, December 31,
(unaudited) (unaudited) 1998 1997
---------- ---------- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,279,985) $ (303,804) $ (722,898) $ (78,398)
----------- ------------ ----------- ------------
Adjustments to reconcile net income to net:
cash provided by (used for) operating activities
Depreciation and amortization 51,958 224 18,718 203
Non cash compensation 950,000
Changes in assets and liabilities:
Accounts receivable (27,580) 523 (222) (1,000)
Accounts payable and accrued expenses 185,887 10,244 63,656 5,426
------------ -------------- -------------- --------------
Total adjustments 1,160,265 10,991 82,152 4,629
------------ -------------- ------------- --------------
Net cash used for operations (1,119,720) (292,813) (640,746) (73,769)
----------- -------------- ------------- -------------
Net cash used in investing activities:
Acquisition of license agreements and other assets (12,500) (2,240)
Purchase of equipment (42,127) (1,564) (793) -
----------- -------------- ------------- -------------
Net cash used for investing activities (54,627) (1,564) (793) (2,240)
----------- -------------- ------------- -------------
Cash flows from (used in )financing activities
Proceeds from notes payable and advances 275,000 340,000 100,000
Payments of long term debt (41,074)
Proceeds from issuance of common stock 964,129 - 658,916 10
----------- ------------- ------------- -------------
Net cash provided by financing activities 1,198,055 340,000 658,916 100,010
----------- ------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents 23,708 45,623 17,377 24,001
Cash and cash equivalents, beginning of period 41,478 24,001 24,001 -
----------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 65,086 $ 69,624 $ 41,378 $ 24,001
=========== ============== ============= =============
Supplemental disclosure:
Acquisition of license agreements for stock $ 62,500 $ - $ 123,500 $ -
=========== ============== ============= =============
Issuance of common stock for services $ 950,000 $ - $ 100,000 $ -
=========== ============== ============= =============
Acquisition of license agreements for debt $ 83,317 $ - $ 300,000 $ -
=========== ============== ============= =============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-6
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and basis of presentation
Gourmet Market.com was formed on November 5, 1997. The Company is an online
marketplace specializing in the sale of premium culinary products, including
wine, chocolates, cigars, and kitchenware. The Company currently owns and
operates two web sites, GourmetMarket.com and Travlang.com. Gourmet's mission is
to establish itself as the leading online culinary community, providing an
unmatched selection of the finest gourmet products, resources and expertise.
On January 29, 1999, GourmetMarket.com, (a California corporation), was acquired
by Sterling Partners, Inc., a non-operating Delaware corporation, in a reverse
merger, which was accounted for as a recapitalization in accordance with APB 16.
At the same time Sterling Partners, Inc. changed its name to GourmetMarket.Com,
Inc. (a Delaware corporation) and emerged as the surviving Corporation.
Cash equivalents
Cash equivalents are short-term, highly liquid investments readily convertible
to known amounts of cash and so near their maturity that they present
insignificant risk of changes in value because of changes in interest rates.
Property and equipment
Property and equipment are carried at cost. The Company provides depreciation
for financial purposes over the estimated useful lives of fixed assets using the
straight-line method. Upon retirement or sale of fixed assets, their net book
value is removed from the accounts and the difference between such net book
value and proceeds received is recorded in income. Expenditures for maintenance
repairs are charged to expense; renewals and improvements are capitalized.
Revenue recognition
The Company recognizes income, and expenses when the merchandise is shipped.
F-7
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts for income taxes according to Statement of Financial
Accounting Standard No. 109 "Accounting for Income Taxes" which requires an
asset and liability approach to financial accounting for income taxes. Deferred
income tax assets and liabilities are computed annually for the difference
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future, based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period, plus or minus the
change during the period in deferred tax assets and liabilities.
Net income (loss) per share
Net loss per share is determined by dividing net loss by the weighted average
common shares outstanding. The outstanding common shares reflect the
reorganization of Gourmet Market.com. Common stock equivalents, consisting of
stock options in fiscal 1998 and 1999, were antidilutive and were not included
in the calculation of net loss per share. The Company has adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" which
simplifies the accounting for earnings per share by presenting basic earnings
per share including only outstanding common stock and diluted earnings per share
including the effect of dilutive common stock equivalents. The Company's basic
and diluted earnings per share are the same, as the Company's common stock
equivalents are dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These assumptions, if not realized, could affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments, primarily consisting of cash and cash
equivalents, investments, accounts receivable, note receivable form related
party, accounts payable, bank line of credit payable, and long-term debt,
approximate fair value due to their short-term nature or interest rates that
approximate market.
F-8
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the carrying value of
long lived assets, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the assets carrying amount
to determine if a write down to market value or discounted cash flows is
required.
Stock Based Compensation
Statement of Financial Accounting Standard no. 123 " Accounting for Stock Based
Compensation" is effective for fiscal years beginning after December 15, 1995.
Statement No. 123 provides companies with a choice to follow the provisions of
No. 123 in the determination of stock based compensation expense or to continue
with the provisions of APB25, " Accounting for Stock issued to employees". The
Company has elected to follow APB 25 and will provide pro forma disclosure as
required by statement No.123 in the notes to the financial statements.
2. MANAGEMENT'S PLAN
The Company has incurred significant losses and negative cash flows from
operations over the last seventeen months as a result of the development of its
business operations. These losses have been funded primarily with the issuance
of common stock through the Company's private placement of stock in January
1999. At June 30, 1999, the Company had net cash reserves of $65,086.
As a result of these factors, there exists substantial doubt about the Company's
ability to continue as a going concern. However management of the Company is
continually negotiating with various outside entities for additional working
capital. From January 31, 1999 to June 30, 1999 the Company has raised $275,000
through additional debt funding.
To date, management has been able to raise the capital necessary to continue the
implementation of the Company's fiscal year 1999 operating plan, however the
Company's ability to successfully implement its plans and to improve its
operations in the future is dependent upon a number of factors, some of which
are beyond its control. There can be no assurance that the Company's operating
results or financial conditions will improve in fiscal year 1999.
F-9
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
3. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(unaudited) 1998 Lives
------------- ------------- ---------
<S> <C> <C> <C>
Equipment $ 42,920 $ 793 5-7 years
Less accumulated depreciation (2,220) (120)
----------- --------------
$ 40,700 $ 673
=========== =============
</TABLE>
Depreciation expense for the year ended December 31, 1998, and from November 5,
1997 (date of inception) to December 31, 1997, were $120,and $0, respectively.
4. LICENSE AGREEMENTS
License agreements consists of the following:
<TABLE>
<CAPTION>
June 30,
1999 December 31, Amortization
(unaudited) 1998 Period
------------- ------------- -------------
<S> <C> <C> <C>
Arome, Ltd. Internet content agreement $ 360,000 $ 360,000 7 years
America's Wine List Program (AWL) 63,500 63,500 3 years
Travlang.com 158,317 - 5 years
----------- ------------
581,817 423,500
Less accumulated amortization (67,644) (18,150)
---------- -----------
$ 514,173 $ 405,350
========== ===========
</TABLE>
On September 25, 1998 the Company entered into a transfer agreement with Arome
Ltd., a related party, to acquire certain copyright interest, trademark interest
in photographs, recipes, video, and articles making up content for internet
publication. The internet content was acquired for $360,000 through the issuance
of a note payable in the amount of $300,000, and 60,000 shares of the Company's
common stock valued at $1.00 per share, the fair market value at September 25,
1998.
F-10
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
4. LICENSE AGREEMENTS (continued)
On September 25, 1998, the Company entered into a stock purchase and assignment
agreement with Arome Publishing U.S., Inc., a related party, to acquire Arome
Publishing's interest in America's Wine List, (AWL) a commercial internet
program selling wine, and wine services, and presenting wine and wine content to
a broad customer base. America's Wine Store (AWS) a comprehensive wine store on
the internet, including wine reviews and tasting notes by Anthony Dias Blue.
America's Wine List Program content was acquired for 63,500 shares of the
Company's common stock valued at $1.00 per share, the fair market value at
September 25, 1998.
On February 8, 1999, the Company acquired all the contracts, rights and interest
in Travlang.com., a up to date repository on the internet of information
regarding travel, and travel related agendas for traveling both domestically and
abroad. Travlang.com includes language translations for travelers in more than
70 languages. Real-time currency exchanges, and a date bases of hotels in more
than 120 countries from which travelers can book reservations.
Travlang's content rights & interest were acquired for $95,817 in cash and notes
payable, and 62,500 shares of the Company's common stock valued at $1.00 per
share totaling $158,317.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
June 30,
1999 December 31
(unaudited) 1998
---------- -----------
Accounts payable trade $ 234,130 $ 62,224
Accrued expenses 20,840 6,859
---------- -----------
$ 254,970 $ 69,083
========== ===========
6. LEASES
The Company leases its office facilities for approximately $2,215 on a month to
month basis. Rent expense incurred by the Company for the year ended December
31, 1998, and from November 5, 1997 (date of inception) to December 31, 1997 was
$3,082, and $23,805, respectively.
F-11
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
7. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(unaudited) 1998
----------- -------------
<S> <C> <C>
7.5% note payable, repayment to be made from any debt or equity $ 300,000 $ 300,000
financing which the Company completes after January 29, 1999 greater
than $1,500,000, at 10% of the gross proceeds, plus 10% of the gross
financing fees in excess of $1,500,000 until the balance has been paid
in full. Secured by certain copyright interest, trademark interest in
photographs, recipes, video, and articles making up content for
internet publication
7.0% note payable, original balance $46,250 payable in twenty equal 42,383
monthly installments of $2,500 principal and interest, commencing four
months from date of note
8% revolving loan payable, due on demand or if earlier upon the 225,000
Company's receipt of gross proceeds of equity or debt financing
aggregating more than $3,000,000 calculated from the date on issuance,
unsecured
10% note payable, principal and interest due on August 31, 1999 50,000
- -
----------- -----------
617,383 300,000
Less current maturities 602,705 300,000
----------- -----------
$ 14,678 $ -
=========== ============
</TABLE>
F-12
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
8. INCOME TAXES
No provision for income taxes has been recorded in the accompanying financial
statements as the result of the Company's net operating losses. The Company has
unused tax loss carryforwards of approximately $801,000 at December 31, 1998 to
offset future taxable income. Such carryforwards expire in years beginning in
2013. The deferred tax asset recorded by the Company as a result of these tax
loss carryforwards is approximately $272,000 at December 31, 1998. The Company
has reduced the deferred tax asset resulting from its tax loss carryforwards by
a valuation allowance of an equal amount as the realization of the deferred tax
asset is uncertain. The net change in the deferred tax asset and valuation
allowance from January 1, 1998 to December 31, 1998 was an increase of
approximately $246,000.
9. STOCKHOLDERS' EQUITY, AND MERGER
Stockholders equity
On June 11, 1998 (effective November 5, 1997) the Company entered into a
restricted stock purchase agreement with the Company's founders to issue 10,000
shares with a par value of $.001 of the Company's for $10.
On July 1, 1998 the Company issued an additional 138,000 shares of the Company's
common stock with a par value of $.001 to one of the Company's founders for
$138.
On September 25, 1998 the Company entered into a Stock Purchase and Assignment
Agreement with Arome Publishing, Inc., a related party to acquire Arome
Publishing's interest in America's Wine List, (AWL) a commercial internet
program, selling wine, wine services, and presenting wine and wine content to a
broad customer base. The Assignment of the interest was acquired for 63,500
shares of the Company common stock valued at $1 per share, the fair market value
at September 25, 1998.
On September 25, 1998 the Company entered into a Stock Purchase and Assignment
Agreement with Arome Ltd. a related party to acquire from Arome Ltd. certain
copyright interest, trademark interest in photographs, recipes, video, and
articles making up content for internet publication. The internet content was
acquired for $360,000 by issuance of a note payable in the amount of $300,000
and 60,000 shares of the Company's common stock valued at $1 per share, the fair
market value at September 25, 1998.
On December 1, 1998 the Company entered into Stock Purchase and Assignment
Agreement with i-Labs Ltd. a related party, for the issuance of 100,000 shares
of the Company's common stock. The stock was issued in consideration for the
development services provided during 1998 by i-Labs Ltd. in connection with the
design and development of the Company's website on the internet. The services
provided were valued at $100,000 and were expensed during 1998.
F-13
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
9. STOCKHOLDERS' EQUITY, AND MERGER (continued)
On December 1, 1998 the Company entered into another Stock Purchase and
Assignment Agreement with i-Labs Ltd., a related party, for the issuance of
392,000 shares of the Company's common stock as forgiveness of a note payable
and accrued interest totaling $658,778.
On January 29, 1999, GourmetMarket.com, a California corporation, was acquired
by Sterling Partners, Inc., a Delaware corporation in a reverse merger, which
was accounted for as a recapitalization in accordance with to APB 16 whereby,
the stockholders of GourmetMarket.com received 7,421,220 common shares of
Sterling Partners, Inc in exchange for their 763,500 shares of
GourmetMarket.com. At the same time Sterling Partners, Inc. changed its name to
GourmetMarket.com, Inc. (a Delaware corporation) and emerged as the surviving
Corporation.
On February 8, 1999, the Company acquired all the contracts, rights and interest
in Travlang.com (see Note 8) for $95,817 in cash and notes payable, and 62,500
shares of the Company's common stock valued at $1 per share totaling.
On March 26, 1999, the Company issued in a private placement 1,000,000 shares of
common stock for $50,000 in cash to a related party. As of the date of the
transaction the fair market value of the stock approximated $1 per share. The
Company has recorded compensation expense of $950,000 due to the issuance of the
common stock at a discount from its fair market value.
Merger
- ------
The registrant, previously Sterling Partners, Inc., was incorporated in April
1993 under the laws of the state of Delaware. Prior to the transaction described
below, Sterling Partners, Inc. was engaged in the business of acquiring tax lien
certificates of redemption from various county governments located in Maryland.
In May 1996 the Company acquired Sterling Real Estate Company, a Delaware
corporation, which owned a commercial property in Cecil County, Maryland. The
property was subsequently sold and in October 1998, the Company distributed all
of its shares in its subsidiary, then known as Sterling Global, Ltd. to the
Company's shareholders. As of the date of the transaction described below the
Company was not engaged in any business.
As reflected in the Statement of Stockholders Equity, the Company recorded the
merger with the public shell at its cost, which was zero, since at the time the
public shell did not have any assets or equity. There was no basis adjustment
necessary for any portion of the merger transaction as the assets of
GourmetMarket.com were recorded at their net book value at the date of the
merger.
F-14
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
10. RELATED PARTY TRANSACTIONS
On January 22, 1999 the Company entered into a contract with MCG Partners, Inc.
(MCG) a merchant banking firm, and significant shareholder of Sterling Partners,
Inc, (Sterling), to provide capital and strategic investment banking advice see
(Note 12). In connection with this agreement MCG caused Sterling to commence an
offering of Sterling common stock pursuant to Securities and Exchange Commission
Rule 504 to raise $950,000 by January 31, 1999.
On February 1, 1999 the Company entered into a one year technical support
agreement with i-Labs Ltd. a related party which calls for monthly payments of
$10,000 plus reimbursement of related travel expenses.
11. STOCK OPTIONS
At December 31, 1998, the Company has granted 236,500 stock options at an
exercise price of $.01; of this total, 185,667 stock options were vested but not
exercised. Pursuant the merger agreement with Sterling Partners, Inc., dated
January 29, 1999, persons holding options for the purchase of GourmetMarket.com
exchanged their options for options to purchase 2,298,780 of GourmetMarket.com,
Inc. (formerly Sterling Partners, Inc.) common stock.
Transactions and other information relating to the plans are summarized as
follows:
Incentive Stock Options
------------------------
Weighted
Shares Ave. Price
------ ----------
Outstanding at December 31, 1997 65,000 $ .01
Granted during 1998 171,500 .01
-----------
Outstanding at December 31, 1998 236,500 $ .01
===========
F-15
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
11. STOCK OPTIONS (continued)
Pro forma Disclosure
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" issued
in October 1995. Accordingly, no compensation cost has been recognized for its
fixed stock option plans with respect to its employees. Had compensation cost
for the Company's fixed-based compensation plan been determined based on the
fair value at the grant dates for awards under this plan consistent with the
method of SFAS 123, the Company's pro forma net income, and pro forma net income
per share would have been as indicated below:
1998 1997
---- ----
Net loss, as reported $ (722,898) $ (78,398)
============ ===========
Net loss, pro forma $ (722,898) $ (78,398)
============ ===========
Net income per common share:
Basic and dilutive
Net loss, as reported $ (.52) $ (.82)
============= ===========
Net loss, pro forma $ (.52) $ (.82)
============= ===========
For purposes of the preceding pro forma disclosures, the weighed average fair
value of each option has approximated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, no dividend yield, volatility approximating
50%, risk free interest rate of 6.0%.
12. COMMITMENTS AND CONTINGENCIES
On January 15, 1999 the Company entered into a contract with Richmond House,
Inc. to provide business development and sales and marketing services. The
contract is for one year at $10,000 per month plus a $2,000 per month overhead
charge. Either party may terminate this agreement with a sixty day written
notice.
F-16
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
12. COMMITMENTS AND CONTINGENCIES (continued)
On January 22, 1999 the Company entered into a contract with MCG Partners, Inc.,
a merchant banking firm, and significant shareholder of Sterling Partners, Inc.,
to provide capital and strategic investment banking advice. The consulting
agreement provided for an upfront fee of $100,000 at the closing on the
Company's merger with Sterling Partners Inc., and a monthly fee of $6,000
commencing February 1, 1999 through December 1, 2004, and a 5% fee on the value
of any mergers or acquisitions arranged by MCG. This agreement may be terminated
by mutual consent of the Company and MCG at any time or by either party upon a
material default by the other party.
On February 1,1999 the Company entered into an agreement with Rainmaker Capital,
Inc., a consulting group to assist in business development, capital sourcing,
and interim financial consulting. The agreement is for twelve months, at $5,000
per month.
On January 22, 1999 the Company entered into an employment agreement with its
President and Chief Executive officer which provides for compensation of
$150,000 per year. Additionally the Company agreed to grant the president a
ten-year non-statutory stock option to purchase 900,000 shares of the Company's
common stock at an exercise price of $1.00 per share (the "Stock Option"). The
stock option shall vest upon the satisfaction of certain performance criteria,
which shall be unanimously approved by the Company's board of directors (the
"Performance Criteria").
13. SUBSEQUENT EVENTS
On April 29, 1999 the Company entered into a two year agreement with @Home
Network. The terms of the agreement call for @Home Network to provide
GourmetMarket.com, Inc. with persistent channel navigation, which will include
access to the Food SubChannel Button, GourmetMarket.com Branding, Shopping
Channel access along with marketing and promotional assistance throughout its
network. The value of the services to be provided by @Home Network for
development, promotion, and carriage during the term of this agreement are
$800,000 in year one, and $1,450,000 in year two. All payments made during the
Contract Year will become due in quarterly installments. Either party has the
right to terminate the agreement at its discretion on or after the one-year
anniversary date, or upon 30 days written notice, if the other party fails to
cure a material breach under the agreement.
During May 1999 the Company entered into a $1,000,000 revolving loan agreement
with a related party. As of June 30, 1999, the related party has advanced
$225,000 under this agreement. The revolving loan agreement bears interest at
8%. The note is due on demand, or earlier, upon the Debtor's successful receipt
of gross proceeds of equity or debt financing aggregating more than $3,000,000
calculated commencing from the date of the note.
F-17
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
NOTES TO FINANCIAL STATEMENTS (Continued)
13. SUBSEQUENT EVENTS (continued)
Additionally during May 1999 the Company entered into an agreement with America
Online (AOL), a provider of content and internet services. The agreement
provides that the Company will have a promotional placement with AOL's shopping
channel and that the Company and AOL will cross promote each other web sites.
The agreement is for a ten-month period commencing in September 1999. The
Company will pay AOL $104,405 per this agreement.
On June 14, 1999 the Company began offering units in a convertible debenture in
an effort to raise $1,500,000. The units are being offered in a private
placement to qualified investors. As of June 30, 1999 no funds have been raised
through this offering.
On June 30, 1999 under the terms of a promissory note the Company borrowed
$50,000 from an unrelated third party. The note bears interest at ten percent
and is payable in full on August 31, 1999.
F-18
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STERLING PARTNERS, INC.
Report of Independent Certified Public Accountants F-20
Balance Sheet - January 29, 1999 (unaudited), F-21
and December 31, 1998
Statement of Income - Twenty nine days ended F-22
January 29, 1999 (unaudited) and years
ended December 31, 1998 and 1997
Statement of Stockholders' Equity - Twenty nine days ended F-23
January 29, 1999 (unaudited), and years
ended December 31, 1998 and 1997
Statement of Cash Flows - Twenty nine days ended F-25
January 29, 1999 (unaudited), and years
ended December 31, 1998 and 1997
Notes to financial statements F-26
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors
Sterling Partners, Inc.
We have audited the accompanying balance sheet of Sterling Partners, Inc. as of
December 31, 1998 and the related statements of income, stockholders' equity and
cash flows for the years ended December 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sterling Partners, Inc. as of
December 31, 1998, the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ Margolies, Fink and Wichrowski
June 6, 1999
F-20
<PAGE>
STERLING PARTNERS, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
January 29,
1999 December 31
(unaudited) 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash $ 922,000 $ -
------------ --------------
$ 922,000 $ -
============ ==============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 29,
1999 December 31
(unaudited) 1998
----------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 7,871 $ -
--------------- ----------------
Total current liabilities 7,871 -
--------------- ----------------
Stockholders' equity
Convertible preferred stock (Series A),
par value .001, authorized 100,000, issued 0 - -
Common stock, $.001 par value;
authorized 100,000,000 shares;
7,280,000 shares issued and outstanding 9,880 2,900
Additional paid-in capital 943,249 26,100
Retained equity - -
--------------- -------------
953,129 29,000
Less: subscriptions receivable (39,000) (29,000)
------------- -------------
Total stockholders' equity 914,129 -
------------- -------------
$ 922,000 $ -
============ =============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-21
<PAGE>
STERLING PARTNERS, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Twenty Nine
Days Ended Year Ended Year Ended
January 29, December 31, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Investment income $ - $ 5,100 $ 9,667
Operating expenses - (4,203) (2,320)
---------------- -------------- --------------
Income before income taxes - 897 7,347
Income taxes - - (188)
Net income $ $ 897 $ 7,159
================ ============== ==============
Net income per common share:
Basic:
Net income per common share $ - $ - $ .01
================ =============== ==============
Weighted average shares outstanding (restated) 1,457,931 550,882 525,000
=============== =============== =============
Diluted:
Net income per share $ - $ - $ .01
================ =============== =============
Weighted average shares outstanding (restated) 1,457,931 550,882 525,000
================ =============== =============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-22
<PAGE>
STERLING PARTNERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Number of Par Number of Par paid-in Subscriptions Earnings
Shares Value Shares Value capital Receivable (deficit) Total
--------- ----- --------- ----- ---------- ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1996 (restated) 10 $ 10 1,500,000 $ 1,500 $ 69,190 $ 60,253 $130,953
Conversion of preferred
stock (10) (10) 600,000 600 (590) - -
Net income - - - - - - 7,159 7,159
--------- ----------- ---------- -------- ----------- ----------- ----------- ---------
Balance December 31,
1997 2,100,000 2,100 68,600 67,412 $ 138,112
Issuance of common
Stock 2,900,000 2,900 26,100 (29,000)
Net income 897 897
Dividend distribution - - - - (68,600) - (68,309) (139,009)
--------- ----------- ---------- -------- ----------- ----------- ----------- ---------
Balance December 31,
1998 - - 5,000,000 2,900 26,100 (29,000) - -
--------- ----------- ---------- -------- ----------- ----------- ----------- ---------
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-23
<PAGE>
STERLING PARTNERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Number of Par Number of Par paid-in Subscriptions Earnings
Shares Value Shares Value capital Receivable (deficit) Total
--------- ----- --------- ----- ---------- ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1998 - - 5,000,000 2,900 26,100 (29,000) - -
1 for 4 reverse stock
Spit (3,750,000) (2,175) 2,175
Issuance of preferred
stock 100,000 100 9,900 (10,000) -
Conversion of preferred
Shares to common (100,000) (100) 6,030,000 6,030 (5,930) - - -
Private placement - - 950,000 950 913,179 - - 914,129
---------- --------- --------- --------- --------- ----------- ----------- -------
Balance January 29,
1999 (unaudited) - $ - 8,230,000 $ 7,705 $ 945,424 $ (39,000) $ - $914,129
========= ========= =========== ========= =========== =========== =========== ========
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-24
<PAGE>
STERLING PARTNERS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Twenty Nine
Days Ended Year Year
January 29, Ended Ended
1999 December 31, December 31,
(unaudited) 1998 1997
----------- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ - $ 897 $ 7,159
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by (used for) operating activities
Changes in assets and liabilities:
Short-term investments 42,425 (28,880)
Accounts payable and accrued expenses 7,871 5,715
(5,715)
Income taxes payable - - (11,059)
------------- ---------- ----------
Total adjustments 7,871 36,710 (34,224)
-------------- ------------- -------------
Net cash provided by (used for) operations 7,871 37,607 (27,065)
-------------- ------------- -------------
Cash flows from financing activities
Distributions to stockholders (139,009)
Proceeds from issuance of common stock 914,129 - -
------------ ------------ ------------
Net cash (used in) provided by
financing activities 914,129 (139,009) -
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 922,000 (101,402) (27,065)
Cash and cash equivalents, beginning of period - 101,402 128,467
------------- ------------ -------------
Cash and cash equivalents, end of period $ 922,000 $ - $ 101,402
=========== ============= =============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-25
<PAGE>
STERLING PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and basis of presentation
Sterling Partners, Inc, was incorporated in April 1993 under the laws of the
state of Delaware. Prior to the transaction described in note 2, Sterling
Partners, Inc. was engaged in the business of acquiring tax lien certificates of
redemption from various county governments located in Maryland. In May 1996 the
Company acquired Sterling Real Estate Company, a Delaware corporation, which
owned a commercial property in Cecil County, Maryland. The property was
subsequently sold and in October 1998, the Company distributed all of its shares
in its subsidiary, then known as Sterling Global, Ltd. to the Company's
shareholders. As of December 31, 1998 the Company was not engaged in any
business.
Cash equivalents
Cash equivalents are short-term, highly liquid investments readily convertible
to known amounts of cash and so near their maturity that they present
insignificant risk of changes in value because of changes in interest rates.
Income taxes
The Company accounts for income taxes according to Statement of Financial
Accounting Standard No. 109 "Accounting for Income Taxes" which requires an
asset and liability approach to financial accounting for income taxes. Income
tax expense is the tax payable or refundable for the period, plus or minus the
change during the period in deferred tax assets and liabilities.
Net income per share
Net income per share is determined by dividing net income by the weighted
average common shares outstanding. The Company has adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" which
simplifies the accounting for earnings per share by presenting basic earnings
per share including only outstanding common stock and diluted earnings per share
including the effect of dilutive common stock equivalents. The Company's basic
and diluted earnings per share are the same, as the Company's common stock
equivalents are dilutive.
F-26
<PAGE>
STERLING PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These assumptions, if not realized, could affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments, primarily consisting of cash and cash
equivalents, investments, accounts receivable, note receivable form related
party, accounts payable, bank line of credit payable, and long-term debt,
approximate fair value due to their short-term nature or interest rates that
approximate market.
2. STOCKHOLDERS' EQUITY, MERGER
On September 20, 1998 the Company declared a special stock dividend of 100%
interest in Sterling Global Ltd. to the stockholders of record as of October 1,
1998. The dividend consisted of one share of Sterling Global Ltd. for each two
shares of Sterling Partners, Inc, common stock held as of the record date
October 1, 1998.
On December 18, 1998 the Company issued an additional 2,900,000 shares of its
common stock in exchange for a subscription receivable of $29,000.
On January 13, 1999 the Company affected a 1 for 4 reverse stock split,
reducing the outstanding shares of the corporation from 5,000,000 to
1,250,000.
On January 18, 1999 the Company issued 100,000 shares of its Series A
convertible Preferred Stock to a related party for a subscription receivable of
$10,000.
On January 29,1999 the shareholders of the above mentioned Series A convertible
Preferred Stock, converted their shares into 6,030,000 shares of the Company's
common stock.
F-27
<PAGE>
STERLING PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. STOCKHOLDERS' EQUITY, MERGER (continued)
During January 1999, the Company raised $950,000 through the issuance of 950,000
shares of its common stock through a private placement. In connection with
private placement the Company incurred $35,871 of expenses which were offset
against the proceeds recorded in paid in capital.
On January 29, 1999, Sterling Partners acquired GourmetMarket.com, a California
corporation, in a reverse merger, which was accounted for as a recapitalization
according to APB 16. The stockholders of GourmetMarket.com received 7,421,220
common shares of Sterling Partners, Inc. At the same time Sterling Partners,
Inc. changed its name to GourmetMarket.com, Inc. (a Delaware corporation) and
emerged as the surviving Corporation. This transaction resulted in the old
stockholders of GourmetMarket.com emerging with approximately 47.4% of the
common shares of the Company.
F-28
<PAGE>
EXHIBITS INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
2.1 Merger Agreement among Sterling Partners Inc.,
GourmetMarket.Com, and Marblehead Capital Group, Inc.
3.1 Articles of Incorporation, as amended
3.2 By-Laws
10.1 1999 Stock Plan
10.2 Agreement with Rainmaker Capital dated February 1, 1999
10.3 Technical Support Agreement with i-Labs, Ltd., dated
February 1, 1999
10.4 Letter Agreement with Richmond House Marketing and
Promotions dated February 15, 1999
10.5 Consulting Agreement, as amended, dated as of
January 29, 1999
10.6 Agreement with At Home Corporation dated April 29, 1999
10.7 Shopping Channel Promotional Agreement dated May 6, 1999
10.8 Employment Agreement with Chanan Steinhart dated
January 22, 1999
10.9 Assignment and Transfer Agreement dated
September 25, 1998
10.10 Development and License Agreement dated March 31, 1997
10.11 Assignment Agreement dated November 6, 1997
10.12 Stock Purchase and Assignment Agreement dated
September 25, 1998
Item 2. Description of Exhibits
None.
38
<PAGE>
MERGER AGREEMENT
Agreement made the _____ day of January, 1999, among Sterling Partners
Inc., a Delaware corporation (the "Company"), GourmetMarket.Com, a California
corporation ("Gourmet"), and Marblehead Capital Group, Inc., a Massachusetts
corporation ("Marblehead").
RECITALS
WHEREAS, the Company and Gourmet propose to merge pursuant to this
Merger Agreement, which provides for the conversion of all of the outstanding
capital stock of Gourmet into shares of the Company and the merger of Gourmet
with and into the Company, with the Company as the surviving corporation
pursuant to the applicable laws of Delaware and California; and
WHEREAS, the parties have agreed that Marblehead has performed certain
services for Gourmet and the Company in connection with the Merger (as defined
in Section 3.1) and will perform certain services for the Company after closing
of the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
INCORPORATION OF RECITALS
All of the recitals set forth above are incorporated herein by
reference.
ARTICLE II
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Affiliate" of a Person means a Person, who directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, such person.
"Agreement" has the meaning set forth in the introductory paragraph.
"Closing" has the meaning set forth in Section 3.9.
"Closing Date" has the meaning set forth in Section 3.9.
"CGCL" means the California General Corporation Law.
"Common Stock" means the voting common stock of the Company.
- 1 -
<PAGE>
"Company" means Sterling Partners Inc.
"DGCL" means the Delaware General Corporation Law, as amended.
"Effective Time" means the time indicated in the Articles of Merger
when the merger pursuant hereto shall become effective for corporate law
purposes.
"Environmental Permits" means federal, state and local governmental
liens, permits and other authorizations and approvals, whether foreign or
domestic, which relate to the business of a Person as it may be affected by the
environment or to public health and safety or worker health and safety as they
may be affected by the environment.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"Evaluation Material" has the meaning set forth in Section 7.3.
"Financial Statements" has the meaning set forth in Section 4.10.
"Handling Hazardous Substances" has the meaning set forth in Section
4.5.
"Hazardous Emissions" has the meaning set forth in Section 4.5.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Intellectual Property" has the meaning set forth in Section 4.16.
"Inventory" has the meaning set forth in Section 4.6.
"Leases" and "Lease" have the meanings set forth in Section 4.15.
"Licenses and Permits" has the meaning set forth in Section 4.8.
"Material Contract" means each contract, agreement or commitment of a
Person other than Leases:
(a) upon which any substantial part of such Person's business
is dependent or which, if breached, could reasonably be expected to affect,
materially and adversely, the earnings, assets, financial condition or
operations of the business of such Person;
(b) which provides for aggregate future payments of more than
$10,000, except for purchase orders or sale orders arising in the ordinary and
usual course of business, in which case they are listed only if any party
thereto is obligated to make payments pursuant thereto aggregating more than
$20,000;
- 2 -
<PAGE>
(c) which extends for more than one year from the date hereof
and is not cancelable by either party on 30 days' notice;
(d) which provides for the sale, after the date hereof and
other than in the ordinary course of business, of any of its assets;
(e) which relates to the employment, retirement or termination
of the services of any officer of former officer; or
(f) which contains covenants pursuant to which any other
Person has agreed not to compete with any business conducted by such Person or
not to disclose to other information concerning such Person.
Collectively, the material contracts of such Person are referred to as
"Material Contracts."
"Pension Plans" means all employee benefit plans and programs
including, without limitation, all retirement, savings and other pension plans.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
governmental or political subdivision or an agency of instrumentality thereof.
"Real Property" means all of the real property, together with the
fixtures and other improvements located thereon and the appurtenances thereto,
owned by a Person.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax" or "Taxes" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Internal Revenue Code section 59A), customs duties, capital stock, franchise
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alterative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Welfare Plans" means all health, severance, insurance, disability and
other employee welfare plans.
- 3 -
<PAGE>
ARTICLE III
MERGER
3.1 Merger. On the terms and subject to the conditions contained in
this Agreement, and pursuant to the Plan of Merger attached hereto as Exhibit
3.1 (the "Merger Plan"), on the Closing Date and at the Effective Time Gourmet
shall be merged with and into the Company and the separate corporate existence
of Gourmet shall thereupon cease. Said merger is referred to herein as the
"Merger." The Company shall be the surviving corporation in the Merger and shall
be governed by the DGCL. The separate corporate existence of the Company with
all its rights, privileges, powers and franchises shall continue unaffected by
the Merger. The Merger shall have the effects specified in the DGCL and the
CGCL. From and after the Effective Time, the Company is sometimes referred to
herein as the "Surviving Corporation."
3.2 Articles of Merger. On the Closing Date, the parties hereto shall
cause Articles of Merger (the "Articles of Merger"), meeting the requirements of
Section 252 of the DGCL and Section 1100 of the CGCL, to be properly executed
and filed in accordance with the DGCL and the CGCL. The Merger shall be
effective, for corporate law purposes, at the Effective Time. The Articles of
Merger shall provide for the change of the Company's name to "GourmetMarket.Com,
Inc." or such other name as the Company may determine.
3.3 Articles of Incorporation; Bylaws. The Articles of Incorporation of
the Company in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation. The Bylaws of the
Company in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation.
3.4 Officers. The officers of the Company at the Effective Time shall
be as follows:
President - Chanan Steinhart
Chief Financial Officer/Treasurer - Eric Ott
Secretary - Josh Dickman
Such persons will hold office until their successors are duly elected
or appointed and qualify in the manner provided in the Articles of Incorporation
or Bylaws of the Surviving Corporation or as otherwise provided by law, or until
their earlier death, resignation or removal.
3.5 Directors. The directors of the Company at the Effective Time shall
be as follows:
Chanan Steinhart
Eric Ott
Neil Swartz
C. Lawrence Rutstein
and one additional person to be nominated by Gourmet or its now
existing shareholders at or after the Effective Time.
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The directors of the Surviving Corporation will serve until their
successors are duly elected or appointed and qualify in the manner provided in
the Articles of Incorporation or Bylaws of the Surviving Corporation or as
otherwise provided by law, or until their earlier death, resignation or removal.
The parties agree that the Board of Directors of the Company, immediately after
the Closing, shall be a maximum of five (5) directors and that of those
directors the now existing shareholders of Gourmet shall have the right to elect
three directors ("Gourmet Directors") and Marblehead shall have the right to
elect two directors; provided, however, that if the projections to be agreed
upon by the parties are not met, then Marblehead shall have the right to replace
one of the Gourmet Directors with a director designated by Marblehead, to
replace management of the Surviving Company as Marblehead deems appropriate, and
to otherwise exercise control over the business and affairs of the Surviving
Company until such projections have been met.
3.6 Conversion of Shares and Options. At Closing there shall be 763,500
shares of common stock of Gourmet issued and outstanding and 8,280,000 shares of
the Company's Common Stock issued and outstanding of which 6,030,000 shares
shall have been issued to Marblehead at Closing. At the Effective Time, the
issued and outstanding shares of Common Stock of Gourmet shall be converted into
7,421,220 shares of Common Stock of the Company, so that each issued and
outstanding share of Gourmet shall be converted into 9.72 shares of the
Company's Common Stock. Further, at the Closing there shall be outstanding
options for the purchase of 236,500 shares of the common stock of Gourmet and,
at Closing, the Company shall grant the holders thereof options for the purchase
of 2,298,780 shares of the Company's Common Stock, or 9.72 shares of common
stock of the Company for each share of common stock of Gourmet underlying
Gourmet's outstanding options, and the existing Gourmet options shall terminate.
At Closing the Company shall grant to each of Chanan Steinhart and Rainmaker
Capital, LLC, an option to acquire 900,000 shares of the Company's Common Stock
(the "Management Options") at an exercise price per share equal to the fair
market value of the common stock at Closing. The Management Options shall be
exercisable for a period of ten (10) years after their date of grant and shall
vest over three (3) years. Vesting shall be contingent upon the Company's
meeting certain performance criteria as shall be determined by Gourmet and
Marblehead.
3.7 Shares Restricted. The Shares of Common Stock to be issued to
holders of Gourmet Common Stock and the holders of options for the purchase of
Gourmet Common Stock shall be "restricted" shares within the meaning of
Securities and Exchange Commission Rule 144 promulgated under the Securities Act
of 1933, as amended (the "Act"), and accordingly the certificate or certificates
representing such shares shall bear a restrictive legend in accordance with the
requirements of Rule 144.
3.8 No Representation of Value. Gourmet, for itself and its security
holders, hereby confirms that neither the Company, nor Marblehead, nor any
officer, director or shareholder of the Company or Marblehead, or any agent of
or professional employed by either of them, has made any representation to
Gourmet or any of its shareholders or optionholders as to the present or future
value of the Company's common stock or any other securities of the Company, nor
has the Company or Marblehead or any such person made any representation with
respect to the ability of Gourmet's shareholders to sell all or any part of the
shares of common stock of the
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Company at any price, nor that an active or liquid trading market in the
Company's common stock will develop or continue in the future. Further, Gourmet,
for itself and its securities holders, hereby confirms its understanding that
the future bid or asking price of the Company's common stock may not bear any
relationship to the net tangible book value of the Company's common stock and,
further, may be unrelated to any other generally accepted method of valuation of
the Company's shares.
3.9 Closing. The closing of the purchase and sale contemplated herein
(the "Closing") shall take place at the offices of the Company, 7777 Glades
Road, Suite 211, Boca Raton, Florida 33434, on or about January 15, 1999 (the
"Closing Date"), or at another time or location mutually agreeable to the
parties.
3.10 Deliveries at Closing by Gourmet. At Closing, Gourmet, as
appropriate, shall deliver to the Company (i) the stock books, stock ledgers,
minute books and seals of Gourmet; (ii) a current certificate of good standing
for Gourmet issued by the California Secretary of State; (iii) a. balance sheet
(including schedules of cash on hand and accounts receivable and payable) dated
as of Closing in a form satisfactory to the Company; (iv) consents to the
assumption of Gourmet's real estate lease and other material contracts; (v)
originals of all material contracts; and (vi) all other items required to be
delivered by Gourmet or Gourmet shareholders to the Company at or prior to
Closing under this Agreement, including, without limitation, a legal opinion or
opinions reasonably satisfactory to the Company containing limitations and
qualifications typically associated with opinion letters delivered in
transactions of the nature described in this Agreement, to the effect that:
(a) Gourmet is duly incorporated and a validly existing
corporation in good standing under the laws of the State of California, and is
duly qualified to carry on its business and is in good standing in any state in
which it does business;
(b) Gourmet has the requisite capacity, power and authority to
execute and deliver this Agreement and the other documents and the transactions
contemplated herein.
(c) The execution and delivery by Gourmet of this Agreement,
the performance by Gourmet of its obligations hereunder, and the consummation of
the transactions contemplated herein will not result in the breach of or violate
any term or provision of the articles or by-laws of Gourmet, or to the knowledge
of Gourmet's counsel, any contract, agreement, judgment, order, decree, award,
law, rule or regulation to which Gourmet is subject.
(d) The outstanding shares have been duly issued to its
shareholders are fully paid and non-assessable.
(e) The options outstanding for the purchase of Gourmet common
stock have been duly issued and at Closing will be canceled in exchange for
options to be issued by the Company under Section 3.6.
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(f) The Agreement has been duly executed and delivered by
Gourmet; and the Agreement and all documents delivered pursuant to the terms
hereof are valid and binding on Gourmet and are enforceable in accordance with
their respective terms, subject to any applicable bankruptcy, insolvency,
reorganization or other laws of general application affecting the enforcement of
creditors' rights generally and general principles of equity.
(g) To the knowledge of Gourmet's counsel, no consent of any
party other than a majority of Gourmet's shareholders, and, to the knowledge of
Gourmet's counsel, no consent, license, approval or authorization of, or
registration or declaration with, any governmental bureau or agency is required
in connection with the execution, delivery, performance, validity and
enforceability of this Agreement.
(h) The California state wine distributor license and all
other licenses requisite to Gourmet's carrying on the advertising and sale of
wine are assumable by the Company without any material interruption in the
Company's ability to lawfully carry on Gourmet's wine or other business.
(i) The Material Contracts are valid and binding contracts
effective to transfer, and which did transfer, to Gourmet the tangible and
intangible property to be transferred thereby.
(j) Such other matters as are customary in connection with
transactions of this kind.
3.11 Deliveries at Closing by the Company.
At Closing, the Company shall deliver to Gourmet or its
shareholders as appropriate:
a. The Company's certificate or certificates for shares of the
Company's common stock issued in the names of Gourmet's shareholders
individually, allocated in proportion to their respective holdings of issued and
outstanding common stock of Gourmet.
b. Options for the purchase of the Company's common stock
issued and allocated in accordance with Section 3.6.
c. An opinion of counsel to the Company, reasonably
satisfactory to Gourmet, to the effect that:
(1) The Company is a duly incorporated and validly
existing corporation in good standing with the laws of the State of Delaware,
and is duly qualified to carry on its business and is in good standing in any
state in which it does business and is required to qualify;
(2) The Company has the requisite power and authority
to execute and deliver, and has taken all necessary corporate action to
authorize the execution and delivery of, this Agreement and the other documents
and the transactions contemplated herein;
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(3) The execution and delivery by the Company of this
Agreement, the performance by the Company of its obligations hereunder, and the
consummation of the transactions contemplated herein will not result in the
breach of or violate any term of provision of the articles or by-laws of the
Company nor, to the best knowledge of counsel, any contract, agreement, law,
rule, regulation, judgment, order, decree or award to which the Company is
subject;
(4) When issued to Gourmet's shareholders, the
Company's Common Stock shall be duly issued, full-paid and non-assessable;
(5) The Agreement has been duly executed and
delivered by the Company;
(6) The Agreement and all documents delivered
pursuant to the terms hereof are valid and binding on the Company and are
enforceable in accordance with their respective terms, subject to any applicable
bankruptcy, insolvency, reorganization or other laws of general application
affecting the enforcement of creditors' rights generally and general principles
of equity. To the best knowledge of counsel, no consent of any party other than
the Company, and no consent, license, approval or authorization of, registration
or declaration with, any governmental bureau or agency is required in connection
with the execution, delivery, performance, validity and enforceability of this
Agreement.
(7) The Company's issuance and delivery of Common
Stock to Gourmet shareholders shall vest in them good and valid title to the
shares which, to the best knowledge of counsel, shall be free and clear of any
lien, encumbrance or adverse claim; and
(8) Such other matters that are customary in
connection with transactions of this kind.
The opinion of the Company's counsel shall
contain such limitations and qualifications as are typically associated with
opinion letters delivered in transactions of the nature described in this
Agreement.
d. An employment agreement for Chanan Steinhart in a form to
which Mr. Steinhart and the Company shall agree.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GOURMET
Gourmet represents and warrants the following:
4.1 Organization, Qualification. Gourmet is a corporation duly
organized, validly existing and in good standing under the laws of California
and has corporate power and authority to own all of its properties and assets
and to carry on its business as it is presently being conducted. Gourmet is duly
qualified and in good standing to do business in each jurisdiction in
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which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary except in those jurisdictions
where the failure to be duly qualified and in good standing would not have a
material adverse effect on Gourmet or the business conducted by it. Gourmet has
heretofore delivered to the Company complete and correct copies of the Articles
of Incorporation and Bylaws of Gourmet, as currently in effect.
4.2 Capitalization of Gourmet. The authorized capital stock of Gourmet
consists only of 1,000,000 shares of common stock, the par value of which is not
stated, of which, as of the date hereof, 763,500 shares are validly issued and
outstanding, fully paid and nonassessable, and were not issued in violation of
any preemptive rights. Gourmet has no commitment to issue or sell any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for, or giving any person the right to acquire from it, any shares
of its capital stock and no such securities or obligations are issued or
outstanding other than options for 236,500 shares as set forth in Schedule 4.2.
4.3 Consents and Approvals. Except as set forth in Schedule 4.3 there
is no requirement applicable for Gourmet to make any filing with, or to obtain
any permit, authorization, consent or approval of, any public body as a
condition to the consummation of the Merger. Except as set forth in Schedule 4.3
there is no requirement that any party to any Material Contract of Gourmet, or
any license or permit for the use of Intellectual Property of Gourmet or loan
agreement to which Gourmet is a party or by which it is or was bound, consent to
the execution of this Agreement by Gourmet or to the consummation of the Merger.
4.4 Non-Contravention. Except as set forth in Schedule 4.4, the
execution and delivery by Gourmet of this Agreement do not, and the consummation
of the Merger will not, (i) violate or result in a breach of any provision of
the Articles of Incorporation or Bylaws of Gourmet, (ii) result in a default (or
give rise to any right of termination, cancellation or acceleration) under the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Gourmet is a party
or by which the Company or the business conducted by it may be bound, or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Gourmet or to the business conducted by Gourmet, excluding from
the foregoing clauses (ii) and (iii) such defaults and violations as would not
have a material adverse effect on Gourmet.
4.5 Environmental Matters. Except as set forth in Schedule 4.5, Gourmet
has obtained all Environmental Permits required to conduct its business as it is
presently being conducted including, without limitation, those relating to (i)
emissions, discharges or threatened discharges of pollutants, contaminants,
hazardous or toxic substances or petroleum into the air, surface water, ground
water or the ocean, or on or into the land, and (ii) the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, hazardous or toxic substances or
petroleum. Gourmet has not received notice of, or is otherwise aware of, any
facts, events or conditions which (x) interfere with, prevent, or, with the
passage of time, could interfere with continued substantial compliance with any
of the aforementioned environmental laws, regulations, policies, guidelines,
orders, judgments or decrees, (y) may give rise to any liability (whether based
in contract, tort, implied or express
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warranty, criminal or civil stature or otherwise) under any law, regulation,
policy or guideline relating to hazardous emissions or handling hazardous
substances, or (z) obligate Gourmet or, with the passage of time, could cause
Gourmet to be obligated to clean up, remedy or otherwise restore to a former
condition, by itself or jointly with others, any contaminated surface water,
ground water, soil or any natural resource associated therewith.
4.6 Inventory. Gourmet has no inventory except as provided in Schedule
4.6 hereto.
4.7 Accounts Receivable. Gourmet has no material accounts receivable.
4.8 Licenses and Permits. The term "Licenses and Permits" as used
herein means federal, state and local governmental licenses, permits, approvals
and authorizations, whether foreign or domestic, other than Environmental
Permits. Gourmet has all of the Licenses and Permits required to conduct its
business as it is presently being conducted, all of which are in full force and
effect. No written notice of a violation of any such License or Permit has been
received by Gourmet, or, to the knowledge of Gourmet, threatened, and no
proceeding is pending or, to the knowledge of Gourmet, threatened, to revoke or
limit any of them. Gourmet has no reason to believe that any of its Licenses and
Permits in effect on the date hereof will not be renewed or can not be assumed
by the Company at or after Closing without material interruption in the
Company's ability to lawfully carry on the business of Gourmet after Closing.
4.9 Compliance with Laws. In addition to the representations and
warranties contained in Section 4.5 relating to environmental matters and in
Section 4.8 relating to Licenses and Permits, to the best of Gourmet's knowledge
Gourmet has operated its business in compliance with all laws, regulations,
orders, policies, guidelines, judgments or decrees of any federal, state, local
or foreign court or governmental authority applicable to it or its business
including, without limitation, those related to antitrust and trade matters,
civil rights, zoning and building codes, public health and safety, worker health
and safety and labor and nondiscrimination, the failure to comply with which
could reasonably be expected to affect, materially and adversely, the earnings,
assets, financial condition or operations of Gourmet. Except as is disclosed in
Schedule 4.9, Gourmet has not received any notice alleging non-compliance with
any of the aforementioned laws, regulations, policies, guidelines, orders,
judgments or decrees.
4.10 Financial Statements. Gourmet has previously furnished to the
Company true and complete copies of: (a) Gourmet's federal income tax return for
the calendar year ended December 31, 1997; (b) unaudited financial statements of
Gourmet for the ten and eleven months ended October 31, and November 30, 1998
(which tax return and stub-period statements are herein called the "Financial
Statements"). The Financial Statements fairly represent the financial position
of Gourmet as of such dates and the results of its operations and changes in
financial position for such periods. Gourmet has also furnished to the Company a
statement of cash on hand, accounts receivable and accounts payable dated no
earlier than January 15, 1999, which statement shall be a true and complete
accounting of the matters to which it pertains.
4.11 Litigation. Except as set forth in Schedule 4.11, there are no
actions, suits, claims, investigations or proceedings (legal, administrative or
arbitrative) pending or, to the
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knowledge of Gourmet, threatened, against Gourmet, whether at law or in equity
and whether civil or criminal in nature, before any federal, state, municipal or
other court, arbitrator, governmental department, commission, agency or
instrumentality, domestic or foreign, nor are there any judgments, decrees or
orders of any such court, arbitrator, governmental department, commission,
agency or instrumentality outstanding against Gourmet which have, or if
adversely determined could reasonably be expected to have, a material adverse
effect on the earnings, assets, financial condition or operations of the
business conducted by Gourmet, or which seek specifically to prevent, restrict
or delay consummation of the Merger or fulfillment of any of the other
conditions of this Agreement.
4.12 Absence of Changes. Except as set forth in Schedule 4.12, since
November 30, 1998, there has not been:
a. any damage, destruction or loss (whether or not covered by
insurance) which to the knowledge of Gourmet can reasonably be expected to
affect, materially and adversely, the earnings, assets, financial condition or
operations of the business of Gourmet;
b. any obligation or liability involving more than $20,000
(whether matured, absolute, accrued, contingent, or otherwise) incurred by
Gourmet;
c. any general uniform increase in the compensation of the
employees of Gourmet (including, without limitation, any increase pursuant to
any bonus, pension, profit sharing or other plan);
d. any increase (other than normal increases consistent with
past practices and those required by law or collective bargaining agreements) in
the compensation payable to any employee (including officers) of Gourmet;
e. any amendment to any employment agreement to which any
employee of Gourmet is a party;
f. any sale of assets by Gourmet other than in the ordinary
course of business;
g. any material deterioration of relations between Gourmet and
its suppliers, financial institutions, or customers;
h. any direct or indirect redemption, purchase or other
acquisition of any shares of the capital stock of Gourmet;
i. any declaration, setting aside or payment of any dividend
(whether in cash, capital stock or property) with respect to Gourmet's common
stock; or
j. any issuance by Gourmet of any shares of its capital stock,
or any securities or obligations convertible into or exchangeable for, or giving
any person the right to acquire from it, any shares of its capital stock.
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Since November 30, 1998, except as set forth in Schedule 4.12,
Gourmet has not operated its business other than in the ordinary and usual
course and in a manner consistent with past practices.
4.13 No Undisclosed Liabilities. Except as set forth in Schedule 4.13,
Gourmet does not have any material liabilities or obligations, whether absolute,
accrued, contingent or otherwise, including, without limitation, any uninsured
liabilities which were not accrued or reserved against in the Financial
Statements other than those incurred after November 30, 1998, in the ordinary
course of business or which in the aggregate do not or cannot reasonably be
expected to have a material adverse effect upon the earnings, assets, financial
condition or operations of Gourmet.
4.14 Title to Properties. Gourmet does not own any Real Property.
Gourmet has good title to all of the personal property, tangible and intangible,
owned by it, free and clear of any liens, charges, pledges, security interest of
other encumbrances other than those reflected in Schedule 4.14.
4.15 Leases. Schedule 4.15 sets forth a complete and correct list of
each agreement to lease into which Gourmet has entered, whether as a lessor or
lessee, which relates to either real or personal property, other than monthly
leases of personal property which may be canceled upon not more than 60 days
notice or require the payment of not more than $100 per month. The agreements
listed in Schedule 4.15 are referred to herein as the "Leases" (each a "Lease").
Except as set forth in Schedule 4.15, Gourmet has not breached any such Lease
and in no event has occurred which, with the giving of notice or the passage of
time or both, would cause a default under, or permit the termination,
modification or acceleration of any such Lease by any party thereto. Complete
copies of all of the Leases have been delivered to the Company.
4.16 Intellectual Property. Schedule 4.16 sets forth a schedule of
Gourmet's Intellectual Property. The term "Intellectual Property" as used herein
means the rights of the owner thereof in all trade names, trademarks and service
marks, patents, patent rights, copyrights, whether domestic or foreign, (as well
as applications, registrations or certificates for any of the foregoing),
inventions, trade secrets, proprietary processes, software and other industrial
and intellectual property rights. Gourmet owns or is licensed or otherwise has
the right to use all of the Intellectual Property which is being used in its
business as it is presently being conducted. There is no claim, suit, action or
proceeding, pending or, to the knowledge of Gourmet, threatened, against Gourmet
asserting that its use of any Intellectual Property infringes the rights of any
third party or otherwise contesting Gourmet's rights with respect to any
Intellectual Property, and no third party is known to Gourmet to be infringing
upon the rights of Gourmet in the Intellectual Property of Gourmet. Furthermore,
no party is infringing upon the rights of Gourmet in Gourmet's Intellectual
Property. All letters, patents, registrations and certificates issued by any
governmental agency relating to the Intellectual Property of Gourmet are valid
and subsisting and have been properly maintained.
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4.17 Material Contracts.
a. Schedule 4.17 sets forth a complete and correct list of
each Material Contract of Gourmet. Except as set forth in Schedule 4.17 and as
provided in the next paragraph, all of the Material Contracts of Gourmet are in
full force and effect and to the knowledge of Gourmet there has not occurred,
with respect to any such Material Contract, any default or event of default,
which, with or without due notice of with the lapse of time, or both, would
constitute a default or event of default on the part of Gourmet or, to the
knowledge of Gourmet, any other party thereto. Complete copies of all the
Material Contracts of Gourmet have been delivered to the Company.
b. The September 1998 contract with Arome, Ltd. ("Arome"),
will be revised at or before the Closing to provide that in lieu of the payments
to Arome set forth therein Arome will be paid an aggregate of $340,000 payable
$40,000 at Closing and the balance by payment of ten percent (10%) of the gross
amount of the Company's proceeds from any debt or equity financing which it
completes after the Closing, provided that no amount shall be payable to Arome
from the proceeds of any financing until the Company has received at least
$1,500,000 of post-Closing financing, at which time the Company will pay Arome
$150,000 plus ten percent (10%) of financing proceeds in excess of $1,500,000
until Arome has been paid the full $300,000 amount.
c. In addition to any other requirement for the provision of
documents at Closing, Gourmet will deliver to the Company at Closing an amended
agreement executed by Arome consenting to the assignment of the subject contract
to the Company and the amendment of the payment provisions in accordance with
the preceding sentence.
4.18 Condition of Tangible Assets. The tangible personal property which
belongs to Gourmet shall be operable on the Closing Date. In all other respects,
such property shall be accepted by the Company in "as is, where is" condition.
4.19 Insurance. Gourmet has insurance contracts in force for such
coverages and amounts as are set forth in Schedule 4.19.
4.20 Labor Matters. There are no collective bargaining agreement
covering employees of Gourmet. There are no controversies pending or, to the
knowledge of Gourmet, threatened between Gourmet and any of its employees which
affect, or can reasonably be expected to affect, materially and adversely, its
earnings, assets, financial condition or operations of the business conducted by
Gourmet, or relate to any specific effort to prevent, restrict or delay
consummation of the Merger.
4.21 Employee Benefit Plans.
a. Gourmet has never had, does not now have, and will not have
at Closing Pension Plans, Welfare Plans or other employee benefit plans, nor
incentive, vacation and other
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similar plans that are maintained by Gourmet with respect to its employees or to
which Gourmet has contributed or is now contributing on behalf of its employees.
b. Gourmet has not incurred any material liability to the PBGC
under Section 4001, et seq. of ERISA and no condition exists that could
reasonably be expected to cause Gourmet to incur any such liability. Any premium
payable to the PBGC has been paid when due.
4.22 Tax Matters.
a. The provisions made for taxes in the Financial Statements
are sufficient for the payment of all Taxes of Gourmet, whether or not disputed,
which are properly accruable. There are no agreements by Gourmet for the
extension of time, or waiver of any statute of limitations, for the assessment
of any taxes, and all taxes due and payable by Gourmet on or before the date of
this Agreement have been paid or provided for, and are not delinquent, except as
otherwise provided in Schedule 4.22.
b. Gourmet has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. No claim
has ever been made by an authority in a jurisdiction where Gourmet does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. There
are no liens on any of the assets of Gourmet that arose in connection with any
failure (or alleged failure) to pay any Tax.
c. Gourmet has withheld and paid all Taxes required to have
been withheld and paid through January 15, 1999, in connection with the amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party.
d. Gourmet does not expect any authority to assess any
additional Taxes for any period for which Tax Returns have been filed. Except as
set forth in Schedule 4.22, there is no dispute or claim concerning any Tax
liability of Gourmet either claimed or raised by any authority in writing.
Gourmet has delivered to the Company correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by Gourmet since December 31, 1997.
4.23 Finders. No broker, finder or investment banker is entitled to any
fee or commission from Gourmet for services rendered on behalf of Gourmet in
connection with the transactions contemplated by this Agreement, except as
otherwise provided in Schedule 4.23 or Section 7.6 relating to compensation
payable to Marblehead. Schedule 4.23 sets forth the name and address of any
broker, finder or investment broker entitled to a fee or commission and the
terms of payment.
4.24 Full Disclosure. None of the representations and warranties of
Gourmet which are made in Article IV of this Agreement contains an untrue
statement of a material fact or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
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4.25 Insider Interests. Except as listed in Schedule 4.25 no Affiliate
of Gourmet (i) competes with or is involved in or has a direct or indirect
interest in any business entity which competes with the business conducted by
Gourmet, (ii) has any agreement with Gourmet, or (iii) has any interest, direct
or indirect, in any property, real or personal, tangible or intangible,
including, without limitation, Intellectual Property, used in or pertaining to
the business of Gourmet, except as a stockholder or employee of Gourmet.
4.26 Insider Transactions. Schedule 4.26 sets forth a correct and
complete statement of (a) the amounts and other essential terms of indebtedness
or other obligations, liabilities or commitments (contingent or otherwise) of
Gourmet to or from any past or present officer, director, employee, partner or
stockholder thereof or any person related to, controlled by or under common
control of any of the foregoing and (b) all transactions, together with their
essential terms, between such persons and Gourmet during the past two years.
4.27 No Interest in Competitors, Etc. Except as set forth in Schedule
4.27, no officer or director of Gourmet, nor any Affiliate of any of the
foregoing, directly or indirectly owns any interest in or controls or is an
employee, agent, member, principal, officer, director, or partner of, or
participant in, or consultant to any corporation, partnership, limited liability
company, sole proprietorship, limited partnership, joint venture, association,
or other entity which is a competitor, supplier or customer, of Gourmet.
4.28 Purchase and Sale Obligations. All unfilled purchase and sale
orders and other commitments for purchases and sales made by Gourmet were made
in the usual and ordinary course of its business. None of such orders or
commitments call for deliveries thereunder beyond a period of 90 days from the
Closing Date with the exception of normal outstanding maintenance and service
contracts.
4.29 Books and Records. The books of account and other financial and
corporate records of Gourmet are in all material respects complete and correct,
are maintained in accordance with good business practices, and are accurately
reflected in the Financial Statements. The minute books of Gourmet as previously
made or to be made available to the Company contained accurate records of all
meetings.
4.30 Bank and Safe Deposit Arrangements. Schedule 4.30 sets forth a
correct and complete list of each bank account and safe deposit box maintained
by Gourmet, and the names of all persons authorized to deal with such accounts
and safe deposit boxes.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as of the date of execution of this
Agreement and as of Closing as follows:
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5.1 Organization, Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has corporate power and authority to own all of its properties and assets and to
carry on its business as it is presently being conducted. The Company is duly
qualified and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary except in those jurisdictions where the
failure to be duly qualified and in good standing would not have a material
adverse effect on the Company or the business conducted by it. The Company has
delivered to Gourmet complete and correct copies of its articles of
incorporation and bylaws as currently in effect.
5.2 Capitalization of the Company.
(a) The authorized capital stock of the Company consists only
of (i) 25,000,000 shares of common stock, $.001 par value, of which there will
be issued and outstanding (a) as of the date hereof, 1,250,000 shares and (b)
prior to the Effective Time, 2,250,000 shares, all of which will be validly
issued and outstanding, fully paid and nonassessable, and which were not or will
not be issued in violation of preemptive rights, and (ii) 100,000 shares of
preferred stock $.001 par value, none of which are issued or outstanding. No
options, warrants, convertible debt or other rights to acquire any equity
interest in the Company, whether upon exchange for or conversion of other
securities or otherwise, are outstanding or will be granted prior to the
Effective Time.
(b) At the Effective Time, the ownership of the common stock
of the Surviving Company shall be as follows. The total number of issued and
outstanding shares of common stock shall be 18,000,000 shares (which number
includes, for purposes of this narrative description, the shares of common stock
underlying the options to be granted to existing Gourmet optionholders) and no
shares of preferred stock shall be issued or outstanding. The 18,000,000 shares
of common stock to be issued and outstanding shall be held as follows:
(i) 7,421,220 shares shall be held by the existing
shareholders of Gourmet;
(ii) 1,000,000 shares shall be held by investors in
the Company's Rule 504 offering;
(iii) 1,250,000 shares shall be held by the Company's
existing shareholders;
(iv) 6,030,000 shares shall be held by Marblehead;
and
(v) 2,298,780 shares (which are deemed to be issued
and outstanding only for purposes of this narrative) shall be issuable to
existing holders of options for the purchase of Gourmet common stock.
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(c) The 6,030,000 shares of common stock to be issued to
Marblehead are "restricted" securities within the meaning of Securities and
Exchange Commission Rule 144.
5.3 Consents and Approvals. There is no requirement applicable for the
Company to make any filing with, or to obtain any permit, authorization, consent
or approval of, any public body as a condition to the consummation of the
Merger, nor is there any requirement that any party to any Material Contract of
the Company, or any license or permit for the use of Intellectual Property of
the Company or loan agreement to which the Company is a party, or by which it is
bound, consent to the execution of this Agreement by the Company or the
consummation of the Merger.
5.4 Non-Contravention. The execution and delivery by the Company of
this Agreement does not, and the consummation of the Merger will not, (i)
violate or result in a breach of any provision of the articles of incorporation
or bylaws of the Company, (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which the Company is a party or by which the
Company or the business conducted by it may be bound, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company or to the business conducted by the Company, excluding from the
foregoing clauses (ii) and (iii) such defaults and violations as would not have
a material adverse effect on the Company.
5.5 Corporate Authority and Resolutions. The Board of Directors of the
Company and the Company's shareholders have adopted resolutions authorizing the
execution of this Agreement by the Company as of the date hereof and shall adopt
such additional resolutions as may be necessary authorizing the execution of
documents and closing by the Company as contemplated by this Agreement.
5.6 Validity of Shares to be Issued. The Company's shares to be issued
to the Gourmet shareholders as a result of the Merger have been duly authorized
as required under all applicable laws and, upon delivery thereof pursuant to the
provisions of this Agreement, will be validly issued, fully paid and
non-assessable, and not subject to any preemptive rights.
5.7 Current Information. The Company has previously delivered to
Gourmet (a) a true and complete copy of the Company's audited financial
statements sheet dated December 31, 1996, and 1997, and unaudited financial
statements for the six months ended June 30, 1998; (b) the private placement
memorandum described in Section 6.1; and (c) certain other non-public
information relating to the business and affairs of the Company, and will
continue to furnish such information to Gourmet until the Closing. The financial
information with respect to the Company included in the aforementioned documents
fairly represents the financial condition of the Company and the results of its
operations and changes in financial position for the periods for which they were
prepared but does not represent the financial condition of the Company at any
time after June 30, 1998, nor does such financial information reflect certain
material events affecting the Company which occurred after June 30, 1998,
substantially all of which are set forth in the private placement memorandum
described in Section 6.1.
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5.8 Authorization of Transactions; Securities Compliance. By the
Closing Date, the shares to be issued to Gourmet's shareholders on the
consummation of the transactions contemplated hereunder will be exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and
shall have been exempt or registered or qualified under the securities or blue
sky laws of California for issuance upon the Closing Date. Such shares, when
issued in accordance with the terms of this Agreement, will be fully paid and
non-assessable.
5.9 No Registration Rights. There is no agreement granting or providing
for registration rights with respect to the shares to be delivered to Gourmet
shareholders pursuant to this Agreement except as provided in Section 7.7.
5.10 No Brokers or Commissions. The Company has not engaged any broker,
finder or similar individual in connection with this transaction except
Marblehead.
5.11 Binding Agreement. The execution, delivery and performance of this
Agreement and the other instruments contemplated by this Agreement by the
Company have been duly authorized by all necessary corporate action of the
Company. This Agreement has been duly executed and delivered to Gourmet by the
Company and constitutes the legal, valid and binding agreement of the Company,
enforceable in accordance with its terms.
5.12 No Violation. The execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time or
both, violate, contravene or conflict with or result in a breach of or
constitute a default under (i) any writ, order, judgment or decree of any court
arbitrator or governmental agency applicable to the Company, (ii) the articles
of incorporation or bylaws of the Company; (iii) any contract, lease or other
agreement to which the Company is a party or by which the Company is bound; or
(iv) to the best knowledge of the Company, any law, rule or regulation
applicable to the Company.
5.13 Litigation. There are no actions, suits, claims, investigations or
proceedings (legal, administrative or arbitrative) pending or, to the knowledge
of the Company, threatened, against the Company, whether at law or in equity and
whether civil or criminal in nature, before any federal, state, municipal or
other court, arbitrator, governmental department, commission, agency or
instrumentality, domestic or foreign, nor are there any judgments, decrees or
orders of any such court, arbitrator, governmental department, commission,
agency or instrumentality outstanding against the Company which have, or if
adversely determined could reasonably be expected to have, a material adverse
effect on the earnings, assets, financial condition or operations of the
business conducted by the Company, or which seek specifically to prevent,
restrict or delay consummation of the sale of the Merger or fulfillment of any
of the other conditions of this Agreement.
5.14 Compliance with Laws; Regulatory Matters. The Company is in
compliance in all material respects with all laws, rules and regulations, all
orders, directives and supervisory letters of, and all agreements, memoranda of
understanding or similar arrangements with, regulatory authorities and all other
legal requirements applicable to the Company or the
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Company's businesses; and the Company is not subject to any order, directive or
supervisory letter of, or agreement, memorandum or understanding or similar
arrangement (including board resolutions adopted at the request of regulatory
authority) with, any regulatory authority restricting its operations or,
restricting it from taking any action or requiring that certain actions be
taken, and the Company has no knowledge that any such order, directive,
supervisory letter, agreement, memorandum or understanding or similar
arrangement is threatened, contemplated or under consideration by any regulatory
authority.
ARTICLE VI
INVESTMENT REPRESENTATIONS
Gourmet hereby represents, warrants, acknowledges and covenants to the
Company, as follows:
6.1 Opportunity to Examine. Gourmet and its shareholders have examined
or have had an opportunity to examine, and to ask questions of the management of
the Company about, all applicable documents and such applicable information as
are relevant to the transactions described herein, including the delivery by the
Company of its shares and about the Company and its business. Among the
documents made available to Gourmet and its shareholders are the Company's
private placement memorandum dated December 31, 1998, and the financial
statements described in Section 5.4.
6.2 No Representations as to Profit or Loss. No representation or
warranty of any kind has been made to the Gourmet or its shareholders with
respect to the percentage of profit and/or amount or type of consideration,
profit or loss that are to be realized, if any, as a result of the Merger and
the acquisition of common stock in the Company and that in entering into this
transaction Gourmet and its shareholders are not relying upon any information
other than that derived from the results of their own independent investigation,
or the investigation of their counsel and other professional advisors, or from
information furnished in writing by the Company to them.
6.3 Shares Not Registered. Gourmet and its shareholders understand that
the shares to be issued to Gourmet's shareholders have not been registered under
the Act nor under the securities laws of any state in reliance on exemptions
therefrom for non-public offerings, and further understand that the shares have
not been approved or disapproved by the Securities and Exchange Commission nor
has any state securities administrator or agency passed on the accuracy or
adequacy of any written information provided by the Company.
6.4 Investment Intent. The Gourmet shareholders are acquiring the
shares in the Company for their own account for investment purposes only and not
with a view to the sale or other distribution thereof, in whole or in part.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Conduct of Business by Gourmet and the Company.
a. Gourmet warrants and represents that from the date hereof
until the Closing, Gourmet will (a) conduct its business only in the ordinary
and usual course and in a manner consistent with past practices, (b) maintain in
good repair, at its expense, all of its properties, and (c) use its best efforts
to preserve its relationship with suppliers, customers, dealers and others
having business relationships with Gourmet. Gourmet will notify the Company of
any emergency or material change in the normal conduct of the business or
operations of Gourmet, the threat of or initiation of any material litigation
against Gourmet, and the initiation of any investigation of Gourmet by any
party, whether private or governmental.
b. The Company warrants and represents that from the date
hereof until the Closing, the Company will (a) conduct its business only in the
ordinary and usual course and in a manner consistent with past practices, (b)
maintain in good repair, at its expense, all of its properties, and (c) use its
best efforts to preserve its relationship with suppliers, customers, dealers and
others having business relationships with the Company. The Company will notify
Gourmet of any emergency or material change in the normal conduct of the
business or operations of the Company, the threat or initiation of any material
litigation against the Company, and the initiation of any investigation of the
Company by any party, whether private or governmental.
7.2 Investigation of Business and Properties; Additional Data. From the
date hereof until the Closing, Gourmet and the Company shall each afford the
other and their attorneys, accountants, financial advisors and other
representatives complete access at all reasonable times to their offices, and to
their officers, employees, properties, contracts, and books and records. In
addition, Gourmet and the Company shall furnish to each other such financial,
operating and additional data as they may reasonably request concerning the
business, operations, properties and personnel of either of them.
7.3 Efforts to Consummate. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate, as promptly as practicable,
the transactions contemplated hereby, including, but not limited to, the
obtaining of all necessary consents, waivers, authorizations, orders and
approvals of third parties, whether private or governmental, required of it to
enable it to comply with the conditions precedent to consummating the
transactions contemplated by this Agreement. Each party agrees to cooperate
fully with the other party in assisting it to comply with this Section.
Notwithstanding the foregoing, neither party shall be required to initiate any
litigation, make any substantial payment or incur any material economic burden,
except for a payment otherwise required of it, to obtain any consent, waiver,
authorization, order or approval, and if, despite such efforts, either party is
unable to obtain any consent, wavier, authorization, order of approval the other
party may terminate this Agreement and shall have no liability therefor.
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7.4 Further Assurances. The parties will use reasonable efforts to
implement the provisions of this Agreement, and for such purpose, the parties
will, at the request of any other party, at or after the closing, without
further consideration, promptly execute and deliver, or cause to be executed and
delivered, such additional documents as any other party may reasonably deem
necessary or desirable to implement any provision of this Agreement.
7.5 Expenses. Whether or not the Merger is consummated all expenses
incurred in connection with this Agreement and the transactions contemplated
hereby will be paid by the party incurring such expenses.
7.6 Agreements with Respect to Marblehead. The parties shall enter into
an investment banking and consulting agreement with Marblehead in the form of
Exhibit 7.6 hereto. The parties hereby ratify and confirm the agreement between
Gourmet and Marblehead dated December 1998, including the compensation payable
to Marblehead, which compensation obligations are hereby assumed by the Company.
7.7 Registration Rights.
a. If the Company shall determine to register any of its
securities for the account of a securityholder or holders other than in a
registration relating solely to employee benefit plans, a registration relating
solely to a Rule 145 transaction, or a registration on any registration form
that does not permit secondary sales, the Company will (i) promptly give to each
person who is a holder of its common stock at the effective date and (ii) use
its best efforts to include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registerable Securities of such securityholders made by any
holder and received by the Company within twenty (20) days after the Company
delivers written notice of any proposed registration to such holder by mail or
other form of delivery, which notice shall commence on the date of mailing or
delivery, as appropriate to the method of notice. Such written request may
specify all or part of the holders Registerable Securities. As used in this
Section 7.7, the term Registerable Securities shall mean shares of the Company's
common stock issued or issuable to a holder as of Closing and any common stock
issued as a dividend or other distribution with respect to or in exchange for or
in replacement of the shares referenced in this Section, except that
Registerable Securities shall not include any shares of common stock previously
registered or which have been sold to the public pursuant to a registration
statement or an offering under Section 3(b) of the Securities Act of 1933, as
amended, or which may be sold under Rule 144(k).
b. At the time of registration, the Company and a registering
securities holder shall enter into mutual indemnification agreements of the kind
normally provided in an underwriting.
c. If any securities held by selling shareholders cannot be
included in a registration as a result of limitations of the aggregate number of
shares of Registerable Securities that may be so included, the number of shares
of Registerable Securities that may be included shall be allocated among the
holders requesting inclusion of shares pro rata on the basis of the number
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of shares of Registerable Securities, provided that such allocation shall not
operate to reduce the aggregate number of Registerable Securities that may be
included in such registration if any holder does not request inclusion of the
maximum number of shares of Registerable Shares allocated to him pursuant to the
procedure described in this Section, and the remaining portion of his allocation
shall be reallocated among those requesting holders whose allocations did not
satisfy the request pro rata on the basis of the number of shares of
Registerable Securities which will be held by such holders and selling
shareholders.
d. Notwithstanding the obligations of the Company to register
shares, the Company shall have no such obligation to any shareholder in the
event that it is advised by its underwriter or other selling agent that the
underwriter is not willing to register shares held by any proposed selling
shareholder by reason of market conditions or any other reason relating to the
primary obligation of such underwriter or agent to sell the shares of the
Company, its being the intention of the parties that the Company's ability to
sell all of the shares that it wishes to sell pursuant to any registration
statement shall be paramount to, and shall supersede, the rights of any
shareholder provided in this Section 7.7.
7.8 Matters Subject to Marblehead Approval. The Company shall not,
without the approval of Marblehead:
a. Declare or pay any dividends, or return any capital, to its
stockholders or authorize or make any distribution, payment or delivery of
property or cash to its stockholders, as such, or redeem, retire, purchase, or
otherwise acquire, directly or indirectly, for consideration, any shares or any
interest in its capital stock now or hereafter outstanding.
b. Lend money, credit or make advances to any person, or
purchase any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, any other person, unless to a customer or a
supplier in the ordinary course of business.
c. Amend, modify or change its articles of incorporation or
bylaws, or any agreement entered into by it, with respect to its capital stock.
d. Enter into any agreement to employ or discharge any
employee whose proposed or actual salary is greater than $30,000 per annum.
e. Enter into any Material Contract, which for purposes of
this Section 7.8 shall include any agreement for the loan by or to the
corporation of an amount greater than $10,000 or the purchase of any equipment
or other capital asset in excess of $10,000 for any one purchase or $50,000 in
the aggregate per calendar year.
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ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The following are certain conditions precedent to the obligation of the
Company to consummate the Merger, which conditions must be fulfilled (or waived
in writing by the Company) on or before the Closing Date.
8.1 Accuracy of Representations and Warranties. The representations and
warranties of Gourmet herein contained shall be true on and as of Closing with
the same force and effect as though made on and as of Closing, except as
affected by transactions contemplated hereby and except to the extent that such
representations and warranties were made as of a specified date and as to such
representations and warranties the same shall have been true as of the specified
date.
8.2 Absence of Default. No condition or event which constitutes an
event of default hereunder by Gourmet or which, after notice and lapse of time,
or both, would constitute an event of default hereunder by Gourmet shall have
occurred and be continuing.
8.3 Absence of Material Damage to or Expropriation of Property. Between
the date of this Agreement and the Closing, there shall not have occurred (1)
any material casualty to any facility, property, equipment or inventory owned by
Gourmet, or (2) any material condemnation, seizure, expropriation or liquidation
by any governmental authority or any officer or instrumentality thereof of
facilities, property, equipment or inventory owned by Gourmet.
8.4 Absence of Liens. There will have been no liens recorded after the
execution of this Agreement but prior to Closing with respect to any personal,
real or mixed property owned by Gourmet.
8.5 Actions, Proceedings, Etc. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated by this
Agreement or incidental thereto and all other related legal matters shall have
been satisfactory to and approved by counsel for the Company in the exercise of
reasonable discretion, and such counsel shall have been furnished with such
certified copies of actions and proceedings and such other instruments and
documents as they shall have reasonably requested.
8.6 Legal Opinion. The Company shall have received the legal opinion of
Gourmet's counsel in accordance with Section 3.10(a) hereto.
8.7 Satisfaction with Respect to Financial Condition and Performance.
The Company must be satisfied that each and every representation made by Gourmet
regarding the Financial Statements and the financial condition of Gourmet shall
be true, complete and accurate in all material respects as of Closing. Without
limiting the foregoing, the Company must be satisfied that: (i) the Financial
Statements shall have been prepared on an accrual basis of accounting,
consistent with prior years; and (ii) except as specifically disclosed in the
Financial
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Statements, there has been no distribution to shareholders or others or bonuses
made to employees.
8.8 Continuity of Business Relationships. The Company shall be
satisfied that Gourmet's customer, vendor, financial institution(s), insurance
carrier and employee relations are satisfactory as at the Closing Date.
ARTICLE IX
CONDITIONS PRECEDENT TO GOURMET'S OBLIGATIONS
The following are certain conditions precedent to Gourmet's obligation
to consummate the Merger, which conditions must be fulfilled (or waived in
writing by Gourmet) on or before the Closing Date.
9.1 Accuracy of Representations and Warranties. The representations and
warranties of the Company herein contained shall be true on and as of Closing
with the same force and effect as though made on and as of Closing, except as
affected by transactions contemplated hereby and except to the extent that such
representations and warranties were made as of a specified date and as to such
representations and warranties the same shall have been true as of the specified
date.
9.2 Absence of Default. No condition or event which constitutes an
event of default hereunder by the Company or which, after notice and lapse of
time, or both, would constitute an event of default hereunder by the Company
shall have occurred and be continuing.
9.3 Absence of Material Damage to or Expropriation of Property. Between
the date of this Agreement and the Closing, there shall not have occurred (1)
any material casualty to any facility, property, equipment or inventory owned by
the Company, or (2) any material condemnation, seizure, expropriation or
liquidation by any governmental authority or any officer or instrumentality
thereof of facilities, property, equipment or inventory owned by the Company.
9.4 Actions, Proceedings, Etc. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated by this
Agreement or incidental thereto and all other related legal matters shall have
been satisfactory to and approved by counsel for Gourmet, and such counsel shall
have been furnished with such certified copies of actions and proceedings and
such other instruments and documents as they shall have reasonably requested.
9.5 Legal Opinion. Gourmet shall have received the legal opinion of the
Company's counsel in accordance with Section 3.11(b) hereto.
9.6 Satisfaction with Respect to Financial Condition and Performance.
Gourmet must be satisfied that each and every representation made by the Company
regarding the financial condition of the Company shall be true, complete and
accurate in all material respects as of Closing.
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9.7 Continuity of Business Relationships. Gourmet shall be satisfied
that the Company's customer, vendor, financial institution(s), insurance carrier
and employee relations are satisfactory as at the Closing Date.
9.8 Private Placement. The Company shall have received $1,000,000 of
gross proceeds from an offering of its common stock made pursuant to the private
placement memorandum described in Section 6.1 or otherwise.
ARTICLE X
INDEMNIFICATION
10.1 The Company's Right to Indemnification. Gourmet undertakes and
agrees to hold the Company harmless against any and all losses, costs,
liabilities, claims, obligations and expenses, including reasonable attorneys'
fees, incurred or suffered by the Company arising from (i) the breach,
misrepresentation or other violation of any covenants, warranty or
representation of or by Gourmet contained in this Agreement, and (ii) all
liabilities of Gourmet not disclosed in writing to the Company prior to the
execution of this Agreement. This indemnity provision shall survive Closing for
a period of one (1) year.
10.2 Gourmet's Right to Indemnification. The Company undertakes and
agrees to hold Gourmet harmless against any and all losses, costs, liabilities,
claims, obligations and expenses, including reasonable attorneys' fees incurred
or suffered by Gourmet arising from the breach, misrepresentation or other
violation of any covenants, warranty or representation by the Company contained
in this Agreement. This indemnity provision shall survive Closing for a period
of one (1) year.
10.3 Procedure. If any claim or proceeding covered by the foregoing
agreements to indemnify and hold harmless shall arise, the party who seeks
indemnification (the "Indemnified Party") shall given written notice thereof to
the other party (the "Indemnitor") promptly (but in no event more than ten (10)
days) after it learns of the existence of such claim or proceeding. Any claim
for indemnification hereunder shall be accompanied by evidence demonstrating the
Indemnified Party's right or possible right to indemnification, including a copy
of all supporting documents relevant thereto. The Indemnitor shall have the
right to employ counsel reasonably acceptable to the Indemnified Party to defend
against any such claim or proceeding, or to compromise, settle or otherwise
dispose of the same; provided, however, that no settlement or compromise shall
be effected without the consent of the Indemnified Party, which consent shall
not be unreasonably withheld, and provided further that in the event the
Indemnified Party does not consent to a bona fide offer of settlement made by a
third party and the settlement involves only the payment of money, then the
Indemnitor may, in lieu of payment of such settlement to such third party, pay
such amount to the Indemnified Party. After the payment to the Indemnified
Party, the Indemnitor shall have no further liability with respect to such claim
or proceeding and the Indemnified Party shall assume full responsibility to
defend the same. After notice from the Indemnitor to the Indemnified Party of
its election to assume the defense of such claim or proceeding, the Indemnitor
shall not be liable to the Indemnified Party under this paragraph for any legal
or other expenses subsequently incurred by the Indemnified Party in connection
with the
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defense thereof; provided, however, that the Indemnified Party shall have the
right to employ counsel to represent it if, in the Indemnified Party's
reasonable judgment, it is advisable for the Indemnified Party to be represented
by separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Indemnified Party. The parties will fully cooperate
in any such action, making available to each other books or records for the
defense of any such claim or proceeding. If the Indemnitor fails to acknowledge
in writing its obligation to defend against or settle such claim or proceeding
within ten (10) days after receiving notice of the claim or proceeding from the
Indemnified Party (or such shorter time specified in the notice as the
circumstances of the matter may dictate), the Indemnified Party shall be free to
dispose of the matter, at the expense of the Indemnitor (but subject to the
Indemnitor's right subsequently to contest through appropriate proceedings its
obligation to provide indemnification), in any way which the Indemnified Party
deems in its best interest.
10.4 Limitations on Indemnification Rights. Indemnification shall be
due only to the extent of the loss or damage actually suffered (i.e., reduced by
any offsetting or related asset or service received and by any recovery from any
third party, such as an insurer), net after the amount equal to any reduction in
federal, state or local income, franchise or other taxes occasioned by such loss
or damage (even though the tax return by which such reduction would have been
realized is not yet due), but including an amount equal to any increase in
federal, state and local income, franchise or other taxes occasioned by the
indemnification payment and then only to the extent of the excess over the
Agreed De Minimis Amount (hereinafter defined). The Indemnitor shall be
subrogated to all rights of the Indemnified Party against any third party with
respect to any claim for which indemnification is paid. Notwithstanding the
foregoing, the Indemnitor shall not be liable to the Indemnified Party for any
individual misrepresentation, breach of warranty or violation of covenant where
the otherwise indemnifiable amount does not exceed $5,000 and, as regards all
such indemnifiable misrepresentations or breaches of warranty that do not exceed
$5,000, the Indemnitor shall not be liable except to the extent that the
aggregate amount thereof exceeds $5,000 (such sum being herein referred to as
the "Agreed De Minimis Amount").
ARTICLE XI
GENERAL PROVISIONS
11.1 Expenses. Each party shall pay its own expenses incident to the
negotiation and preparation of this Agreement and the transactions contemplated
hereby. All other recording costs for bills of sale and other instruments of
transfer, and all stamp, sales, use and transfer taxes in connection with the
purchase and sale of shares shall be paid by the transferring party.
11.2 Notices. All notices, requests, demands and other communications
pertaining to this Agreement shall be in writing and shall be deemed duly given
when delivered personally with a receipt, when delivered by an overnight courier
service or mailed by certified mail, return receipt requested, postage prepaid,
addressed as follows:
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(a) To the Company: Sterling Partners Inc.
7777 Glades Road, Suite 211
Boca Raton, Florida 33434
Attn: Mr. C. Lawrence Rutstein
With a copy to: Siegel, Lipman, Dunay & Shepard, LLP
5355 Town Center Road, Suite 801
Boca Raton, FL 33486
Attn: Jonathan L. Shepard, Esquire
(b) To Gourmet: GourmetMarket.Com
507 Howard Street, Suite 200
San Francisco, California 94105
Attn: Mr. Chanan Steinhart
(c) To Marblehead: Marblehead Capital Group, Inc.
460 Boston Street, Suite 6-A
Topsfield, MA 01983
Attn: Mr. Neil Donohue
With a copy to: Darshan Thakkar, Esquire
101 Cambridge Street, Suite 395
Burlington, MA 01803
Either party may change its address for notices by written notice to the other
given pursuant to this paragraph.
11.3 Certain Breaches. Neither party shall have any liability to the
other party with respect to a breach by a party of which the other party has
received written notice at or prior to Closing.
11.4 Prior Negotiations. This Agreement supersedes in all respects all
prior and contemporaneous oral and written negotiations, understandings and
agreements between the parties with respect to the subject matter hereof. All of
said prior and contemporaneous negotiations, understandings and agreements are
merged herein and superseded hereby.
11.5 Entire Agreement; Amendment. This Agreement and the Exhibits to
this Agreement set forth the entire understanding between the parties in
connection with the transaction contemplated herein, there being no terms,
conditions, warranties or representations other than those contained herein,
referenced herein or provided for herein. Neither this Agreement nor any term or
provision hereof may be altered or amended in any manner except as an instrument
in writing signed by the party against whom the enforcement of any such change
is sought.
- 27 -
<PAGE>
11.6 Exhibits. The Exhibits attached hereto or referred to herein are a
material part of this Agreement, as if set forth in full herein.
11.7 Severability. If any term of this Agreement is illegal or
enforceable at law or in equity, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. Any illegal or unenforceable term shall be deemed to be void
and of no force and effect only to the minimum extent necessary to bring such
term within the provisions of any applicable law or laws and such term, as so
modified, and the balance of this Agreement shall then be fully enforceable.
11.8 Survival of Representations and Warranties. Unless otherwise
specifically noted herein, the several representations, warranties and covenants
of the parties contained herein shall survive the closing for a period of three
(3) years from the Closing date. Thereafter neither party shall have any
liability to the other based upon any of the representations, warranties and
covenants set forth herein.
11.9 Waiver. Unless otherwise specifically agreed in writing to the
contrary: (i) the failure of any party at any time to require performance by
another party of any provision of this Agreement shall not affect such party's
right thereafter to enforce the same, (ii) no waiver by either party of any
default by the other shall be taken or held to be a waiver by such party of any
other preceding or subsequent default, and (iii) no extension of time granted by
any party for the performance of any obligation or act by the another party
shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
11.10 Number and Gender. Whenever the context so requires, words used
in the singular shall be construed to mean or include the plural and vice versa,
and pronouns of any gender shall be construed to mean or include any other
gender or genders.
11.11 Headings and Cross-References. The headings of this Agreement are
included for convenience of reference only, and shall in no way limit or affect
the meaning or interpretation of the specific provisions hereof. All
cross-references to paragraphs herein shall mean the paragraphs of this
Agreement unless otherwise stated or clearly required by the context. All
references to Exhibits herein shall mean the Exhibits to this Agreement. Words
such as "herein" and "hereof" shall be deemed to refer to this Agreement as a
whole and not to any particular provision of this Agreement unless otherwise
stated or clearly required by the context.
11.12 Choice of Laws. This Agreement is to be construed and governed by
the laws of the State of Florida, except for the choice of law rules utilized in
that jurisdiction.
11.13 Arbitration. Any dispute arising under or related to this
Agreement that the parties are unable to resolve by themselves shall be settled
by arbitration in Fort Lauderdale, Florida, by a panel of three arbitrators. The
parties shall each designate one disinterested arbitrator and the two
arbitrators so designated shall select the third arbitrator. The persons
selected as arbitrators need not be professional arbitrators, and persons such
as accountants, appraisers and bankers shall be acceptable. Before undertaking
to resolve the dispute, each arbitrator shall be duly sworn
- 28 -
<PAGE>
faithfully and fairly to hear and examine the matters in controversy and to make
a just award according to the best of his or her understanding. The arbitration
hearing shall be conducted in accordance with the rules of the American
Arbitration Association. The written decision of a majority of the arbitrators
shall be final and binding on the parties. Costs and expenses of the arbitration
proceeding shall be assessed between the parties in a manner to be decided by a
majority of the arbitrators, and the assessment shall be set forth in the
decision and award of the arbitrators. No action at law or suit in equity based
upon any claim arising out of or relating to this Agreement shall be instituted
in any court by a party against another except an action to compel arbitration
pursuant to this paragraph, an action to enforce the award of the arbitration
panel rendered in accordance with this paragraph, or a suit for specific
performance as may be specifically provided herein.
11.14 Successors. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns.
11.15 Third Parties. Nothing in this Agreement, whether expressed or
implied, is intended to (i) confer any rights or remedies on any person other
than the parties and their respective successors and assigns, (ii) relieve or
discharge the obligation or liability of any third party, or (iii) or give any
third party any right of subrogation or action against any party hereto.
11.16 Counterparts. This Agreement may be signed in counterparts with
the same effect as if the signature on each counterpart were on the same
instrument. Each of the counterparts, when signed, shall be deemed to be an
original, and all of the signed counterparts together shall be deemed to be one
and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first above written.
WITNESS/ATTEST: STERLING PARTNERS INC., a Delaware
corporation
By: /s/ John W. Farr, Jr.
- ----------------------------- ----------------------------------------
John W. Farr, Jr., President
GOURMETMARKET.COM, a California corporation
By: /s/ Chanan Steinhart
- ----------------------------- ----------------------------------------
Chanan Steinhart, President
- 29 -
<PAGE>
MARBLEHEAD CAPITAL GROUP, INC., a
Massachusetts corporation
By:
- ----------------------------- ----------------------------------------
___________________, President
- 30 -
<PAGE>
EXHIBITS TO MERGER AGREEMENT
3.1 Plan of Merger
4.2 Options for 236,500 shares of Gourmet stock
4.3 Consents and Approvals
4.4 Non-Contravention
4.5 Environmental Matters
4.6 Inventory
4.9 Compliance with Laws
4.11 Litigation
4.12 Absence of Changes
4.13 Liabilities
4.14 Title to Properties
4.15 Leases
4.16 Intellectual Property
4.17 Material Contracts
4.19 Insurance
4.22 Tax Matters
4.23 Finders
4.25 Insider Interests
4.26 Insider Transactions
4.27 No Interest in Competitors
4.30 Bank and Safe Deposit Arrangements
7.6 Investment Banking and Consulting Agreements
Exhibits are available by request.
- 31 -
<PAGE>
CERTIFICATE OF INCORPORATION
A STOCK CORPORATION
================================================================================
FIRST: The name of this Corporation is STERLING PARTNERS INC.
-----------------------------------------
- --------------------------------------------------------------------------------
SECOND: Its Registered Office in the State of Delaware is to be located at
130 BOXWOOD ROAD, in the City of MIDDLETOWN County of New NEW CASTLE,
---------------- ---------- ----------
Zip Code 19709-1227.
----------
Registered Agent There Of Is-- STERLING PARTNERS INC.
-------------------------------------------------
THIRD: The purpose of the corporation is to engage in any lawful act or activity
for which corporation may be organized under the General Corporation Law of
Delaware.
FOURTH: The amount of total authorized capital stock of this corporation is
- ---------------TWENTY-FIVE THOUSAND---------------Dollars ($25,000.00) divided
- -------------------------------------------------- ------------
into 25,000,000
----------------------------------------------------------------------------
shares, of PAR VALUE Dollars ($0.001) each
------------------------------------------------- ------
FIFTH: The name and mailing address of the incorporator are as follows:
Name: JOHN W. FARR, JR.
-----------------
Mailing Address: 130 BOXWOOD ROAD
----------------
City/State MIDDLETOWN, DE. Zip Code: 19709-1227
--------------- ----------
I, THE UNDERSIGNED, for the purpose of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do certify
that the facts herein stated are true, and I have accordingly
hereunto set my hand this TWENTY-SECOND day of APRIL, A.D. 1993
------------- ----- ----
/s/ JOHN W. FARR, JR.
-----------------------------------
JOHN W. FARR, JR., PRESIDENT
INCORPORATOR
RECEIVED
DEPARTMENT OF STATE
93 APR 22 PM 1:31
DIVISION OF CORPORATIONS
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
- ----------------------------
Sterling Partners Inc., A corporation organized and existing and by virtue of
the General Corporation Law of the State of Delaware,
Does Hereby Certify;
First, That at a meeting of the Board of Directors of Sterling Partners Inc.,
resolutions were duly adopted setting forth proposed amendments of the
Certificate of Incorporation of said corporation, declaring said
amendments to be advisable and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolution setting forth
the proposed amendments is as follows:
RESOLVED, That Article 3 is amended as follows: The purpose of this
corporation is to engage in any lawful act and activity for which a
corporation may be organized under the general corporation law of
Delaware, to include the following "The Company is empowered to engage
in the purchase, sale, and management of real estate, including income
producing properties of the following variety: Residential, Commercial,
and Agricultural. The Company may acquire operating companies of every
kind and description to include the acquisition and control of
companies that it believes to be undervalued.
RESOLVED, Article 4 is amended as follows: The total authorized capital
stock of this corporation shall be Twenty Five Thousand, Five Hundred
Dollars ($25,100.00), divided into:
25,000,000 shares of par value dollars of ($0.001) each, common stock
100,000 shares of par value dollars of ($0.001) each, class A preferred
stock
The dividend rate, if any, the conversion ratio, if any, the
Liquidation Rights, if any; and Call Features, if any, of the new Class
A preferred stock, will be determined at the time of issuance of said
shares.
Second, That thereafter, pursuant to resolution of its Board of Directors, at
the annual meeting of the stockholders of said corporation, duly called
and held upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which the necessary number
of shares as required by statute were voted in favor of the amendments.
Third, That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
Fourth, That the capital of said corporation shall not be reduced under or by
reason of said amendment.
<PAGE>
Certificate of Amendment of Page 2
Certificate of Incorporation. February 19, 1996
IN WITNESS WHEREOF, Said Richard P. Ongirsky, has caused this certificate to be
signed by John W. Farr Jr, its President and Chris M. Henderson, its Secretary,
This 19th day of February, 1996
By /s/ John W. Farr, Jr.
------------------------------------
President
Attest: /s/ Chris M. Henderson
--------------------------------
Witness /s/ XXXXXXXXXX
--------------------------------
<PAGE>
CERTIFICATE OF AMENDMENT TO
---------------------------
CERTIFICATE OF INCORPORATION
----------------------------
OF
--
GOURMETMARKET.COM, INC.
-----------------------
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is GourmetMarket.Com, Inc.
2. Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended by striking out Article FOURTH thereof and
substituting in lieu of said Article the following new Article:
"FOURTH: a. Capitalization. The aggregate number of shares
which the Corporation shall have the authority to issue is One Hundred Ten
Million (110,000,000) shares of all classes of stock, consisting of 100,000,000
shares of common stock, par value $.001, and 10,000,000 shares of preferred
stock, par value $.001.
b. Preferred Stock. Preferred stock may be issued in
one or more series. The Board of Directors of the Corporation is vested with
authority to determine and state the designations and preferences, limitations,
relative rights, and voting rights, if any, of each such series by the adoption
and filing in accordance with the Delaware General Corporation Law, before the
issuance of any shares of such series, of an amendment or amendments to this
Certificate determining the terms of such series, which amendment need not be
approved by the shareholders or the holders of any class or series of shares
except as provided by law. All shares of preferred stock of the same series
shall be identical."
3. The foregoing Amendment to the Certificate of Incorporation was duly
adopted and written consent has been given in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
Page 1 of 2
<PAGE>
IN WITNESS WHEREOF, the undersigned President, having been thereunto
duly authorized, has executed the foregoing Certificate of Amendment for the
Corporation the 21st day of January, 1999.
GOURMETMARKET.COM, INC.
By: /s/ John W. Farr, Jr.
----------------------------------
John W. Farr, Jr., President
Page 2 of 2
<PAGE>
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
STERLING PARTNERS INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation is Sterling Partners Inc.
2. Article First of the Company's Certificate of Incorporation be
amended to read as follows:
"FIRST: The name of the corporation is GourmetMarket.Com,
Inc."
3. Article Third of the Company's Certificate of Incorporation be
amended to read as follows:
"THIRD. The purpose of the corporation is to engage in any
lawful act or activity for which a corporation may be
organized under the General Corporation Law of Delaware."
4. The foregoing Amendments to the Certificate of Incorporation were
duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the undersigned President, having been thereunto
duly authorized, has executed the foregoing Certificate of Amendment for the
Corporation the 20th day of January, 1999.
STERLING PARTNERS INC.
By: /s/ John W. Farr, Jr.
----------------------------------
John W. Farr, Jr., President
<PAGE>
CERTIFICATE OF AMENDMENT TO
---------------------------
CERTIFICATE OF INCORPORATION
----------------------------
OF
--
STERLING PARTNERS INC.
----------------------
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Sterling Partners Inc.
2. Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended by striking out Article FOURTH thereof and
substituting in lieu of said Article the following new Article:
"FOURTH: a. Capitalization. The aggregate number of shares
which the Corporation shall have the authority to issue is Twenty-five
Million One Hundred Thousand (25,100,000) shares of all classes of
stock, consisting of 25,000,000 shares of common stock, par value
$.001, and 100,000 shares of preferred stock, par value $.001. Shares
of the Corporation's common stock issued at the time the Certificate of
Amendment containing this Article FOURTH is filed with the Secretary of
State shall be hereby automatically changed and reclassified without
further action into one (1) fully paid and non-assessable share of the
Corporation's common stock for each four (4) shares of common stock
then outstanding, provided that no fractional shares shall be issued
pursuant to such change and reclassification and the holder of any
fractional share shall receive a full share for each fractional share
held by such shareholder.
b. Preferred Stock. Preferred stock may be issued in
one or more series. The Board of Directors of the Corporation is vested
with authority to determine and state the designations and preferences,
limitations, relative rights, and voting rights, if any, of each such
series by the adoption and filing in accordance with the Delaware
General Corporation Law, before the issuance of any shares of such
series, of an amendment or amendments to this Certificate determining
the terms of such series, which amendment need not be approved by the
shareholders or the holders of any class or series of shares except as
provided by law. All shares of preferred stock of the same series shall
be identical."
<PAGE>
3. The foregoing Amendment to the Certificate of Incorporation was duly
adopted and written consent has been given in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned President, having been thereunto
duly authorized, has executed the foregoing Certificate of Amendment for the
Corporation the 13th day of January, 1999.
STERLING PARTNERS INC.
By: /s/ John W. Farr, Jr.
-----------------------------
John W. Farr, Jr., President
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCE
--------------------------------------
AND RIGHTS OF SERIES A PREFERRED STOCK
--------------------------------------
OF
--
GOURMETMARKET.COM, INC.
-----------------------
(a Delaware corporation)
I, C. Lawrence Rutstein, being the Assistant Secretary of
GourmetMarket.Com, Inc., a corporation organized and existing under the laws of
Delaware ("Corporation"), DO HEREBY CERTIFY that, pursuant to authority
conferred upon the Board of Directors by the Certificate of Incorporation and
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors, at a meeting duly called and held on January 18, 1999, adopted the
following resolution providing for the issuance of a series of preferred stock.
"RESOLVED, That pursuant to authority vested in the Board of Directors
by Article 4 of the Certificate of Incorporation of this Corporation, a series
of Preferred Stock is hereby established, the distinctive designation of which
shall be "Series A Preferred Stock" (which series being hereinafter called
"Series A"), and the preferences and relative participating, option or other
special rights of Series A, and the qualifications, limitations or restrictions
thereof (in addition to the relative powers, preferences and rights, and
qualifications, limitations or restrictions thereof, as set forth in Article 4
in the Certificate of Incorporation of the Corporation which are applicable to
shares of Preferred Stock of all series) shall be as follows:
1. Designation and Amount. The shares of such series shall be
designated as Series A Convertible Preferred Stock (the "Series A Convertible
Preferred Stock") and the number of shares constituted in the Series A
Convertible Preferred Stock shall be 100,000. Such number of shares may be
increased or decreased by the resolution of the Board of Directors; provided
that no decrease shall reduce the number of shares of Series A Convertible
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Convertible Preferred Stock.
2. Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A Convertible Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any payment shall be made
to the holders of junior stock by reason of their ownership thereof, an amount
equal to $.10 per share of Series A Convertible Preferred Stock plus the amount
of any accrued but unpaid dividends (whether or not declared) and interest
thereon. If upon any such liquidation, dissolution or winding up of the
1
<PAGE>
Corporation the remaining assets of the Corporation available for distribution
to stockholders shall be insufficient to pay the holders of shares of Series A
Convertible Preferred Stock the full amount to which they shall be entitled, the
holders of shares of Series A Convertible Preferred Stock shall share ratably in
any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
3. Voting.
(a) Number of Votes; Voting with Common Stock. Each
holder of outstanding shares of Series A Convertible Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series A Convertible Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 4
hereof) at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, or by the provisions of the following
subsections of this Section 3, holders of Series A Convertible Preferred Stock
shall vote together with the holders of Common Stock as a single class.
(b) Adverse Effects. The Corporation shall not amend,
alter or repeal preferences, rights, powers or other terms of the Series A
Convertible Preferred Stock so as to affect adversely the Series A Convertible
Preferred Stock without the written consent or affirmative vote of the holders
of at least 66-2/3% of the then outstanding shares of Series A Convertible
Preferred Stock given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class. For this purpose, without limiting
the generality of the foregoing the authorization or issuance of any series of
Preferred Stock which is on a parity with or has preference or priority over the
Series A Convertible Preferred stock as to the right to receive either dividends
or amounts distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed to affect adversely the Series A Convertible
Preferred Stock.
(c) Mergers, etc. The consent of the holders of not
less than 66- 2/3% of the outstanding Series A Convertible Preferred Stock,
voting separately as a single class, in person or by proxy, either in writing
without a meeting or at a special or annual meeting of shareholders called for
the purpose, shall be necessary for the Corporation to sell all or substantially
all of the Corporation's assets or effect any merger, consolidation, share
exchange or similar transaction to which the Corporation is a party, or to enter
into any other transaction resulting in the acquisition of a majority of the
then outstanding voting stock of the Corporation by another corporation or
entity.
2
<PAGE>
4. Optional Conversion. The holders of the Series A
Convertible Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series A
Convertible Preferred stock shall be convertible, at the option of the holder
thereof, without the payment of additional consideration by the holder thereof,
at any time and from time to time, into sixty and three-tenths (60.3) shares of
Common Stock (the "Conversion Rate"). The Conversion Rate shall be subject to
adjustment as provided below.
In the event of a liquidation of the
Corporation, the Conversion Rights shall terminate immediately prior to the
payment of any amounts distributable on liquidation to the holders of Series A
Convertible Preferred Stock.
(b) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of the Series A Convertible Preferred
Stock. In lieu of fractional shares, the Corporation shall pay by a whole share
of Common Stock.
(c) Mechanics of Conversion.
(i) In order to convert shares of Series A
Convertible Preferred Stock into shares of Common Stock, the holder shall
surrender the certificate or certificates for such shares of Series A
Convertible Preferred Stock at the principal office of the Corporation, together
with written notice that such holder elects to convert all or any number of the
shares represented by such certificate or certificates. Such notice shall state
such holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the Corporation shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at the place requested by such holder, or to
his nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share. Notwithstanding the preceding sentence, shares of Series A
Convertible Stock tendered for conversion in accordance with the other
provisions of this subparagraph (i) shall be deemed converted into shares of
common stock, and their owner or owners shall be deemed the beneficial and
record owner of such common stock for all purposes, at the time of tender
conforming to the provisions of this subparagraph (i).
(ii) The Corporation shall at all times
during which the Series A Convertible Preferred Stock shall be outstanding
reserve and keep available out of its authorized but unissued stock, for the
3
<PAGE>
purpose of effecting the conversion of the Series A Convertible Preferred Stock,
such number of its duly authorized shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Series A
Convertible Preferred Stock. Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value of the shares
of Common Stock issuable upon conversion of the Series A Convertible Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) All shares of Series A Convertible
Preferred Stock surrendered for conversion as herein provided shall no longer be
deemed to be outstanding, and all rights with respect to such shares, including
the rights, if any, to receive dividends, notices and to vote, shall immediately
cease and terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock and cash in lieu of fractional shares
in exchange therefor. Any shares of Series A Convertible Preferred Stock so
converted shall be retired and canceled and shall not be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to reduce the number of shares of authorized Series A Convertible
Preferred Stock accordingly.
(d) Adjustment for Stock Splits and Combinations. If
the Corporation shall at any time or from time to time after the date on which
any Series A Convertible Preferred Stock is first issued ("the Original Issue
Date") effect a subdivision of the outstanding Common Stock, the Conversion Rate
then in effect immediately before that subdivision shall be proportionately
adjusted. If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Rate then in effect immediately before the combination shall be
proportionately adjusted. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Adjustments for Certain Dividends and
Distributions. In the event the Corporation at any time or from time to time
after the Original Issue Date shall make or issue a dividend or other
distribution payable in shares of Common Stock, then and in each such event the
Conversion Rate shall be increased as of the time of such issuance, by
multiplying the Conversion Rate by a fraction,
(i) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance plus the number of shares of Common Stock issuable
in payment of such dividend or distribution, and
4
<PAGE>
(ii) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance.
(f) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time or from time to time
after the Original Issue Date shall make or issue a dividend or other
distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of shares of the Series A Convertible Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation that they
would have received had their Series A Convertible Preferred Stock been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period
given application to all adjustments called for during such period, under this
paragraph with respect to the rights of the holders of the Series A Convertible
Preferred Stock.
(g) Adjustment for Reclassification, Exchange, or
Substitution. If the Common Stock issuable upon the conversion of the Series A
Convertible Preferred Stock shall be changed into the same or a different number
of shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, share exchange or sale of assets for below), then and in each
such event the holder of each share of Series A Convertible Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series A Convertible Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
(h) Adjustment for Merger or Reorganization, etc. In
case of any consolidation, merger or share exchange of the Corporation with or
into another corporation or the sale of all or substantially all of the assets
of the Corporation to another corporation to which the holders of Series A
Convertible Preferred Stock shall have consented in accordance with Section 3
hereof, then each share of Series A Convertible Preferred Stock shall thereafter
be convertible into the kind and amount of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A Convertible Preferred
5
<PAGE>
Stock would have been entitled upon such consolidation, merger or sale; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 4
set forth with respect to the rights and interest thereafter of the holders of
the Series A Convertible Preferred Stock, to the end that the provisions set
forth in this Section 4 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series A Convertible
Preferred Stock.
(i) No Impairment. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid. the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Convertible Preferred Stock
against impairment.
(j) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Rate pursuant to
this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series A Convertible Preferred Stock a certificate setting forth
such adjustment and showing in detail the facts upon which such adjustment or
readjustment is based and shall file a copy of such certificate with its
corporate records. The Corporation shall, upon the written request at any time
of any holder of Series A Convertible Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (1) such
adjustments and readjustments, (2) the Conversion Rate then in effect, and (3)
the number of shares of Common Stock and the amount, if any, of other property
which then would be received upon the conversion of Series A Convertible
Preferred Stock. Despite such adjustment or readjustment, the form of each or
all stock certificate representing Series A Convertible Preferred Stock, if the
same shall reflect the initial or any subsequent conversion price, need not be
changed in order for the adjustments or readjustments to be valued in accordance
with the provisions of this Certificate of Designation, which shall control.
(k) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend
(or any other distribution) on its Common Stock;
(ii) that the Corporation subdivides or
combines its outstanding shares of Common Stock;
6
<PAGE>
(iii) of any reclassification of the Common
Stock of the Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock consolidation,
merger or share exchange of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary
dissolution, liquidation or winding up of the Corporation; then the Corporation
shall cause to be filed at its principal office and shall cause to be mailed to
the holders of the Series A Convertible Preferred Stock at their last addresses
as shown on the records of the Corporation, at least 20 days prior to the record
date specified in (A) below or 20 days before the date specified in (B) below, a
notice stating:
(A) the record date of such
dividend, distribution, subdivision or combination, or, if a record is not to be
taken, the date as to which the holders of Common Stock of record to be entitled
to such dividend, distribution, subdivision or combination are to be determined,
or
(B) the date on which such
reclassification, consolidation, merger, share exchange, sale, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, dissolution
or winding up.
5. Sinking Fund. There shall be no sinking fund for the
payment of dividends or liquidation preference on Series A Convertible Preferred
Stock or the redemption of any shares thereof.
6. No Mandatory Redemption. The Series A Convertible Preferred
Stock is not subject to mandatory redemption by the Corporation."
IN WITNESS WHEREOF, the undersigned Assistant Secretary, having been
thereunto duly authorized, hereby affirms that the foregoing Certificate is his
act and deed and the act and deed of the Corporation and that the facts stated
therein are true, has executed the foregoing Certificate of Designation for the
Corporation on January 18, 1999.
/s/ C. Lawrence Rutstein
-----------------------------------------
C. Lawrence Rutstein, Assistant Secretary
7
<PAGE>
CERTIFICATE OF MERGER
OF
GOURMETMARKET.COM, INC.
(a Delaware corporation)
AND
GOURMETMARKET.COM
(a California corporation)
It is hereby certified that:
1. The constituent business corporations participating in the merger
herein certified are:
(i) GourmetMarket.Com, which is incorporated under the laws of
the State of California; and
(ii) GourmetMarket.Com, Inc., which is incorporated under the
laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware, to wit, by GourmetMarket.Com, a
California corporation, in accordance with the laws of the State of its
incorporation and by GourmetMarket.Com, Inc., a Delaware corporation, in the
same manner as is provided in Section 251 of the General Corporation Law of the
State of Delaware.
3. The name of the surviving corporation in the merger herein certified
is GourmetMarket.Com, Inc., a Delaware corporation, which will continue its
existence as said surviving corporation under the name GourmetMarket.Com, Inc.,
upon the effective date of said merger pursuant to the provisions of the General
Corporation law of the State of Delaware.
4. The Certificate of Incorporation of GourmetMarket.Com, Inc., as now
in force and effect, shall continue to be the Certificate of Incorporation of
said surviving corporation until amended and changed pursuant to the provisions
of the General Corporation Law of the State of Delaware.
1
<PAGE>
5. The executed Agreement of Merger between the aforesaid constituent
corporations is on file at an office of the aforesaid surviving corporation, the
address of which is Post Office Box 8, Riverton, New Jersey, 08077.
6. A copy of the aforesaid Agreement of Merger will be furnished by the
aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of GourmetMarket.Com consists of
1,000,000 shares of common stock without par value.
Dated: January 22, 1999 GOURMETMARKET.COM, a
California corporation
By: /s/ C. Lawrence Rutstein
----------------------------------
C. Lawrence Rutstein
Asst. Secretary
Dated: January 22, 1999 GOURMETMARKET.COM, INC., a
Delaware corporation
By: /s/ C. Lawrence Rutstein
----------------------------------
C. Lawrence Rutstein
Asst. Secretary
2
<PAGE>
BY-LAWS
OF
STERLING PARTNERS, INC.
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices as
such other places within or without the United States as the Board of Directors
may, from time to time determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual meetings:
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.
Section 2 - Special Meetings:
Special meetings of the shareholders may be called at any tune by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Act.
Section 3 - Place of Meetings:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
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<PAGE>
Section 4 - Notice of Meetings:
(a) Except as otherwise provided by Statute, written notice of each meeting of
shareholders, whether annual or special, stating the time when and place where
it is to be held, shall be served either personally or by mail, not less than
ten or more than fifty days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for their shares
pursuant to Statute, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed to
each such shareholder at his address, as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and
By-Laws - 2
<PAGE>
sufficient to constitute a quorum for the transaction of any business. The
withdrawal of any shareholder after the commencement of a meeting shall have no
effect on the existence of a quorum, after a quorum has been established at such
meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
Section 6 - Voting
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
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<PAGE>
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Election and Term of Office:
(a) The number of the directors of the Corporation shall be ten (10), 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.
(b) Except as may otherwise be provided herein or in the Certificate 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.
(c) 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.
Section 2 - Duties and Powers:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings: Notice:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
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<PAGE>
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings: Notice:
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of special meeting shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later than
the day before the day on which the meeting is to be held. A notice, or waiver
of notice, except as required by Section 8 of this Article III, need not specify
the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Directors the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
directors shall preside.
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<PAGE>
Section 6 - Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Certificate
of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the corporation shall be
the act of the Board of Directors with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
By-Laws - 6
<PAGE>
Section 10 - Removal:
Any director may be removed with or without cause at any time by the affirmative
vote of shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
shareholders called for that purpose, and may be removed for cause by action of
the Board.
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
By-Laws - 7
<PAGE>
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
Section 1 - Number, Qualifications, Election
and Term of Office:
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
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<PAGE>
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by a majority of the Board of Directors at any time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
Section 6 - Sureties and Bonds:
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other Corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock:
(a) The certificates representing shares of the Corporation shall be in such
form as shall
By-Laws - 9
<PAGE>
be adopted by the Board of Directors, and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares,
and shall be signed by (i) the Chairman of the Board or the President or a Vice
President, and (ii) the Secretary or Treasurer, or any Assistant Secretary or
Assistant Treasurer, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) To the extent permitted by law, the Board of Directors may authorize the
issuance of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in liquidating
distributions, in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
By-Laws - 10
<PAGE>
Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
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<PAGE>
ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by the affirmative vote of shareholders holding of record
in the aggregate at least a majority of the outstanding shares entitled to vote
in the election of directors at any annual or special meeting of shareholders,
provided that the notice or waiver of notice of such meeting shall have
summarized or set forth in full therein, the proposed amendment.
Section 2 - By Directors:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
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<PAGE>
ARTICLE X - INDEMNITY
(a) Any person made a party to any action, suit or proceeding, by reason of the
fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein that such officer,
director or employee is liable for negligence or misconduct in the performance
of his duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of any
other rights to which any officer or director or employee may be entitled apart
from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be entitled
shall be fixed by the Board of Directors, except that in any case where there is
no disinterested majority of the Board available, the amount shall be fixed by
arbitration pursuant to then existing rules of the American Arbitration
Association.
The undersigned Incorporator certifies that he has adopted the foregoing
by-laws as the first by-laws of the Corporation.
Dated: April 22, 1993
-----------------
/s/ John W. Farr, Jr.
-----------------------------
Incorporator
By-Laws - 13
<PAGE>
GOURMETMARKET.COM, INC.
1999 STOCK PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. PURPOSE...................................................... 1
SECTION 2. DEFINITIONS.................................................. 1
(a) "Board of Directors"...................................... 1
(b) "Code".................................................... 1
(c) "Committee"............................................... 1
(d) "Company"................................................. 1
(e) "Disability".............................................. 1
(f) "Employee"................................................ 1
(g) "Exercise Price".......................................... 2
(h) "Fair Market Value"....................................... 2
(i) "ISO"..................................................... 2
(j) "Nonstatutory Option"..................................... 2
(k) "Option".................................................. 2
(l) "Optionee"................................................ 2
(m) "Plan".................................................... 2
(n) "Purchaser"............................................... 2
(o) "Service"................................................. 2
(p) "Share"................................................... 2
(q) "Stock"................................................... 3
(r) "Stock Option Agreement".................................. 3
(s) "Stock Purchase Right".................................... 3
(t) "Subsidiary".............................................. 3
SECTION 3. ADMINISTRATION............................................... 3
(a) Committee Membership...................................... 3
(b) Committee Procedures...................................... 3
(c) Committee Responsibilities................................ 3
(d) Financial Reports......................................... 4
SECTION 4. ELIGIBILITY.................................................. 5
(a) General Rule.............................................. 5
(b) Ten-Percent Shareholders.................................. 5
(c) Attribution Rules......................................... 5
(d) Outstanding Stock......................................... 5
SECTION 5. STOCK SUBJECT TO PLAN........................................ 5
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.............................. 6
(a) Stock Option Agreement.................................... 6
(b) Number of Shares.......................................... 6
(c) Exercise Price............................................ 6
(d) Withholding Taxes......................................... 6
(e) Exercisability............................................ 7
(f) Term...................................................... 7
(g) Nontransferability........................................ 7
(h) Exercise of Options on Termination of Service ............ 7
(i) No Rights as a Shareholder................................ 8
(j) Modification, Extension and Assumption of Options....... 8
(k)) Restrictions on Transfer of Shares....................... 8
<PAGE>
Page
----
SECTION 7. STOCK PURCHASE RIGHTS......................................... 8
(a) Rights to Purchase Restricted Stock....................... 8
(b) Repurchase Option......................................... 8
(c) Restrictions on Transfer of Shares........................ 9
(d) Other Provisions.......................................... 9
(e) No Rights as a Shareholder................................. 9
SECTION 8. PAYMENT FOR SHARES........................................... 9
(a) General Rule.............................................. 9
(b) Surrender of Stock........................................ 9
(c) Promissory Notes.......................................... 9
(d) Cashless Exercise......................................... 10
SECTION 9. RECAPITALIZATIONS, MERGERS AND ASSETS SALES.................. 10
(a) Changes in Capitalization.................................. 10
(b) Dissolution or Liquidations................................ 10
(c) Mergers or Asset Sale...................................... 11
SECTION 10. LEGAL REQUIREMENTS.......................................... 12
SECTION 11. NO EMPLOYMENT RIGHTS........................................ 12
SECTION 12. DURATION AND AMENDMENTS..................................... 12
(a) Term of the Plan.......................................... 12
(b) Right to Amend or Terminate the Plan...................... 13
(c) Effect of Amendment or Termination........................ 13
SECTION 13. EXECUTION................................................... 13
<PAGE>
GOURMETMARKET.COM, INC.
1999 STOCK PLAN
SECTION 1. PURPOSE.
- -------------------
The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, to encourage such selected persons to remain in the employ of the
Company, and to attract new employees by purchasing Shares of the Company's
common stock. The Plan provides for the grant of Options to purchase Shares.
Options granted under the Plan may include Nonstatutory Stock Options as well as
Incentive Stock Options intended to qualify under section 422 of the Internal
Revenue Code. Stock Purchase Rights may also be granted under the Plan.
SECTION 2. DEFINITIONS.
- -----------------------
(a) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a committee of the Board of Directors which
is authorized to administer the Plan under Section 3. The Committee shall have
membership composition which enables the Plan to qualify under Rule 16b-3 with
regard to the grant of Options to persons who are subject to Section 16 of the
Securities Exchange Act of 1934.
(d) "Company" shall mean GourmetMarket.com,Inc., a Delaware
corporation.
(e) "Disability" shall mean that an Optionee is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment.
(f) "Employee" shall mean (i) any individual who is a common-law
employee of the Company or of a Subsidiary, or (ii) a member of the Board of
Directors. In addition, service as a member of the Board of Directors or as a
consultant shall be considered employment for all purposes of the Plan except
the second sentence of Section 4(a).
<PAGE>
(g) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(h) "Fair Market Value" shall means the value of a Share determined as
follows:
(i) If the Stock is listed on any established stock exchange
or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be
the closing sales price for such stock (or the closing bid, if no
sales were reported, as quoted on such system or exchange for the last
market trading day prior to the time of determination) as reported in
the Wall Street Journal or such other source as the Administrator
deems reliable;
(ii) If the Stock is quoted on the Nasdaq System (but not on
the Nasdaq National Market) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high and low asked prices for the
Stock; or
(iii) In the absence of an established market for the Stock,
the Fair Market Value thereof shall be determined in good faith by the
Board of Directors.
(i) "ISO" shall mean an employee incentive stock option described in
Code section 422(b).
(j) "Nonstatutory Option" shall mean an employee stock option that is
not an ISO.
(k) "Option" shall mean an ISO or Nonstatutory Option granted under
the Plan and entitling the holder to purchase Shares.
(l) "Optionee" shall mean an individual who holds an Option.
(m) "Plan" shall mean the Company's 1999 Stock Plan.
(n) "Purchaser" shall mean an individual who holds a Stock Purchaser
Right.
(o) "Service" shall mean service as an Employee.
(p) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 9 (if applicable).
(q) "Stock" shall mean the common stock of the Company.
2
<PAGE>
(r) "Stock Purchase Right" shall mean the right granted to a Purchaser
to acquire common stock of the Company as provided in Section 7 herein.
(s) "Stock Option Agreement" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
(t) "Subsidiary" shall mean any corporation, of which the Company
and/or one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
SECTION 3. ADMINISTRATION.
- --------------------------
(a) Committee Membership. The Plan shall be administered by the
Committee, which shall consist of members of the Board of Directors. The members
of the Committee shall be appointed by the Board of Directors. If no Committee
has been appointed, the entire Board of Directors shall constitute the
Committee.
(b) Committee Procedures. The Board of Directors shall designate one
of the members of the Committee as chairperson. The Committee may hold meetings
at such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of the
Plan;
(iv) To determine when Options or Stock Purchase Rights are
to be granted under the Plan;
3
<PAGE>
(v) To select the Optionees or Purchasers;
(vi) To determine the number of Shares to be made subject to
each Option or Stock Purchase Right, and each Share's Fair Market
Value at the time of grant;
(vii) To prescribe the terms and conditions of each Option and
Stock Option Agreement, including (without limitation) the Exercise
Price, vesting and whether such Option is to be classified as an ISO
or as a Nonstatutory Option;
(viii) To prescribe the terms and conditions of each Stock
Purchase Right, including (without limitation) the purchase price per
Share, vesting and to specify the provisions of the stock purchase
agreement relating to such Stock Purchase Right;
(ix) To amend or terminate any outstanding Stock Option
Agreement;
(x) To determine the disposition of an Option in the event
of an Optionee's divorce or dissolution of marriage;
(xi) To correct any defect, supply any omission, or
reconcile any inconsistency in the Plan and any Option;
(xii) To prescribe the consideration for the grant of each
Option under the Plan and to determine the sufficiency of such
consideration; and
(xiii) To take any other actions deemed necessary or
advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Committee
shall be final and binding. No member of the Committee shall be liable for any
action that he or she has taken or has failed to take in good faith with respect
to the Plan, any Option or any Stock Purchase Right.
(d) Financial Reports. To the extent required by applicable law, and
not less often than an nually, the Company shall furnish to Optionees and
Purchasers Company financial statements including a balance sheet regarding the
Company's financial condition and results of operations, unless such Optionees
or Purchasers have duties with the Company that assure them access to equivalent
information. Such financial statements need not be audited.
4
<PAGE>
SECTION 4. ELIGIBILITY.
- ------------------------
(a) General Rule. Only Employees, as defined in Section 2(f), shall be
eligible for designation as Optionees or Purchasers by the Committee. In
addition, only individuals who are employed as common-law employees by the
Company or a Subsidiary shall be eligible for the grant of ISOs.
(b) Ten-Percent Shareholders. An Employee who owns more than 10
percent of the total combined voting power of all classes of outstanding stock
of the Company or any of its Subsidiaries shall not be eligible for designation
as an Optionee unless (i) the Exercise Price for an ISO (and a NSO to the extent
required by applicable law) is at least 110 percent of the Fair Market Value of
a Share on the date of grant, and (ii) in the case of an ISO, such ISO by its
terms is not exercisable after the expiration of five years from the date of
grant.
(c) Attribution Rules. For purposes of Subsection (b) above, in
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries. Stock
with respect to which such Employee holds an option shall not be counted.
(d) Outstanding Stock. For purposes of Subsection (b) above,
"outstanding stock" shall include all stock actually issued and outstanding
immediately after the grant. "Outstanding stock" shall not include Shares
authorized for issuance under outstanding options held by the Employee or by any
other person.
SECTION 5. STOCK SUBJECT TO PLAN.
- ----------------------------------
Subject to the provisions of Section 9 of the Plan, the maximum
aggregate number of shares which may be optioned and/or sold under the Plan is
4,800,000 Shares of Stock. The Shares may be authorized, but unissued, or
reacquired Stock. If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
5
<PAGE>
been terminated, become available for future grant under the Plan. The Company,
during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
- --------------------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 9. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the date of grant. To the
extent required by applicable law, the Exercise Price of a Nonstatutory Option
shall not be less than eighty-five percent (85%) of the Fair Market Value of a
Share on the date of grant. Subject to the preceding two sentences, the Exercise
Price under any Option shall be determined by the Committee in its sole
discretion. The Exercise Price shall be payable in a form described in Section
8.
(d) Withholding Taxes. As a condition to the exercise of an Option,
the Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise. The Optionee shall also make
such arrangements as the Committee may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the disposition of Shares acquired by exercising an Option.
6
<PAGE>
(e) Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. To the
extent required by applicable law, an Option shall become exercisable no less
rapidly than the rate of 20% per year for each of the first five years from the
date of grant. Subject to the preceding sentence, the exercisability of any
Option shall be determined by the Committee in its sole discretion.
(f) Term. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed ten (10) years from the date of grant, except
as otherwise provided in Section 4(b). Subject to the preceding sentence, the
Committee at its sole discretion shall determine when an Option is to expire.
(g) Nontransferability. No Option shall be transferable by the
Optionee other than by will or by the laws of descent and distribution. An
Option may be exercised during the lifetime of the Optionee only by him or by
his guardian or legal representative. No Option or interest therein may be
transferred, assigned, pledged or hypothecated by the Optionee during his
lifetime, whether by opera tion of law or otherwise, or be made subject to
execution, attachment or similar process.
(h) Exercise of Options on Termination of Service. Each Option shall
set forth the extent to which the Optionee shall have the right to exercise the
Option following termination of the Optionee's service with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Options issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of employment.
Notwithstanding the foregoing, and to the extent required by applicable law,
each Option shall provide that the Optionee shall have the right to exercise the
vested portion of any Option held at termination for at least 60 days following
termination of service with the Company, and that the Optionee (or his executor
or administrator, as the case may be) shall have the right to exercise the
Option for at least six months if the Optionee's service terminates due to death
or Disability.
(i) No Rights as a Shareholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares.
7
<PAGE>
(j) Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of Shares and at the same or a different Exercise
Price or for other consideration.
(k) Restrictions on Transfer of Shares. Any Shares issued upon
exercise of an Option may be subject to such rights of repurchase, rights of
first refusal and other transfer restrictions as the Committee may determine.
Such restrictions shall be set forth in the applicable Stock Option Agreement
and shall apply in addition to any restrictions that may apply to holders of
Shares generally.
SECTION 7. STOCK PURCHASE RIGHTS.
- ----------------------------------
(a) Rights to Purchase Restricted Stock. Stock Purchase Rights may be
issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the Committee
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed sixty (60) days from the date
of grant of the Stock Purchase Right. The offer shall be accepted by execution
of a stock purchase agreement in the form determined by the Committee.
(b) Repurchase Option. Unless the Committee determines otherwise, the
stock purchase agreement shall grant the Company a repurchase option exercisable
upon the voluntary or involuntary termination of the Purchaser's employment with
the Company (including death or disability). The pur chase price for Shares
repurchased pursuant to the stock purchase agreement shall be the original price
paid by the Purchaser and may be paid by cancellation of any indebtedness of the
Purchaser to the Company. The repurchase option with respect to the Shares
purchased pursuant to a Stock Purchase Right shall lapse at such rate as the
Committee may determine, but in no event as to less than 20% of the total shares
granted annually.
8
<PAGE>
(c) Restrictions on Transfer of Shares. Any Shares issued upon
exercise of a Stock Purchase Right may be subject to such rights of first
refusal and other transfer restrictions as the Committee may determine. Such
restrictions shall be set forth in the applicable stock purchase agreement and
shall apply in addition to any restrictions that may apply to holders of Shares
generally.
(d) Other Provisions. The stock purchase agreement may also contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Committee in its sole discretion. In addition, the
provisions of stock purchase agreements need not be the same with respect to
each Purchaser.
(e) No Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the Purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 9
of the Plan.
SECTION 8. PAYMENT FOR SHARES.
- -------------------------------
(a) General Rule. The entire Exercise Price of Shares optioned under
the Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Subsections (b), (c)
and (d) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or the Optionee's representative for any time period
specified by the Committee and which are surrendered to the Company in good form
for transfer. Such Shares shall be valued at their Fair Market Value on the date
when the new Shares are purchased under the Plan.
(c) Promissory Notes. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with a full recourse or nonrecourse
promissory note executed by the Optionee. The interest rate and other terms and
conditions of such note shall be determined by the Committee. The Committee may
require that the Optionee pledge his or her Shares to the Company
9
<PAGE>
for the purpose of securing the payment of such note. In no event shall the
stock certificate(s) representing such Shares be released to the Optionee until
any note is paid in full.
(d) Cashless Exercise. To the extent that a Stock Option Agreement so
provides and a public market for the Shares exists, payment may be made all or
in part by delivery (on a form prescribed by the Committee) of an irrevocable
direction to a securities broker to sell Shares and to deliver all or part of
the sale proceeds to the Company in payment of the aggregate Exercise Price.
SECTION 9. RECAPITALIZATIONS, MERGERS AND ASSET SALES.
- -------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Committee shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Committee in its discretion may provide for an Optionee to have
10
<PAGE>
the right to exercise his or her Option until fifteen (15) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Committee may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. Except as otherwise provided in an Option
Agreement or Stock Purchase Right, in the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Committee shall notify the Optionee in writing or electronically that the Option
or Stock Purchase Right shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option or Stock Purchase Right shall
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
11
<PAGE>
corporation or its Parent, the Committee may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of
the Option or Stock Purchase Right, for each Share of Optioned Stock subject to
the Option or Stock Purchase Right, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
SECTION 10. LEGAL REQUIREMENTS.
- --------------------------------
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange on which the
Company's securities may then be listed.
SECTION 11. NO EMPLOYMENT RIGHTS.
- ----------------------------------
No provision of the Plan, nor any Option granted under the Plan, shall
be construed to give any person any right to become, to be treated as, or to
remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason.
SECTION 12. DURATION AND AMENDMENTS.
- -------------------------------------
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's shareholders. In the event that the shareholders fail
to approve the Plan within twelve (12) months after its adoption by the Board of
Directors, any Option grants already made shall be null and void, and no
additional Option grants shall be made after such date. The Plan shall terminate
automatically ten (10) years after its adoption by the Board of Directors and
may be terminated on any earlier date pursuant to Sub section (b) below.
12
<PAGE>
(b) Right to Amend or Terminate the Plan. The Board of Directors may
amend the Plan at any time and from time to time. Rights and obligations under
any Option granted before amendment of the Plan shall not be materially altered,
or impaired adversely, by such amendment, except with consent of the person to
whom the Option was granted. An amendment of the Plan shall be subject to the
approval of the Company's stockholders only to the extent required by applicable
laws, regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
SECTION 13. EXECUTION.
- -----------------------
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same as of January 24,
1999.
GOURMETMARKET.COM, INC.
a Delaware corporation
By
------------------------------------------------
Title
---------------------------------------------
13
<PAGE>
EXHIBIT 10.2
LOGO
RAINMAKER
CAPITAL
February 1, 1999
To: Chanan Steinhart
GourmetMarket.com
From: Erik Ott
Rainmaker Capital, LLC
Re: Ongoing relationship
Dear Chanan:
In effort to aid GourmetMarket.com in growing its business, Rainmaker will
deliver the following services to the company for the 12 month period ending
February 1, 2000:
1) Business Development
2) Capital Sourcing
3) Interim Financial Consultant
4) Interim Head of HR
5) Other needed services as defined by GMC.
Cost: $5,000 monthly retainer
Term: Twelve Months
In addition to the retainer, Rainmaker Capital LLC will be entitled to a fee
based on successful completion of a "corporate event" that occurs as a direct
result of Rainmaker's efforts (defined as an introduction of an investor,
acquirer, or merger partner to the company). Such event includes a corporate
financing (debt or equity), Merger or Acquisition of the entities assets with a
third party. This fee will be 5% of the aggregate consideration of the
transaction.
If you agree to the terms of this agreement, please date and sign in the space
provided below.
By: /s/ Chanan Steinhart /s/ Erik Ott
--------------------------------- -------------------------------
Chanan Steinhart, President & CEO Erik Ott
Rainmaker Capital, LLC
Date:
153 Kearny Street, Suite 201 o San Francisco, California 94108 o 415 733-0635 o
fax 415 733-0690 o www.rainmakercap.com
<PAGE>
EXHIBIT 10.3
TECHNICAL SUPPORT AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of February,
1999, by and between I-LABS, LTD., a company formed under the laws of Israel
(the "Company"), and GourmetMarket.com a Delaware company (the "GMC").
WHEREAS, the Company desires to offer GMC certain technical services
with respect to the upgrade support and maintenance of the GMC Software, and GMC
desires to accept such services under the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises hereof, and the mutual
obligations herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
Section 1
DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply to the respective capitalized terms:
1.1 "Enhancement." Any modification or addition that, when made or
added to the Software, materially changes its utility, efficiency, functional
capability, or application, but that does not constitute solely an Error
Correction. Enhancements may be designated by the Company as minor or major,
depending on the Company's assessment of their value and of the function added
to the preexisting Software.
1.2 "Error." Any failure of the Software to conform in all material
respects to its functional specifications. However, any nonconformity resulting
from GMC's misuse, improper use, alteration, or damage of the Software or GMC's
combining or merging the Software with any hardware or software not supplied by
or identified as compatible by the Company, shall not be considered an Error.
1.3 "Error Correction." Either a modification or addition that, when
made or added to the Software, establishes material conformity of the Software
to the functional specifications, or a procedure or routine that, when observed
in the regular operation of the Software, eliminates the practical adverse
effect on GMC of such nonconformity.
1.4 "Software." The computer programs used by GMC to operate the GMC
site, and or every part of it.
1.5 "Term." An initial period of 1 year commencing from the date
hereof. Thereafter, the Term shall automatically renew for successive periods of
one (1) year each unless and until terminated pursuant to Section 6 hereof.
Section 2
SCOPE OF SERVICES
During the Agreement Term, the Company shall render the following
services in support of the Software:
2.1 The Company shall perform an upgrade to the system according to a
tech spec. mutually defined.
2.2 The company shall develop and undertake different technical needs
and projects as defined from time to time by GMC, with regards to changes and
add-on to the GMC system.
<PAGE>
2.3 The Company shall maintain a trained staff capable of rendering
the services set forth in this Agreement.
2.4 Subject to space availability GMC may enroll its employees in the
Company's training classes, held at the Company's facility in Israel, for
regular or advanced training.
2.5 The company shall provide GMC with graphic design services as
needed by GMC for time to time.
Section 3
FEES AND CHARGES
3.1 GMC shall pay the Company a monthly fee of US$10,000. The Company
reserves the right to change its rate and fee schedule from time to time,
provided that no such change will be effective until at least 30 days after the
Company has given GMC written notice of such change.
3.2 GMC shall reimburse the Company for travel expenses (i.e.,
transportation, lodging, and meals). The Company shall conform to GMC standard
expense and reimbursement policy as amended from time to time, and shall provide
backup documentation called for in GMC standard expense and reimbursement
policy.
3.3 The Company shall invoice GMC at the beginning of each calendar
month for all fees and charges accrued, and all reimbursable expenses incurred,
during the previous month. GMC shall pay the invoiced amount promptly upon
receipt of such invoice.
3.4 GMC shall be responsible for procuring, installing, and
maintaining all equipment, telephone lines, communications interfaces, and other
hardware (other than the hardware constituting the program control center
maintained at the Company's facilities) necessary to operate the Software and to
obtain from the Company the services called for by this Agreement.
Section 4
PROPRIETARY RIGHTS
4.1 To the extent that the Company may provide GMC with any Error
Corrections or Enhancements or any other program, including any new programs or
components, or any compilations or derivative works prepared by the Company
(collectively, "Vendor Programs"), GMC may (1) install one (1) set of the Vendor
Programs, in the most current form provided by the Company, in GMC's own
facility; (2) use such Vendor Programs in connection with the Software, and in a
manner consistent with the requirements of the License Agreement, for purposes
of serving GMC's internal business needs; and (3) make one (1) copy of the
Vendor Programs in machine-readable form for nonproductive backup purposes only.
GMC may not use, copy, or modify the Vendor Programs, or any copy, adaptation,
transcription, or merged portion thereof, except as expressly authorized by the
Company.
4.2 The Vendor Programs, including any associated intellectual
property rights, are and shall remain the sole property of GMC, regardless of
whether ILAB's, its employees, or contractors may have contributed to the
conception of such work, joined in the effort of its development, or paid the
Company for the use of the work product.
<PAGE>
Section 5
DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY
5.1 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE COMPANY
EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES CONCERNING THE SOFTWARE OR THE
SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED, INCLUDING
(WITHOUT LIMITATION) ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
5.2 In no event shall the Company's cumulative liability for any claim
arising in connection with this Agreement exceed the lesser of the total fees
and charges paid to the Company by GMC within the last 6 months or the sum of
US$60,000. In no event shall the Company be liable for any indirect,
consequential, special, exemplary, or incidental damages of whatever kind and
however caused, even if the Company knew or should have known of the possibility
of such damages.
5.3 No action, whether based in contract, strict liability, or tort
including any action based on negligence, arising out of the performance of
services under this Agreement, may be brought by either party more than 1 year
after such cause of action accrued, except that an action for nonpayment may be
brought within two (2) years of the date of the last payment.
Section 6
TERMINATION
6.1 This Agreement may be terminated as follows: (1) This Agreement
may be terminated by either party upon the expiration of the then-current term
of this Agreement, provided that at least 30 days' prior written notice is given
to the other party; or (ii) This Agreement may be terminated by either party
upon 30 days' prior written notice if the other party has materially breached
the provisions of this Agreement and has not cured such breach within such
notice period. (iii) GMC will be allowed to terminate this contract upon 60
days' prior written notice.
6.2 Following termination of this Agreement, the Company shall
immediately invoice GMC for all accrued fees and charges and all reimbursable
expenses and GMC shall pay the invoiced amount immediately upon receipt of such
invoice.
Section 7
MISCELLANEOUS
7.1 Each party acknowledges that it has read this Agreement,
understands it, and agrees to be bound by its terms. The parties further agree
that this is the complete and exclusive statement of the agreement of the
parties with respect to the subject matter hereof and that it supersedes and
merges all prior proposals, understandings, and agreements, whether oral or
written, between the parties with respect to the subject matter hereof. This
Agreement may not be modified except by a written instrument duly executed by
the parties hereto.
7.2 This Agreement and the parties' obligations hereunder shall be
governed, construed, and enforced in accordance with the laws of the State of
California.
7.3 In the event that any provision of this Agreement is held invalid,
illegal, or unenforceable, the remaining provisions shall be enforced to the
maximum extent permitted by applicable law.
7.4 Neither party may assign its rights or duties under this Agreement
without the prior written consent of the other party, except to a successor of
xx, or substantially all of its business and properties.
<PAGE>
7.5 The waiver by either party of any term or condition of this
Agreement shall not be deemed to constitute a continuing waiver thereof nor of
any further or additional right that such party may hold under this Agreement.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed by their duly authorized representatives as set forth below.
I-LABS, LTD GourmetMarket.com, INC
- ----------- ----------------------
By: /s/ By: /s/
------------------------------ ------------------
Title: CEO Title: CEO
--------------------------- ---------------
<PAGE>
EXHIBIT 10.4
RICHMOND HOUSE MARKETING AND PROMOTIONS
---------------------------------------
January 15, 1999
To: Chanan Steinhart
GourmetMarket.com
507 Howard St.
Suite 200
San Francisco CA 94105
Between: Richmond House Marketing and Promotions and GourmetMarket.com
The service period between Richmond House and GourmetMarket.com is for a one
year period commencing January 15th 1999 and terminating January 15th 2000.
There will be a payment review after the first three months or when the second
round of financing is achieved. Either party may terminate this agreement with
a sixty day written notice.
The remuneration
For the first three month period $10,000.00 US dollars per month plus a
$2,000.00 overhead charge for a total of $12,000 US per month.
This includes the following:
1. Seventy five percent of regular working hours.
2. The services of James Freeman and Charles Luffer
3. The services of 'Richmond House Marketing' including staff and office.
4. Two GourmetMarket Telephone lines and a toll free number as well as
Internet service. (Not to exceed $500.00 US per month).
Extenuating expenses to be paid by Gourmetmarket.com will include.
1. Courier services for campaigns.
2. Air Travel requested by the head office.
3. Sub-contractor work requested by head office.
Thank you.
Richmond House Marketing GourmetMarket.com
James Freeman Chanan Steinhart
/s/ James Freeman /s/ Chanan Steinhart
- --------------------------- --------------------------
Charles Luffer
/s/ Charles Luffer
- ---------------------------
<PAGE>
Exhibit 10.6
@HOME NETWORK
@HOME/GOURMETMARKET PARTNERSHIP AGREEMENT
At Home Corporation, a Delaware corporation with principal offices at 425
Broadway, Redwood City; CA 94063 ("@Home") and GourmetMarket.com Inc., a
Delaware corporation with principal offices at 507 Howard St. San Francisco, CA
94111 ("GourmetMarket.com") hereby enter into this @Home/GourmetMarket
Partnership Agreement (this "Agreement") as of April 29, 1999 (the "Effective
Date") to establish GourmetMarket.com Content and Commerce on the @Home Service
in accordance with the terms and subject to the conditions of this Agreement.
In consideration of the representations, warranties and covenants contained
herein, and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree to be bound by the terms and conditions
of this Agreement.
At Home Corporation GourmetMarket.com
By ______________________ By ___________________________
Name: ___________________ Name: ________________________
Title: __________________ Title: _______________________
<PAGE>
@HOME NETWORK/GOURMETMARKET PARTNERSHIP AGREEMENT
The parties agree as follows:
1. Definitions. Capitalized terms shall have the meanings set forth in
Section 1 or as elsewhere defined in the body of the Agreement.
A. "@Home Service" means the @HOME Network broadband service
offering of Internet access for personal computers
created by @Home and @Home's Distribution Affiliates in
connection with @Home's provision of Internet access via
the cable infrastructure and delivered to paying @Home
residential PC service subscribers at speeds in excess
of 128kbs as of the Effective Date.
B. "Above the Fold" means situated within that portion of a
page that is designed to be visible on a standard
computer screen with a resolution of 800 pixels by 800
pixels without requiring the user to scroll horizontally
or vertically through the page.
C. "Anchor Shopping Tenant" means one of multiple paying
featured merchants or service providers in the @Home
shopping channel.
D. "Competitors" means the entities identified as Cooking.com,
Digitalchef, Epicurious, Great foods.com and Virtual
Vineyards in relationship to the Food SubChannel.
E. "Contract Year" means a period on the Effective Date, or any
anniversary thereof, and ending one year later.
F. "Cover Feature" means the portion of the Channel or
SubChannel Home Page that is produced daily by the
@Home editorial staff.
G. "Distribution Affiliates" means at any given time,
@Home's then-current domestic distribution affiliates who
offer the @Home Service.
H.
I. "Food SubChannel" means a collection of web pages on the
@Home Service that are grouped together under the
Lifestyle Channel by a persistent, dedicated
navigational HTML button to be called "Food".
J. "Impression" means a single viewing of a page or an
Advertisement. An Impression is recorded whether or not the
viewer acts on an advertisement located on that page.
K. "GourmetMarket.com Content" means a collection of web pages,
or portion thereof, on the @Home Service programmed by, and
provided to @Home by GourmetMarket.com.
L. "GourmetMarket.com Site" means the World Wide Web site with
URL: www.GourmetMarket.com.
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<PAGE>
M. "Gross Margin Revenue" means gross revenue less transaction
fees (not to exceed 2%) and cost of goods sold.
N. "LifeStyle Channel" means a collection of web pages on the
@Home Service that are grouped together by a persistent,
dedicated navigation HTML button currently labeled
"LifeStyle", which is directly accessible from the main
navigation menu of the @Home Service.
0. "LifeStyle Home Page" means the first page accessed when
entering the LifeStyle Channel.
P. "Net Advertising Revenue" means the gross advertising and
sponsorship revenue collected by @Home which is directly
attributable solely to GourmetMarket.com Content, less third
party agency commissions and seller sales costs to be
computed as 15% of the gross advertising and sponsorship
revenue generated from GourmetMarket.com Content.
Q. "Quarterly Period means with respect to any Contract Year, a
three month period beginning on the effective date.
R. "Semiannual Period" means, with respect to any Contract Year, a
six month period beginning at either (i) the beginning of such
Contract Year, or (ii) six months after the beginning of such
Contract Year.
S. "Term" means two years from Effective Date.
T. "Unique Content" means food content not offered by
GourmetMarket.com.
U. "Wizard&" An @Home created search tool on the @Home Service
that provides an easy-to-use interface for common user
requests.
2. @Home Contribution.
-------------------
A. Persistent Channel Navigation.
-----------------------------
(i) Food SubChannel. During the Term of this Agreement
@Home will provide one button in the LifeStyle
Channel navigation bar dedicated to accessing the
Food SubChannel (the "Food SubChannel Button").
The Food SubChannel Button will: (i) receive
persistent placement, (ii) be accessible from any
page within the LifeStyle Channel, and (iii) link
to GourmetMarket.com Content. The button will
appear Above the Fold in a position that
encourages use on the @Home LifeStyle Channel. in
addition, @HOME may, in its sole discretion, add
additional navigational elements or links across
the @Home Service which link to all or any of
GourmetMarket.com Content
(ii) GourmetMarket.com Branding. @Home will place the
GourmetMarket.com
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<PAGE>
brand (as designated by the parties) on the Food
SubChannel and subsequent GourmetMarket.com
co-created pages. The logo and branding shall be
mutually agreed upon and shall comply with
@Home's and GourmetMarket.com's trademark usage
guidelines.
GourmetMarket.com Content Appearance on the Food Subchannel.
------------------------------------------------------------
GourmetMarket.com Content from within the Food
SubChannel will receive persistent and prominent
placement by incorporating GourmetMarket.com's
content and branded hotlink and additional topical
hotlinks. Both parties will work together to
provide the optimal mix of @Home co-branded,
co-created GourmetMarket.com video content to
provide the optimal user experience and to
encourage broad use of the Food SubChannel and
drive traffic to GourmetMarket.com Content
(iv) Food SubChannel Anchor Tenancy. @Home agrees that
during the term of this Agreement,
GourmetMarket.com will be the Food SubChannel
Anchor Tenant content provider on @Home. For
purposes of this Agreement, "Food SubChannel
Anchor Tenant" means:
(a) Promotion of GourmetMarket.com at
a level significantly greater
than that given to other third
party content providers of food
content in the Food SubChannel or
other channels or subChannels.
(b) @Home will not include content or
sell targeted ad units or
sponsorships from Competitors in
the Food SubChannel. This does
not preclude @Home from selling
and serving advertisements run
of site or other non-LifeStyle
Channel opportunities from
Competitors.
(c) Right of First Negotiation for
Unique Content. In the event
@Home determines the need for
Unique Content in the Food
SubChannel, @Home promptly
notify GourmetMarket.com of such
content. GourmetMarket.com shall
advise @Home whether it wishes
to pursue producing the Unique
Content or rights to such
content to @Home no later than
ten (10) business days from the
date of such notice. @Home
agrees that it shall not offer
the Unique Content opportunity
to third parties providers
during the ten (10) day period.
(d) It GourmetMarket.com notifies
@Home during the ten (10) day
response period that it wishes
to enter negotiations with
@Home for development of Unique
Content, @Home shall not
negotiate with any third party
with respect to such Unique
Content. In the event that
GourmetMarket.com and @Home are
unable to agree upon the terms
of the opportunity within
fifteen (15) days after
entering into negotiations,
@Home shall be free to offer
the opportunity to third
parties, including
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<PAGE>
Competitors, so long as the terms of such offer
are no more favorable than the terms offered to
GourmetMarket.com
(V) Product Development and Product Creation. All
facets of the Food SubChannel will be created,
designed, and administered by the @Home Network
editorial and production staffs.
GourmetMarket.com will play an integral role in
the product development and day-to-day editorial
decisions but final discretion will be with
@Home.
(vi) Editorial Autonomy. Notwithstanding the
provisions of Section 2 (a)(iii) above,
GourmetMarket.com's status as a partner shall in
no way affect @Home's editorial discretion. Such
discretion includes but not limited to:
(a) Inclusion of @Home editorial
features and/or other parties'
contextually relevant content
including that from
Competitors, in the LifeStyle
Channel, Food Subchannel or
other areas of the @Home
Service.
(b) Local programming by the
Distribution Affiliates.
B. Shopping Channel.
---------------
(i) Shopping Anchor Tenancy. During the term of this
agreement, @Home will include GourmetMarket.com
as a "Shopping Anchor Tenant"(hereby referred
to as "Tenant") of an online food store in its
shopping channel. @Home will use best efforts to
sell future positions within the food store for
a price equal to or greater than that given to
GourmetMarket.com during the term of this
Agreement.
(ii) Category Spotlight. @Home will regularly promote
the food store in the @Home shopping channel.
(iii) Product Advertisements on the Shopping Channel.
Subject to the availability of appropriate
functionality, @Home will promote, on the main
page of the shopping channel, along with the
products of other @Home merchants, a product
offered by GourmetMarket.com through the food
store. GourmetMarket.com shall select such
product and may change its selection of product
each week during the term provided that
GourmetMarket.com provides at least fourteen
(14) days notice of all such changes. @Home
will include a link directly to the information
or purchase page within the location at the
GourmetMarket.com Site of the product being
promoted. GourmetMarket.com shall use reasonable
efforts to make available to @Home digital
promotional material in accordance with standard
@Home specifications governing this area which
may be amended by @Home from time to time. @Home
shall not be obligated to provide this
advertisement if GourmetMarket.com does not make
available to @Home digital promotional material
in accordance with standard @Home specifications
governing this area.
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<PAGE>
(iv) Shopping Focused Email Promotion. Subject to
appropriate Distribution Affiliate approval, @Home
will include promotions from GourmetMarket.com in
emails to @Home subscribers. These emails will at a
minimum include GourmetMarket.com name, but may also
include the GourmetMarket.com logo and information
regarding GourmetMarket.com products, specials,
sweepstakes giveaways, etc., subject to
GourmetMarket.com's prior written suggestions (which
shall not be unreasonably withheld or delayed).
@Home shall provide notification of planned email
into which GourmetMarket.com shall be included at
least 10 days before such promotion is be deployed.
GourmetMarket.com shall have 5 business days from
notification to deliver to @Home the following
promotional items: i) a deal which represents twenty
dollars in value and is at least 10% savings off of
the lowest price found on the Internet and ii)
digital images of said product, in the
specifications standards determined by @Home, to be
used in merchandising the product in the email, and
iii) a unique URL to be used for tracking
promotional response, including but not limited to
visitation and purchase conversion, and iv)
descriptive text explaining the product which shall
be used to inform the newsletter editor and writer
of the product.
C. Wizards.
-------
(i) Recipe and Cocktail Wizard. @Home will work with
GourmetMarket.com to create two (2) Wizards which
will be sponsored by GourmetMarket.com. One Wizard
will be entitled "How Do I Find a Recipe?' The
second Wizard will be entitled "How Do I Make a
Cocktail?" The design of the Wizards will follow
standard @HOME Wizard specifications. Such
specifications may change periodically. Both parties
will use reasonable efforts to integrate
GourmetMarket.com video assets into the wizards.
D. Advertising Inventory.
---------------------
(i) Impressions. @Home will provide GourmetMarket.com
with 3,500,000 above the fold advertising
Impressions in the first contract year and 6,000,000
above the fold advertising Impressions in the second
contract year. The advertisements will be
cross-promoted across the @Home channels. @Home
will also provide creative services to assist the
production of up to six b*box advertisement units
over the term of the agreement. GourmetMarket.com
has the option of creating new b*boxes, banners and
half banners (more than the six provided by @Home
creative services) at their own cost and per the ad
unit specifications provided by @Home. In addition,
@Home will offer GourmetMarket.com additional ad
unit Impressions at pricing based upon the most
favorable rate card currently provided to @Home's
advertising customers.
(a) Measuring Impressions. @Home will
use reasonable efforts to quantify
the total ad Impressions provided.
GourmetMarket.com recognizes that
because some types of ad
impressions can not be directly
tracked, parties shall rely upon
@Home's reasonable estimates of
Impressions
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<PAGE>
served with respect to such types
of impressions. @Home shall
describe to GourmetMarket.com the
manner in which @Home makes each
such estimate.
(b) Audit. Within thirty (30) days
after the end of each calendar
month during the Term, @Home will
submit to GourmetMarket.com a
report detailing the number and
type of b*box, full banner and
half banner Impressions provided
during the calendar month. Within
thirty (30) days after the end of
each Quarterly Period, @Home will'
submit to GourmetMarket.com a
report detailing the number and
types of Impressions provided
during the previous Quarterly
Period and the manner in which
@Home makes estimates of the
number of Impressions. The parties
will maintain, and make available
to each other records relating to
the parties performance under this
Agreement.
3. @Home Marketing Contribution.
----------------------------
A. Outbound Marketing. As the GourmetMarket.com brand becomes more
recognized in the Internet space, @Home will use reasonable efforts to
encourage its Distribution Affiliates to include GourmetMarket.com in
any content-related external marketing pieces. These marketing pieces
may include the GourmetMarket.com logo but may also include the
GourmetMarket.com Content descriptions, screen shots, video of the
@Home Service which includes GourmetMarket.com Content, etc. Possible
marketing avenues may include cable TV spots, infomercials, newspaper
ads, bill stuffers, postcards, door hangers, direct mail, Mail Tour of
America and Take-One brochures. Subject to GourmetMarket.com
pre-approval, GourmetMarket.com will provide @Home with guidelines for
how to describe/display GourmetMarket.com in @Home outbound marketing
efforts.
B. Other Online Marketing. @Home and GourmetMarket.com will work
together to include GourmetMarket.com in other appropriate online
mechanisms for showcasing GourmetMarket.com Content and other offerings
as these mechanisms are developed.
C. Usage Data. To the extent both parties are legally and Contractually
permitted, they will provide each other with aggregated usage data on
the LifeStyle Food SubChannel, Shopping Channel and Wizard. Such
Aggregated data includes site visitation and videos downloaded by @Home
subscribers. This data will be used for internal use only. Usage data
reports will be provided quarterly and as reasonably requested by both
parties. The reports will be delivered in the format most commonly
collected by each party. All usage data will be considered Confidential
Information of the collecting party (as such term is defined in Section
17). Both parties agree that unless each is otherwise required by law,
they will not provide usage data specific to GourmetMarket.com Content
that has not been aggregated with other data to any third-party other
than Distribution Affiliates, without the other party's prior written
consent.
4. @Home Network Distribution Contribution.
---------------------------------------
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<PAGE>
A. @Home will distribute GourmetMarket.com Content through all means
by which it distributes its national content to subscribers using
personal computers as of the Effective Date.
B. Channel Serving, Distribution and @Work Services. @Home will
provide backbone transport, caching, and network management associated
with the distribution of GourmetMarket.com Content and any related
content to @Home subscribers over the @Home Network. Without limiting
any rights @Home may have under applicable laws, GourmetMarket.com
agrees that @Home may promote (as contemplated by this Agreement)
transport (i.e. transmit and serve), cache on proxy servers, replicate
on replication servers and reproduce on related storage devices
operated by @Home and its Distribution Affiliates, the content
provided by GourmetMarket.com to @Home for the Food SubChannel. In
the event the response time from the GourmetMarket.com Site to @Home
subscribers becomes unacceptably slow (in the reasonable discretion of
@Home), GourmetMarket.com and @Home shall work together to establish
and maintain a direct connection from the GourmetMarket.com servers to
the @Home Network. GourmetMarket.com shall bear the costs of this
connection, the speed of which shall be no less than 1.5 Mbps. Any
price for the connection offered by @Home shall be discounted at the
same rate offered to our other partners.
5. GourmetMarket.com Contribution.
------------------------------
A. GourmetMarket.com Content. GourmetMarket.com Content shall consist
of food content that is rich in graphics, text and video and will
include, at a minimum, food content supplied by GourmetMarket.com to
be redistributed on @Home as follows:
1. Video and Text Recipes for food and cocktails
2. Gourmet Products
3. Wine Reviews
4. Expert Articles and Reviews
5. Gift Registry
6. Multimedia Content
B. Active Web Presence. During the term of this Agreement,
GourmetMarket.com will maintain at all times an Active Web Presence.
For the purpose of this Agreement "Active Web Presence" means the
maintenance of the GourmetMarket.com Site and GourmetMarket.com
Content at a level at least equal to the level of performance and
functionality as offered on the Effective Date (including breadth and
depth of offerings, services and suppliers).
C. Quality of Services. If the quality of the primary features and
functions of GourmetMarket.com Content (including, frequency of
updates, breadth and depth of coverage, usability) are not
substantially equal to or better than the analogous functions and
features provided by the GourmetMarket.com Site, by GourmetMarket.com
for its distribution partners, or by "Competitors", then @Home may so
notify GourmetMarket.com in writing of such deficiencies, including a
description of how GourmetMarket.com Content is deficient. Within
thirty (30) days of receiving such notice GourmetMarket.com will
provide @Home with a reasonable plan for rectifying such
deficiencies. Such plan must be completed as soon as possible and in
no event later than ninety (90) days after the date Gourmet Market.com
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received the notice of deficiency. If GourmetMarket.com fails to
provide such plan or to implement it within such periods, or if such
implementation does not rectify the specified deficiencies, then @Home
may terminate this Agreement in its entirety or may terminate all or
any portion of the rights granted to GourmetMarket.com pursuant to
Section 2 above.
D. Customer Support. Customer support related to GourmetMarket.com
Content will be provided by GourmetMarket.com GourmetMarket.com shall
provide @Home with customer support telephone numbers, e-mails and
contacts and @Home agrees to forward any requests for customer support
to the designated personnel and email mailboxes.
E. Link Back. GourmetMarket.com agrees to include a "hot link" back to
@Home from all GourmetMarket.com Content that @Home links to from the
@Home service. In other words, GourmetMarket.com will include a "link
back" for @Home subscribers connecting to GourmetMarket.com Content
from GourmetMarket.com corn via an @Home HTML link.
6. Joint @Home/GourmetMarket.com Contribution.
------------------------------------------
A. Technical Specifications. GourmetMarket.com and @Home will
mutually agree upon the technical specifications for
GourmetMarket.com Content. If @Home makes changes in the applicable
technical specifications, GourmetMarket.com will make commercially
practical efforts to promptly comply with such changes.
B. User Interface and Content. @Home and GourmetMarket.com will
mutually agree on the user interface design (which shall be
consistent with the @Home look-and-feel) and on the types of
content which appear in the Food SubChannel. @Home and
GourmetMarket.com will mutually agree upon food content
specifications for GourmetMarket.com Content. If @Home makes
changes in the applicable content specifications, GourmetMarket.com
will make commercially practical efforts to promptly comply with
such changes.
(i) @Home User Interface Change. @Home reserves the right to
make changes to the @Home Service user interface at its
discretion; provided that @Home will give GourmetMarket.com
reasonable prior notice of any change that is likely to have
a material impact on GourmetMarket.com promotional
placements or advertising Impressions (including, among
other things, the size, functionality, prominence or
relative importance of such placements or advertisements).
To the extent commercially practicable, @Home will consult
with GourmetMarket.com regarding adjustments (if any)
required by GourmetMarket.com in connection with such
changes.
7. Cash Compensation.
-----------------
A. Guaranteed Service Payments to @Home. The parties have agreed
that the total value of the services provided by @Home for
development promotion, and carriage during the term of the
agreement (as outlined hereunder) are Eight Hundred Thousand
Dollars ($800,000) in Contract Year One and One Million Four
Hundred Fifty Thousand Dollars ($1,450.000) in Contract Year Two
("Payments").
Page 9
<PAGE>
The breakdown Of Payments are as follows:
----------------------------------------
Year One
--------
Advertising Impressions $175,000
Creative Services of 3 B*boxes $20,000
Cocktail and Recipe Wizard $20,000
Shopping Anchor Tenant $200,000
SubChannel Premier Placement $280,000
Development Fees $105,000
-----------
TOTAL: $800,000
Year Two:
--------
Advertising Impressions $300,000
Creative Services of 3 B*boxes $20.000
Cocktail and Recipe Wizard $70,000
Shopping Anchor Tenant $420,000
SubChannel Premier Placement $630,000
----------
TOTAL: $1,450,000
B. Payment Schedule. All Payments shall be made in cash during the
Contract Year and such Payments will become due in quarterly
installments. Each Payment shall be paid within thirty (30)
days from the beginning of the relevant Quarterly Period.
Page 10
<PAGE>
The Payment Schedule is as follows:
Payment 1 - $106,000 - Due 30 Days after effective date of
Agreement Estimated to be 5/23/99
Payment 2 - $95,000 - Due 30 Days after Launch (OR END OF 02/99
No Later than 6/30/99
Payment 3 - $200,000 - Due 90 Days after Launch (OR END OF 03/99)
No Later than 9/30/99
Payment 4 - $200,000 - Due 180 Days after Launch (OR END OF
04/99) No Later than 12/31/99
Payment 5 - $200,000 - Due 270 Days after Launch (OR END OF
01/00) No Later than 3/31/00
Payment 6 - $362,500 - Due 360 Days after Launch (OR END OF
02/00) No later than 6/31/00
Payment 7 - $362,500 - Due 450 Days after Launch (OR END OF
03/00) No Later than 9/31/00
Payment 8 - $362,500 - Due 540 Days after Launch (OR END OF
04/00) No later than 12/31/00
Payment 9 - $362,500 - Due 630 Days after Launch (OR END OF
01/01) No later than 3/31/01
C. Method of Payment. Payments. will be made by check or wire
transfer to the following account: Silicon Valley Bank Santa Clara,
Routing/ Transit #121140399, For Credit of: At Home Corporation,
Credit Account # 3300113199, By Order of: GourmetMarket.com Inc.
8. Other Financial Considerations.
------------------------------
A. Advertising Revenue. @Home has now and shall retain at all
times during the Agreement the exclusive right to sell
advertising inventory on the LifeStyle Channel (including the
Food SubChannel and any other subChannels which may be
established now or in the future which feature GourmetMarket.com
Content). During the term of this Agreement @Home will remit to
GourmetMarket.com 50% of Not Advertising Revenue generated from
GourmetMarket.com Content.
B. Video Content Inventory. @Home has the right to sell embedded
sponsorships of GourmetMarket.com video content shipped to @Home by
GourmetMarket.com @Home will remit to GourmetMarket.com 50% of Net
Advertising Revenue generated by such embedded sponsorships at the
beginning or end of such video content.
Page 11
<PAGE>
C Additional Shopping Revenue to @Home When the Gross Margin
Revenue generated from GourmetMarket.com Content reaches 200% of
the Shopping Anchor Tenant Payment for each Contract Year (as
outlined in section 7) GourmetMarket.com will remit to @Home 50%
of the Gross Margin Revenue generated from GourmetMarket.com
@Home will have the right, no more than two times per Contract
Year, to audit the financial records of GourmetMarket.com related
to the Payments owed to @ Home under this Agreement. if @Home
determines that GourmetMarket.com has underpaid @Home by more
than five percent (5%), GourmetMarket.com will immediately pay
@Home the amount of such underpayment and will reimburse @Home
for @Home's reasonable costs related to such audit.
D. Payment Frequency. All Net Advertising Revenue and additional
Shopping Revenue amounts owed from one party to the other shall be paid
within thirty (30) days following the end of each Semiannual Period of
the Contract Year.
9. Commencement. Both parties agree to use reasonable commercial
efforts to launch the GourmetMarket.com Content on @Home on or
before (60) days from the Effective Date.
10. Term and Termination.
A. Initial Term. The initial term of this Agreement will begin on the
Effective Date and will and two years following the Effective Date
unless otherwise terminated by the parties as set forth in this Section
10.
B. Automatic Termination. This Agreement will terminate automatically
if @Home no longer offers the Food SubChannel, or a practical
equivalent, to @ Home subscribers.
C. Termination After One Year. Either party has the right to terminate
the agreement in its discretion on or after the one year anniversary of
the Effective Date if @Home makes a substantial change to the @Home
Service user interface that results in a material change to
GourmetMarket.com's placement, functionality, prominence or relative
importance of such placements. The terminating party will provide 60
days written notice to the other party. In the event of a termination
by either party pursuant to this Section 10 (C), all Net Advertising
Revenue, Additional Shopping Revenue, and Payments owed from one party
to the other will be paid within thirty (30) days following the close
of business on which such termination occurs.
(i) Termination by @Home. in the event of a termination by @Home
pursuant to this Section 10 (C), GourmetMarket.com shall be
required to pay to @Home a pro-rata portion of the Payments set
forth in Section 7, calculated as of the close of business on
which such termination occurs.
D. Renewal Option. If GourmetMarket.com offers in writing, no less than
sixty (60) days prior to the end of the initial term as set forth in
Section 10(A), to renew this Agreement for an additional one (1), two
(2), or three (3) years, then the parties shall engage in mutual good
faith discussions for a period of fourteen (14) days to determine the
terms applicable to such renewal. If the parties are unable to agree
on such terms @Home will be free to pursue discussions with third
parties.
Page 12
<PAGE>
E. Termination Due to Breach. Either party may terminate this
Agreement, effective upon thirty (30) days' written notice, if the
other party fails to cure any material breach of its obligations under
this Agreement within thirty (30) days following written notice to such
party.
F. No Liability for Termination. Neither @Home nor GourmetMarket.com
will have any liability to the other merely as a result of termination
of this Agreement in accordance with this Section 10, however all
amounts earned but unpaid as of such termination shall be due and
payable to either party in accordance with the terms set forth in this
Agreement.
G. Purge of GourmetMarket.com Content. Upon the termination of this
Agreement for any reason whatsoever, @Home shall promptly delete or
purge from its systems any and all GourmetMarket.com Content and all
copies thereof and @Home immediately shall cease using any and all
GourmetMarket.com Content. Notwithstanding the foregoing, @Home may
retain the GourmetMarket.com Content in its archives to the extent
necessary for regulatory or other purposes related to the archiving of
information and not for redistribution or use of the content therein.
11 Public Announcement. Both parties will periodically promote the
GourmetMarket.com @Home relationship through mutually agreed upon (as
to timing and content) press releases and other announcements. Prior to
the initial public announcement about the relationship under this
Agreement, the disclosing party will obtain written consent of the
other party, which consent shall not be unreasonably withheld.
12. Business Marks. @Home and GourmetMarket.com each will have the
right, without charge, to use In promoting the GourmetMarket.com
Content and the @Home Service the other's business name and any trade
names, trademarks and service marks as provided by the other party
(collectively, "Marks"). However, any such use must be identical to use
by the party that owns the Mark. and as approved by the owner in
writing in advance, or otherwise in accordance with any Mark usage
guidelines communicated by the owner. The owner retains all goodwill
and all other rights thereto, and the other party obtains no goodwill
or any other rights thereto as a result of the use of the owner's
Marks. Except as explicitly set forth herein, no other licenses or
rights are granted or implied.
13. Representatives and Warranties. Each party to this Agreement represents
and warrants to the other party that: (a) such party has the full
corporate right, power and authority to enter into this Agreement and
to perform the acts required of it hereunder, (b) the execution of this
Agreement by such party, and the performance by such party of its
obligations and duties hereunder, do not and will not violate any
agreement to which such party is a party or by which it Is otherwise
bound; and (c) when executed and delivered by such party, this
Agreement will constitute the legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms
GourmetMarket.com hereby represents and warrants to @Home that: (a) the
GourmetMarket.com Content does not and will not infringe or violate the
Intellectual Property (defined below) rights of any third party, and
@Home's exercise of its rights under this Agreement will not constitute
an infringement or violation of the Intellectual Property rights of any
third party; (b) the GourmetMarket.com Content does not and will not
(i) contain any false, defamatory, offensive, pornographic, or obscene
material, (ii) contain any viruses, trap doors, hidden sequences, hot
keys, or time bombs, or (iii) violate any
Page 13
<PAGE>
applicable law or regulation; and (c) GourmetMarket.com has sufficient
rights to the GourmetMarket.com Content to grant @Home the rights set
forth in this Agreement, including any consent, authorization, release,
clearance, or license of any third party ("Release") including any
Release related to any rights of privacy or publicity, as may be
necessary for GourmetMarket.com to enter into this Agreement.
"Intellectual Property" means copyright, patent, trademark, trade
secret, or any other intellectual property right recognized by any
applicable jurisdiction.
14. Limitation Of Liability. @HOME, @HOME'S DISTRIBUTION AFFILIATES AND
GOURMETMARKET.COM WILL NOT BE LIABLE TO ONE ANOTHER, UNDER ANY LEGAL OR
EQUITABLE THEORY, FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL OR
INDIRECT DAMAGES OF ANY KIND, SUFFERED BY OR OTHERWISE COMPENSABLE TO
THE OTHER, ARISING OUT OF, UNDER OR RELATING TO THIS AGREEMENT, WHETHER
OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT WILL
@HOME OR @HOME'S DISTRIBUTION AFFILIATES HAVE ANY LIABILITY OF ANY
NATURE OR AMOUNT WHATSOEVER TO GOURMETMARKET.COM ARISING OUT OF, UNDER
OR RELATING TO ANY FAILURE OF THE DISTRIBUTION OF THE CONTENT OR ANY
PART THEREOF OR ANY SOFTWARE PROGRAM, SOFTWARE OR WEB SITE LINK OR LINK
MECHANISM, OR OTHER MATERIAL OR ITEMS THROUGH THE @HOME NETWORK OR
OTHERWISE (INCLUDING BUT NOT LIMITED TO ANY SUCH FAILURE OF
DISTRIBUTION RESULTING FROM A DISTRIBUTION AFFILIATES' ELECTION NOT TO
DISTRIBUTE MATERIAL OR ITEMS OR DUE TO TECHNICAL DIFFICULTIES OR
OTHERWISE).
15. Proprietary Rights Generally. @Home and GourmetMarket.com each retain
any and all right, title and interest in and to all intellectual
property of any nature (including patents, rights under patent
applications and patents issuing on such applications, trade secrets.
copyrights, trademarks and other business names (including goodwill In
such marks), among others), subject to the rights granted by the
parties in Section 12 (concerning rights with respect to business
marks) and Section 3(C) (concerning rights with respect to usage
information) of this Agreement or as may be provided in the Attachments
to this Agreement. @Home and GourmetMarket.com each agree to reproduce,
and agree not to remove or obscure proprietary rights legends (such as
copyright notices, among others) or license terms and conditions
included with any intellectual property deliverable provided in
connection with this Agreement. GourmetMarket.com agrees to ensure that
the GourmetMarket.com Content and the GourmetMarket.com Marks and their
use, reproduction and distribution (alone and not in combination with
other material or items) do not infringe the intellectual property
rights of any third party. If, as a result of any collaboration by
@Home or GourmetMarket.com under this Agreement, they become joint
owners of intellectual property by operation of law, then they will
cooperate, subject to prudent business judgment, to establish,
register, maintain and protect such intellectual property.
16. Indemnification. Each party will indemnify the other party and its
customers and affiliates for, and hold them harmless from, any loss, expense
(including reasonable attorney's fees and court costs), damage or liability
arising out of any claim, demand or suit resulting from (a) a breach of any of
its respective covenants or warranties under this Agreement. (b) the failure of'
such party to have all rights and authority necessary in order to fulfill or
perform its obligations pursuant to this Agreement in compliance with applicable
laws; (c) the infringement of Intellectual Property rights of any third party or
the violation of any law by such parties' contributions and/or performance
hereunder (e.g., In the case of GourmetMarket.com, the GourmetMarket.com Content
and in the case of @Home, the @Home Service but not Including any third party
<PAGE>
content), and (d) the violation of any laws concerning obscenity, defamation,
infringement, rights of privacy or publicity, harassment or export controls
caused by the development, use, reproduction, publication or distribution of
such parties' respective contributions to the @Home Service. As a condition to
indemnification (a) the indemnified party will promptly inform the indemnifying
party in writing of any such claim, demand or suit and the indemnifying party
will fully cooperate in the defense thereof; and (b) the indemnified party will
not agree to the settlement of any such claim, demand or suit prior to a final
judgment thereon without the consent of the indemnifying party.
17. Confidential Information.
------------------------
A. Definition. "Confidential Information" means all non-public
confidential and proprietary information which the disclosing party
identifies in writing as confidential before or within thirty (30) days
after disclosure to the receiving party or which, under the
circumstances surrounding disclosure, the receiving party should have
understood was delivered In confidence.
B. Nondisclosure. Each party agrees (a) to hold the other party's
Confidential Information in strict confidence, (b) not to disclose such
Confidential Information to any third party, and (c) not to use the
other party's Confidential Information for any purpose other than to
further this Agreement. Each party may disclose the other party's
Confidential Information to its responsible employees, and, in the case
of @Home, the employees of @Home's Distribution Affiliates, with a bona
fide need to know such information and subject to a nondisclosure
agreement, but only to the extent necessary to carry out this Agreement.
Each party agrees to instruct all such employees not to disclose such
Confidential Information to third parties, including consultants.
without the prior written permission of the disclosing party.
C. Exceptions. Notwithstanding the foregoing, Confidential Information
will not include information which (i) is now, or hereafter becomes.
through no act or failure to act on the part of the receiving party,
generally known or available to the public; (ii) was acquired by the
receiving party before receiving such information from the disclosing
party and without restriction as to use or disclosure; (iii) is
hereafter rightfully furnished to the receiving party by a third party,
without restriction as to use or disclosure; (iv) is information which
the receiving party can document was independently developed by the
receiving party without use of the disclosing party's Confidential
Information; (v) is required to be disclosed by law, provided that
the receiving party uses reasonable efforts to give the disclosing party
reasonable notice of such required disclosure and to limit the scope of
material disclosed; (vi) is disclosed with the prior written consent of
the disclosing party; or (vii) is GourmetMarket.com Content provided by
GourmetMarket.com pursuant to this Agreement
D. Return. Upon the disclosing party's request, the receiving party will
promptly return to the disclosing party all tangible items containing or
consisting of the disclosing party's Confidential Information.
E. Injunctive Relief. Each party acknowledges that all of the disclosing
party's Confidential Information is owned solely by the disclosing party
(or its licensors) and that the unauthorized disclosure or use of such
Confidential Information would cause irreparable harm and significant
injury to the disclosing party, the degree of which may be difficult to
ascertain. Accordingly, each party agrees that the disclosing party will
have the right to
Page 15
<PAGE>
obtain an immediate injunction enjoining any breach of this Section 17,
as well as the right to pursue any and all other rights and remedies
available at law or in equity in the event of such a breach.
18. Warranty Disclaimers. EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT: (a)@HOME DOES NOT MAKE ANY WARRANTIES CONCERNING THE @HOME
NETWORK OR THE @HOME SERVICE, EXPRESS, IMPLIED OR OTHERWISE, (b) @HOME
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT WITH RESPECT TO
THIRD PARTY RIGHTS, AND (c) THE @HOME NETWORK. THE @HOME SERVICE, AND
ANY AND ALL CONTENT AND TOOLS AND RELATED DELIVERABLES PROVIDED BY
@HOME IN CONNECTION WITH THIS AGREEMENT ARE PROVIDED BY @HOME "AS IS".
19. General Provisions.
A. Governing Law and Venue. This Agreement and any disputes arising
under, in connection with, or relating to this Agreement will be
governed by the laws of the State of California, excluding its conflicts
of law rules. The state and federal courts in San Mateo County.
California will have exclusive venue and jurisdiction for such disputes,
and the parties hereby submit to personal jurisdiction in such courts.
The prevailing party in any such dispute will be entitled to recover
costs of suit (including the reasonable fees of attorneys and other
professionals).
B. Notices. All notices or other communications to or upon @Home or
GourmetMarket.com under this Agreement shall be by telecopy or in
writing and telecopied, mailed, or delivered to each party at its
address set forth in the introductory paragraph of this Agreement or
such other address or telecopier number as either party shall notify the
other. All such notices and communications: when sent by delivery
service, shall be effective on the third business day following the
deposit with such service; when mailed, first class postage prepaid and
addressed as aforesaid in the mails, shall be effective upon receipt,
when delivered by hand, shall be effective upon delivery; and when
telecopied, shall be effective upon confirmation of receipt.
C. Compliance with Laws. Subject to the express provisions of this
Section 19(o), each party agrees to comply with applicable laws in
connection with this Agreement. GourmetMarket.com agrees, in particular,
GourmetMarket.com Content will comply with all laws concerning
obscenity, defamation, infringement, rights of privacy, harassment and
export controls, among others, and to ensure that the use, reproduction
and distribution of the GourmetMarket.com Content in and of itself, does
not violate such laws or related legal rights of third parties.
D Assignment. Neither party may assign or transfer its rights or
obligations under Agreement without the prior written permission of the
other party (which permission shall not be unreasonably withheld or
delayed); provided that either party may assign its rights and
obligations under this agreement to any commonly controlled affiliate or
wholly-owned subsidary without the consent of the other party so long as
the original party remains liable for its obligations hereunder. Any
transferee must agree to accept the burdens as well as the benefits of
this Agreement. Any attempt to transfer, sublicense or assign any of the
rights or duties hereunder in violation of this Section is hereby
prohibited and shall be null
Page 16
<PAGE>
D. Assignment. Neither party may assign or transfer its rights or
obligations under Agreement without the prior written permission of
the other party (which permission shall not be unreasonably withheld or
delayed); provided that either party may assign its rights and
obligations under this agreement to any commonly controlled affiliate or
wholly-owned subsidiary without the consent of the other party so long
as the original party remains liable for its obligations hereunder. Any
transferee must agree to accept the burdens as well as the benefits of
this Agreement. Any attempt to transfer, sublicense or assign any of the
rights or duties hereunder in violation of this Section is hereby
prohibited and shall be null and void. Subject to the foregoing, this
Assignment shall inure to the benefit of and be binding upon the parties
and their successors and assigns
E. Relationship of Parties. Neither this Agreement nor the parties'
business relationship established hereunder will be construed as a
partnership, joint venture or agency relationship or as granting a
franchise. Accordingly, neither party shall have any right to act on
behalf of the other party for any purpose. The parties represent to one
another that they have consulted legal counsel in reviewing and/or
negotiating this Agreement.
F. Waiver. No waiver of any breach of any provision of this Agreement
will be considered to be a waiver of any prior, concurrent or later
breach of the same provisions or different provisions, and will not be
effective unless made in writing and signed by an officer of the waiving
party.
G. Amendments. This Agreement may only be amended by a written agreement
or addendum signed by duty authorized representatives of both parties.
H. Survival. Sections 12, 14, 15, 16, 17, 18, and 19 of this Agreement
along with any other provisions which by their nature extend beyond
termination of this Agreement shall survive termination. Termination
shall not affect either party's obligation to pay amounts due prior to
termination or which (under the terms of this Agreement) become due
following termination.
I. Force Majeure. Neither party will have liability to the other party
under, in connection with or for any reason relating to this Agreement
as a result of any failure of performance by or on behalf of such party
as a result of an event of "force majeure". For purposes of this
Agreement, "force majeure" means an event beyond a party's reasonable
control whether or not foreseeable and includes, in any case, the
following events that may prevent or significantly hinder such party
from performing this Agreement or acting in connection with this
Agreement: armed conflicts, famine, floods, Acts of God, labor strikes
or shortages, governmental decree or regulation, court order, severe
weather, fire, earthquake, failure of suppliers, unavailability of
communications transport facilities and breakdowns in communications
transport facilities.
J. Distribution Affiliates. Notwithstanding any other term of this
Agreement, GourmetMarket.com acknowledges and agrees that the
Distribution Affiliates will have the right under certain circumstances
to elect not to distribute the GourmetMarket.com Content and promotional
material and that, pursuant to its agreement with such Distribution
Affiliates, @Home may be subject to restrictions regarding the promotion
or distribution of the GourmetMarket.com Content and promotional
materials. GourmetMarket.com agrees not to
<PAGE>
bring any action or threaten to bring any action against the
Distribution Affiliates or @Home in connection with any such election,
restriction or failure to distribute.
K. Entire Agreement. This Agreement, including its Attachments,
constitutes the entire understanding of @Home and GourmetMarket.com with
respect to its subject matter and supersedes all prior agreements
between @Home and GourmetMarket.com
<PAGE>
CONFIDENTIAL
SHOPPING CHANNEL PROMOTIONAL AGREEMENT
--------------------------------------
This Agreement, (the "Agreement") dated as of Gourmet Market 05/06 1999
(the "Effective Date"), is made and entered into by and between America Online,
Inc. ("AOL"), a Delaware corporation, with its principal offices at 22000 AOL
Way, Dulles, Virginia 20166 and Gourmet Market ("MERCHANT"), a California
corporation, with its principal offices at 507 Howard Street, Suite 200, San
Francisco, CA 94105 (each a "Party" and collectively the "Parties").
INTRODUCTION
------------
AOL owns, operates and distributes the AOL Service, AOL.com, the CompuServe
Service and the Netscape Netcenter. MERCHANT wishes to secure a promotional
placement within the shopping channel of the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter (as specified in Exhibit A) (each
channel, a "Shopping Channel") which, when activated, will provide access to
MERCHANT's site on the World Wide Web or its area on the AOL Service or
CompuServe Service (as the case may be) (the "Merchant Site") where MERCHANT
offers content, products and/or services for sale. Terms not defined herein
shall be defined on the attached Exhibit B.
TERMS
-----
1. MERCHANT PROGRAMMING. MERCHANT will make available through the Merchant
Site the certain products, content and/or services specified in Exhibit
A (the "Products") in accordance with the Standard Shopping Channel
Terms and Conditions set forth on Exhibit C.
2. PROMOTIONAL OBLIGATIONS.
2.1 AOL Promotion of MERCHANT. Commencing on a date set forth on
Exhibit A hereto, AOL will provide the promotion(s) set forth in
Exhibit A (the "Promotion"). Except to the extent expressly
described in Exhibit A, the specific form, placement,
positioning, duration and nature of the Promotion(s) will be as
determined by AOL in its reasonable discretion (consistent with
the editorial composition of the applicable screens) and the
nature of the Promotion being purchased by MERCHANT, as reflected
in Exhibit A. The specific content to be contained within the
Promotions (including, without limitation, within any advertising
banners or contextual promotions) will be determined by MERCHANT,
subject to AOL's technical limitations, the terms of this
Agreement and AOL's then-applicable policies relating to
advertising and promotions. Each Promotion will link only to the
Merchant Site and will promote only Products listed on Exhibit A.
MERCHANT acknowledges that the sole obligation of AOL is to
display the Promotion(s) in the Shopping Channel(s) in accordance
with the terms and conditions hereto.
2.2 MERCHANT Cross-Promotion.
A. Within each Merchant Site, MERCHANT shall include a
prominent promotional banner ("AOL Promo") appearing
"above the fold" on the first screen of the Merchant
Site, to promote such AOL products or services as AOL
may reasonably designate (for example, the America
Online(R) brand service, the CompuServe(R) brand
service, the AOL.com(R) site, the Netscape Netcenter(TM)
site, ICQ, the Digital City(R) services or the AOL
Instant Messenger(TM) service); AOL will provide the
creative content to be used in the AOL Promo (including
designation of links from such content to other content
pages). MERCHANT shall post (or update, as the case may
be) the creative content supplied by AOL (within the
spaces for the AOL Promo) within a commercially
reasonable period of time from its receipt of such
content from AOL. Without limiting any other reporting
obligations of the Parties contained herein, MERCHANT
shall provide AOL with monthly written reports
specifying the number of Impressions to the pages
containing the AOL Promo during the prior month.
B. In MERCHANT's television, radio, print and "out of home"
(e.g., buses and billboards) advertisements and in any
publications, programs, features or other forms of media
over which MERCHANT exercises at least partial editorial
control, MERCHANT will include specific references or
mentions (orally where possible) of the availability of
the Merchant's Site through the America Online(R) brand
service, which are at least as prominent as any
references that MERCHANT makes to any other MERCHANT
online or Internet site (by way of site name, related
company name, URL or otherwise). Without limiting the
generality of the foregoing, MERCHANT's listing of the
"URL" for any Merchant online site will be accompanied
by an equally prominent listing of the "keyword" term on
the AOL Service for Merchant's Site.
2
<PAGE>
PAYMENTS; REPORTS.
3.1 Placement Fees. MERCHANT will pay AOL $104,405 for displaying
the Promotion within the Shopping Channel on the AOL Service,
AOL.com, the CompuServe Service and the Netscape Netcenter. The
total amount of $104,405 will be payable in three equal
installments, with the first such payment to be made upon the
Effective Date, the second such payment to be made ninety (90)
days from the earliest launch date of the AOL Shopping Commerce
Center(s) specified on Exhibit A attached hereto and the last
payment to be made ninety (90) days from the second installment.
MERCHANT will be provided a credit against any amounts already
paid to AOL by MERCHANT for promotional carriage under
MERCHANT's existing agreement with AOL which overlap promotional
carriage provided for hereunder, if any, as established by the
launch date of the applicable AOL Shopping Commerce Center(s)
specified on Exhibit A attached hereto. MERCHANT agrees that,
except as specified herein, once the Promotion is installed,
there will be no refunds or proration of rates if MERCHANT
elects to discontinue display of the Promotion prior to
expiration of the Term. Should AOL fail to display the Promotion
in accordance with the terms of this Agreement due to MERCHANT's
failure to comply with any requirement of this Agreement,
MERCHANT will remain liable for the full amount indicated above.
3.2 Reports. AOL will provide MERCHANT with monthly usage
information related to the Promotion in substance and form
reasonably determined by AOL. MERCHANT may not distribute or
disclose usage information to any third party without AOL's
prior written consent. MERCHANT will provide AOL with monthly
reports, in a form reasonably satisfactory to AOL, which detail
the number of daily items, orders and gross sales through the
Merchant Site on the AOL Service, AOL.com, the CompuServe
Service and the Netscape Netcenter (as applicable).
4. TERM. Unless otherwise rightfully terminated pursuant to the terms and
conditions in the Exhibits attached hereto, this Agreement will
terminate ten (10) months from the latest launch date of the AOL
Shopping Channel Commerce Center(s) specified on Exhibit A attached
hereto (the "Term").
5. EXISTING AGREEMENTS. To the extent that MERCHANT has any existing
shopping channel agreement(s) with AOL in effect as of the Effective
Date such agreements shall terminate on the date that the last
promotion described in the existing agreement is replaced with
Promotion(s) described in this Agreement.
6. PRESS RELEASES. Each Party will submit to the other Party, for its
prior written approval, which will not be unreasonably withheld or
delayed, any press release or any other public statement ("Press
Release") regarding the transaction contemplated hereunder.
Notwithstanding the foregoing, either Party may issue Press Releases
and other disclosures as required by law or as reasonably advised by
legal counsel without the consent of the other Party and in such
event, the disclosing Party will provide at least five (5) business
days prior written notice of such disclosure. The failure to obtain
the prior written approval of the other Party will be deemed a
material breach of this Agreement. Because it would be difficult to
precisely ascertain the extent of the injury caused to the
non-breaching Party, in the event of such material breach, the
non-breaching party may elect to either (i) terminate this Agreement
immediately upon notice to the other Party, and the cure provision of
Section 12 on Exhibit D of this Agreement shall not apply, or (ii) as
liquidated damages, elect to modify the Impression commitment
hereunder by fifteen percent (15%) (either an increase in Impressions
if AOL has materially breached the Agreement or a decrease in
Impressions if MERCHANT has materially breached the Agreement).
7. GENERAL TERMS. The general legal terms and conditions set forth on
Exhibit D attached hereto are hereby made a part of this Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the Effective Date.
AMERICA ONLINE, INC. Gourmet Market
By: By:
-------------------------- ---------------------------
Print Name: Print Name:
------------------ --------------------
Title: Title:
----------------------- -------------------------
Date: Date:
------------------------ -------------------------
Tax ID/EIN#:
-------------------
4
<PAGE>
GOLD TENANT PROMOTION
To commence on the launch date of the AOL commerce center specified below on the
AOL Service (the "AOL Commerce Center Launch Date") and terminate ten (10)
months from the AOL Commerce Center Launch Date, MERCHANT will become a "Gold
Tenant" in the Gourmet Gift department(s) of the Food and Gourmet commerce
center of the Shopping Channel on the AOL Service. Commencing on the launch date
of the corresponding commerce center (described above) of the Shopping Channel
on each of AOL.com, the CompuServe Service and the Netscape Netcenter, MERCHANT
will become a Gold Tenant as specified herein and such promotion shall terminate
ten (10) months from the AOL Commerce Center Launch Date. As a Gold Tenant in a
department, MERCHANT will be entitled to the following:
Principal Exposure on the AOL Service, AOL.com, the CompuServe Service, and the
Netscape Netcenter:
One continuous (24/7) 143 x 30 pixels button with corporate brand or logo
on the department front screen.
Additional Promotion on the AOL Service:
Rotation with other Gold Tenants in the department on a promotional banner
with text and branded art promotion on the department front screen. These
banner rotations are reserved for the Gold Tenant Merchant's on the
department screen and will be divided proportionately among them.
Product listing availability through the AOL Product Search, subject to
Merchant's participation and the terms and conditions set forth on Exhibit
C Section 3.
Banner rotation on the AOL Product Search screen of the AOL Service. These
banner rotations will be divided proportionately among all shopping channel
merchants.
Up to three (3) AOL Keywords(TM) for use from the AOL Service, for
registered MERCHANT trade name or trademark (subject to the other
provisions contained herein).
Fifteen percent (15%) discount from the then-current rate card on purchases
of additional advertising banners or buttons on the AOL Service, AOL.com,
the CompuServe Service, and the Netscape Netcenter, subject to availability
for the period requested (with such purchases to be made in accordance with
the then-applicable Standard Advertising Insertion Order for the property
in question). Sponsorships are not entitled to the aforementioned discount.
Eligibility to participate in the following AOL Shopping promotional
programs (the "Program Areas") subject to the terms and conditions set
forth on Exhibit C Section 3:
o Quick Gifts
o Standard Seasonal Catalogs or Special Event Merchandising areas
(e.g., Christmas Shop), subject to MERCHANT's participation in
AOL's Quick Checkout and AOL's Search Product as described on
Exhibit C Section 3.
o Premier-level Seasonal Catalogs or Special Event Merchandising
areas (e.g., Golf Outings), subject to MERCHANT's participation
in AOL's Quick Checkout and AOL's Search Product as described on
Exhibit C Section 3.
o Gift Reminder
o Newsletters
xxx additional Promotions on the AOL Service, AOL.com, the CompuServe Service,
the Netscape Netcenter or the AOL network not specified herein will be
determined at AOL's reasonable discretion; provided that the additional,
standard promotions to be provided to the MERCHANT within the Shopping areas on
the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter will
be comparable in nature to the additional, standard Promotions provided to other
similarly situated MERCHANTs in the same category (i.e. Anchor Tenant, Gold
Tenant or Silver Tenant).
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of January 22, 1999 by and between
Sterling Partners, Inc., a Delaware Corporation (the "Company") and Chanan
Steinhart (the "Executive"). In consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Employment; Term of Employment. The Company hereby employs the
Executive, and the Executive hereby accepts such employment with the
Company, upon all the terms and conditions set forth below. The term
of the Executive's employment under this Agreement shall continue
from the date hereof unless earlier terminated as hereinafter
provided.
2. Duties.
2.1 Position. The Company shall employ the Executive in the position of
President and Chief Executive Officer. The Executive will also be a
member of the Company's Board of Directors, subject to approval by
the Company's shareholders. The Board of Directors shall have the
right to review the compensation of the Executive, but not below
the amount of base compensation set forth in Section 3.1 below, from
time to time as the Board may deem necessary or appropriate.
2.2 Obligations. The Executive shall devote his full efforts and time to
the Company. The foregoing, however, shall not preclude the
Executive, outside normal business hours, from engaging in
appropriate civic, charitable or religious activities or from
devoting a reasonable amount of time to private investments or from
serving on the boards of directors of other entities, as long as such
activities and service do not interfere or conflict with his
responsibilities to the Company.
3. Compensation.
3.1 Base Compensation. The Company shall pay the Executive as
compensation for his services a base compensation at the annualized
rate of $150,000.00. Such compensation shall be reviewed annually
and may be increased from time to time, as appropriate, as determined
by the Board of Directors. Compensation shall be paid periodically in
accordance with normal Company payroll practices.
3.2 Equity. The Company will grant to the Executive within 30 days of the
date of this Agreement a ten year non-statutory stock option to
purchase 900,000 shares of the Company's Common Stock at an exercise
of $1.00 per share (the "Stock Option"). The Stock Option shall vest
upon the satisfaction of certain performance criteria which shall be
unanimously approved by the Company's board of directors (the
"Performance Criteria"). The Stock Option agreement will be in a form
reasonably acceptable to Executive with customary terms, and will
provide that vested shares granted under the Stock Option will
remain exercisable during the term of the Stock Option following
termination of employment; provided, however, that if the Executive
resigns or is terminated with Cause, the Stock Option will remain
exercisable for a period of 6 months following his termination. In
addition, all of the unvested portion of the Stock Option will
accelerate and vest upon the closing of a merger in which the
Company is not the surviving corporation or the acquisition of all
or substantially of the Company's assets.
<PAGE>
3.2 Employee Benefits. The Executive shall be eligible to participate in
the employee benefits plans and executive compensation programs
maintained by the Company applicable to similarly situated executives
of the Company, including a 401(k) plan, and health and disability
insurance and vacation. Such eligibility shall be subject in each
case to the generally applicable terms and conditions of the plan or
program in question and to the determination of any committee
administering such plan or program.
4. Severance. All of the Executive's severance benefits shall be
governed by the provisions of this Section 4.
4.1 First Scenario. If the Performance Criteria are met and the Executive
remains with the Company in his capacity as set forth in Section 2.1,
the Executive shall be entitled to receive his then current salary,
and the shares granted under the Stock Option shall continue to vest
pursuant to the Stock Options's vesting schedule. In addition, if
the Performance Criteria are met, and the Executive is terminated
without Cause, the Company shall pay the Executive six months of his
then current annual salary and all of his unvested shares granted
under the Stock Option shall be come fully vested.
4.2 Second Scenario. If the Performance are met, but the Executive is
assigned and accepts a different position with the Company, the
Executive shall be entitled to receive his then current salary, and
the shares granted under the Stock Option shall continue to vest
pursuant to the Stock Option's vesting schedule. In addition, if the
Performance Criteria are met, and the Executive is terminated
without Cause after accepting such different position with the
Company, the Company shall pay the Executive six months of his then
current annual salary and all of his unvested shares granted under
the Stock Option shall be come fully vested.
4.3 Third Scenario. If the Performance Criteria are not met, the
Company's board of directors may terminate the Executive's employment
with the Company. If the Board would like Executive to continue his
employment with the Company, the Company and the Executive will
mutually agree on the terms of a new employment agreement.
4.4 Fourth Scenario. If the Performance Criteria are not met, the
Company's board of directors may terminate the Executive's
employment with the Company. If the Executive is terminated under
this Section 4.4, he shall be paid one month of his then annual
salary.
4.5 Fifth Scenario. If the Executive is terminated without cause during
any period prior to there being a determination as to whether the
Performance Criteria are met, the Company shall pay the Executive the
greater of his entire remaining current salary for the applicable
term or 6 months of his current annual salary. For purposes of this
Section 4.5, if it is determined that the Performance Criteria were
met after the Executive was terminated, then all of the shares
granted under the Stock Option shall become fully vested.
Alternatively, if it is determined that the Performance Criteria were
not met after the Executive was terminated, then one-third of his
shares granted under the Stock Option shall become fully vested for
every year or part of a year of Executive's employment with the
Company.
-2-
<PAGE>
4.6 Definition of Cause. For purposes of this Agreement, "Cause" shall
mean (i) any act of personal dishonesty taken by the Executive in
connection with his responsibilities as an employee; (ii) the
Executive being convicted of a felony; or (iii) a act by the
Executive which constitutes gross misconduct and which is injurious
to the Company.
5. Noncompetition. In the event the Executive is terminated for Cause
or resigns, the Executive agrees that he shall not for a period of
one year after termination of employment with the Company engage in,
directly or indirectly, as an owner, partial owner, principal or
salesperson in any sole proprietorship, partnership, corporation,
joint venture or other entity which directly or indirectly competes
with any product or service offered by the Company.
6. Non-Assignability. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Executive, his beneficiaries, or
legal representatives without the Company's prior written consent;
provided, however, that nothing in this subparagraph shall preclude
(i) the Executive from designating a beneficiary to receive any
benefit payable hereunder upon his death, or (ii) the executors,
administrators, or other legal representatives of the Executive or
his estate from assigning any rights hereunder to the person or
persons entitled thereunto.
7. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and
agree expressly to perform the obligations under this Agreement in
the same manner and to the same extent as the Company would be
required to perform such obligations in the absence of a succession.
For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which
executes and delivers the assumption agreement described in this
Section 7 or which becomes bound by the terms of this Agreement by
operation of law.
8. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective heirs, successors,
legal representatives and assigns.
9. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and either delivered in
person or sent by first class certified or registered mail, postage
prepaid, if to the Company at the Company's principal place of
business, and if to the Employee, at his home address most recently
filed with the Company, or to such other address as either party
shall have designated in writing to the other party hereto.
10. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
11. Attorneys' Fees. In any action brought to enforce any provision of
this Agreement, the losing party shall the prevailing party's
reasonable attorney fees and costs.
-3-
<PAGE>
12. Severability. If any provision of this Agreement shall be determined
to be invalid, illegal or unenforceable in whole or in part, neither
the validity of the remaining part of such provision nor the validity
of any other provision of this Agreement shall in any way be affected
thereby.
13. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition.
14. Entire Agreement; Modifications. This Agreement (including all
exhibits hereto) constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior
agreements, oral and written between the parties hereto with respect
to the subject matter hereof. This Agreement may be modified or
amended only by an instrument in writing signed by both parties.
16. Employee Confidentiality Agreement. As a condition to his
employment with the Company, Executive shall execute the Company's
customary form of Employee Confidentiality Agreement.
IN WITNESS WHEREOF the Company and the Executive have duly executed
and delivered this Agreement as of the day and year first above written.
STERLING PARTNERS, INC.
a Delaware Corporation
By
------------------------------
Title
---------------------------
/s/ Chanan Steinhart
----------------------------
Chanan Steinhart
-4-
<PAGE>
EXHIBIT 10.9
ASSIGNMENT AND TRANSFER AGREEMENT
THIS AGREEMENT is entered into as of September 25, 1998 ("Effective
Date") by and between AROME Publishing U.S. Inc., a California corporation
("Assignor"), and GourmetMarket.com, a California corporation ("Assignee").
WITNESSETH
WHEREAS, Assignor desires to assign, transfer and sell to Assignee all
of Assignor's right, title, and interest in certain assets and other
intellectual property rights of Assignor, and the Assignee desires to accept
such sale and assignment.
NOW THEREFORE, in consideration for good and valuable consideration,
the receipt of which is hereby mutually acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
Section I
DEFINITIONS
The following capitalized terms shall have the following meaning in
this Agreement:
1.1 Copyright Interests means the interests Assignor may own, or have
the right to sublicense hereunder, in copyrights in the United States in and to
the Wine Program, and any renewal or extension thereof, together with all other
copyright interests accruing by reason of international copyright conventions
and any moral rights pertaining thereto, including the right to sue for,
settle, or release any past, present, or future infringement thereof.
1.2 Derivative Work means a work that is based upon one or more
preexisting works, such as a revision, modification, translation, abridgement,
condensation, expansion, or any other form in which such preexisting works may
be recast, transformed, or adapted, and which, if prepared without
authorization of the owner of the copyright in such preexisting work, would
constitute a copyright infringement. For purposes of this Agreement, a
Derivative Work shall also include any compilation that incorporates such a
preexisting work.
1.3 Other Interests means the interests, other than the Copyright
Interests and the Trademark Interests, that Assignor may own or have the right
to sublicense hereunder in (1) any idea, design, concept, technique, invention,
discovery, or improvement, whether or not patentable, but including patents,
patent applications, trade secrets, and know-how, that are embodied in or
evidenced by the Wine Program, and (2) pictorial, graphic, or audio/visual
works, including icons, screens, characters, data formats, and reports or
compilations and data bases evidenced by the Wine Program.
1.4 Wine Program means the all the general information, contract,
licenses, and content owned by Assignor, and all intellectual property rights
and Derivative Works thereto, set forth on Exhibit A attached hereto.
<PAGE>
1.5 Trademark Interests means the interests Assignor may own, or have
the right to sublicense hereunder, in the United States and foreign registered
and commonlaw trademarks and service marks set forth in Exhibit A, together with
all other trademark or service mark interests accruing by reason of
international trademark conventions, accompanied by the goodwill of all business
connected with the use of and symbolized by such marks including the right to
sue for, settle, or release any past, present, or future infringement thereof or
unfair competition involving the same.
Section 2
CONVEYANCE OF RIGHTS
2.1 Copyright Interests. As of the Effective Date, Assignor sells,
transfers, grants, conveys, assigns, and relinquishes exclusively to Assignee,
in perpetuity (or for the longest period of time otherwise permitted by law),
all of Assignor's right, title, and interest in and to the Copyright Interests.
2.2 Trademark Interests. As of the Effective Date, Assignor sells
transfers, grants, conveys, assigns, and relinquishes exclusively to Assignee,
in perpetuity (or for the longest period of time otherwise permitted by law),
all of Assignor's right, title, and interest in and to the Trademark Interests.
Assignor further transfers and assigns the right to file for and obtain
registrations of the Trademark Interests anywhere in the world with the right to
base priority on Assignor's first date of use or on any application and/or
registration being assigned herein. Assignor covenants not to use or display the
Trademark Interests, or any mark confusingly similar thereto, anywhere in the
world except by authorization of Assignee, and further covenants not to contest
or challenge the validity of the Trademark Interests, any applicable
registrations thereof or the ownership of the Trademark Interests by Assignee.
2.3 All Other Interests. As of the Effective Date, to the extent not
otherwise granted above, Assignor hereby sells, transfers, grants, conveys,
assigns, and relinquishes exclusively to the Assignee all of Assignor's right,
title, interest, and benefit (including to make, use, or sell under patent law;
to copy, adapt, distribute, display, and perform under copyright law; and to use
and disclose under trade secret law) of Assignor in and to all United States and
foreign patents and patent applications, patent license rights, patentable
inventions, trade secrets, trademarks, service marks, trade names (including, in
the case of trademarks, service marks and trade names, all goodwill appertaining
thereto), copyrights, technology licenses, know-how, confidential information,
shop rights, and all other intellectual property rights owned or claimed by
Assignor embodied in the Wine Program.
Section 3
DELIVERY AND ASSISTANCE
3.1 Wine Program. On or before September 25, 1998, Assignor shall
deliver to Assignee, at Assignee's office in San Francisco, California, or at
Assignee's discretion, to Gideon Shalom-Bendor, as director of Assignee in
Israel, complete copies, of the Wine Program, including all content,
information, contract assignments, wine reviews, articles, and all other
materials necessary to operate and maintain the Wine Program.
2
<PAGE>
3.2 Reference Materials for Trademark Interests. To effect the transfer
of ownership of the Trademark Interests to Assignee, including the goodwill of
all business connected with the use of and symbolized by the Trademark
Interests, Assignor shall
1. Provide Assignee with information and documentation regarding
the standards and specifications applicable to the Wine
Program;
2. Assist Assignee, at its request, in adopting such standards
and specifications; and
3. Furnish Assignee with the files evidencing all proceedings
involving the Trademark Interests and consent to Assignee's
communication with Assignor's counsel familiar with such
proceedings.
3.3 Further Assurances. Assignor agrees at Assignee's reasonable
request to execute and deliver such further conveyance agreements, and to take
such further action, as may be necessary or desirable to evidence more fully the
transactions described in this Agreement. Without limiting the generality of
such undertaking, Assignor agrees
1. To execute, acknowledge and deliver any affidavits or
documents of assignment and conveyance regarding the Copyright
Interests and the Trademark Interests;
2. To provide testimony and other evidence in connection with any
proceeding affecting the right, title, or interest of Assignee
in the Copyright Interests and the Trademark Interests; and
3. To perform any other acts deemed necessary to carry out the
intent of this Agreement.
Section 4
PRICE AND PAYMENT
4.1 Transfer of Common Stock. In consideration for the transfer of all
right title and interest in the Wine Program as contemplated hereunder, Assignee
shall issue to Assignor Sixty Three Thousand Five Hundred (63,500) shares of
Common Stock of Assignee pursuant to the terms of a Restricted Stock Purchase
Agreement.
Section 5
REPRESENTATION AND WARRANTIES; LIMITATIONS
5.1 Representations and Warranties. Assignor represents and warrants
that (1) Assignor is the sole and exclusive owner of the entire right, title,
and interest in and to the Wine Program, Copyright Interests, the Trademark
Interests, and the Other Interests, free and clear of any liens or claims; (2)
to the knowledge of Assignor, the Wine Program, Copyright Interests, the
3
<PAGE>
Trademark Interests, and the Other Interests, as heretofore exercised in
connection with Assignor's business, do not infringe the rights of any other
person or entity; (3) to the knowledge of Assignor, no claim of any such
infringement or violation has been threatened or asserted, and no such claim is
pending against Assignor with respect to the Wine Program, Copyright Interests,
the Trademark Interests, and the Other Interests; (4) Assignor has not entered
into any agreement, license, release, or order that restricts the right of
Assignor or Assignee to exploit the Wine Program, Copyright Interests, the
Trademark Interests, and the Other Interests in any way; and (5) the execution,
delivery, and performance of this Agreement by Assignor do not and will not
violate any security agreement, indenture, order, or other instrument to which
Assignor is a party or by which it or any of its assets is bound.
5.2 Disclaimer. EXCEPT AS PROVIDED IN THIS AGREEMENT, ASSIGNOR MAKES
NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PRODUCTS, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6.3 Indemnification. Assignor agrees to indemnify and hold harmless
Assignee, its successors and assigns, including any officer, director,
employee, agent, contractor, licensee, or customer, from and against any loss,
liability, claim, or damage (including court costs and reasonable attorney
fees) sustained by it or them as a result of a claim or allegation that the
Wine Program, Copyright Interests, the Trademark Interests, and the Other
Interests, and any intellectual property right thereto, infringe any patent,
copyright, trade secret, trademark, or other intellectual property right of any
third party.
Section 6
GENERAL
6.1 Successors and Assigns. This agreement shall inure to the benefit
of and be binding on the parties hereto, together with their respective legal
representatives, successors, and assigns.
6.2 Governing Laws. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS THEY PERTAIN TO
AGREEMENTS EXECUTED IN, AND FULLY PERFORMED WITHIN, THE STATE OF CALIFORNIA.
6.3 Headings. The headings of the Sections hereof are for convenience
of reference only and shall not modify, define, or limit any of the terms or
provisions hereof.
4
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement
as of the date first above written.
AROME Publishing U.S. Inc.
a California corporation
By /s/
---------------------------
Title President
------------------------
GourmetMarket.com
a California corporation
By /s/
-------------------------
Title President
----------------------
5
<PAGE>
EXHIBIT A
Wine Program
The Wine Program includes the following:
1. The wine store on the internet
2. The wine club
3. Contract between Anthony Dais Blue and Assignor
4. Content
6
<PAGE>
AMENDMENT TO
ASSIGNMENT AND TRANSFER AGREEMENT
THIS AMENDMENT to that certain Assignment and Transfer Agreement (the
"Assignment Agreement") dated September 25, 1998 by and between AROME Ltd., a
corporation formed under the laws of Israel ("Assignor"), and GourmetMarket.com,
a California corporation ("Assignee") is entered into as of December 1, 1998.
WITNESSETH
WHEREAS, the Assignment Agreement provided for the issuance of certain
shares of Common Stock to Assignor in exchange for the Properties transferred to
Assignee under the Assignment Agreement, and Assignor and Assignee now wish to
amend the Assignment Agreement to provide for the exact number of shares of
Common Stock which shall be issued by Assignee to Assignor under the Assignment
Agreement.
NOW THEREFORE, in consideration for good and valuable consideration,
the receipt of which is hereby mutually acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
Amendment to Section 4.1. Section 4.1 of the Assignment Agreement is hereby
amended in its entirety as follows:
4.1 Purchase Price. The aggregate purchase price for the Properties
(the "Purchase Price") shall be Three Hundred Thousand Dollars (US$300,000.00).
In addition to the payment of the Purchase Price, Assignee shall issue to
Assignor 60,000 shares of Common Stock of Assignee as of December 1, 1998.
IN WITNESS WHEREOF the parties have executed this Amendment as of
December 1, 1998.
AROME Ltd.
a Company formed under the laws of Israel
By /s/
-----------------------------------------
Title President
--------------------------------------
GourmetMarket.com
a California corporation
By /s/
-----------------------------------------
Title President
-------------------------------------
<PAGE>
EXHIBIT 10.10
DEVELOPMENT AND LICENSE AGREEMENT
THIS AGREEMENT is entered into as of March 31, 1997 by and between
i-Labs, Ltd, a company formed under the laws of Israel ("I-Labs"), and Chanan
Steinhart ("Steinhart").
Recitals
A. I-Labs designs and develops websites on the Internet, and is the owner
of certain proprietary technology and software programs designed for use
in on-line service to the Internet; and
B. Steinhart has requested that I-Labs create a website which would
incorporate I-Labs's proprietary technology and software programs.
NOW, THEREFORE, the parties mutually agree as follows:
1. Development Services.
1.1 Development Services. Subject to the terms and conditions of this
Agreement, I-Labs agrees to perform all design and development services
necessary to produce and install a website on the Internet which meets
all of the specifications as mutually agreed by the parties (the
"Website").
1.2 Term. This Agreement shall become effective as of the date hereof and
shall remain in force until I-Labs's services have been materially
competed unless terminated earlier pursuant to Section 10 below.
2. Issuance of Common Stock. In consideration for the development services
provided by I-Labs under this Agreement, Steinhart shall transfer to
I-Labs 100,000 shares of Common Stock in a corporation which will be
formed by Steinhart and others in order to exploit the Website.
3. Independent Contractor.
I-Labs is an independent contractor of Steinhart and not his employee,
and no employment relationship is created by this Agreement. I-Labs has
the exclusive right to select its own employees and agents who will be
under the exclusive supervision and control of I-Labs and who will not
be employees or agents of Steinhart.
4. Confidential Information.
Each party to this Agreement acknowledges that certain information that
it receives from the other party will constitute the confidential and
proprietary information of the disclosing party, and agrees that it will
take all reasonable steps to preserve the strict confidentiality of any
information given to them by any other party. The receiving party will
safeguard the confidential information with the same degree of care
which it uses to protect its own confidential information. For purposes
of this Agreement, confidential information shall not include any
information to the extent that such information (a) is presently, or
subsequently becomes, generally available to the public without a
wrongful act of the disclosing party; (b) is information which the other
party agrees in writing may be disclosed without restriction; (c) is
<PAGE>
already known to the disclosing party; (d) is developed independently by
the disclosing party; (e) is furnished by the other party to a third
party without restriction on disclosure; or (f) is disclosed pursuant to
a court order.
5. Ownership of Work Product.
5.1 Work Product. All Work Product shall be the property of Steinhart, and
I-Labs agrees to assign and does hereby expressly assign to Steinhart
all right, title and interest in and to the Work Product. "Work Product"
shall mean all work product created by I-Labs, on behalf of I-Labs for
the benefit of Steinhart under the terms of this Agreement, including,
but not limited to, all intangible intellectual, proprietary and
industrial property rights, and all tangible embodiments thereof
wherever located, including but not limited to the following: (i) all
trademarks, trade names, service marks, services names or logs,
including all registrations and applications therefor; (ii) all
copyrights, moral rights, and other rights in works or authorship,
including all registrations and applications therefor; (iii) all patents
and patent applications, patentable ideas, inventions and innovations;
(iv) all know-how and trade secrets; (v) all design and code
documentation, methodologies, processes, design information, formulae,
engineering specifications, technical data, testing procedures, drawings
and techniques and other proprietary information and material of any
kind; (vi) all software programs in source code, object code and
executable format, including testing software and software tools; (vii)
all documentation, records, databases (including current and historical
databases), designs, codes, algorithms, research records, test
information, market surveys, and marketing know-how; and (viii) any and
all translations of any of the foregoing.
5.2 Preexisting Work. Stenhart acknowledges that I-Labs may own certain
intellectual property which I-Labs wishes to incorporate in the Website
(the "Preexisting Work"). Preexisting Work shall include, but shall not
be limited to, HTML templates, certain C and perl code, site support
methodologies and site support methodologies documentation. Steinhart
acknowledges that the Preexisting Work is the sole property of I-Labs.
Therefore, except as provided herein, I-Labs hereby grants to Steinhart
a royalty-free, irrevocable, worldwide, nonexclusive, transferable
license to use the Preexisting Work in the Website.
6. I-Labs's Representations and Warranties.
I-Labs hereby represents, warrants and covenants to Steinhart as
follows:
6.1 Ownership. I-Labs is the legal and equitable owner of the Preexisting
Work, or holds valid licenses to certain Preexisting Work, and has no
knowledge that the Website is subject to any third party intellectual
property infringement claims or allegations.
6.2 Design Defects. I-Labs warrants that the Website will conform to its
design specifications in all material respects for a period extending
ninety (90) days after its installation on the Internet.
7. Indemnification.
I-Labs shall at all times during and after the term of this Agreement
indemnify, defend and hold Steinhart, and his assignees and transferees
harmless from any and all claims, damages, suits or
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proceedings brought against it based upon a claim that the Website
infringes upon any patent, copyright or trade secret of any third
party. Steinhart and I-Labs shall promptly notify each other of any
possible infringements, imitations or unauthorized possession,
knowledge or use of the Website others of which they become aware.
Steinhart or his assignees and transferees shall have the right, at
its expense, to bring any action on account of such infringements,
imitations or unauthorized possessions, knowledge or use of the
Website, and I-Labs shall cooperate with Steinhart, or his assignees
and transferees, as they may request, in connection with any such
action. Steinhart or and his assignees and transferees shall keep the
entire proceeds of any such action. If Steinhart or and his assignees
and transferees do not bring such action, I-Labs shall have the right,
at its expense and in its own name, to do so.
8. Limitation of Liability; Remedies.
8.1 Limited Liability. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN
SECTION 7 HEREIN, I-LABS MAKES NO OTHER REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO THE WEBSITE, AND HEREBY DISCLAIMS,
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. THE WARRANTY STATED ABOVE IS A LIMITED WARRANTY
AND IT IS THE ONLY WARRANTY MADE BY I-LABS. I-LABS DOES NOT MAKE, AND
THE COMPANY HEREBY EXPRESSLY WAIVES, ALL OTHER WARRANTIES EXPRESS OR
IMPLIED. I-LABS SHALL HAVE NO LIABILITY WITH RESPECT TO ITS
OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL,
EXEMPLARY, INCIDENTAL OR PUNITIVE DAMAGES, INCLUDING LOSS OF PROFITS,
REVENUE, DATA, OR USE OR COST OF PROCUREMENT OF SUBSTITUTE GOODS BY
EITHER PARTY OR ANY THIRD PARTY, EVEN IF IT HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
8.2 Remedies. If the Website shall prove to have design defects
attributable to I-Labs, Steinhart's remedy shall be to correct said
defect. If I-Labs is unable correct a defect within 30 days of
notification by Steinhart of such defect, the Company may terminate
this Agreement in accordance to Section 9 with no further obligation
or liability on the part of I-Labs.
8.3 No Other Remedies. The remedies set forth in this Agreement are
Steinhart's sole and exclusive remedies for breach of warranty, and no
party shall be liable to any other party for any incidental,
consequential, special or punitive damages of any kind or nature,
arising out of or in connection with the use or performance of the
Website.
9. Termination.
9.1 Termination on Notice. Either party may terminate this Agreement at
any time upon thirty (30) days written notice.
9.2 Termination for Default. Should either party default in the
performance of this agreement, or materially breach any of its
provisions, the nonbreaching party may terminate this Agreement
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by giving the breaching party written notice. Termination shall be
effective 30 days from receipt of the notice unless the default has
been cured within the 30 day period.
9.3 Effects of Termination. Termination of this Agreement for any reason
shall be without prejudice to the rights and obligations of the
parties provided in Sections 4, 5, 6, 7, 8, and 10 hereof.
10. General Provisions
10.1 Force Majeure. If the performance of this Agreement or any obligations
hereunder is prevented, restricted or interfered with by reason of
fire or other casualty or accident, strikes or labor disputes, war or
other violence, any law, order, proclamation, regulations, ordinance,
demand or requirement of any government agency, or any other similar
act or condition beyond the reasonable control of the parties hereto,
the party so affected upon giving prompt notice to the other parties
will be excused from such performance during such prevention,
restriction or interference.
10.2 Notices. Notice by any party under this Agreement will be in writing
and personally delivered or given by registered mail, overnight
courier, or telecopy confirmed by first-class mail, addressed to the
other party at its address given herein (or at such other address as
may be communicated to the notifying party in writing) and will be
deemed to have been given when received.
10.3 Counterparts. This Agreement may be executed in counterparts, each of
which will constitute an original instrument and all of which together
will constitute one and the same instrument.
10.4 Arbitration. Any dispute or claim arising out of or in connection with
this Agreement will be finally settled by binding arbitration in the
State of California under the substantive laws of California and in
accordance with the Rules of the American Arbitration Association by
one arbitrator appointed in accordance with those rules. Judgment on
the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the
parties may apply to any court of competent jurisdiction for
injunctive relief without breach of this arbitration provision.
10.5 Further Assurances. The parties will each perform such acts, executed
and deliver such instruments and documents, and do all such other
things as may be reasonably necessary to accomplish the transactions
contemplated by this Agreement.
10.6 No Waiver. No waiver of any term or condition of this Agreement will
be valid or binding on a party unless the same has been mutually
assented to in writing by all parties. The failure of a party to
enforce at any time any of the provisions of this Agreement, or the
failure to require at any time performance by one or both of the other
parties of any of the provisions of this Agreement, will in no way be
construed to be a present or future waiver of such provisions, nor in
any way affect the ability of a party to enforce each and every such
provision thereafter.
10.7 Entire Agreement. The terms and conditions contained in this Agreement
constitute the entire agreement between the parties with respect to
the subject matter thereof and supersede all previous agreements and
understandings, whether oral or written. No agreement or
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understanding varying or extending the terms and conditions of this
Agreement will be binding upon any party unless in a written document
signed by the party to be bound thereby.
10.8 Assignment. At his sole discretion, Steinhart may assign or delegate
this Agreement or any of his rights or duties under this Agreement
without the prior written consent of I-Labs to any person, entity.
Subject to the foregoing, this Agreement will inure to the benefit of,
and will be binding upon, the parties and their respective successors
and assigns.
10.9 No Agency. The parties are independent contractors with respect to
each other, and not agents of each other, and no party will have any
authority to bind any other party in any manner whatsoever.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written by their duly authorized representatives.
I-Labs, Ltd.
a company formed under the laws of Israel
By /s/
-------------------------------------------
Title C.O.O.
----------------------------------------
/s/ Chanan Steinhart
----------------------------------------------
Chanan Steinhart
5
<PAGE>
EXHIBIT 10.11
ASSIGNMENT AGREEMENT
THIS AGREEMENT is made and entered into as November 6, 1997 by and
between GourmetMarket.com, a California corporation (the "Company"), and Chanan
Steinhart ("Steinhart").
WITNESSETH
WHEREAS, Steinhart desires to assign to the Company all of his right,
title, and interest in and to the Work Product and other intellectual property
rights and licenses he acquired pursuant to that certain Development and
License Agreement by and between Steinhart and i-Labs, Ltd. dated March 31, 1997
(the "Development Agreement"), and the Company desires to accept such assignment
and assume all rights, licenses and obligations under the Development Agreement
under the term and conditions of this Agreement. As used herein, "Work Product"
shall have the same meaning as set forth in the Development Agreement.
NOW THEREFORE, in consideration for good and valuable consideration,
the receipt of which is hereby mutually acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
Section 1. Transfer and Assignment.
1.1 Conveyance of Rights by Steinhart. Steinhart hereby transfers,
grants, conveys, assigns, and relinquishes exclusively to the Company all of his
right, title, and interest in and to the Work Product and all other rights and
licenses under the Development Agreement, including, but not limited to, the
following: all right, title, interest, and benefit (including to make, use, or
sell under patent law; to copy, adapt, distribute, display, and perform under
copyright law; and to use and disclose under trade secret law) of Steinhart in
and to all United States and foreign patents and patent applications, patent
license rights, patentable inventions, trade secrets, trademarks, service marks,
trade names (including, in the case of trademarks, service marks and trade
names, all goodwill appertaining thereto), copyrights, technology licenses,
know-how, confidential information, shop rights, and all other intellectual
property rights owned or claimed by Steinhart embodied in the Work Product.
1.2 Further Assurances. Steinhart shall execute and deliver, from time
to time after the date hereof upon the request of the Company, such further
conveyance instruments, and take such further actions, as may be necessary or
desirable to evidence more fully the transfer of ownership of all of the Work
Product and all other licenses and rights under the Development Agreement to the
Company to the fullest extent possible. Steinhart therefore agrees to: (i)
execute, acknowledge, and deliver any affidavits or documents of assignment and
conveyance regarding the Work Product, (ii) provide testimony in connection with
any proceeding affecting the right, title, interest, or benefit of the Company
and to the Work Product, and (iii) perform any other acts deemed necessary to
carry out the intent of this Agreement.
1.3 Acknowledgment of Rights. In furtherance of this Agreement,
Steinhart hereby acknowledges that, from this date forward, the Company has
succeeded to all of his right title, and standing to: (i) receive all rights and
benefits pertaining to the Work Product and the rights and licenses under the
Development Agreement, (ii) institute and prosecute all suits and proceedings
and take all actions that the Company, in its sole discretion, may deem
necessary or proper to collect, assert, or enforce any claim, right, or title of
any kind in and to any and all of the Work Product, and (iii) defend and
compromise any and all such actions, suits, or proceedings relating to such
transferred and assigned rights, title, interest, and benefits, and do all other
such acts and things in relation thereto as the Company, in its sole discretion,
deems advisable.
<PAGE>
Section 2. Representations and Warranties.
Steinhart represents and warrants that no consents of any other parties
are necessary or appropriate under any agreements concerning any of the Work
Product or other rights and licenses under the Development Agreement in order
for the transfer and assignment of any of the Work Product or other rights and
licenses under the Development Agreement, and to the best of his knowledge, upon
consummation of this Agreement, the Company shall have good and marketable title
to the Work Product, free and clear of any and all liens, mortgages,
encumbrances, pledges, security interests, or charges of any nature whatsoever,
and full and complete rights to all licenses contained in the Development
Agreement.
Section 3. Miscellaneous.
3.1 All previous agreements and arrangements made by the parties and
relating to the subject matter hereof are hereby superseded and this Agreement,
including its exhibits, embodies the entire understanding of the parties, there
being no promises, terms, conditions or obligations, oral or written, express or
implied, other than those contained herein. This Agreement may only be amended
by a written document signed by both parties.
3.2 Any notice required to be given hereunder shall be in writing and
may be given by facsimile transmission to the facsimile number for such party
set forth below or personal delivery (including by professional courier) at, or
mailing (by first class receipted prepaid mail) to, the address of the party
contained in this Agreement, or such other facsimile number or address as such
party may have notified the other of pursuant to this section. In the case of
facsimile transmission or personal delivery, such notice shall be deemed to have
been given upon the date of such transmission or delivery. In the case of
mailing, such notice shall be deemed to have been given seven days after such
mailing.
3.3 Any dispute or claim arising out of or in connection with this
Agreement shall be finally settled by binding arbitration in San Francisco,
California under the Rules of Arbitration of the American Arbitration
Association by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply California law to the merits of any dispute or claim,
without reference to rules of conflicts of law. Judgment on the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing, the parties may apply to any court of competent
jurisdiction for injunctive relief without breach of this arbitration provision.
If any legal action is necessary or brought in any court or arbitration
proceeding, to enforce or interpret the terms of this agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs, and necessary
expenses, in addition to any other relief to which such party may be entitled.
3.4 If any provision in this Agreement is found or held to be invalid
or unenforceable, then the meaning of said provision shall be construed, to the
extent feasible, so as to render the provision enforceable, and if no feasible
interpretation would save such provision, it shall be severed from the remainder
of this Agreement which shall remain in full force and effect unless the severed
provision is essential and material to the rights or benefits received by either
party. In such event, the parties shall use their best efforts to negotiate, in
good faith, a substitute, valid and enforceable provision or agreement which
most nearly effects the parties' intent in entering into this Agreement.
3.5 No waiver of any term or condition of this Agreement shall be
valid or binding on a party unless the same has been mutually assented to in
writing by both parties. The failure of a party to enforce at any time any of
the provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement, shall
in no way be construed
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to be a present or future waiver of such provisions, nor in any way affect the
ability of a party to enforce each and every such provision thereafter.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement as of the day and year first above written.
GOURMETMARKET.COM
a California corporation
By: /s/ Chanan Steinhart
-----------------------------
Title: COO
---------------------------
ASSIGNOR:
/s/ Chanan Steinhart
---------------------------------
Chanan Steinhart
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<PAGE>
EXHIBIT 10.12
STOCK PURCHASE AND ASSIGNMENT AGREEMENT
THIS AGREEMENT is made as of September 25,1998, by and between
GOURMETMARKET.COM, a California corporation (the "Company"), and AROME
Publishing U.S., Inc., a California corporation ("Purchaser").
Recitals
WHEREAS, the Purchaser own certain assets and intellectual property
rights in connection with its wine program as set forth on Exhibit A attached
hereto (the "Wine Program"), and would like to sell and otherwise transfer and
assign all right title and interest in the Wine Program to the Company under the
terms and conditions of this Agreement
In consideration of the mutual covenants and representations herein
set forth, the Company and Purchaser agree as follows:
1. Issuance of Common Stock.
1.1 Issuance of Stock. Subject to the terms and conditions of this
Agreement, the Company hereby agrees to issue to Purchaser and Purchaser agrees
to accept from the Company at the Closing an aggregate of Sixty Three Thousand
Five Hundred (63,500) shares of the Company's Common Stock (the "Stock"), in
exchange for all of Purchaser's rights, title and interest in the Wine Program.
1.2 Closing. The purchase and sale of the Stock shall occur at a
Closing to be held on the date hereof (the "Closing Date"). The Closing will
take place at the principal office of the Company or at such other place as
shall be designated by the Company. At the Closing, Purchaser will execute the
Assignment and Transfer Agreement in substantially the form attached hereto as
Exhibit B, and Company will issue the Stock registered in the name of Purchaser.
2. Restriction on Transfer, Rights of First Refusal.
2.1 Rights of First Refusal. Before any shares of Stock registered in
the name of Purchaser may be sold or transferred (including transfer by
operation of law other than as excepted pursuant to Section 2.2 hereof),
Purchaser must first obtain the written consent of the Company. If such written
consent is not given, then the Company or, if the Company desires, the other
shareholders of the Company, shall have a right of first refusal to purchase
such shares for the same price and, to the extent practicable, on substantially
the same terms and conditions offered to such prospective purchaser, in
accordance with the procedures set forth below (the "Rights of First Refusal").
If the proposed price per share is to be other than in cash, then
an equivalent cash value shall be determined in good faith by the Board of
Directors of the Company. If a transfer other than a voluntary sale is proposed
to be made, then the price per share for purposes of the Rights of First Refusal
shall be determined by the mutual agreement of Purchaser and the Company or, if
no agreement can be reached, the price shall be the fair market value of such
shares, as determined in good faith by the Company's Board of Directors.
Prior to any sale or transfer of any shares of the Stock,
Purchaser, or the legal representative of Purchaser, shall promptly deliver to
the Secretary of the Company a written notice of the price and other terms and
conditions of the offer by the prospective purchaser, the identity of the
prospective purchaser, and, in the case of a sale, Purchaser's bona fide
intention to sell or dispose of such shares together with a copy of a written
agreement between Purchaser and the prospective purchaser conditioned only upon
the satisfaction of the procedures set forth in these Rights of First Refusal.
If the Company does not give its written consent to such transfer, then the
Company (or its
<PAGE>
assignees) shall, for thirty (30) days after such notice from Purchaser, have
the right under this Section 2 to purchase some or all such shares, as set forth
herein. After the expiration of the Rights of First Refusal, or upon the written
consent of the Company to the proposed transfer, Purchaser may sell or transfer
the shares specified in the notice to the Company, on the terms and conditions
specified in such notice; provided, however, that the sale must be consummated
within three (3) months after the date of the notice and that all shares sold or
transferred shall remain subject to the provisions and restrictions of this
Agreement, including restrictions on further transfer as provided in this
Section 2, and shall carry a legend to that effect.
If the Rights of First Refusal under this Section 2 are not exercised
but Purchaser fails to consummate such sale on the same terms and conditions as
set forth in the notice to the Company within three (3) months after the date of
the notice, then such Rights of First Refusal shall be reinstated.
2.2 Termination; Exceptions. The provisions of this Section 2 shall
terminate on the closing date of an underwritten public offering of Common Stock
of the Company. The provisions of Section 2.1 shall not apply to a transfer of
any shares of Stock by Purchaser, either during his or her lifetime or on death,
to his or her ancestors, descendants or spouse, or any custodian or trustee for
the account of Purchaser or Purchasers ancestors, descendants or spouse;
provided, in each such case a transferee shall receive and hold such shares
subject to the provisions and restrictions on transfer of this Agreement and
there shall be no further transfer of such shares except in accordance herewith.
2.3 Effect of Transfers Not in Compliance. The Company shall not be
required to transfer on its books any shares of Stock of the Company which shall
have been sold or transferred in violation of any of the provisions set forth in
this Agreement, or to treat as owner of such shares, or to accord the right to
vote as such owner or to pay dividends to, any transferee to whom such shares
shall have been so transferred.
3. Stock Splits, etc. If, from time to time during the term of the
Rights of First Refusal as provided in Section 2, there is any stock dividend,
stock split or other change in the character or amount of any of the outstanding
securities of the Company or if there is any consolidation, merger or sale of
all, or substantially all, of the assets of the Company, then in such event any
and all new, substituted or additional securities to which Purchaser is entitled
by reason of his or her ownership of Stock shall be immediately subject to the
Rights of First Refusal and be included in the term "Stock" for all purposes of
this Agreement with the same force and effect as the shares of Stock presently
subject to this Agreement.
4. Legends. All certificates representing any shares of Stock shall
have endorsed thereon substantially the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO TRANSFER AND RIGHTS
OF FIRST REFUSAL AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND
THE ORIGINAL REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY."
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
5. Investment Intent; Covenant. In purchasing the Stock, Purchaser
represents to the Company as follows:
(a) Purchaser has had an opportunity to discuss the business
prospects and business plan of
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the Company with the officers and directors of the Company. Purchaser has a
preexisting personal or business relationship with the Company or one of its
officers, directors or controlling persons and/or by reason of his or her
business or financial experience he or she has the capacity to protect his or
her own interests in connection with the transactions contemplated by this
Agreement. Purchaser further acknowledges that the Stock is highly speculative
and involves a high degree of risk, and represents and warrants that he or she
is able, without impairing his or her financial condition, to hold the Stock for
an indefinite period of time and suffer a complete loss of his or her investment
therein.
(b) Purchaser is acquiring the Stock for investment and not with a view
to or for sale in connection with any distribution of such Stock or with any
present intention of distributing or selling such Stock and he or she does not
presently have reason to anticipate any change in circumstances or any
particular occasion or event which would cause him or her to sell said Stock.
Purchaser understands that the Stock has not been registered under the
Securities Act of 1933, as amended (the "Act") and may not be sold or otherwise
disposed of except pursuant to an effective Registration Statement filed under
the Act or pursuant to an exemption from the registration requirements of such
Act. Purchaser acknowledges that the Company is under no obligation to register
the Stock under the Act on his or her behalf. Purchaser represents and warrants
that he or she understands that the Stock constitutes restricted securities
within the meaning of Rule 144 promulgated under the Act; that the exemption
from registration under Rule 144 will not be available in any event for at least
one year from the date of purchase and payment for the Stock, and even then will
not be available unless the terms and conditions of Rule 144 are complied with
and will be subject to the limitations on amount set forth therein.
(c) Without limiting the representations and warranties set forth
above, Purchaser agrees he or she will not make any transfer of all or any part
of the Stock unless (i) there is a Registration Statement under the Act in
effect with respect to such transfer and such transfer is made in accordance
therewith, or (ii) Purchaser has furnished the Company an opinion of counsel
satisfactory to the Company and its counsel to the effect that such transfer
will not require registration under the Act. Purchaser agrees that, prior to the
closing of the Company's initial public offering registered under the Act, he or
she will not transfer any of such securities in a public offering without the
Company's prior consent, even if he or she is otherwise permitted to transfer
them pursuant to Rule 144(k) under the Act.
6. Lock-up Agreement. In the event the Company sells any of its
securities in an underwritten initial public offering pursuant to a registration
filed pursuant to the Act, and in connection with each registered offering under
the Act within three (3) years of such initial offering, Purchaser agrees (but
only if each officer and director of the Company also agrees), upon request from
the Company or the managing underwriter of such initial or other public
offering, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of, any of the Stock, without the prior
written consent of the Company or such underwriter, as the case may be, for such
period of time (not to exceed one hundred eighty (180) days) from the effective
date of such registration as the Company or the underwriter may specify.
Purchaser further agrees that the Company may place stop-transfer notations with
the transfer agent of the Stock to enforce this provision.
7. Miscellaneous.
7.1 Further Assurances. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
7.2 Entire Agreement. This Agreement, including any exhibits, is the
entire agreement of the parties with respect to the subject matter hereof and
supersedes all prior oral and written understandings of the parties.
7.3 Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to Purchaser at his or her address
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<PAGE>
shown on the Company's employment records and to the Company at the address of
its principal corporate offices (attention: President) or at such other address
as such party may designate by ten (10) days' advance written notice to the
other party hereto.
7.4 Assignment of Rights; Binding Upon Successors. The Company may
assign its rights and delegate its duties under Section 2 hereof. This Agreement
shall inure to the benefit of the successors and assigns of the Company and,
subject to the restrictions on transfer herein set forth, be binding upon
Purchaser, his or her heirs, executors, administrators, successors and assigns.
7.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to contracts
between California residents to be wholly performed within the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
GOURMETMARKET.COM
a California corporation
By /s/ Chanan Steinhart
----------------------------------
Title President
--------------------------------
PURCHASER:
AROME Publishing U.S., Inc.
a California corporation
By /s/ Chanan Steinhart
----------------------------------
Title President
-------------------------------
4
