<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
REGISTRATION NO. 333- ________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM SB-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
EFOX.NET, INC.
(Exact name of registrant as specified in its charter)
Delaware 7310 52-2145698
- -------- ------------------ --------------
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Classification Identification
Incorporation or Number) Number)
Organization)
----------------
3 Bethesda Metro Center - - Suite 700
Bethesda, Maryland 20814
(301) 652-0999
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
----------------
Copy To:
Carl N. Duncan, Esq.
Duncan, Blum & Associates
5718 Tanglewood Drive
Bethesda, Maryland 20817
(301) 263-0200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the
Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
Title of Each Class
of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Registered* Offering Price per Share * Aggregate Registration
Offering Price Fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common 1,250,000
Stock Shares $6.00 $7,500,000 $1,500
==========================================================================================================================
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file an amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8 (a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
Disclosure of Alternative Used: Alternative 1 [ ] Alternative 2 [X]
-------------------------------------------------------------------------------
<PAGE> 2
EFOX.NET, INC.
CROSS REFERENCE SHEET
(SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-1)
An asterisk (*) under "Caption in Prospectus" indicates that the answer to the
item of Form SB-1 Part I is negative or inapplicable.
<TABLE>
<CAPTION>
ITEMS IN FORM SB-1 (MODEL B) CAPTION IN PROSPECTUS
---------------------
I. FORM 1-A ITEMS
--------------
<S> <C>
1. Cover Page Information............................................................Front Cover Page
2. Distribution Spread...............................................................Front Cover Page
3. Summary Information, Risk Factors and Dilution...................................Summary; Risk Factors; Dilution
4. Plan of Distribution..............................................................Plan of Distribution
5. Use of Proceeds to Issuer.........................................................Application of Proceeds
6. Description of Business...........................................................The Company
7. Description of Property...........................................................The Company
8. Directors, Executive Officers and Significant Employees...........................The Company
9. Remuneration of Directors and Officers............................................The Company
10. Security Ownership of Management and Securityholders..............................The Company
11. Interest of Management and Others in Certain Transactions.........................Conflicts of Interest
12. Securities to be Offered..........................................................Cover Page; Description of
Capital Stock
II. ALTERNATIVE 2 ITEMS
-------------------
1. Inside Front and Outside Back Cover Pages
of the Prospectus Front...........................................................Cover Page
2. Significant Parties...............................................................The Company
3. Relationship with Issuer of Experts
Named in the Registration Statement...............................................Experts
4. Legal Proceedings.................................................................Legal Proceedings
5. Changes in and Disagreements with Accountants.....................................N/A
6. Disclosure of Commission Position on Indemnification..............................Fiduciary Responsibility of the
Company's Management
</TABLE>
<PAGE> 3
PROSPECTUS $7,500,000 APRIL___, 1999
1,250,000 SHARES OF COMMON STOCK
EFOX.NET, INC.
1,250,000 shares of common stock (the "Shares") are being offered
hereby by Efox.net, Inc., a Delaware corporation (the "Company), on a
self-underwritten, best-efforts, minimum-maximum basis. (See "Plan of
Distribution and "Risk Factors.") The Company will be engaged in the adult
entertainment industry. More specifically, the Company was organized for the
purpose of creating, launching and developing the premiere online and "offline"
men's entertainment destination featuring what the Company believes are some of
the most beautiful women in the world. The Company, its management believes,
will tastefully package heterosexual men's favorite pursuits: Ladies,
Automobiles, Sports and Stocks (what it calls the "LASS" factor) for its
male-centric content.
Unless earlier terminated, the Initial Offering Period will be up
to two (2) months from the date hereof unless, in the sole discretion of the
Company, it is extended for periods up to a total of seven (7) additional
months. The Company is offering a minimum of $1,000,000 up to a maximum of
$7,500,000 of such Shares. (See "Plan of Distribution.") The date that (1)
subscriptions for a minimum of $1,000,000 in Shares have been received and (2)
the Company has accepted such subscriptions will mark the end of the Initial
Offering Period. As described in greater detail in "Plan of Distribution," the
Offering is being made pursuant to a Registration Statement which may be
extended for additional periods which will, in the aggregate, not exceed 24
months from the date of this Prospectus (the "Continuous Offering Period"). (See
"Risk Factors -- No Market For The Company's Shares"). During the Initial
Offering Period, Shares will be offered at $6.00 per share. Because Shares are
being sold by it sole principal, Joseph R. Preston, on a self-underwritten basis
(without the use of broker-dealers), there is no selling commission (the
"Selling Price"). (See "Notes to the Cover Page.") During the Continuous
Offering Period, Shares will continue to be sold at $6.00 per share until a
market develops for the Shares. (The Company intends to qualify its Shares for
quotation on the NASDAQ National Market under the symbol "EFOX" once the
$7,500,000 maximum offering is achieved. ) At such time as a market develops,
Shares will be sold by the Company at the average of the then prevailing bid and
asked prices on the date the subscription is received. If a minimum of
$1,000,000 of Shares is not sold during the Initial Offering Period (as it may
be extended), investor funds will be promptly returned with all pro rata
interest earned thereon. The minimum purchase is $300 for both the Initial and
Continuous Offering Periods.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION NOT CONTAINED IN THE PROSPECTUS
IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANY PERSON WITHIN ANY JURISDICTION TO
ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL.
THESE ARE SPECULATIVE SECURITIES.
See "Risk Factors" for certain factors that should be considered by
prospective investors.
Potential investors in the Company are advised that an investment in its Shares
is subject to the following considerations, among others:
- - Internet and/or adult entertainment companies can be speculative and
volatile and involve significant risks, including those discussed in
"Risk Factors."
- - Specifically, prospective investors are advised that the Company's
auditors have issued a report (as is often true for developmental stage
entities) which raises questions about the Company's ability to continue
as a
<PAGE> 4
"going concern". (See Financial Statement, Appendix I and "Risk
Factors - Going Concern Report Of Certified Public Accountants.")
- - The Company has not had significant prior operations, and market
acceptance may be beyond the control of management. (See "The
Company" and "Risk Factors.")
- - Certain conflicts of interest exist in the management of the Company.
(See "Conflicts Of Interest.")
- - The success of the Company is dependent on its management. (See "The
Company -- Management" and "Risk Factors -- Reliance On Management.")
<TABLE>
<CAPTION>
=============================================================================================================
Price to Public During Initial Offering Selling Proceeds to Company (3)
Period (1)(2)(3) Commission (2)(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $6.00 $0.00 $6.00
- -------------------------------------------------------------------------------------------------------------
Total Minimum $1,000,000 $0.00 $1,000,000
- -------------------------------------------------------------------------------------------------------------
Total Maximum $7,500,000 $0.00 $7,500,000
=============================================================================================================
</TABLE>
(1) During this Offering Period, there is a $300 minimum.
(2) The shares are being self-underwritten by the Company's sole
principal. There is no selling commission.
(3) These amounts are before deducting offering expenses (estimated at
$55,000 whether for the minimum or maximum offering).
UNTIL APRIL ___, 1999 (25 DAYS AFTER THE DATE HEREOF), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A CURRENT COPY
OF THIS PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE OR,
IN THE CASE OF INFORMATION INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE
DATE OF FILING WITH THE SECURITIES AND EXCHANGE COMMISSION.
INVESTMENT REQUIREMENTS
Subscriptions for the purchase of the Shares offered hereby
are subject to the following conditions:
(1) The minimum initial purchase is $300. (See "Plan Of
Distribution.") There is generally no limit on the maximum
number of Shares that may be purchased by any one investor,
except as limited by applicable regulatory considerations.
(See, for example, "ERISA Considerations.")
(2) To ensure enforcement of the investment requirements
associated with this Offering, each purchaser must represent
in the Subscription Agreement and Power of Attorney that he
has (a) a net worth of at least $100,000 (exclusive of home,
furnishings and automobiles) or (b) a net worth of at least
$50,000 (similarly calculated) and an annual adjusted gross
income of not less than $25,000.
(3) In the case of a pension, profit sharing plan or trust or any
tax-deferred or tax-exempt entity, including retirement plans,
the trustee or custodian must represent that he, she or it is
authorized to execute such subscription on behalf of the plan
and that such investment is not prohibited by law or the
plan's governing documents.
(4) The Company may reject any subscription. All subscriptions
received are irrevocable.
(5) The Company must have reasonable grounds to believe, on the
basis of information obtained from the purchaser concerning
his financial situation and needs and any other information
known by the Company , that
2
<PAGE> 5
(a) the purchaser is or will be in a financial position
appropriate to enable him to realize to a significant extent
the benefits described in the Prospectus; (b) the purchaser
has a net worth sufficient to sustain the risks inherent in an
investment in the Company, including possible losses on their
investment and lack of liquidity; and (c) the Company is
otherwise a suitable investment for the purchaser.
FOLLOWING THE CONCLUSION OF EACH FISCAL YEAR, SHAREHOLDERS
WILL RECEIVE AN ANNUAL REPORT, INCLUDING A BALANCE SHEET, STATEMENTS OF
OPERATIONS, CASH FLOWS AND CHANGES IN SHAREHOLDERS' EQUITY AND RELATED
FOOTNOTES. THE FINANCIAL STATEMENTS CONTAINED IN THE ANNUAL REPORT WILL BE
AUDITED BY THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. UNAUDITED
QUARTERLY REPORTS ON OPERATIONS ALSO WILL BE DISTRIBUTED TO SHAREHOLDERS OR
MADE AVAILABLE THROUGH E-MAIL AND/OR THE INTERNET.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK.]
3
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTIVE TITLE PAGE
- ----------------- ----
<S> <C>
INVESTMENT REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SUMMARY FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INTRODUCTORY STATEMENT: WHO SHOULD INVEST . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
FIDUCIARY RESPONSIBILITY OF THE COMPANY'S MANAGEMENT . . . . . . . . . . . . . . . . 17
APPLICATION OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Competitive Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Employee Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Securities Ownership Of Certain Beneficial Owners And Management . . . . . . 27
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 29
ABSENCE OF PUBLIC MARKET AND DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . 31
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
APPENDIX I (FINANCIAL STATEMENTS) . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
EXHIBIT A -- SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY . . . . . . . . . . . . . . A-1
</TABLE>
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere or
incorporated by reference in this Prospectus. All references in this Prospectus
to Shares are as of February 19, 1999 , unless otherwise specified. Prospective
investors should carefully consider the information set forth under the heading
"Risk Factors."
THE COMPANY
Efox.net, Inc. is a recently organized Delaware corporation which
will engage in the adult entertainment industry. The Company was incorporated on
January 22, 1999 in Delaware. More Specifically, the Company was organized for
the purpose of creating, launching and developing the premiere online and
"offline" men's entertainment destination featuring what the Company believes
are some of the most beautiful women in the world. The Company, its management
believes, will tastefully package heterosexual men's favorite pursuits: Ladies,
Automobiles, Sports and Stocks (what it calls the "LASS" factor for its
male-centric content). Its par value $ .001 Shares are expected to be listed on
the NASDAQ National Market System 6 to 18 months after the Offering commences.
Even after the Continuous Offering Period ends, there is no assurance the
Company will satisfy then current pertinent listing standards or, if successful
in getting listed, avoid later delisting. (See "Risk Factors -- No Market For
The Company's Shares")
THE OFFERING
Securities 1,250,000 Shares having an aggregate offering price of
$7,500,000 are being offered at $6.00 per Share (the
"Selling Price") during this Offering Period. (See "Plan of
Distribution" and Cover Page.)
Offering Period As described in greater detail in "Plan of Distribution"
and on the Cover Page, the Offering begins on the date of
this Prospectus and may continue for up to nine (9) months
thereafter, unless earlier terminated or extended. (The
date that (1) subscriptions for a minimum of $1,000,000 of
Shares have been received and (2) the Company has closed
the initial escrow will mark the end of the Initial
Offering Period.) Subject to pertinent securities
requirements, the Company expects to update this Prospectus
after its Initial Offering Period and continue the Offering
(the "Continuous Offering Period") for up to 24 months from
the date of this Prospectus if, as expected, the $7,500,000
maximum is not achieved during the Initial Offering Period.
Proceeds Held All subscriptions during the Initial Offering Period will
be held in an escrow account with _______________________,
__________________, ______________ Such proceeds will not
be paid to the Company until receipt of the minimum
offering amount of $1,000,000; thereafter, if such minimum
is achieved, the Offering will continue during the
Continuous Offering Period at the Company's $6.00 per Share
Selling Price until a market develops for the Shares. (At
such time as a market develops, Shares will be sold by the
Company at the average of the then prevailing bid and asked
prices on the date a subscription is received.) If the
minimum offering amount of $1,000,000 is not achieved, the
related proceeds and all interest earned thereon will be
returned to the investors. Even after the Initial Offering
Period (so long as at least the $1,000,000 minimum is
achieved), subscriptions will continue to be escrowed with
______________________________________ pending month-end
acceptance. Investors are reminded that, given the duration
of the Initial Offering Period, subscriptions may be held
in escrow for up to nine (9) months from the date of this
Prospectus. In addition, while it is expected that interest
will be earned on escrowed funds, there is no assurance
that interest will be earned and, in any event, interest
earned will be returned pro rata to subscribers only if the
$1,000,000 minimum offering is not achieved.
5
<PAGE> 8
Minimum The minimum purchase is $300. All interest earned on
Subscription escrowed subscriptions will be retained by the Company
unless the minimum is not achieved. (See "Investment
Requirements" and "Plan Of Distribution-Subscriptions.")
Risks And Conflicts An investment in the Company involves substantial risks due
Of Interest in part to the costs which the Company will incur, given
the highly speculative nature of Internet e-commerce,
including the Company's men's entertainment world wide web
destination business. (See "Conflicts Of Interest.") Risks
inherent in investing in the Company are discussed under
"Risk Factors."
Plan Of The Shares are being offered on a best-efforts,
Distribution self-underwritten, minimum-maximum basis by Joseph R.
Preston, the sole principal of the Company. (See "Plan Of
Distribution.")
Application The proceeds of the Offering are expected to be employed
Of Proceeds as outlined in "Applications of Proceeds," with particular
emphasis on refinements and expansion to its web site if
only the minimum is achieved. In the event more than the
minimum is subscribed, the Company intends to be more
aggressive in implementing its business plan. (See
"Application of Proceeds" and "The Company.")
SUMMARY FINANCIAL DATA
The Summary Financial Information, all of which has been derived
from audited financial statements included elsewhere in this Prospectus,
reflects the operations of the Company for its limited operating history as of
and for the period from inception to February 19, 1999. This information
should be read in conjunction with the financial statements and "Management's
Discussion And Analysis Of Financial Condition And Results Of Operation."
<TABLE>
<CAPTION>
<S> <C>
Current assets $58,493
-------------------------------------------------------------
Noncurrent assets $43,639
-------------------------------------------------------------
-------------------------------------------------------------
Current liabilities $52,274
-------------------------------------------------------------
-------------------------------------------------------------
Gross Revenues -
-------------------------------------------------------------
Gross Profit -
-------------------------------------------------------------
Loss from continuing operations $712,497
-------------------------------------------------------------
Net loss $712,497
-------------------------------------------------------------
</TABLE>
6
<PAGE> 9
PRO FORMA FINANCIAL INFORMATION
Pro forma financial information has not been presented since no
significant business combination has occurred or is probable and, even where
possible or remote, there have been no significant historical operations.
Furthermore, there has been minimal historical activity (approximately 1 month).
Consequently, pro forma information would serve no useful purpose. (See Appendix
I.) In addition, summary financial data is provided in "Selected Financial
Data."
INTRODUCTORY STATEMENT:
WHO SHOULD INVEST
PURCHASE OF THE SHARES OFFERED HEREBY SHOULD BE MADE ONLY BY THOSE
PERSONS WHO CAN AFFORD TO BEAR THE RISK OF A TOTAL LOSS OF THEIR INVESTMENT. THE
COMPANY RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART.
Each subscriber will be required to make certain representations as
to his net worth and income. (See "Investment Requirements" and the Subscription
Agreement and Power of Attorney attached as Exhibit A.) The Company believes
that prospective investors should consider the Shares as a long-term investment.
There is no public market for these Shares, and none is likely to develop for
approximately 6 to 18 months after the date of this Prospectus. (See "No Market
For The Company's Shares.") Thereafter, unless the Company achieves
capitalization sufficient to allow it to trade on the NASDAQ National Market or
Small Cap System, it is not likely that a trading market will develop except for
listing in the "Pink Sheets"; in addition, market makers must be obtained for
National Market and Small Cap Listing once this Offering is concluded.
In addition, offerees should not purchase Shares with the
expectation of sheltering income.
RISK FACTORS
Prospective investors should consider carefully, in addition to the
other information contained in this Prospectus, the following factors before
purchasing the Shares offered hereby.
(1) LIMITED HISTORY OF OPERATION; NET LOSSES TO DATE; COMPANY IS A "START-UP"
WITH NO REVENUES TO DATE. The Company is in the early stage of development and
has only a limited history of operations which, through February 19, 1999, have
generated aggregate losses of $712,497. (See "The Company -- Introduction" and
"Conflicts Of Interest.") To the extent that the Company implements its business
plan, the Company's business will be subject to all of the problems, expenses,
delays and risks inherent in a new business enterprise (including limited
capital, delays in program development, possible cost overruns, uncertain market
acceptance and a limited operating history). (See also below "Reliance On
Management.") In addition, the Company's future success will depend upon many
factors, including those which may be beyond its control or which cannot be
predicted at this time, such as increased levels of competition (including the
emergence of additional competitors, changes in economic conditions, emergence
of new technologies and changes in governmental regulations). Moreover, the
Company was founded January 22, 1999, it is a "start-up" company, has a limited
operating history and has generated no revenue. The Company may never generate
revenues or profits in the foreseeable future.
(2) GOING CONCERN REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. The
factors described above in "Limited History Of Operations; Net Losses: Company
Is A "Start-Up" With No Revenues To Date" raise substantial doubt about the
Company's ability to continue as a going concern. In this regard, see the Report
of Independent Certified Public Accountants accompanying the Company's audited
financial statements appearing elsewhere herein which cites substantial doubt
about the Company's ability to continue as a going concern. There can be no
assurance that the Company will achieve profitability or generate positive cash
flow in the future. As a result of these and other factors, there can be no
assurance that the Company's proposed activities and/or acquisitions will be
successful or that the Company will be able to achieve or maintain profitable
operations. If the Company fails to achieve profitability, its growth strategies
could be materially and adversely affected. (See "Management's Discussion And
Analysis Of Financial Condition And Prospective Results Of Operations.")
7
<PAGE> 10
(3) NEED FOR ADDITIONAL CAPITAL; PROCEEDS FROM SALE OF SHARES MAY BE INADEQUATE.
Especially if significantly less than the maximum offering achieved, the
Company's capital resources may not be adequate to fully implement its business
plan. Specifically, the Company is currently beginning its operations and a
substantial portion of the proceeds from this Offering will be used to fund the
Company's expansion, operations and other capital needs. There can be no
assurance, however, that such proceeds will be sufficient for these purposes,
especially in light of the fact that the Company is a "start-up" company with
essentially no operating history and no revenues. While $7,500,000 may be
sufficient to pursue the specific opportunities already targeted and described
in this Prospectus, such amount would not be sufficient to pursue the Company's
larger business plan - e.g. embarking on a major program of becoming the
dominant world wide web men's entertainment destination. Hence, as is true for
other companies contemplating significant growth, the Company, in due course, is
expected to require additional financing. There can be no assurance that any
such additional financing that may be required will be available to the Company
if and when required, or on terms acceptable to the Company, or that such
additional financing, if available, would not result in substantial dilution of
the equity interests of existing Shareholders.
(4) MINIMUM/MAXIMUM OFFERING. While $7,500,000 is the maximum offering
contemplated pursuant to this Registration Statement, it is subject to a
$1,000,000 minimum. If such minimum is not achieved during the up to nine (9)
month Initial Offering Period, subscription proceeds will be returned (with pro
rata interest based on amount and timing of the subscription) to subscribers and
the Offering will be terminated. (See "Plan Of Distribution.") If the minimum is
achieved, the Company believes it will have sufficient funds for 12-15 months of
operation but at a reduced level than would be the case for the maximum
offering. (See "Application of Proceeds.")
(5) SELF-UNDERWRITTEN OFFERING. Because there is no firm commitment for the
purchase of Shares, there can be no assurance that the Company will sell the
intended $7,500,000 aggregate offering. Such risk factor is greater in this
Offering since Shares will be exclusively self-underwritten -- meaning without
the use of securities brokers -- by the Company through Joseph R. Preston, its
sole principal, who has not previously conducted a self-underwritten offering.
(See 'Plan of Distribution" and "The Company -- Biographical Information.")
Subscribers' funds may thus be retained in the escrow account for up to
approximately nine (9) months following the date of this Prospectus. To the
extent that significantly less money is raised than the $7,500,000 maximum, the
Company's operating costs will be allocated among relatively fewer Shares.
(6) "PENNY STOCK" REGULATION. As of the date of the Prospectus, the Company's
Shares are not deemed to constitute so called "penny stock". However, it is
uncertain in the future when the Shares will be listed on a national or regional
exchange or the NASDAQ National Market System or whether broker-dealers will
make a market in the Shares. If the Shares are not so listed or if the Company
can not attract a market maker following and the price of Shares falls below
$5.00, the so-called "penny stock" ( low-priced securities) regulations could
affect the sale of the Shares. (These regulations require broker-dealers to
disclose the risk associated with buying penny stocks and to disclose their
compensation for selling the Shares). Such regulations may have the effect of
reducing the level of trading activity in the secondary market for the Shares
and make it more difficult for investors to sell their Shares in the Company.
(7) RELIANCE ON MANAGEMENT. Although management has significant business
experience and expertise, it has not previously operated an Internet-based
business. Investors will have no right or power to take part in or direct the
management of the Company. Thus, purchasers of the Shares offered hereby will be
entrusting the funds to the Company's management, upon whose judgment the
investors must depend, with only limited information concerning management's
specific intentions. Accordingly, no investor should purchase Shares unless such
investor is willing to entrust all aspects of the Company's management. This
potential risk is even more important in this Offering since the Company's
business is dependent, to a significant degree, upon the performance of one key
individual, Joseph R. Preston, the departure or disabling of whom could have a
material adverse effect on the Company's performance. (See "The Company.") Upon
successful completion of at least the Minimum Offering, the Company will apply
for key man life insurance of not less than $2,000,000 on Mr. Preston.
(8) BROAD DISCRETION OF MANAGEMENT WITH REGARD TO APPLICATION OF PROCEEDS. The
amounts set forth in the Use of Proceeds section indicates the proposed use of
proceeds. However, the actual expenditures may vary substantially from these
estimates depending upon the economic conditions and the success, if any, of the
Company's
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business. A significant portion of the net proceeds of this Offering
has been allocated, among other uses, to developing its adult entertainment
destination on the Internet as well as for working capital purposes. While the
Company expects to use proceeds of this Offering as outlined in "Application Of
Proceeds," management of the Company retains broad discretion as to the specific
use of such funds. For example, as described in such discussion $60,000 (6.0%)
of funds raised are expected to be used for customer service infrastructure if
the $1,000,000 minimum is achieved but increases to $430,000 (10.1%) at
$4,250,000 and $800,000 (10.7%) at the $7,500,000 maximum.
(9) INFLUENCE OF MANAGEMENT CONTROL BY THE PRINCIPAL SHAREHOLDER AND POSSIBLE
ANTI-TAKEOVER EFFECTS. Upon consummation of the Offering, 94% of the Company's
outstanding Shares will be beneficially owned by the Company's sole principal,
Joseph R. Preston. As a result of this ownership, management (and more
specifically, Mr. Preston) will have significant influence over the management
policies and corporate affairs of the Company. Concentration of large amounts of
the Company's Shares in the hands of management may also make more difficult any
takeover, buy-out or change of control of the Company not approved by Mr.
Preston. Prior to the Offering, Mr. Preston (the "Principal") owned in the
aggregate approximately 96% of the Shares. (See "The Company -- Management --
Security Ownership Of Certain Beneficial Owners and Management.") Upon
completion of the Offering, the Principal Shareholder's aggregate ownership of
Shares in the Company will permit him to retain approximately 88% of the Shares,
even assuming the $7,500,000 maximum is raised. Consequently, the Principal
Shareholder may be able to effectively control the outcome on all matters
submitted for a vote to the Company's Shareholders (particularly if
significantly less than the $7,500,000 maximum is raised). Specifically, at
least initially, the Principal Shareholder will be able to elect all of the
Company's directors. Such control by the Principal Shareholder may have the
effect of discouraging certain types of transactions involving an actual or
potential change of control of the Company, including transactions in which
holders of Shares might otherwise receive a premium for their Shares over then
current market prices.
(10) RISKS RELATED TO ADDITIONAL INVESTMENT OPPORTUNITIES. As a result of this
Offering, the Company is expected to experience significant expansion related to
the Company's Internet-based "hotcore" destinations (which neither the Company
nor its management has previously operated). (See "The Company" generally.) It
is possible that the Company will be required to conduct a larger business
operation than historically has been the case for its management. There can be
no assurance that the Company will be able to effectively implement the
organizational and operational systems necessary for optimal management
integration of its expanded activities.
(11) CONFLICTS OF INTEREST. Certain inherent and potential conflicts of interest
exist with respect to operations of the Company's business. (See "Conflicts Of
Interest.") These include: (i) in the future, certain members of management may
not be required to devote full time to the Company's activities and (ii)
dividends would reduce funds available for expanding the Company's operations.
(See "The Company".)
(12) COMPETITION. The Internet adult entertainment industry involves rapid
technological change and is characterized by intense and substantial
competition. Many of the companies, both domestic and foreign, with which the
Company will compete are well-established, substantially larger and have
substantially greater resources than the Company. It is also likely that other
competitors will emerge in the future. Additionally, the Company will compete
with other companies that have greater market recognition, greater resources and
broader distribution capabilities than the Company. The Company's business plan
spans a variety of businesses, many of which overlap and are highly competitive.
Increased competition by existing and future competitors could materially and
adversely affect the Company's ability to achieve profitability. The adult
entertainment business is highly competitive with respect to price, service,
location and the professionalism of entertainment. The Company will compete with
a number of web sites whose names initially may enjoy recognition that exceeds
that of Efox.net. Although the Company believes that it will compete
successfully, there can be no assurance that it will be able to maintain a high
level of name recognition and prestige within the marketplace. Moreover, the
Company's success depends on maintaining a high quality of female models,
entertainers and editorial content. Competition for nude and/or semi-nude models
and entertainers in the modeling and adult entertainment industries is intense.
The lack of availability of quality, personable, attractive models and/or
entertainers or the Company's inability to attract and retain other key
employees could adversely affect the business of the Company. The Company's
inability to compete within the industry or maintain a high quality of
entertainment could adversely effect an investment in the Shares. (See "The
Company" generally.)
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(13) RISK OF ADULT ENTERTAINMENT OPERATIONS. The adult entertainment industry is
a volatile industry. The industry tends to be sensitive to economic conditions.
When economic conditions are prosperous, entertainment industry revenues
increase; conversely, when economic conditions are unfavorable, entertainment
industry revenues decline. Customers who frequent adult web sites generally
follow trends in personal preferences. The Company will continuously monitor
trends in its clients' tastes and entertainment preferences so that, if
necessary, it can change its operations and services to accommodate the changes
in such trends. Any significant decline in general corporate conditions or the
economy that affect consumer spending could have a material adverse effect on
the Company's business and, consequently, upon an investment in the Shares.
(14) RISK OF CAPACITY CONSTRAINTS, FILTERS AND SYSTEMS FAILURES. The performance
of the Company's online services is critical to its reputation, to the Company's
services and achieving market acceptance of its online men's entertainment
destination. Any system failure, including network, software or hardware
failure, that causes interruption or an increase in response time of the
Company's online services could result in decreased usage of the Company's
services and, if sustained or repeated, could reduce the attractiveness of the
Company's online services to its clients. An increase in the volume of queries
conducted through the Company's online services could strain the capacity of the
software or the hardware employed by the Company, which could lead to slower
response time or system failures, thereby adversely affecting the Company's
revenues. The Company also faces technical challenges associated with higher
levels of personalization and localization of content delivered to users of its
online services.
The process of managing traffic within large, high traffic Internet online
services such as the Company's is an increasingly important and complex task.
The Company will rely on both internal and licensed third party inventory
management and analysis systems. The Company's operations are dependent in part
upon its ability to protect its operating systems against physical damage from
acts of God, power loss, telecommunications failures, physical break-ins and
similar events. The occurrence of any of these events could result in
interruptions, delays or cessations in service to users of the Company's online
services, which could have a material adverse affect on the Company's business,
results of operations and financial condition.
A large portion of the Company's network infrastructure is located at a single,
leased facility in Virginia. The Company's systems and operations are vulnerable
to damage or interruption from fire, flood, power loss, telecommunications
failure, Internet breakdowns, break-ins, tornadoes and similar events. The
Company does not presently have redundant facilities or systems or a formal
disaster recovery plan and does not carry sufficient business interruption
insurance to compensate it for losses that may occur. Services based on
sophisticated software and computer systems often encounter development delays
and the underlying software may contain undetected errors that could cause
system failures when introduced.
A sudden and significant increase in traffic on the Company's www.efox.net web
site could strain the capacity of the software, hardware and telecommunications
systems deployed or utilized by the Company. The Company is also dependent upon
search engines, web browsers, Internet service providers ("ISPs") and online
service providers ("OSPs") to provide Internet users access to the Company's web
site. Clients may experience difficulties accessing or using the Company's web
site due to system failures or delays unrelated to the Company's systems. These
difficulties may negatively affect audio and video quality or result in
intermittent interruption in programming. In addition, the Company relies on a
third party ISP to provide hosting services with respect to the Company's
content. Any sustained failure or delay could reduce the attractiveness of the
Company's web site to its clients. The occurrence of any of the foregoing events
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Moreover, the prevalence and sophistication of various filtering technologies
which is designed to block access to adult sites may increase throughout the
Internet and the access to the Company's site may not be available to all who
wish to have access.
(15) DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE COMPANY'S ONLINE SERVICES.
The Company has only recently commenced operations at a time when the adult
online entertainment industry is rapidly evolving and is characterized by an
increasing number of market entrants. As is typical of a new and rapidly
evolving industry, demand and market acceptance for recently introduced services
is subject to a high level of uncertainty and risk. Because the
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market for the Company's online services is new and evolving, it is difficult to
predict the future growth rate, if any, and size of this market. While it is
known that adult destinations on the Internet are large and growing, there can
be no assurance that the market for the Company's online services will continue
to develop or become sustainable. If use of its online services fails to grow,
the Company's ability to establish and expand its brand identity would be
materially and adversely affected.
(16) DEPENDENCE ON CONTINUED GROWTH IN THE USE OF THE INTERNET; DEPENDENCE ON
INTERNET INFRASTRUCTURE. The Company's future success is substantially dependent
upon continued growth in the use of the Internet and, as it relates to the
Company, in the acceptance and volume of commercial transactions on the
Internet. There can be no assurance that the number of Internet users will
continue to grow or that commerce over the Internet will become more widespread.
The Internet may not prove to be a viable commercial marketplace for a number of
reasons, including lack of acceptable security technologies, lack of access and
ease of use, congestion of traffic, inconsistent quality of service and lack of
availability of cost-effective, high-speed service, potentially inadequate
development of the necessary infrastructure, excessive governmental regulation,
uncertainty regarding intellectual property ownership or timely development and
commercialization of performance improvements, including high speed modems. (See
"Online Security Risks; -"Intellectual Property"; and -"Government Regulation
and Legal Uncertainties.")
The Company's success also depends upon, among other things, the continued
development and maintenance of a viable Internet infrastructure to support the
continued growth in the use of the Internet. The maintenance and improvement of
this infrastructure will require timely development of products, such as high
speed modems and communications equipment, to continue to provide reliable
Internet access and improved content. The current Internet infrastructure may
not be able to support an increased number of subscribers or the increased
bandwidth requirements of subscribers and, as such, the performance or
reliability of the Internet may be adversely affected. Furthermore, the Internet
has experienced certain outages and delays as a result of damage to portions of
its infrastructure. Similar outages and delays in the future, including those
resulting from Year 2000 problems, could adversely affect the level of traffic
on the Company's web site destination. The effectiveness of the Internet may
decline due to delays in the development or adoption of new standards and
next-generation Internet protocols designed to support increased levels of
activity. There can be no assurance that the infrastructure or products or
services necessary to ensure the continued expansion of the Internet will be
developed, or that the Internet will become a viable commercial medium. If the
necessary infrastructure, standards, protocols, products, services or facilities
are not developed, or if the Internet does not become a viable commercial
medium, the Company's results of operations and financial condition could be
materially and adversely affected. Even if such infrastructure, standards or
protocols or complementary products, services or facilities are developed, there
can be no assurance that the Company will not be required to incur substantial
expenditures in order to adapt its services to changing or emerging
technologies, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
Moreover, it is anticipated that additional domain levels may be created (such
as ".biz"or ".law"). To the extent additional domain levels are added, their
existence may greatly increase the level of competition for the Company's site
destination.
(17) ONLINE SECURITY RISKS. Despite the implementation of security measures,
the Company's network may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. For example, given the content of the Efox.net
website, there is an incentive for users ("hackers") to penetrate the Company's
network security. A party who is able to circumvent security measures could
misappropriate proprietary information and, perhaps at least as critically,
cause interruptions in the Company's Internet operations. ISPs and OSPs have in
the past experienced, or may in the future experience, interruptions in service
as a result of the accidental or intentional actions of Internet users, current
and former employees or others. The Company may be required to expend
significant capital or other resources to protect against the threat of security
breaches or to alleviate problems caused by such breaches. Although the Company
intends to continue to implement industry-standard security measures, there can
be no assurance that measures implemented by the Company will not be
circumvented in the future. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
clients accessing www.efox.net which could have a material adverse effect on the
Company's business, results of operations and financial condition.
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(18) RISKS ASSOCIATED WITH BRAND DEVELOPMENT. The Company believes that
establishing and maintaining brand identity of its www.efox.net destination is a
critical aspect for attracting and expanding its targeted Internet-based
audience and that the importance of brand recognition will increase due to the
growing number of Internet online services. Promotion and enhancement of the
Company's brands will depend largely on its success in continuing to provide
high quality online services, which cannot be assured. If users do not perceive
the Company's existing online services to be of high quality, or if the Company
introduces online services or enters into new business ventures that are not
favorably received by users, the Company will risk diluting its brand and
decreasing the attractiveness of its audiences to advertisers. Furthermore, in
order to attract and retain subscribers and to promote and maintain its brand in
response to competitive pressures, the Company may find it necessary to increase
substantially its financial commitment to creating and maintaining a distinct
brand loyalty among its clients. If the Company is unable to provide high
quality online services, or otherwise fails to promote and maintain its brand,
incurs excessive expenses in an attempt to improve, or promote and maintain its
brand, the Company's business, results of operations and financial condition
could be materially and adversely affected.
(19) RISKS OF TECHNOLOGICAL CHANGE. The market for Internet services is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. The emerging character of these
products and services and their rapid evolution will require the Company to
effectively use leading technologies, continue to develop its technological
expertise, enhance its current services and continue to improve the performance,
features and reliability of its Internet destination. Changes in network
infrastructure, transmission and content delivery methods and underlying
software platforms and the emergence of new broadband technologies, such as DSL
and cable modems, could dramatically change the structure and competitive
dynamic of the market. In particular, technological developments or strategic
partnerships that accelerate the adoption of broadband access technologies may
require the Company to expend resources to address these developments. There can
be no assurance that the Company will be successful in responding quickly, cost
effectively and sufficiently to these or other such developments. In addition,
the widespread adoption of new Internet technologies or standards could require
substantial expenditures by the Company to modify or adapt its web site. A
failure by the Company to rapidly respond to technological developments could
have a material adverse effect on the Company's business, results of operations
and financial condition.
(20) MANAGEMENT OF GROWTH. For the Company to expand its business operations,
it must continue to improve and expand the expertise of its personnel and must
attract, train and manage qualified managers and employees to oversee and manage
its contemplated expanded operations. It is the intention of the Company to
significantly expand its existing business operations and management anticipates
that significant expansion of its operations will continue to be required in
order to address potential market opportunities. Such expansion will subject the
Company to a variety of risks associated with rapidly growing companies. In
particular, the Company's growth may place a significant strain on its
accounting systems, internal controls and oversight of its day-to-day
operations. To manage its growth, the Company must implement, improve and
effectively utilize its operational, management, marketing and financial systems
and train and manage its future employees. These individuals will not have
previously worked together and would be required to integrate as a management
team. There can be no assurance that the Company will be able to manage
effectively the expansion of its operations or that the Company's current
personnel, systems, procedures and controls will be adequate to support the
Company's operations. Any failure of management to manage effectively the
Company's growth could have a material adverse effect on the Company's business,
results of operations and financial conditions. (See "-Dependence On Key
Personnel; Need for Additional Personnel." Although management intends to ensure
that its internal controls remain adequate to meet the demands of further
growth, there can be no assurance that its systems, controls or personnel will
be sufficient to meet these demands. Inadequacies in these areas could have a
material adverse effect on the Company's business, financial condition and
results of operations.
(21) INTELLECTUAL PROPERTY RISKS. The Company regards its trade secrets and
similar intellectual property as critical to its success. In that context, the
Company will rely on a combination of copyright and trademark laws, trade secret
protection, confidentiality and non-disclosure agreements and contractual
provisions. There is no guarantee that these efforts will be adequate; that the
Company will be able to secure trademark registrations for all of its marks in
the United States or other countries; or that third parties will not infringe
upon or misappropriate the Company's copyrights, trademarks, service marks and
similar proprietary rights. In addition, effective copyright and trademark
protection may be unenforceable or limited in certain countries, and the global
nature of the Internet makes it impossible to control the
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ultimate destination of the Company's www.efox.net destination. Since trademark
and copyright protections are not "self-enforcing", future litigation may be
necessary to enforce and protect the Company's trade secrets, copyrights and
other intellectual property rights.
The Company may also be subject to litigation to defend against claims of
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. If competitors of the Company
prepare and file applications in the United States that claim trademarks used or
registered by the Company, the Company may oppose those applications and be
required to participate in the proceedings before the United States Patent and
Trademark Office to determine the priority and scope of rights to the trademark,
which could result in substantial costs to the Company. An adverse outcome could
require the Company to license disputed rights from third parties or to cease
using such trademark. Any litigation regarding the Company's propriety rights
could be costly and divert management's attention, result in the loss of certain
of the Company's proprietary rights, require the Company to seek licenses from
third parties and prevent the Company from selling its services, any one of
which could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, inasmuch as the Company will
license a substantial portion of its sports and stocks content from third
parties, its exposure to copyright infringement actions may increase because the
Company must rely upon such third parties for information as to the origin and
ownership of such licensed content. The Company generally obtains
representations as to the origins and ownership of such licensed content and
generally obtains indemnification to cover any breach of any such
representations; however, there can be no assurance that such representations
will be accurate or that such indemnification will adequately protect the
Company. ( See "Liability for Internet Content" and " Government Regulation and
Legal Uncertainty." )
The Company intends to pursue the registration of its trademarks based upon
anticipated use internationally. There can be no assurance that the Company will
be able to secure adequate protection for these trademarks in foreign countries.
Many countries have a "first-to-file" trademark registration system and thus the
Company may be prevented from registering its marks in certain countries if
third parties have previously filed applications to register or have registered
the same or similar marks. It is possible that competitors of the Company or
others will adopt service names similar to the Company's, thereby impeding the
Company's ability to build brand identity and possibly leading to customer
confusion. In addition, there could be potential trademark or trademark
infringement claims brought by owners of other registered trademarks or
trademarks that incorporate variations of "Efox.net" and "LASS". The inability
of the Company to protect its marks adequately could have a material adverse
effect on the Company's business, results of operations and financial condition.
(22) LIABILITY FOR INTERNET CONTENT. As a distributor of Internet content, the
Company faces potential liability for negligence, copyright, patent, trademark
infringement, defamation, indecency, disparagement and other claims based on the
nature and content of the materials that it transmits. Such claims have been
brought, and sometimes successfully pressed, against Internet content
distributors. In addition, the Company could be exposed to liability with
respect to the content or unauthorized duplication or transmission of content.
Although the Company will maintain general liability insurance, the Company's
insurance may not cover potential claims of this type or may not be adequate to
indemnify the Company for all liability that may be imposed. In addition,
although the Company generally requires its content providers to indemnify the
Company for such liability, such indemnification may be inadequate. Any
imposition of liability that is not covered by insurance, is in excess of
insurance coverage or is not covered by an indemnification by a content provider
could have a material adverse effect on the Company's business, results of
operations and financial condition. (See "Government Regulation and Legal
Uncertainty.")
(23) LIABILITY FOR INFORMATION SERVICES. Because content made available by
third parties may be downloaded by the online services operated or facilitated
by the Company and may be subsequently distributed to others, there is a
potential that claims will be asserted against the Company for defamation,
negligence or personal injury, or based on other theories due to the nature of
such content. Such claims have been brought, and sometimes successfully
asserted, against online service providers in the past. Such claims may include,
among others, claims that by providing hypertext links to Internet sites
operated by third parties, the Company is liable for wrongful actions by such
third parties through such Internet sites. It is also possible that users could
make claims against the Company for losses incurred in reliance on information
provided on the Company's online services. Although the Company will carry
general liability insurance, the Company's insurance may not cover potential
claims of this type or may not be adequate to fully
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indemnify the Company. Any imposition of liability or legal defense expenses
that are not covered by insurance or are in excess of insurance coverage could
have a material adverse effect on the Company's business, results of operations
and financial condition.
(24) GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES. Since few laws or
regulations currently are directly applicable to access or commerce on the
Internet, the Company is not subject to direct government regulation, other than
regulations applicable to business generally. However, a number of legislative
and regulatory proposals are under consideration by federal, state, local and
foreign governmental organizations and, as a result, a number of laws or
regulations may be adopted with respect to Internet user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership. It is also uncertain as to how existing laws will be applied
to the Internet in areas such as property ownership, copyright, trademark, trade
secret, obscenity and defamation. The adoption of new laws or the adaptation of
existing laws to the Internet may decrease the growth in the use of the
Internet, which could in turn decrease the demand for the Company's online
services, increase the cost of the Company doing business or otherwise have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company intends to collect sales or other taxes with respect to the sale of
services or products in states and countries where the Company believes it is
required to do so. One or more states or countries have sought to impose sales
or other tax obligations on companies that engage in online commerce within
their jurisdictions. While Congress has passed a moratorium on taxing commerce
on the Internet such moratorium expires ______, 200___. A change in the current
federal exemption or successful assertion by one or more states or countries
that the Company should collect sales or other taxes on products and services,
or remit payment of sales or other taxes for prior periods, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Communications Decency Act of 1996 (the "CDA") was enacted in 1996. Although
those sections of the CDA that, among other things, proposed to impose criminal
penalties on anyone distributing "indecent" material to minors over the Internet
were held to be unconstitutional by the U.S. Supreme Court, there can be no
assurance that similar laws will not be proposed and adopted at the state or
federal level. Although the Company does not distribute the types of materials
that the CDA may have deemed illegal, the nature of such similar legislation and
the manner in which it may be interpreted and enforced cannot be fully
determined, and legislation similar to the CDA could subject the Company to
potential liability, which in turn could have an adverse effect on the Company.
Moreover, such laws could also damage the growth of the Internet generally and
decrease the demand for the Company's products and services, which could
adversely affect the Company's business, results of operations and financial
condition.
(25) YEAR 2000 COMPLIANCE. The Year 2000 issue involves the potential for system
and processing failures of date-related data resulting from computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that contain time-sensitive software may recognize
"00" as the year 1900, rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including among
other things, a temporary inability to process transactions and invoices or
engage in similar ordinary business activities. The Company believes that its
Internet software and hardware systems will function properly with respect to
dates in the Year 2000 and thereafter. Nonetheless, there can be no assurance in
this regard until such systems are operational in the Year 2000. The Company is
in the process of contacting all of its significant suppliers to determine the
extent to which the Company's interface systems are vulnerable to those third
parties' failure to make their own systems Year 2000 compliant. Accordingly, to
the extent the systems of the Company's suppliers and clients are not fully Year
2000 compliant, there can be no assurance that potential system interruptions or
the cost necessary to update software will not have a material adverse affect on
the Company's business, results of operation or financial condition.
(26) CHANGES TO THE INTERNAL REVENUE CODE. While not initially a major factor,
if, as expected, the Company diversifies its "destination" philosophy business
plan, changes to the Internal Revenue Code of 1986 limiting or decreasing the
amounts of entertainment expenses allowed as deductions from income could
adversely affect sales in the future to clients dependent upon corporate expense
accounts. An adverse effect upon the Company's sales could have an adverse
affect upon an investment in the Shares.
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(27) NO ASSURANCE OF PROFITABILITY; DIVIDENDS AT DISCRETION OF MANAGEMENT; NO
CURRENT PLANS TO PAY DIVIDENDS. Dividends, if any, to Shareholders are in the
discretion of management. No assurance can be given that the Company's services
and products will be accepted in the marketplace or that there will be
sufficient revenues generated for the Company to be profitable. Not only has the
Company not paid any dividends to date, it anticipates that, for the foreseeable
future, it will retain any earnings for use in the operation and future
expansion of its business. Moreover, the Company may be restricted from paying
dividends to its Shareholders under future credit or other financing
agreement(s). (See "Conflicts Of Interest - Dividends Would Reduce Funds
Available"and "Absence Of Public Market And Dividend Policy.")
(28) DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon, among other factors, the continued service of its key senior
executive, Joseph R. Preston, and on the Company's ability to attract, retain
and motivate qualified personnel, including Mr. Preston. The inability to
replace or attract new qualified personnel could have a material adverse effect
on the Company.
(29) DEPENDENCE ON TECHNOLOGICALLY QUALIFIED PERSONNEL. Because of the
technological nature of the Company's business, the Company is dependent upon
its ability to attract and retain technologically qualified personnel. There is
significant competition for technologically qualified personnel in the
geographical area of the Company's business and the Company may not be
successful in recruiting and retaining such qualified personnel.
(30) ABSENCE OF A PUBLIC MARKET. The Company's Shares are not publicly traded,
and there can be no assurance that a public market ever will develop. None is
likely to develop for approximately 6 to 18 months after the date of this
Prospectus. (See "Plan of Distribution."). Such publicly traded status requires
the Company to enlist a broker-dealer to serve as a market maker. Even if found,
any market maker of the Company's Shares may discontinue such activities at any
time without notice. The Company intends to list the Shares for trading on the
NASDAQ National Market System of the NASDAQ market once the maximum $7,500,000
offering is achieved. However, until such time, a purchaser of Shares may not be
able to liquidate his or her investment and Shares may not be readily acceptable
as collateral for loans. No assurance can be given as to the liquidity of the
trading market for the Shares or that an active public market will develop or,
if developed, will continue. If an active public market does not develop or is
not maintained, the market price and liquidity of the Shares may be adversely
affected. Consequently, holders of Shares acquired pursuant to this Offering may
not be able to liquidate their investment in the event of an emergency or for
any other reason, and the Shares may not be readily accepted as collateral for a
loan. Accordingly, prospective investors should consider the purchase of Shares
only as a long-term investment.
(31) ARBITRARY OFFERING PRICE. There has been no prior market for the Shares.
The common stock's price per Share in this Offering has been arbitrarily
determined by the Company's board of directors and bears no relationship to the
Company's assets, book value or net worth. The Company's offering price per
Share is substantially in excess of the net tangible book value as a "start-up".
(32) NO COMMITMENT TO PURCHASE SHARES; NO MARKET MAKER; NO UNDERWRITER. No
commitment exists by anyone to purchase all or any part of the Shares being
offered hereby and, consequently, the Company can give no assurance that any of
the Shares will be sold. No underwriter, placement agent or other person has
contracted with the Company to purchase or sell all, or a portion of, the Shares
offered hereby or in the future.
(33) POTENTIAL VOLATILITY OF STOCK PRICE. The price at which Shares may be
purchased or sold may be subject to extreme fluctuations due to such factors as
actual or anticipated fluctuations in the Company's operating results, selection
of new products, execution of new contracts, general market conditions and other
factors.
(34) POTENTIAL FLUCTUATIONS AND QUARTERLY RESULTS. The Company's quarterly
operating results may in the future vary significantly depending upon such
factors as the timing of new announcements and customer subscriptions. The sales
cycle could be lengthy and subject to a number of significant risks over which
the Company has little or no control, including customers' budgetary constraints
and general economic conditions. Due to the foregoing factors, quarterly revenue
is difficult to forecast. Additionally, if quarterly revenue levels are below
expectations, operating results are
15
<PAGE> 18
likely to be materially adversely affected. In particular, net income, if any,
may be disproportionately affected by a reduction in revenue because only a
small portion of the Company's expenses vary with revenue.
(35) FINANCING FUTURE ACTIVITIES. While the Company has no long-term debt
currently, the Company anticipates that the proceeds of this Offering will be
used to finance its future activities (See "Application Of Proceeds" and "Need
For Additional Capital.") The Company may issue debt securities from time to
time subject, among other things, to compliance with applicable securities law
considerations and possible future credit or other financing agreements.
Accordingly, the future issuance of debt by the Company could have a positive or
an adverse impact on the Shareholders.
(36) CYCLICALITY. Subscription revenues of the Company, as well as those of the
media generally, are often cyclical and dependent upon general economic
conditions. Management believes, however, that the Company's pricing strategies,
distribution, production cost structure, marketing strategy and management's
experience mitigate, to some degree, the effects of an economic downturn to the
extent such downturn is regional.
(37) DILUTION. This Offering will result in immediate and substantial dilution
of the net tangible book value per common share. Investors who purchase Shares
offered hereby will experience immediate dilution based on the difference
between the subscription price and the net tangible book value per common share.
Purchasers of Shares during at least the Initial Offering Period will pay $6.00
per share which, upon completion of this Offering, will have a net tangible book
value (based on the Company's balance sheet as of February 19, 1999, after
giving effect to this Offering) of approximately $0.07 if the $1,000,000 minimum
offering is achieved and $0.49 if the $7,500,000 maximum offering is achieved.
That represents dilution of $5.93 per share (or approximately 99%) at the
$1,000,000 level and $5.51 per share (or approximately 92%) at the $7,500,000
level. (See "Capitalization," "Dilution" and "Description Of Capital Stock --
Common Stock Generally.")
(38) FUTURE SALES OF SHARES. The existing Shareholders beneficially hold
14,000,000 Shares. All such Shares are "restricted" as defined in Rule 144 under
the Securities Act ("Rule 144"). Since these "restricted" Shares have been owned
beneficially for less than one year by existing Shareholders, they may not be
sold in the market pursuant to Rule 144 with regard to sales by affiliates until
at least one year have passed from the date of their purchase. (See "Description
Of Capital Stock.") The Company can make no prediction as to the effect, if any,
that sales of Shares, or the availability of Shares for future sale, will have
on the market price of the Shares prevailing from time to time. Sales of
substantial amounts of Shares in the public market, or the perception that such
sales could occur, could depress prevailing market prices for the Shares. Such
sales may also make it more difficult for the Company to sell equity securities
or equity-related securities in the future at a time and price which it deems
appropriate.
(39) LIMITATION OF MONETARY LIABILITY BY THE COMPANY'S MANAGEMENT. Because of
certain statutory and case law relating to broad discretion granted management
of a company, typically directors and officers of a corporation are indemnified
by and have limited monetary liability to its Shareholders. Failure of
management to satisfy its fiduciary responsibility to Shareholders could subject
management to certain claims. (See "Fiduciary Responsibility Of The Company's
Management" and "Description of Capital Stock -- Directors' Liability.")
IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT
FORESEEN BY MANAGEMENT. IN REVIEWING THE OFFERING DOCUMENTS, POTENTIAL INVESTORS
SHOULD KEEP IN MIND OTHER POTENTIAL RISKS THAT COULD BE IMPORTANT.
CONFLICTS OF INTEREST
THE FOLLOWING INHERENT OR POTENTIAL CONFLICTS OF INTERESTS SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS BEFORE SUBSCRIBING FOR SHARES. (SEE
DISCLAIMER AT THE END OF THE FOLLOWING DISCUSSION REGARDING CERTAIN SPECIFIC
TRANSACTIONS.)
16
<PAGE> 19
(1) FUTURE MEMBERS OF MANAGEMENT MAY NOT BE REQUIRED TO DEVOTE FULL-TIME TO THE
BUSINESS ACTIVITIES OF THE COMPANY. Joseph R. Preston will devote full time to
the activities of the Company. However, in the future it is possible certain
members of management will have professional responsibilities to entities other
than the Company. Those external activities may be pursued within the discretion
of each individual member of management. However, as described in "Fiduciary
Responsibility Of The Company's Management" below, those activities are subject
to fiduciary standards even if full-time is not devoted to the Company.
Moreover, any activities that can be characterized as adult
entertainment-related in character are potentially restricted by non-compete
terms under work for hire agreements with the Company.
(2) DIVIDENDS WOULD REDUCE FUNDS AVAILABLE FOR EXPANDING OPERATIONS. The amount
and frequency of dividends declared and/or distributed to Shareholders is solely
within the discretion of the Company. Since certain fees to management and/or
related parties are, directly or indirectly, related to assets of the Company
and the Company seeks to invest those funds to the maximum extent feasible,
management would suffer an economic disadvantage if the Company reduced its
assets through such distributions to Shareholders. Consequently, the Company
does not expect to declare dividends for the foreseeable future.
(3) NO INDEPENDENT REVIEW. Investors should note that the Company and its
management are represented by the same counsel. Therefore, to the extent the
Company and this Offering would benefit by an independent review, such benefit
will not be available in this case. Such potential conflict may be greater in
this Offering since the Managing Partner of the Company's securities counsel
owns Shares in the Company. While it is not expected to have any adverse
consequence (such as undermining professional representation), Carl N. Duncan (a
partner of the law firm - Duncan, Blum & Associates - that represents the
Company) is being paid for his services through significantly reduced cash
compensation and the issuance of Shares in the Company. (See "Experts.")
(4) POSSIBLE RELATED PARTY TRANSACTIONS. The Company may in the future enter
into transactions with affiliates. However, the Company intends to enter into
any such transactions only at prices and on terms no less favorable to the
Company than transactions with independent third parties. In any event, any debt
instruments of the Company in the future are expected generally to prohibit the
Company from entering into any such affiliate transaction on other than
arm's-length terms. Moreover, it is expected that independent directors will be
added to the Board and an independent escrow agent/registrar will be appointed,
no later than the initial closing for this Offering, to assure proper issuance
of stock to Shareholders.
FIDUCIARY RESPONSIBILITY OF THE COMPANY'S MANAGEMENT
Counsel has advised the Company's management it has a fiduciary
responsibility for the safekeeping and use of all assets of the Company. (See
"Conflicts Of Interest" and "Risk Factors -- Conflicts Of Interest.") Management
is accountable to each Shareholder and required to exercise good faith and
integrity with respect to its affairs. (For example, whether under SEC and/or
general fiduciary principles, management cannot commingle property of the
Company with the property of any other person, including that of management.)
Cases have been decided under the common or statutory law of corporations
in certain jurisdictions to the effect that a Shareholder may institute legal
action on behalf of himself and all other similarly situated Shareholders (a
class action) to recover damages from management for violations of fiduciary
duties, or on behalf of a corporation (a corporation derivative action), to
recover damages from a third party where management has failed or refused to
institute proceedings to recover such damages. On the basis of federal and/or
state statutes, including most critically the Delaware General Corporation Law,
and rules and decisions by pertinent federal and/or state courts, accordingly,
(a) Shareholders in a corporation have the right, subject to the provisions of
the Federal Rules of Civil Procedure and jurisdictional requirements, to bring
class actions in federal court to enforce their rights under federal securities
laws; and (b) Shareholders who have suffered losses in connection with the
purchase or sale of their shares may be able to recover such losses from a
corporation's management where the losses result from a violation by the
management of SEC Rule 10b-5, promulgated under the Securities Exchange Act of
1934, as amended. It should be noted, however, that in endeavoring to recover
damages in such actions, it would be generally difficult to establish as a basis
for liability
17
<PAGE> 20
that the Company's management has not met such standard. This is due to the
broad discretion given the directors and officers of a corporation to act in its
best interest.
The SEC has stated that, to the extent any exculpatory or indemnification
provision purports to include indemnification for liabilities arising under the
Securities Act of 1933, as amended, it is the opinion of the SEC that such
indemnification is contrary to public policy and, therefore, unenforceable.
Shareholders who believe that the Company's management may have violated
applicable law regarding fiduciary duties should consult with their own counsel
as to their evaluation of the status of the law at such time.
APPLICATION OF PROCEEDS
The net proceeds to the Company from the sale of the shares of common
stock (the "Shares") offered hereby (after associated organization and offering
expenses approximating $55,000) are estimated to be approximately $7,445,000 if
the $7,500,000 maximum offering is achieved and $945,000 if the $1,000,000
minimum offering is achieved. (See Capitalization" below with regard to the
Company's capitalization currently and that which will exist if the minimum or
maximum offering is achieved.) The Company expects that such net proceeds will
be used to finance expansion of its contemplated activities as well as for
general corporate purposes.
In the event only the minimum amount of funding is subscribed, the
Company will concentrate its efforts primarily on expanding its www.efox.net web
site. In the event that more than the minimum is subscribed, the Company intends
to be more aggressive in implementing its business plan and further develop
operations, personnel and projects. Anticipated application of proceeds below
does not, however, include cash flow from revenue. The Company anticipates
receiving revenues from operations, but there can be no assurance that such
revenues will be sufficient to generate positive cash flow before proceeds from
this Offering are expended. At anticipated levels of capital expenditures
(so-called "burn rates"), proceeds from the Minimum Offering are expected to
fund the Company's operations for 12-15 months. (See "Risk Factors.")
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK.]
18
<PAGE> 21
<TABLE>
<CAPTION>
GROSS PROCEEDS
--------------
$1,000,000 $4,250,00 $7,500,000
---------- --------- ----------
Dollar Amount Percentage Dollar Amount Percentage Dollar Amount Percentage
------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
OFFERING EXPENSES
Legal Fees (1) $15,000 1..5% $15,000 0.4% $15,000 0.2%
Printing And Related Costs 10,000 1.0% 10,000 0.2% 10,000 0.1%
Escrow and Misc. Expenses 5,500 0.5% 5,500 0.1% 5,500 0.1%
Accounting Fees 10,000 1.5% 10,000 0.2% 10,000 0.1%
Filing Fees 14,500 14,500 0.4% 14,500 0.2%
TECHNOLOGY COSTS (HARDWARE,
SOFTWARE & PERSONNEL)
Ecommerce Infrastructure 150,000 15.0% 700,000 16.5% 1,250,000 16.7%
Customer Service Infrastructure 60,000 6.0% 430,000 10.1% 800,000 10.7%
Co-Location and Bandwidth 40,000 4.0% 320,000 8.7% 700,000 9.3%
Content Management and
Delivery 100,000 10.0% 300,000 7.0% 500,000 6.7%
Database Marketing 50,000 5.0% 150,000 3.5% 250,000 3.3%
MARKETING COSTS
Public Relations (PR) 63,000 6.3% 75,000 1.8% 83,000 1.1%
Advertising Media Buys 120,000 12.0% 645,000 15.2% 1,162,000 15.5%
Grass Roots Marketing 100,000 10.0% 675,000 15.9% 1,200,000 16.0%
Operating Expenses (2) 162,000 16.2% 600,000 14.1% 1,000,000 13.3%
Working Capital (3) 100,000 10.0% 250,000 5.9% 500,000 6.7%
------- ----- ------- ---- ------- ----
Gross Proceeds $1,000,000 100% $4,250,000 100% $7,500,000 100%
========== ==== ========== ==== ========== ====
Less Offering Expenses $55,000 $ 55,000 $55,000
------- -------- -------
Net Proceeds $945,000 $4,195,000 $7,445,000
======== ========== ==========
</TABLE>
- -------------------------------
(1) Although cash payment to the Company's securities counsel are capped at
$15,000, Duncan, Blum & Associates will be reimbursed for out-of-pocket costs
and will receive 141,667-152,500 Shares (1%) of the Company's aggregate
outstanding shares at closing.
(2) A portion of the proceeds of this Offering are expected to be used to pay
salaries of the Company's employee team, such amounts projected to aggregate
from $80,000-$800,000 in 1999 (and thus from 8% at the minimum offering to
10.7% at the maximum).
(3) In order to commence operations, the Company incurred costs, such as
office rent, equipment and printing, which have been paid by Joseph R. Preston,
the Company's chief executive officer and controlling Shareholder. The Company
will not reimburse Mr. Preston for these costs. Instead, the Company is
accepting those costs as a partial contribution of capital.
THE COMPANY RESERVES THE RIGHT TO CHANGE THE APPLICATION OF PROCEEDS DEPENDING
ON UNFORESEEN CIRCUMSTANCES AT THE TIME OF THIS OFFERING. THE INTENT IS TO
IMPLEMENT THE COMPANY'S BUSINESS PLAN TO THE EXTENT POSSIBLE WITH FUNDS RAISED
IN THIS OFFERING. UNFORESEEN EVENTS, TIMING, THE GENERAL STATE OF THE ECONOMY
AND THE COMPANY'S ABILITY OR INABILITY TO GENERATE REVENUE COULD GREATLY ALTER
THE APPLICATION OF PROCEEDS FROM THAT SHOWN ABOVE.
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<PAGE> 22
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company
as of February 19, 1999 and (ii) the pro forma capitalization of the Company on
the same date, reflecting (a) the sale of the 166,667 Shares offered by the
Company hereby for estimated net proceeds of $5.67 per Share and 141,667 Shares
to be issued to the Company's securities counsel upon closing (the "Minimum
Offering"); and (b) the sale of 1,250,000 Shares (maximum) offered by the
Company for estimated net proceeds of $5.96 per Share and 152,500 Shares to be
issued to the Company's securities counsel upon closing (the "Maximum
Offering"). (See "Application of Proceeds", "Description of Capital Stock"and
"The Company -- Securities Ownership of Certain Beneficial Owners and
Management.")
<TABLE>
<CAPTION>
FEBRUARY 19, 1999
AS ADJUSTED
-----------
ACTUAL MINIMUM MAXIMUM
------ ------- -------
<S> <C> <C> <C>
Shareholders' equity $14,000 $14,308 $15,402
Common stock, $.001 par value; 20,000,000 Shares
authorized; 14,000,000 Shares issued and
outstanding; 14,308,334 (Minimum) and 15,402,500
(Maximum) Shares to be issued and outstanding, as
adjusted
Paid-in capital 748,355 1,692,493 8,182,953
Deficit accumulated during the development stage (712,497) (712,497) (712,497)
--------- --------- ---------
Total Shareholders' equity and total capitalization $(49,858) $994,304 $7,485,858
========= ======== ==========
</TABLE>
DILUTION
The following table sets forth the percentage of equity the investors
in this Offering will own compared to the percentage of equity owned by the
present shareholders, and the comparative amounts paid for the Shares by the
investors as compared to the total consideration paid by the present
shareholders of the Company. (See "Description of Capital Stock," "Risk
Factors" and "Capitalization" for a more complete discussion of total number of
Shares and associated rights and consequences.)
<TABLE>
<S> <C> <C>
DILUTION FOR $1,000,000 OFFERING (1) (2)
Initial public offering price per Share $6.00 (100.0%)
Net tangible book value per Share before offering $0.00 (0%)
Increase per Share attributable to new Shareholders $0.07 (1%)
Pro forma net tangible book value per Share after offering $0.07 (1%)
-----
Total dilution per Share to new Shareholders $5.93 (99%)
=====
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shares 14,000,000 97.85 $86,755 8.4 $ -
Counsel 141,667 .99 - - -
New Shares 166,667 1.16 944,446 91.6 $6.00
------- ----- ------- ---- =====
14,308,334 100.00 $1,031,201 100.00 $0.07
========== ====== ========== ====== =====
</TABLE>
<TABLE>
<S> <C> <C>
DILUTION FOR $7,500,000 OFFERING (2)(3)
Initial public offering price per Share $6.00 (100.0%)
Net tangible book value per Share before offering $0.00 (0%)
Increase per Share attributable to new Shareholders $0.49 (8%)
Pro forma net tangible book value per Share after offering $0.49 (8%)
-----
Total dilution per Share to new Shareholders $5.51 (92%)
=====
</TABLE>
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shares 14,000,000 93.33 $86,755 1.15 -
Counsel 152,500 - - - -
New Shares 1,250,000 6.67 7,450,000 98.85 $6.00
---------- ---- --------- ----- =====
15,402,500 100.00 $7,536,755 100.00 $0.49
========== ====== ========== ====== =====
</TABLE>
(1) Assumes issuance and sale of 166,667 of the Company's Shares during this
Offering Period in addition to the 14,000,000 Company Shares currently
outstanding and 141,667 Shares to be issued to the Company's securities counsel
upon closing.
(2) Excludes $675,600 which represents the value attributed to 112,600 Shares
issued for services provided.
(3) Assumes issuance and sale of 1,250,000 of the Company's Shares during this
Offering Period in addition to the 14,000,000 Company Shares currently
outstanding and 152,500 Shares to be issued to the Company's securities counsel
upon closing.
21
<PAGE> 24
THE COMPANY
GENERAL
Efox.net, Inc. is an Internet E-commerce men's entertainment destination
for heterosexual males between the ages of 18 and 55 that provides online
upscale adult content including nude and semi-nude models, automobile reviews
and reports, sports news and scores as well as stock market updates and
commentary. The Company intends to successfully and tastefully package men's
favorite pursuits: Ladies, Automobiles, Sports and Stocks (which it calls the
"LASS" factor). The Company's goals are to brand Efox.net as the premiere
online and "offline" men's entertainment destination and build a significant
world-wide community of loyal clients who enjoy the Company's unique adult
entertainment.
The Company has termed its adult content as "hotcore" art, a derivation of
softcore adult entertainment. The Company's original hotcore art features the
exclusive "Efoxes", female models between the ages of 18 and 35 in seductive
and alluring poses. Efox.net will Not display or present what it believes to
be hardcore sex. The Company's site will be positioned as upscale, classy and
hip as opposed to the "down" market adult content that proliferates the web
(i.e. fetish, bizarre or hardcore sex). The Company's original content will
eventually include photographs, streaming video and audio on demand and video
conferencing. Other site content, written by the Company's in-house and
freelance editorial staff, will include original commentary and reviews on
automobiles, sporting events and stock market performance.
According to an article entitled "The Sex Industry, Giving the Customer
What He Wants" in the February 14, 1998 issue of The Economist magazine, the
international adult entertainment industry is characterized as a $20 billion
business. According to Forrester Research, a leading technology research firm
listed on NASDAQ, adult entertainment in the United States is a $10 billion
industry and the Internet-based adult entertainment market generated between
$750 million to $1 billion in revenues in 1998 with rapid growth in the years
that follow.
As the Internet becomes the ubiquitous communications tool, the Company
believes the Internet adult entertainment market will expand and flourish. For
example, after interviewing site operators, banner exchanges and traffic
measurement firms, Forrester Research (see above) concluded that (i) the
biggest sites have gross incomes of $100 to $150 million annually, mostly from
subscriptions, together with a significant annual growth rate; (ii) major
credit card processing services confirm that the largest adult entertainment
web sites processed $150 million in 1997 for their adult site clients; and
(iii) even medium sized as well as small and mom-and-pop players flourish.
Moreover, the report concluded that: (1) "[a]dult entertainment generates $10
billion a year in the United States. Yet the online marketplace falls under
most people's radar; and (2) even with an anticipated shake-out in adult online
content, revenue will not likely be affected and, in fact, in its opinion,
"...big site networks will triple in size..."
The Company believes it can penetrate this marketplace to become a force
in this industry. Its business is based on the premise that the opportunity
in this market lies in eliminating compromises currently imposed on
heterosexual male consumers of Internet-based adult content. The Company
believes such compromises can be broken by: (1) providing convenience and
reducing hassle (see "Eliminate Online Inconveniences"); (2) linking the online
experience with the "offline" experience, thus creating a powerful
"Disney-like" experience; and (3) featuring beautiful nude and semi-nude women
and eliminate all smut and bizarre sex images from the site.
COMPETITIVE ADVANTAGES
The Company believes it will differentiate and distance itself from the
competition through the following factors:
(1) The Company Will Be Partially Owned By Its Women Models : One
significant factor differentiating the Company from the competition is the fact
that the women featured on www.efox.net will be Shareholders of the Company.
Currently, the female talent in the fashion and adult entertainment industries
are mere "commodity products" that are discarded once their usefulness
diminishes or their age prevents them from continuing their entertainment
22
<PAGE> 25
careers. For example, women featured in Playboy do not participate in
profit-sharing and they are not granted stock in Playboy Enterprises, Inc.
(NYSE:PLA). The Company believes this is a significant compromise imposed on
female talent. The Company intends to "change the rules" in the fashion and
adult entertainment industries and assist in displacing the power from the
current custodians to the female models and entertainers. Specifically, the
Company will set aside 2,000,000 Shares (up to 10% of those authorized) to
compensate models. In addition, the Company plans to offer Efox models a
comprehensive health insurance plan that includes dental, vision and
prescription co-pay programs, in addition to a retirement plan.
(2) Efoxes: The Company recruits what it believes to be some of the most
beautiful and talented female models in the world. The Company will conduct an
international talent search for beautiful women who are also musically or
artistically talented. The Company seeks to have the status of being an Efox,
in due course, surpass the status of being a Playboy Playmate. The Company
believes it will be successful in its recruitment plan because it is offering
prospective Efox models the opportunity to become Shareholders and participate
in the Company's upside and capital appreciation. (See "The Company Will Be
Partially Owned By Its Women Models."). In addition, the Company believes it
will attract beautiful models because it will contribute 1% of net income to
the Company's scholarship fund. This fund will provide financial assistance to
Efox.net models for continuing education and skill-set development. In
addition, the members subscribing to www.efox.net can vote for the "Efox of the
Year" and the winner will receive various prizes and scholarship funds.
(3) Variety of Unique Products and Services:
The Company plans to sell the following products and services:
(a) Subscription-based membership for access to the web site's
content (including an online library of original Efox.net
photographs of nude and semi-nude women, automobile reviews
and reports, sports news and scores as well as stock market
updates and commentary).
Monthly Membership $19.95
Quarterly Membership $49.95
Semi-Annual Membership $99.95
Annual Membership $169.95
(b) Efox calendars.
(c) Efox.net merchandise such as polo shirts and baseball caps.
(d) Efox VHS/DVD movies.
(e) Pay-per-view live and taped interactive Efox shows.
(f) Efox.net branded lingerie, swimwear and workout apparel.
(4) Linking the Online and "Offline" Experience: Numerous online and
"offline" competitors exist in the marketplace. However, no one competitor has
successfully bridged and combined these two elements to create an upscale
"Disney-like" experience in the adult entertainment industry. Successful
adult-oriented Internet companies have succeeded while providing only a limited
level of entertainment. For example, such companies have been effective in
exploiting technology to enhance its web-transferred products. However, the
flat screen of a computer monitor can only deliver a limited dimension to a
client's entertainment experience.
Companies around the United States have only succeeded up to a point
in the "offline" adult entertainment market. "Offline" adult entertainment is
mostly available in "strip bars" or nightclubs featuring exotic dancers such as
Cheetah's in Atlanta, Delia's Den in Philadelphia and Archibald's in
Washington, D.C. These outlets do their best to
23
<PAGE> 26
provide an upscale experience for their executive clientele. However, many men
simply do not want to be seen walking into or out of a strip bar. Also,
beverage prices at these establishments are often exorbitant. On the other end
of the spectrum, the Hooter's restaurant chain has created a very tame
"offline" experience for a niche segment of the male population. From the
corporate perspective, a disadvantage to the currently available "offline"
experience is the significant investment in "bricks and mortar" (i.e. real
estate, furnishings, maintenance, zoning and permit costs).
The Company will expand the Efox.net experience beyond the world wide
web by offering members access to Efox corporate parties held before and after
sporting events such as football, baseball, basketball, hockey, golf, sailing,
auto racing, soccer, hunting, fishing and surfing throughout the United States.
The Company will also sponsor Efox "getaway weekends" that include golf
excursions, sailing regattas, auto racing training schools, deep sea fishing
expeditions and the Efox "Born Again Bachelor Parties." The Company intends to
successfully merge sports (for many men, their favorite past time) with its
Efox models. The Company's founder, Joseph Preston, equates this to merging
NFL Monday Night Football with the Playboy Channel.
These unique "offline" entertainment experiences allow members and
investors to meet and get acquainted with the Efoxes in a supervised and
controlled environment. The Company's goals are to brand Efox.net as the
premiere online and "offline" men's entertainment destination and build a
significant world-wide community of loyal clients who enjoy the Company's
unique adult entertainment.
The Company will rent golf course establishments and other sporting
venues for the Efox parties and "getaway weekends". Hosting these "offline"
events at existing establishments will dramatically limit overhead costs and
other associated expenditures.
(5) Eliminate Online Inconveniences: The Company seeks to eliminate the
online inconveniences associated with enjoying adult content on the Internet.
First, the Company will NOT place any click through advertising on its web
site. (These ads often tempt consumers to "free pics" but they actually lead
to absolutely nothing free -- not only a hassle, but also a rude "bait and
switch" deception). Second, the Company will NOT manipulate the "back" key in
the web browser. This annoying manipulation re-opens the last site in which
the viewer tries to exit through the "back" key. For example, if a person is
viewing an adult content web site and someone walks in by surprise, he can not
exit the site by pressing the "back" key because it reloads the last web site
he was visiting. Instead, the person must close and exit the browser program
altogether, an annoying inconvenience. Third, the Company will not place any
data files on its members' or visitors' hard drives ("cookies") in order to
obtain information for the Company's benefit.
(6) Initial Public Offering ("IPO"): The Company will launch its web site
accompanied by an aggressive public relations campaign. As discussed in
greater detail in "Application of Proceeds," the Company will utilize the
proceeds from this Offering to (i) enhance the web site through improved
technology, programming and design; (ii) recruit additional executive
management talent and models to pose nude or semi-nude; (iii) execute a
well-planned marketing and advertising campaign; (iv) develop its Efox.net
"offline" adult entertainment experience to further build the Company's brand
(i.e., "Pebble Beach meets the Playboy Mansion"); and (v) retain an executive
search firm to recruit high profile directors for the Board.
(7) Aggressive Public Relations, Grassroots Marketing and Mainstream Media
Advertising: The Company's Internet-based competition is relegated to
promoting their sites via search engine advertising, search engine meta tag
placement and advertising on other adult sites. The upscale Efox.net men's
entertainment club will also utilize an aggressive and well-orchestrated public
relations campaign to generate web traffic and build the "buzz" and
word-of-mouth about www.efox.net.
Because the Company is creating a new adult entertainment paradigm or
industry standard, the management team believes the Company will build brand
awareness and name recognition through media placements in the mainstream news
outlets.
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<PAGE> 27
The Company will plan and implement a grassroots marketing campaign
targeting sporting events such as football, baseball, basketball, hockey, golf,
sailing, auto racing, soccer and surfing throughout the United States. The
grassroots tactics will include, but are not limited to, sponsoring Efox.net
corporate tents, skyboxes and parties that allow the Company's members and
investors to meet, interact and get to know the Efoxes in a supervised and
controlled environment.
After raising capital in its Offering, the Company will undertake a
mainstream media advertising campaign to assist in building the "Efox" brand.
This advertising campaign may include placing display advertisements in Sports
Illustrated, Inside Sports, Esquire, GQ, Maxxim, Details, ICON, Car and Driver,
Motor Trend, Robb Report, Cigar Aficionado, Business 2.0 and Upside.
MANAGEMENT
(1) Introduction
By way of summary, the following table reflects the name, age and
position of the Company's executive officer and director. See the biographical
information which follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joseph R. Preston 28 President, Chief Executive Officer, Secretary,
Treasurer and Chairman
of the Board of Directors
</TABLE>
(2) Officer
JOSEPH R. PRESTON, born in 1970, is Chief Executive Officer,
President, Chairman of the Board and Founder of the Company. Mr. Preston is
responsible for managing the overall operations of the Company as well as
planning and implementing its entire strategic marketing and communications
function. He manages how the Company is perceived in the marketplace. As the
Company's CEO, he created and presently manages the Efox.net brand which
includes developing and honing all communications messages in consumer
advertising and media relations, investor relations, government relations,
promotions and special events. Mr. Preston is President and Founder of Preston
Communications Inc., a strategic marketing and public relations advisory firm.
He is presently taking an extended sabbatical from Preston Communications Inc.
so that he can devote his entire time and energy to the Company.
Mr. Preston co-invented, co-designed and co-marketed CIGARSir(TM), the
world's first cigar vending humidor which was featured in the May 19, 1997
issue of Forbes magazine. He introduced CIGARSir(TM) to the marketplace in
January 1997 and generated articles in publications such as USA Today, Time
Magazine, The Washington Post, Robb Report, Men's Journal, New York Post and
The Sunday London Times. The product unveiling in Washington, D.C. was aired
on 66 television news stations across the United States including national
broadcasts from CBS This Morning, CNN, CNNfn, CNBC and FOX Channel News.
Mr. Preston has planned, directed and implemented national, regional
and local communications campaigns for private and public corporations
throughout the United States. His diverse background includes financial,
consumer and trade media relations, business-to-business marketing, crisis
communications planning and execution, corporate identity creation and
positioning, new product launches and branding, issues analysis and response,
strategic market research, spokesperson training and special event development.
Mr. Preston has advised a variety of clients such as The Home Depot, Home
Specialty Store, MSI Software, USL Financials, KLM Real Estate, Construction
Technologies Inc., Lerch, Early & Brewer Chartered, Federal Realty Investment
Trust, Bamberger Polymers Inc., Charter Oak Partners, Rothschild Realty,
Friends of John M. Perzel, Pennsylvania House Republican Campaign Committee,
Manulife Real
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<PAGE> 28
Estate, Morgan & Banks, NVCommercial, Metro Realty Group, Metro Commercial
Construction and the Carey Winston Company.
Mr. Preston founded Preston Communications in 1994. Before starting
his own marketing firm (with The Home Depot as his first client), Mr. Preston
was a senior account executive with Henry J. Kaufman & Associates. He was
recruited by that firm to head its investor relations and financial media
relations practice and generate new business. Mr. Preston oversaw corporate
communications for the intended initial public offering ("IPO") of Charter Oak
Partners, a large factory outlet center owner and developer in the United
States. He also handled an intensive crisis communications program for the real
estate developer and assisted the Company in gaining building approvals from
local wetlands, zoning and planning commissions in Westbrook, Connecticut.
While at Henry J. Kaufman & Associates, Mr. Preston also planned and managed
the public relations campaign for the United States Mint's American Eagle Gold
Bullion Coin program.
Previously, Mr. Preston was responsible for overseeing the management
of client accounts at Engle & Co., a public relations and investor relations
firm located in Tysons Corner, Virginia. As the firm's account executive, he
implemented and supervised corporate communications programs for a variety of
business-to-business and commercial real estate companies.
Mr. Preston has also served as a legislative assistant to State
Representative John Perzel (172nd District, Philadelphia), the current Majority
Leader of the State House of Pennsylvania. During the 1996 campaign, Mr.
Preston was a media relations advisor and campaign strategist for State
Representative Perzel and the Pennsylvania House Republican Campaign Committee.
A native of Philadelphia, Mr. Preston attended The American University
in Washington, D.C. While enrolled in the School of Communications, he
concentrated his studies on public relations and business. An avid political
aficionado, he also studied campaign strategies, advertising and fundraising
within American University's Political Campaign Management Institute. Mr.
Preston graduated from Holy Ghost Preparatory School in Bensalem, Pennsylvania.
-----------------------------
IT IS EXPECTED THAT ADDITIONAL PERSONNEL WILL BE EMPLOYED TO ASSIST IN
OPERATIONS AND FINANCIAL MANAGEMENT. THE COMPANY HAS ALSO IDENTIFIED SEVERAL
PEOPLE THAT ARE CANDIDATES FOR KEY POSITIONS WITHIN THE ORGANIZATION. THE
COMPANY HAS DISCUSSED OPPORTUNITIES WITH SOME OF THESE PEOPLE AND INTENDS TO
ACTIVELY RECRUIT THEM UPON FUNDING. MANAGEMENT RECOGNIZES THAT THEIR EXPERTISE
AND EXPERIENCE IS ESSENTIAL TO SUCCESS OF ITS BUSINESS PLAN. THE COMPANY
INTENDS TO ALSO CONTINUE TO EXPAND ITS ADVISORY GROUP IN THE AREAS OF BUSINESS
AND FINANCE.
(3) Director
JOSEPH R. PRESTON. (See "Officer" above.)
REMUNERATION
The Company was formed on January 22, 1999 and therefore paid no
compensation prior to that time. Although there are no employment agreements in
place, Joseph R. Preston will be paid compensation at the annual rate of
$100,000 in 1999 upon completion of the maximum funding and $150,000 in 2000.
If only the minimum funding is subscribed for in this Offering and no
other funds are available, it is intended that the amount of Mr. Preston's
salary will be reduced to as little as $30,000 until cash flow is available
to adequately pay such larger amounts. (It is intended that the difference
between the full compensation level and what is paid will be accrued and
ultimately paid when funds are available.) As the Company's operations develop,
it is anticipated that
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<PAGE> 29
additional personnel may be hired. It is generally anticipated that any such
future individuals will devote full time to the Company.
EMPLOYEE BENEFITS
It is anticipated that the Company will implement, in the near future,
a Restricted Employee Stock Option plan under which its Board of Directors may
grant employees, directors and certain advisors of the Company options to
purchase its Shares at exercise prices of not less than 85% of the then current
market price on the date of their grant. Income from any such options are not
expected to be tax deferrable. As of the date of this Prospectus, the plan has
not been defined and no options have been granted but it is anticipated that
250,000 Shares will be reserved.
The Company anticipates that it will adopt, in the future, an employee
bonus program to provide incentive to the Company's employees. It is
anticipated that such a plan would pay bonuses in cash or stock to employees
based upon the Company's pre-tax or after-tax profit for a particular period.
It is anticipated that the Company will adopt a retirement plan such as a
401(k) retirement plan and that it will implement an employee health plan
comparable to the industry standard. Establishment of such plans and their
implementation will be at the discretion of the Board of Directors; any such
bonus plan will be based on annual objective, goal-based criteria developed by
the Board of Directors for eligible participants and will be exercisable only
at prices greater than or equal to the market value of the underlying Shares on
the date of their grant.
EMPLOYEES
As of February 19,1999 the Company had one full-time employee (Mr.
Preston) and no part-time employees. It is not expected that future employees
will be represented by employee union(s).
PROPERTY
The Company rents its office facilities at market rates. Such leased
office space is adequate, the Company believes, to satisfy its needs for the
foreseeable future.
INTELLECTUAL PROPERTY
The Company will protect its intellectual property through a
combination of license agreements, trademark, service mark, copyright, trade
secret laws and other methods of restricting disclosure and transferring title.
The Company obtains the majority of its content under work for hire and model
release agreements in order to develop its "hotcore" content. The Company
currently has no patents or patents pending for its current online service and
does not anticipate that patents will become a significant part of the
Company's intellectual property in the foreseeable future. The Company will
also enter into confidentiality agreements with its employees, consultants and
vendors; license agreements with third parties; and will generally seek to
control access to and distribution of its intellectual property. For example,
the Company is pursuing registration in the United States for its "Efox.net"
and "LASS" trademarks and the related logos. The Company also intends to apply
for registration of certain other trademarks and servicemarks albeit
recognizing that the legal status of intellectual property on the Internet is
currently subject to various uncertainties. There is no guarantee that these
applications will be granted (or in a timely manner since current processing
time for trademarks routinely exceed 18 months). (See "Risk Factors -
Intellectual Property.")
LITIGATION
There has not been any material civil, administrative or criminal
proceedings concluded, pending or on appeal against the Company or its
affiliates and principals.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table summarizes certain information with respect to the
beneficial ownership of the Company's Shares, immediately prior to and after
this Offering.
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<PAGE> 30
<TABLE>
<CAPTION>
PRIOR TO THE OFFERING AFTER THE OFFERING
--------------------- ------------------
MINIMUM(2) MAXIMUM(3)
------- -------
NAME OF BENEFICIAL OWNER: NUMBER(1) % NUMBER % NUMBER %
------------------------- ----------- -------- ------------ ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS, OFFICERS AND 10% SHAREHOLDERS 13,478,019 96.3% 13,478,019 94.2% 13,478,019 87.5%
JOSEPH R. PRESTON 13,478,019 96.3% 13,478,019 94.2% 13,478,019 87.5%
ALL DIRECTORS, OFFICERS AND 10%
SHAREHOLDERS AS A GROUP 13,478,019 96.3% 13,478,019 94.2% 13,478,019 87.5%
ALL BENEFICIAL OWNERS AS A GROUP 14,000,000 96.3% 14,166,667 95.1% 15,250,000 88.4%
========== ===== ========== ===== ========== =====
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
(1) Reflects total outstanding Shares of 14,000,000 as of February 19, 1999.
(2) Assumes issuance and sale of 166,667 Shares of the Company during this
Offering Period (the "minimum" offering), in addition to the 14,000,000 shares
outstanding as of February 19, 1999 and 141,667 Shares to be issued to the
Company's securities counsel upon closing.
(3) Assumes issuance and sale of 1,250,000 Shares of the Company's during this
Offering Period (the "maximum" offering), in addition to the 14,000,000 Shares
outstanding as of February 19, 1999 and 152,500 Shares to be issued to the
Company's securities counsel upon closing.
SELECTED FINANCIAL DATA
The following table sets forth certain financial data for the Company.
The selected financial data should be read in conjunction with the Company's
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations" and the Financial Statements of the Company and Notes thereto. The
selected financial data as of and for the period from inception to February 19,
1999 have been derived from the Company's financial statements, which have been
audited by independent certified public accountants and are included as
Appendix I to this Prospectus.
<TABLE>
<S> <C>
Current assets $58,493
- ------------------------------------------------
Noncurrent assets $43,639
- ------------------------------------------------
- ------------------------------------------------
Current liabilities $52,274
- ------------------------------------------------
- ------------------------------------------------
Gross Revenues -
- ------------------------------------------------
Gross Profit -
Loss from continuing
operations $712,497
- ------------------------------------------------
Net loss $712,497
- ------------------------------------------------
</TABLE>
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<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) LIQUIDITY AND CAPITAL RESOURCES
The Company was incorporated on January 22, 1999 in Delaware as a "c"
corporation for the purpose of creating, launching and developing the premiere
online and "offline" men's entertainment destination featuring what the Company
believes are some of the most beautiful women in the world. The Company, its
management believes, will tastefully package heterosexual men's favorite
pursuits: Ladies, Automobiles, Sports and Stocks (what it calls the "LASS"
factor for its male-centric content). The Company's goals are to brand the
Company as the premiere online and "offline" men's entertainment destination
and build a significant world-wide community of loyal clients who frequent the
Company's adult entertainment web site and off site events. The Company has not
yet commenced generating revenue. The Company has raised $58,500 in "angel"
investments to fund three months of operations from the launch date of
www.efox.net. The Company intends to raise up to $7,500,000 in the initial
public offering ("IPO") and utilize these funds to finance operations and
execute its business plan.
The Company has not yet commenced generating any revenue. The Company
expects to fund development expenditures and incur losses until it is able to
generate sufficient income and cash flows to meet such expenditures and other
requirements. The Company does not currently have adequate cash reserves to
continue to cover such anticipated expenditures and cash requirements. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern. In this regard, see the Independent Certified
Public Accountants' Report appearing elsewhere herein which cites substantial
doubt about the Company's ability to continue as a going concern.
(2) PLAN OF OPERATION
Through February 19, 1999, the Company's activities have been
organizational and devoted to developing a business plan, raising capital and
creating the Efox.net web site, as well as developing editorial content,
locating and photographing models and developing technology infrastructure.
Where such costs are indirect and administrative in nature, they have been
expensed in the accompanying statement of operations. The majority ($675,600)
of the $712,497 deficit accumulated by the Company during the developmental
stage arises from non-cash transactions involving the issuance of stock in
exchange for services rendered. Where such costs relate to capital raising and
are both direct and incremental, such costs have been treated as deferred
offering costs in the accompanying balance sheet.
The Company can be classified as an "early stage" Internet start-up
company with essentially no operating history and no revenues. The Company's
web site, www.efox.net, was launched and became "live" on February 22, 1999.
For thirty days from the launch date, the general public (defined as adults
over the age of 18 years old) was granted free access to all the content on the
Company's web site. This content includes nude and semi-nude models,
automobile reviews and reports, sports news and scores and stock market updates
and commentary. The site content, written by the Company's in-house and
freelance editorial staff, includes original commentary and reviews on
automobiles, sporting events and stock market performance.
Beginning March __, 1999, adults can access the web site's content by
paying a membership subscription via credit card, check or money order.
Monthly membership costs $19.95 per month. Quarterly membership costs $49.95
for three months. Semi-annual membership costs $99.95 for six months. Annual
membership costs $169.95 for 12 months. The Company has termed its adult
content as "hotcore" art, a derivation of softcore adult entertainment. The
Company's original (not available anywhere else) hotcore art features its
female models between the ages of 18 and 35 in seductive and alluring poses.
The Company will not display or present what it believes to be hardcore sex.
The Company's site will be positioned as upscale, classy and hip as opposed to
the "down" market adult content that proliferates the web (i.e. fetish, bizarre
and/or hardcore sex). As of the date of this Prospectus, the Company's
original content currently includes only photographs and ______________. After
raising capital in the IPO, the Company expects to provide its members with
streaming video and audio on demand as well as video conferencing.
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<PAGE> 32
No assurance can be given that the Company's products and services
will be accepted in the marketplace or that there will be sufficient revenues
generated for the Company to be profitable. Besides the risk factors (see Risk
Factors"), businesses are often subject to risks not foreseen by management.
In reviewing this Prospectus, potential investors should keep in mind other
potential risks that could be important.
The Company has developed an action plan geared to varying amounts of
capital being raised. The Company will structure its operations based on both
the amount of capital raised in the IPO and the timing of the receipt of the
proceeds. Hence, during its initial 12 months of operation, the Company will
devote a significant portion of its day-to-day operations on marketing,
recruiting and retaining key personnel, planning and conducting Company
"offline" events for clients as well as creating, branding and marketing the
Company's variety of unique products.
Specifically, assuming that only $1,000,000 of capital is raised, the
Company's goals will be to further develop the www.efox.net web site and the
products and services it offers online. Additionally, at the $4,250,000 level,
the Company also would enhance its web site and invest added capital in
technology infrastructure, advertising media buys and grass roots marketing.
If a total of $7,500,000 is raised, the Company would devote substantially more
capital to technology infrastructure, advertising media buys and grass roots
marketing.
If the minimum proceeds are achieved, the Company will allocate
$100,000 to computer hardware and software (including web servers, PCs and
macintosh computers as well as scanners and graphics enhancement tools). If
the maximum proceeds are achieved, the Company will allocate $1,750,000 to
computer hardware and software (including web servers, PCs and macintosh
computers as well as scanners and graphics enhancement tools).
If the minimum proceeds are achieved, the Company expects to retain
three full-time employees and continue to outsource the majority of the
software development and programming to its outside technology consulting
firm. If the maximum proceeds are achieved, the Company expects to retain up
to 22 full-time employees (principally for marketing, promotion and content
development) while continuing, because of the efficiency and
cost-effectiveness, to outsource development and programming to its outside
technology consulting firm.
Because the Company has no history of operations, there is no
assurance that the Company's web site can be successfully enhanced. Also,
there is no assurance that the web site, www.efox.net, will in fact be
acceptable to adults in the general public and, as a result, there is no
assurance that revenues will ever be generated sufficient to recover the
capital raised in the IPO, let alone provide a return to Shareholders on
invested capital.
(3) YEAR 2000
The "Year 2000 Issue" involves the potential for system and processing
failures of date-related data resulting from computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that contain time-sensitive software may recognize a date
using two digits of "00" as the year 1900 rather than the Year 2000. This
could result in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar ordinary business activities.
The Company believes that its internal software and hardware systems
will function properly with respect to dates in the Year 2000 and thereafter,
especially since its web site and related activities have occurred in 1999
sensitive to the Year 2000 Issue. Nonetheless, there can be no assurance in
this regard until such systems are operational in the Year 2000. The Company
is in the process of contacting all of its significant suppliers to determine
the extent to which the Company's interface systems are vulnerable to those
third parties' failure to make their own systems Year 2000 compliant.
Additionally, any Year 2000 problems experienced by the Company's customers
could affect the payment for its online services. Accordingly, to the extent
the systems of the Company's suppliers and customers are not fully Year 2000
compliant, there can be no assurance that potential system interruptions or the
cost necessary to update software will not have a material adverse affect on
the Company's business, results of operation or financial condition.
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<PAGE> 33
(4) RECENT ACCOUNTING PRONOUNCEMENTS
There are no recently issued accounting standards for which the
impact on the Company's financial statements at February 19, 1999 is not known.
ABSENCE OF PUBLIC MARKET AND DIVIDEND POLICY
There is no public trading market for the Shares. While the Company
intends to qualify its Shares for quotation on the NASDAQ National Market under
the symbol "EFOX" once the $7,500,000 maximum is achieved, that is not expected
to occur, if at all, for at least 6 - 18 months after the Offering commences.
There is no assurance that the Company can satisfy then current pertinent
listing standards or, if successful in getting listed, avoid later delisting.
(See "Risk Factors.")
The Company intends to retain future earnings for use in its business
and does not anticipate paying any dividends on Shares in the foreseeable
future. While not currently so restricted, the Company may be prohibited from
paying dividends on the Shares in the future under credit or other financing
agreement(s) unless certain amounts are available and certain other conditions
are satisfied. (See "Description of Capital Stock-- Dividend Rights.")
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares
of $.001 par value common stock, the only class of stock outstanding at this
time (the "Shares"). Shareholders are entitled to one vote per Share on all
matters to be voted upon by Shareholders and, upon issuance in consideration of
full payment, are non-assessable. In the event of liquidation, dissolution or
winding up of the Company, the Shareholders are entitled to share ratably in
all assets remaining after payment of liabilities. Shares do not have
cumulative voting rights with respect to the election of directors and,
accordingly, the holders of more than 50% of the Shares could elect all the
directors of the Company. (See "Risk Factors -- Control By The Principal
Shareholder.") There are no redemption or sinking fund provisions or
preemptive rights with respect to the Shares, and Shareholders have no right to
require the Company to redeem or purchase Shares.
DIVIDEND RIGHTS
Each Share is entitled to dividends if, as and when dividends are
declared by the Company's Board of Directors. It is not the current
expectation of the Company to pay dividends.
ANTI-TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law (the "DGCL")
generally prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested shareholder" for a period of three
years after the date of the transaction in which the person became an
interested shareholder, unless: (i) prior to the date of the business
combination, the transaction is approved by the board of directors of the
corporation; (ii) upon consummation of the transaction which resulted in the
Shareholder becoming an interested shareholder, the interested shareholder owns
at least 85% of the outstanding voting stock; or (iii) on or after the date
such Shareholder became an interested shareholder, the business combination is
approved by the board and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested shareholder. A
"business combination" includes mergers, certain asset sales and certain other
transactions resulting in a financial benefit to the Shareholder. An
"interested shareholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. Section 203 of the DGCL applies to the Company
since it has not elected to opt out of coverage under Section 203 of the DGCL.
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<PAGE> 34
DIRECTORS' LIABILITY
As authorized by Section 145 of the DGCL, each director or officer of
the Company will be indemnified by the Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense or settlement of any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative in which he is involved by reason of
the fact that he is or was a director or officer of the Company; such
indemnification, of course, is conditioned upon such officer or director having
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. In connection with a proceeding
(or part thereof) initiated by such person, the Company will indemnify such
person only if such proceeding (or part thereof) was authorized by the
Company's board of directors.
The Certificate of Incorporation of the Company provides that no
director of the Company shall be personally liable to the Company or any of its
Shareholders for monetary damages for any breach of fiduciary duty as a
director, except with respect to: (i) any breach of the director's duty of
loyalty to the Company or its Shareholders; (ii) for acts or omissions that are
not in good faith or involve intentional misconduct or a knowing violation of
the law; (iii) violation of the DGCL; or (iv) for any transaction from which
the director derived an improper personal benefit. In addition, such
Certificate of Incorporation authorizes the Company to indemnify any person to
the fullest extent permitted by Sections 102(b)(7) and 145 of the DGCL.
The Company is authorized to pay all expenses (including attorneys'
fees) incurred by such a director or officer in defending any such proceeding
as they are incurred in advance of its final disposition. However, if the DGCL
then so requires, the payment of such expenses incurred by such a director or
officer in advance of the final disposition of such proceeding shall be made
only upon delivery to the Company of any undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director of officer is not entitled to be
indemnified. The Company is not required to advance any expenses to a person
against whom the Company directly brings a claim in a proceeding alleging that
such person has breached his or her duty of loyalty to the Company, committed
an act or omission not in good faith or that involves intentional misconduct or
a knowing violation of law or derived an improper personal benefit from a
transaction.
TRANSFER AGENT
The Company initially will act as its own transfer agent and
registrar. However, no later than the closing for the Initial Offering Period,
the Company will engage an independent transfer agent/registrar for the Shares.
PLAN OF DISTRIBUTION
The Shares are offered on a best efforts, self-underwritten basis by
Joseph R. Preston, the sole principal of the Company. The Initial Offering
Period will be up to nine (9) months from the date of this Prospectus unless
earlier terminated. Shares having an aggregate selling price of $7,500,000 are
being offered pursuant to this Registration Statement. Unless earlier
terminated, the Initial Offering Period will be up to two (2) months from the
date hereof unless extended for periods up to a total of seven (7) additional
months. The Company is offering a minimum of $1,000,000 and up to a maximum of
$7,500,000 of Shares. The date that (1) subscriptions for a minimum of
$1,000,000 in Shares have been received and (2) the Company has closed the
initial escrow on the Offering will mark the end of the Initial Offering
Period. If a minimum of $1,000,000 in Shares is not sold during the Initial
Offering Period (as it may be extended), investor funds will be promptly
returned with all pro rata interest earned thereon. Unless the minimum
offering is not achieved, all interest earned on subscriptions pending their
month-end acceptance will be paid to the Company, not the individual
subscribers. Similarly, if the subscription is rejected, in whole or in part
(which is in the sole discretion of the Company), the subscription funds or the
rejected portion thereof will be returned within 30 days to the subscriber
without interest. The up to $7,500,000 offering being made pursuant to this
Registration Statement may be extended for additional periods, once the Initial
Offering Period is concluded, which in the aggregate will not exceed 24 months
from the date of this Prospectus (defined herein as the "Continuous Offering
Period").
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<PAGE> 35
The minimum purchase during the Initial and Continuous Offering
Periods is $300. Subscriptions for Shares sold during the Continuous Offering
Period will continue to be escrowed (see "Escrow Account" below) until accepted
at the respective month-end. Subject to pertinent securities requirements, the
Company expects to update periodically the Prospectus after its initial nine
(9) month Offering Period and continue the Offering if, as expected, the
$7,500,000 maximum offering is not achieved during that period; in no case will
this Offering extend for more than two years from the date of this Prospectus
nor will more than $7,500,000 be raised by the Company under this current
Registration Statement. If the $1,000,000 minimum offering is achieved, the
Offering will continue during the Continuous Offering Period at the Company's
$6.00 per Share Selling Price until a market develops for the Shares. (At such
time as a market develops, Shares will be sold by the Company at the average of
the then prevailing bid and asked prices on the date a subscription is
received.)
SUBSCRIPTION PROCEDURE
In order to purchase Shares:
(1) An investor must complete and execute a copy of the Subscription
Agreement and Power of Attorney (hereafter the "Subscription Agreement")
(Exhibit A).
(2) CHECKS (WHICH SHOULD BE AT LEAST $300) SHOULD BE MADE PAYABLE AS
FOLLOWS: EFOX.NET, INC. -- ESCROW ACCOUNT.
(3) The check and the Subscription Agreement should be mailed or delivered
to the Escrow Agent, ______________________________________ at
_______________________,____________________________.
Each individual subscriber must represent and warrant in the
Subscription Agreement that he has either a net worth (exclusive of home,
furnishings and automobile) of at least $100,000 or a net worth (similarly
calculated) of at least $50,000 and an annual adjusted gross income of at least
$25,000. (See "Investment Requirements.") Under the securities laws of certain
states, residents of those states may be subject to higher standards as stated
in the Annex to the Subscription Agreement. In addition, the subscriber must
represent, among other things, that: (a) the subscriber has received this
Prospectus; and (b) the subscriber is (or is not) a citizen or permanent
resident of the United States.
The Company must have reasonable grounds to believe on the basis of
information obtained from the Shareholder concerning his investments, financial
situation and needs, and any other information known by the undersigned, that:
(i) the purchaser is or will be in a financial position appropriate to enable
him to realize to a significant extent the benefits described in the
Prospectus; (ii) the purchaser has a net worth sufficient to sustain the risks
inherent to the Company, including losses of investment and lack of liquidity;
and (iii) the Company is otherwise a suitable investment for the purchaser.
ESCROW ACCOUNT
All monies remitted by subscribers during the Initial Offering Period
will be deposited in an escrow account maintained by the Company at
______________________________________, __________________, ______________
until the $1,000,000 minimum offering is achieved. The Escrow Agent is not
guaranteeing that any interest will accrue on the subscription funds deposited
with it. To the extent practicable, the funds held in the account during the
Initial Offering Period will be invested at the direction of management in
short-term U.S. Treasury securities and other high quality interest-earning
obligations. Unless the minimum is not achieved, all interest earned during
the Initial Offering Period on the proceeds of the subscriptions held in such
account maintained by the Company with the Escrow Agent will be retained by the
Company. (See "Application of Proceeds" and "The Company--Management.")
Subscriptions for Shares sold during the Continuous Offering Period will
continue to be escrowed (with all interest earned thereon retained by the
Company).
33
<PAGE> 36
ERISA CONSIDERATIONS
Persons who contemplate purchasing Shares on behalf of Qualified Plans
are urged to consult with tax and ERISA counsel regarding the effect of such
purchase and, further, to determine that such a purchase will not result in a
prohibited transaction under ERISA, the Code or a violation of some other
provision of ERISA, the Code or other applicable law. The management and the
Company necessarily will rely on such determination made by such persons,
although no Shares will be sold to any Qualified Plans if management believes
that such sale will result in a prohibited transaction under ERISA or the Code.
LEGAL MATTERS
The validity of Shares being offered by this Prospectus will be passed
upon for the Company by Duncan, Blum & Associates, Bethesda, Maryland and
Washington, D.C.
LEGAL PROCEEDINGS
The Company may from time to time be a party to various legal actions
arising in the ordinary course of its business. The Company is not currently
involved in any such actions.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by Grant Thornton LLP, independent
certified public accountants, to the extent and for the period set forth in
their report, which contains an emphasis paragraph regarding the Company's
ability to continue as a going concern, appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form SB-1 with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in such Registration Statement, certain portions of which have been omitted
pursuant to the rules and regulations of the SEC. Reference is made to such
Registration Statement, including the amendment(s) and exhibits thereto, for
further information with respect to the Company and such securities. The
Registration Statement can be inspected and copied at the public reference
facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, as
well as at the SEC's following regional offices: at Seven World Trade Center,
13th Floor, New York, New York 10048; and 500 West Madison, Suite 1400,
Chicago, Illinois 60601. Copies of the Registration Statement can be obtained
from the Public Reference Section of the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Statements made in this
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete, and in each instance are qualified in all respects by
reference to the copy of such document filed as an exhibit to the Registration
Statement.
For further information with respect to the Company and the shares of
common stock offered hereby, reference is made to the Registration Statement
and the exhibits and the financial statements, notes and schedules filed as a
part thereof or incorporated by reference therein, which may be inspected at
the public reference facilities of the SEC, at the addresses set forth above.
Moreover, the Company has filed such materials electronically with the SEC;
accordingly, such materials can be accessed through the SEC's web site that
contains reports, proxy and information statements and other information
regarding registrants (http// www.sec.gov).
The Company is not currently subject to the informational and periodic
reporting requirements of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"). However, as a result of the Offering (assuming that the
$1,000,000 minimum offering is achieved), the Company will become subject to
such requirements.
34
<PAGE> 37
APPENDIX I
FINANCIAL STATEMENTS
<PAGE> 38
EFOX.NET, INC.
Financial Statements and Report of
Independent Certified Public Accountants
February 19, 1999
- -----------------------------------------------------------
<PAGE> 39
EFOX.NET, INC.
Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
Balance Sheet 4
Statement of Operations 5
Statement of Changes in Stockholders' Equity 6
Statement of Cash Flows 7
Notes to Financial Statements 8-11
</TABLE>
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Efox.net, Inc.
(a development stage company)
We have audited the accompanying balance sheet of Efox.net, Inc. (a development
stage company), as of February 19, 1999, and the related statements of
operations, changes in stockholders' equity, and cash flows for the period from
January 22, 1999 (date of inception), to February 19, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Efox.net, Inc. (a development
stage company), as of February 19, 1999, and the results of its operations and
its cash flows for the period then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company is in the development stage as of
February 19, 1999, and has incurred a net loss since inception of $712,497.
These factors, as discussed in Note A to the financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Vienna, Virginia
February 19, 1999
3
<PAGE> 41
EFOX.NET, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Balance Sheet
- ------------------------------------------------------------------------------------------------------
February 19, 1999
- ------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 57,939
Deposit 554
------------------
TOTAL CURRENT ASSETS 58,493
EQUIPMENT, net of accumulated depreciation of $56 2,200
SOFTWARE DEVELOPMENT COSTS 21,439
DEFERRED OFFERING COSTS 20,000
------------------
TOTAL ASSETS $ 102,132
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 52,274
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 20,000,000 shares
authorized, 14,000,000 shares issued and outstanding 14,000
Additional paid-in capital 748,355
Retained deficit accumulated during development stage (712,497)
------------------
TOTAL STOCKHOLDERS' EQUITY 49,858
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 102,132
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 42
EFOX.NET, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Statement of Operations
- ------------------------------------------------------------------------------------------------------
For the period January 22, 1999 (date of inception), to February 19, 1999
- ------------------------------------------------------------------------------------------------------
<S> <C>
REVENUE $ -
EXPENSES
Product development 684,950
General and administrative 27,547
------------------
TOTAL EXPENSES 712,497
------------------
LOSS BEFORE INCOME TAXES (712,497)
PROVISION FOR INCOME TAXES -
------------------
NET LOSS $ (712,497)
- ------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE $ (0.05)
------------------
WEIGHTED-AVERAGE SHARES OUTSTANDING 13,567,325
------------------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 43
EFOX.NET, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Statement of Changes in Stockholders' Equity
- ------------------------------------------------------------------------------------------------------
For the period January 22, 1999 (date of inception), to February 19, 1999
- ------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL TOTAL
-------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 22,
1999 - $ - $ - $ - $ -
STOCK ISSUED FOR SERVICES 112,600 113 675,487 - 675,600
ADDITIONAL PAID-IN CAPITAL
FOR EXPENSES PAID BY
SHAREHOLDER - - 11,755 - 11,755
SALE OF STOCK FOR CASH 13,887,400 13,887 61,113 - 75,000
NET LOSS - - - (712,497) (712,497)
------------------------------------------------------------------------
BALANCE AT FEBRUARY 19,
1999 14,000,000 $ 14,000 $ 748,355 $ (712,497) $ 49,858
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 44
EFOX.NET, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Statement of Cash Flows
- ------------------------------------------------------------------------------------------------------
For the period January 22, 1999 (date of inception), to February 19, 1999
- ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net loss $ (712,497)
------------------
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization 56
Stock issued for services 675,600
Additional paid-in capital for expenses paid by shareholder 11,755
Changes in assets and liabilities
Increase in deposits (554)
Increase in accounts payable 24,774
------------------
Total Adjustments 711,631
------------------
NET CASH USED BY OPERATING ACTIVITIES (866)
------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures (11,195)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 75,000
Deferred offering costs (5,000)
------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 70,000
------------------
NET INCREASE IN CASH 57,939
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -
------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 57,939
- ------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Since inception, the Company has made no cash payments for taxes or interest.
During the period, the Company recorded payables for certain capitalized items
totaling $12,500 for software development costs and $15,000 for deferred
offering costs.
The accompanying notes are an integral part of this statement.
7
<PAGE> 45
EFOX.NET, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
- --------------------------------------------------------------------------------
For the period January 22, 1999 (date of inception), to February 19, 1999
- --------------------------------------------------------------------------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
NATURE OF OPERATIONS
Efox.net, Inc. (the Company), a Delaware corporation, was incorporated on
January 22, 1999, and is a development stage company. The Company is
developing a World Wide Web destination which packages what it believes to be
men's favorite pursuits under a subscription-based membership. The Company
also intends to sell brand products via its Web site.
BASIS OF PRESENTATION
The Company has incurred a loss for the period presented, and neither has
realized any operating revenue, nor has any assurance of realizing any future
operating revenue. The Company has a retained deficit of approximately
$712,497 at February 19, 1999. Future operations depend upon the successful
development and marketing of the Company's products, which will require
additional funds for operations. Such conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's
plans in regard to these matters include a planned initial public offering of
a minimum of 166,667 and a maximum of 1,250,000 shares, which are expected to
be offered for sale at a price of $6.00 per share (see Note D). The Company
is self-underwriting the offering, and plans to offer the shares directly to
the public through its Web site. There is no assurance the offering will be
successful. Management believes that cash and cash equivalents available at
February 19, 1999, together with additional capital contemplated by the
proposed offering (if successful), will be adequate to satisfy capital
requirements until profitability is achieved.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are stated at cost, which approximates market, and
consists of cash in bank accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Recorded amounts of cash and cash equivalents and accounts payable at
February 19, 1999, approximate fair value in accordance with Statements of
Financial Accounting Standards (SFAS) No. 107, "Disclosures About Fair Value
of Financial Instruments," because of the relatively short time between
origination of the instruments and their expected realization.
DEPRECIATION AND AMORTIZATION
Equipment is depreciated over a five-year estimated useful life using the
straight-line method.
8
<PAGE> 46
EFOX.NET, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements--Continued
- --------------------------------------------------------------------------------
For the period January 22, 1999 (date of inception), to February 19, 1999
- --------------------------------------------------------------------------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
SOFTWARE DEVELOPMENT COSTS
Development costs relating to new software products are capitalized during
the application development stage if management has authorized the project,
and if completion of the project is probable in accordance with Statement of
Position 98-1, "Costs of Software for Internal Use." These costs will be
amortized over a three-year estimated useful life using the straight-line
method when the software is ready for its intended use. Management believes
the software will be ready at the end of February 1999.
NET LOSS PER SHARE
Net loss per share is based on the weighted-average common shares outstanding
during the period. The Founder's shares have been considered outstanding
since inception. No common stock equivalents were outstanding during the
period ended February 19, 1999.
INCOME TAXES
In accordance with the provisions of SFAS No. 109, "Accounting for Income
Taxes," deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the years in which the temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income for the
period that includes the enactment date.
RECENTLY ISSUED ACCOUNTING STANDARDS
There are no recently issued accounting standards for which the impact on the
Company's financial statements at February 19, 1999 is not known.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
9
<PAGE> 47
EFOX.NET, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements--Continued
- --------------------------------------------------------------------------------
For the period January 22, 1999 (date of inception), to February 19, 1999
- --------------------------------------------------------------------------------
NOTE B--PROPOSED INITIAL PUBLIC OFFERING
The Company's director has authorized the filing of a registration statement
related to an initial public offering of common stock. Costs related to the
offering have been deferred and are reflected as other noncurrent assets in
the accompanying financial statements. Upon successful completion of the
offering, such costs will be reclassified as a reduction of net proceeds and
additional paid-in capital.
Deferred offering costs consist of the following at February 19, 1999:
<TABLE>
<S> <C>
Legal fees $ 15,000
Accounting fees 5,000
------------------
$ 20,000
------------------
</TABLE>
In addition, legal counsel assisting in the filing will receive 1% of the
then outstanding common stock upon the initial closing at the proposed
initial public offering price.
- --------------------------------------------------------------------------------
NOTE C--INCOME TAXES
Management has tentatively selected September 30 as its year-end for income
tax reporting purposes; on September 30, 1999, management will review its
options regarding tax accounting methods.
For the period ended February 19, 1999, no provision for income taxes has
been reflected because of uncertainty regarding the realizability of future
tax benefits associated with operating losses to date.
<TABLE>
<S> <C>
Income tax benefit at statutory rate
Federal $ 242,000
State 43,000
------------------
285,000
Valuation allowance related to deferred tax asset (285,000)
------------------
Income tax benefit $ -
------------------
</TABLE>
The tax effect of temporary differences between financial statement amounts
and tax bases of assets and liabilities, which give rise to a deferred tax
asset, are as follows at February 19, 1999:
<TABLE>
<S> <C>
Costs deductible in future period for tax purposes $ 285,000
Less valuation allowance (285,000)
------------------
Net deferred tax asset $ -
------------------
</TABLE>
10
<PAGE> 48
EFOX.NET, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements--Continued
- --------------------------------------------------------------------------------
For the period January 22, 1999 (date of inception), to February 19, 1999
- --------------------------------------------------------------------------------
NOTE D--STOCKHOLDERS' EQUITY
STOCK ISSUED FOR CASH
During the period ended February 19, 1999, 13,478,019 shares of common stock
were issued to the President and Founder of the Company in exchange for a
cash investment of $16,500 and payment of $11,755 of start-up expenses.
In February 1999, the Company issued 409,381 shares to investors for capital
contributions of $58,500.
STOCK ISSUED FOR SERVICES
In February 1999, the Company issued 112,600 shares of common stock to
various consultants and vendors in exchange for services rendered through
February 1999, including development of the Web Site, graphic design, content
development, model photo shoots and editorial contents. The vendors have no
obligations to perform future services; therefore, expense has been recorded
in the amount of $675,600 based upon the proposed initial public offering
price of $6.00 per share.
- --------------------------------------------------------------------------------
11
<PAGE> 49
EXHIBIT A
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
Efox.net, Inc.
Attn: Joseph R. Preston, President
3 Bethesda Metro Center -- Suite 700
Bethesda, Maryland 20814
By executing this Subscription Agreement and Power of Attorney
(hereafter, the "Subscription Agreement") of Efox.net, Inc. (hereafter, the
"Company"), the undersigned purchaser (hereafter, the "Purchaser") hereby
irrevocably subscribes for shares of common stock ("Shares") in the Company.
Purchaser herewith encloses the sum of $___________ ($300 minimum in $300
increments) representing the purchase of _____ Shares at $6.00 per Share.
SUBSCRIPTIONS, WHETHER CHECKS OR WIRE TRANSFERS, SHOULD BE MADE PAYABLE TO
EFOX.NET, INC. -- ESCROW ACCOUNT AND FORWARDED TO THE ESCROW AGENT,
______________________________________, __________________, _____________.
If this Subscription Agreement is accepted, the Purchaser agrees to
contribute the amount enclosed to the Company.
Purchaser represents that he, she or it has (i) a net worth of at
least $100,000 (exclusive of home, furnishings and automobiles) or (ii) a net
worth (similarly calculated) of at least $50,000 and an annual adjusted gross
income of at least $25,000. Purchaser represents that he meets these financial
requirements and that he is of legal age. Purchaser is urged to review
carefully the responses, representations and warranties he is making herein.
Purchaser agrees that this subscription may be accepted or rejected in whole or
in part by the Company in its sole and absolute discretion.
READ THIS PROSPECTUS CAREFULLY BEFORE YOU SUBSCRIBE. CONTAINED HEREIN ARE
DISCLOSURES CONCERNING VARIOUS RISKS, CONFLICTS, FEES AND EXPENSES RELATING TO
OR TO BE PAID BY THE COMPANY. YOU SHOULD BE AWARE THAT THE DISCLOSURES MADE
MAY BE USED AS A DEFENSE IF PROCEEDINGS ARE BROUGHT BY SHAREHOLDERS RELATING TO
THE COMPANY.
REPRESENTATIONS AND WARRANTIES
Purchaser makes the following representations and warranties in order
to permit the Company to determine his suitability as a purchaser of Shares:
(1) The undersigned has received the Company's Prospectus and the exhibits
thereto.
(2) The undersigned understands that the Company has made all documents
pertaining to the transactions described in the Company's Prospectus available
to the undersigned in making the decision to purchase the Shares subscribed for
herein.
(3) The undersigned is reminded that:
(a) The Shares are speculative investments, the purchase of which
involves a high degree of risk of loss of the entire
investment of the undersigned in the Company.
(b) S/he is encouraged to discuss the proposed purchase with
her/his attorney, accountant or a Purchaser Representative (as
defined under the Securities Act of 1933, as amended) or take
the opportunity to do so, and is satisfied that s/he has had
an adequate opportunity to ask questions concerning the
Company, the Shares and the Offering described in the
Prospectus.
A-1
<PAGE> 50
(c) No federal or state agency has passed upon the adequacy or
accuracy of the information set forth in the Prospectus or made any
finding or determination as to the fairness of the investment, or any
recommendation or endorsement of the Shares as an investment.
(d) S/he must not be dependent upon a current cash return with respect
to her/his investment in the Shares. S/he understands that
distributions are not required (and are not expected) to be made.
(e) The Company is not a "tax shelter" and the specific tax
consequences to her/him relative to as an investment in the Company
will depend on her/his individual circumstances.
(4) If the Shares are being subscribed for by a pension or profit-sharing
plan, the undersigned independent trustee represents that s/he has reviewed the
plan's portfolio and finds (considering such factors as diversification,
liquidity and current return and projected return of the portfolio) this
purchase to be a prudent investment under applicable rules and regulations, and
acknowledges that no representation is made on behalf of the Company that an
investment in the Company by such plan is suitable for any particular plan or
constitutes a prudent investment thereby. Moreover, the undersigned
independent trustee represents that s/he understands that income generated by
the Company may be subject to tax, that s/he is authorized to execute such
subscription on behalf of the plan or trust and that such investment is not
prohibited by law or the plan's or trust's governing documents.
The undersigned understands and agrees that this subscription may be
accepted or rejected by the Company in whole or in part, in its sole and
absolute discretion. The undersigned hereby acknowledges and agrees that this
Subscription Agreement shall survive (i) non-material changes in the
transactions, documents and instruments described in the Prospectus, (ii) death
or disability of the undersigned and (iii) the acceptance of this subscription
by the Company. By executing this Subscription Agreement below, the
undersigned (i) acknowledge the accuracy of all statements and (ii) appoints
the management of the Company to act as his true and lawful attorney to file
any documents or take any action required by the Company to carry out its
business activities.
The foregoing information which the undersigned has provided to the
Company is true and accurate as of the date hereof and shall be true and
accurate as of the date of the undersigned's admission as a Shareholder. If in
any respect such representations, warranties or information shall not be true
and accurate at any time prior to the undersigned's admission as a Shareholder,
s/he will give written notice of such fact to the Company, specifying which
representation, warranty or information is not true and accurate and the reason
therefor.
By executing this Subscription Agreement, the undersigned certifies, under
penalty of perjury:
(1) That the Social Security Number or Taxpayer Identification Number
provided below is correct; and
(2) That the IRS has never notified him that s/he is subject to 20% backup
withholding, or has notified her/him that s/he is no longer subject to such
backup withholding. (NOTE: IF THIS PART (2) IS NOT TRUE IN YOUR CASE, PLEASE
STRIKE OUT THIS PART BEFORE SIGNING.)
(3) The undersigned is a U.S. citizen or resident, or is a domestic
corporation, partnership or trust, as defined in the Internal Revenue Code of
1986, as amended. (NOTE: IF THIS PART (3) IS NOT TRUE IN YOUR CASE, PLEASE
STRIKE OUT THIS PART BEFORE SIGNING.)
(4) That the undersigned acknowledges and agrees that this information may
be disclosed to the Internal Revenue Service by the Company and that any false
statement contained herein is punishable by fine, imprisonment or both. The
undersigned will notify the Company within sixty (60) days of the date upon
which any of the information contained herein becomes false or otherwise
changes in a material manner, or the undersigned becomes a foreign person. The
undersigned agrees to update this information whenever requested by the
Company. Under penalties of perjury, the undersigned declares that the
undersigned has examined the information contained herein and to the best of
the
A-2
<PAGE> 51
undersigned's knowledge and belief, it is true, correct and complete, and that
the undersigned has the authority to execute this Subscription Agreement.
This Subscription Agreement and the representations and warranties
contained herein shall be binding upon the heirs, executors, administrators and
other successors of the undersigned. If there is more than one signatory
hereto, the obligations, representations, warranties and agreements of the
undersigned are made jointly and severally.
The undersigned is the following kind of entity (please check):
<TABLE>
<S> <C>
[ ] Individual [ ] IRA
[ ] Joint Account - JTWROS [ ] Pension Plan
[ ] Joint Account - TENCOM [ ] Trust
[ ] UGMA (Gift to Minor) [ ] Non-Profit Organization
[ ] Partnership [ ] Employee of NASD member firm
[ ] Corporation [ ] Other (Specify)
Dated this ____ day of __________ of 1999
Mr./Ms.
--------------------------------------------- ----------------------------------------
Purchaser's Name Social Security or Tax ID#
Mr./Ms.
--------------------------------------------- ----------------------------------------
Name of Second Purchaser Date of Birth of First Purchaser
( )
- ------------------------------------------------------ ----------------------------------------
Street Address of First Purchaser Business Phone (Day)
( )
- ------------------------------------------------------ ----------------------------------------
City State and Zip Code Home Phone
- ------------------------------------------------------ ----------------------------------------
Signature of First Purchaser (Individual, Custodian or Email address (if applicable)
Officer or Partner of Entity)
- ------------------------------------------------------
Signature of Second Purchaser (if applicable)
</TABLE>
NOTE: IF A JOINT SUBSCRIPTION, PLEASE INDICATE WHETHER JOINT TENANTS WITH RIGHT
OF SURVIVORSHIP (JTWROS) OR TENANTS IN COMMON (TENCOM). EACH JOINT TENANT OR
TENANT IN COMMON MUST SIGN IN THE SPACE PROVIDED. IF PURCHASER IS A TRUST,
PARTNERSHIP, CORPORATION OR OTHER BUSINESS ASSOCIATION, THE SIGNING TRUSTEE,
PARTNER OR OFFICER REPRESENTS AND WARRANTS THAT HE/SHE/IT HAS FULL POWER AND
AUTHORITY TO EXECUTE THIS SUBSCRIPTION AGREEMENT ON ITS BEHALF. IF PURCHASER IS
A TRUST OR PARTNERSHIP, PLEASE ATTACH A COPY OF THE TRUST INSTRUMENT OR
PARTNERSHIP AGREEMENT. IF PURCHASER IS A CORPORATION, PLEASE ATTACH CERTIFIED
CORPORATE RESOLUTION AUTHORIZING SIGNATURE.
A-3
<PAGE> 52
<TABLE>
<S> <C>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AS AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR $7,500,000 OF SHARES OF
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. COMMON STOCK
EFOX.NET, INC.
----------------------
TABLE OF CONTENTS
DESCRIPTIVE TITLE PAGE
----------------- ----
Investment Requirements 2
Prospectus Summary 5
Summary Financial Data 6
Pro Forma Financial Information 7
Introductory Statement: Who Should Invest 7
Risk Factors 7
Conflicts Of Interest 16
Fiduciary Responsibility -----------------------
Of The Company's Management 17
Application of Proceeds 18 PROSPECTUS
Capitalization 20
Dilution 20 -----------------------
The Company 22
Selected Financial Data 28
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations 29
Absence Of Public Market And
Dividend Policy 31
Description Of Capital Stock 31 April___, 1999
Plan Of Distribution 32
ERISA Considerations 34
Legal Matters 34
Experts 34
Available Information 34
Appendix I (Financial Statements) I-1
Exhibit A-Subscription Agreement And
Power Of Attorney A-1
</TABLE>
<PAGE> 53
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to "Fiduciary Responsibility of the Company's
Management" and "Description of Capital Stock" contained in the Prospectus
relating to the indemnification of the Registrant's officers, directors,
stockholders, employees and affiliates. The Registrant is prohibited from
indemnifying its affiliates for liabilities resulting from violations or alleged
violations of the Securities Act of 1933 or any state securities laws in
connection with the issuance or sale of the shares of common stock, except in
the case of successful defense of an action in which such violations are
alleged, and then only if a court approved such indemnification after being
apprized of relevant regulatory positions on indemnification.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of the fees and
expenses paid by the Registrant and affiliates as described in the Prospectus.
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT
------------------------------------------
MINIMUM (1) MAXIMUM(2)
----------- -------------
<S> <C> <C>
Securities and Exchange Commission
registration fee................................................$ 1,500 $ 1,500
National Association of Securities
Dealers, Inc. filing fee............................................ N/A N/A
Printing expenses .................................................... 10,000 10,000
Accounting fees and expense ......................................... 10,000 10,000
Blue Sky filing fees................................................ 13,010 13,010
Legal (including Blue Sky) fees....................................... 15,000 15,000
Escrow expenses................................................... 3,000 3,000
Miscellaneous expenses ...............................................1,490 1,490
----- -----
TOTAL.....................................................$55,000 $55,000
====== ======
</TABLE>
(1) Costs if the minimum amount of $1,000,000 is raised.
(2) Costs if the maximum amount of $7,500,000 is raised.
ITEM 3. UNDERTAKINGS
A. Certificates: Inapplicable
B. Rule 415 Offering
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement to: (I) include any
prospectus required by Section 10(a) (3) of the
Securities Act of 1933 (the "1933 Act"); (ii)
reflect in the Prospectus any facts or events which,
together, represent a fundamental change in the
information in the Registration Statement; and (iii)
include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the 1933 Act, treat
each post-effective amendment as a new Registration
Statement of the securities offered, and the
offering of the securities at that time to be the
initial bona fide offering.
SB-1-1
<PAGE> 54
(3) File a post-effective amendment to remove from
registration any of the securities that remain
unsold at the end of the offering.
C. Request for Acceleration of Effective Date
The Registrant may elect to request acceleration of the effective
date of the Registration Statement under Rule 461 of the 1933 Act.
D. Indemnification
Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the 1993 Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
E. Rule 430A
The undersigned Registrant will:
(1) For determining any liability under the Act, treat
the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in the form of a Prospectus filed by the Registrant under Rule
424(b) (1) or (4) or 497(h) under the Act as part of this
Registration Statement as of the time the Commission declared it
effective.
(2) For any liability under the 1933 Act, treat each
post-effective amendment that contains a form of Prospectus as a new
Registration Statement for the securities offered in the
Registration Statement, and that the offering of the securities
at that time as the initial bona fide offering of those securities.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
As of February 19, 1999, 13,478,019 shares of common stock were
issued to the President and founder of the Company in exchange for a cash
investment of $16,500 and payment of $11,755 of start-up expenses. In February
1999, the Company issued 112,600 Shares to various consultants and vendors in
exchange for services rendered through February 1999.
Commencing on January 22, 1999, the Company (through Joseph R.
Preston, its sole principal) offered up to 10% (1,400,000 shares) of its
outstanding 14,000,000 shares of common stock (the "Shares") for $200,000. This
money was being raised to fund the Company's initial public offering. Through
February19, 1999, $58,500 was raised and 409,381 Shares were sold to 14
accredited and 2 non-accredited investors.
All such issuance of Shares were made pursuant to Section 4(2) of
the Securities Act of 1933, as amended. Specifically, the Registrant claims
exemption from registration pursuant to that Act's Regulation D as a sales by an
issuer not involving a public offering.
SB-1-2
<PAGE> 55
ITEM 5. INDEX TO EXHIBITS
(a)(1) Financial Statements -- Included in Prospectus:
Independent Certified Public Accountants' Report.
Balance Sheet as of February 19, 1999.
Statement of Changes in Shareholder's Equity for the
Period January 22, 1999 (Date of Formation) through
February 19, 1999.
Notes to Financial Statements.
(a)(2) Included Separately from Prospectus: Consent of Independent Public
Accountants.
Schedules are omitted for the reason that all required
information is contained in the financial statements
included in the Prospectus.
(b) Exhibits:
3.1 Certificate of Incorporation and Certificate
of Amendment thereto.
3.2 Bylaws of Registrant
3.3 Form of Stock Certificate
3.4 Subscription Agreement and Power of Attorney
(attached to the Prospectus as Exhibit A).
5.1 Opinion of Counsel as to the legality of the
Shares.
10.1 Form of Escrow Agreement between Registrant
and _________________(the Escrow Agent).
10.2 Form of Work for Hire Agreement between
Registrant and its independent contractors.
10.3 Form of Model Release Agreement between
Registrant and its models.
10.4 Web Site Programming Services Agreement
between Registrant and The Adrenaline Group.
10.5 Office Lease between Registrant and Peel
Properties.
10.6 Telephone Services Agreement between
Registrant and InterOffice/Bethesda.
10.7 Master Services Agreement between Registrant
and Frontier Global Center.
10.8 Engagement Agreement between Registrant and
Duncan, Blum & Associates (securities
counsel).
10.9 Engagement Agreement between Registrant and
Grant Thornton LLP (auditors).
24.1 Consent of Counsel (Duncan, Blum &
Associates).
24.2 Consent of Auditors (Grant Thornton LLP).
SB-1-3
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-1 and has duly caused this
Registration Statement to be signed on its behalf by the Undersigned, thereunto
duly authorized, in the City of Bethesda, and State of Maryland, on the 26th day
of February, 1999.
Efox.net, Inc.
By: /s/ Joseph R. Preston
---------------------
Joseph R. Preston, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in his
respective capacity as officer and/or director of the Registrant on the date
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/Joseph R. Preston President, CEO March 1, 1999
-------------------- and Director
Joseph R. Preston
/s/ Joseph R. Preston Treasurer and Chief March 1, 1999
--------------------- Financial Officer
Joseph R. Preston
</TABLE>
SB-1-4
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
AND CERTIFICATE OF AMENDMENT THERETO
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATION
FILED 12:30PM 01/22/1999
991027494 - 2996139
CERTIFICATE OF INCORPORATION
OF
EFOX.NET, INC.
The undersigned, a natural person, for the purposes of Incorporating
and organizing a corporation under the General Corporation Law of the Sate of
Delaware, as set forth in Title 8 of the Delaware Code ("DGCL"), executes this
Certificate of Incorporation and certifies as follows:
FIRST: The name of the corporation is Efox.net, Inc. (the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the city of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the DGCL.
FOURTH: The total number of shares of stock that the Corporation shall have
authority to issue is Ten Million (10,000,000). All such shares are to be
Common Stock, par value of $0.001 per share, and are to be of one class.
FIFTH: The name and mailing address of the Incorporator of the Corporation
are Joseph R. Preston, 7801 Norfolk Avenue, Bethesda, Maryland 20814.
SIXTH: Unless and except to the extent that the By-laws of the Corporation
("By-laws") shall so require, the election of directors of the Corporation need
not be by written ballot.
SEVENTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors of the Corporation is
expressly authorized to adopt, amend, and repeal the By-laws, subject to the
power of the stockholders of the Corporation to amend or repeal any by-law
whether or not adopted by the stockholders.
EIGHTH: Directors of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty except that this Article shall not eliminate or limit the liability of a
director (i) for any breach of a 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) under
Section 174 of the DGCL; or (iv) for any transaction from which a director
derived an improper personal benefit. If the DGCL hereafter is amended to
further eliminate or limit the liability of a director, then a director of the
Corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence, shall not be liable
to the fullest extent permitted by the amended DGCL. Any repeal or
modification of this Article shall not adversely affect any right or protection
of a director of the Corporation existing at the time of such repeals or
modification.
<PAGE> 3
NINTH: The Corporation reserves the right from time to time to amend or
repeal any provision in this Certificate of Incorporation, and any other
provision authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereinafter prescribed by law;
and all rights, preferences and privileges conferred upon stockholders,
directors or any other person by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject
to the right reserved in this Article, except as provided in the last sentence
of Article Eight.
TENTH: Meetings of stockholders may be held within or without the State of
Delaware as the By-laws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of
Directors or in the By-laws.
ELEVENTH: The name and mailing address of the person who is to serve as the
initial director of the Corporation until the first annual meeting of
stockholders of the Corporation, or until his successor is elected and
qualifies, are: Joseph R Preston, 7801 Norfolk Avenue, Bethesda, Maryland
20814.
TWELFTH: The powers of the incorporator shall terminate upon the filing of
this Certificate of Incorporation.
The undersigned hereby acknowledges that the foregoing Certificate of
Incorporation is his act and deed on January 21, 1999.
/s/ Joseph R. Preston
---------------------------------------
Joseph R. Preston, Incorporator
WAS1-409530
<PAGE> 4
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
- ----------------------------------------------------------------------------
* Efox.net, Inc. a corporation organized and existing under and by the virtue
of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
* FIRST: That a meeting of the Board of Directors of Efox.net, Inc. was held
on February 11, 1999 and that resolutions were duly adopted setting forth a
proposed amendment of the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said Corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "Fourth" so that, as
amended, said Article shall be and read as follows:
"Fourth: The total number of shares of stock that the Corporation
shall have authority to issue is Twenty Million (20,000,000). All
such shares are to be Common Stock, par value of $0.001 per share, and
are to be of one class."
* SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called
and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the
amendment.
* 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.
IN WITNESS WHEREOF, said Efox.net, Inc. has caused this certificate to be
signed by
Joseph R. Preston, its President,
Joseph R. Preston, its Secretary,
This 11th day of February, 1999.
By: /s/ Joseph R. Preston
---------------------
President
Attest: /s/ Joseph R. Preston
---------------------
Secretary
MENDMENT
Doc.20-05/78/03/03
<PAGE> 5
To: Delaware Secretary of State Office
Attn: Expedited Services
From Joseph R. Preston
Pages: 2
Date: 2/16/99
Re: Certificate of Amendment
Fax: 302-739-3812
- ----------------------------------------------------------------------------
To Whom it May Concern:
Please perform 24-hour service on this amendment. My Master Card # is
XXXX-XXXX-XXXX-XXXX, Exp. Date 09/01. I believe the charge will be $174.00.
Thank you. Please call me with any questions. (301-652-0999/Mobile
301-367-6429).
<PAGE> 1
EXHIBIT 3.2
CORPORATE BYLAWS
<PAGE> 2
BYLAWS
OF
EFOX.NET, INC.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year
fix. Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of the stockholders, for
any purpose or purposes described in the notice of the meeting, may be called
only by (i) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption), (ii) the
Chairman of the Board or (iii) the Chief Executive Officer and shall be held at
such place, on such date, and at such time as they shall fix. Business
transacted at special meetings shall be confined to the purpose or purposes
stated in the notice.
Section 1.3: Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise required by applicable law or the
Certificate of Incorporation of the Corporation as currently in effect (the
"Certificate of Incorporation"), such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting, by leaving such notice with him
or her or at his or her residence or usual place of business, or by depositing
it postage prepaid in the United States mail, directed to each stockholder at
his or her address as it appears on the records of the corporation. An
affidavit of the Secretary, Assistant Secretary, or transfer agent of the
corporation that the notice has
<PAGE> 3
been given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. No notice need be given to any person with whom communication
is unlawful or to any person who has waived such notice either (a) in writing
(which writing need not specify the business to be transacted at, or the
purpose of, the meeting) signed by such person before or after the time of the
meeting or (b) by attending the meeting except for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided,
however,that if the adjournment is for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, then a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting the Corporation may
transact any business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction
of business, except if otherwise required by applicable law. Where a separate
vote by a class or classes is required, a majority of the shares of such class
or classes then outstanding and entitled to vote present in person or by proxy
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares entitled to vote who are
present, in person or by proxy, at the meeting may adjourn the meeting. Shares
of the Corporation's stock belonging to the Corporation (or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation are held, directly or indirectly, by the
Corporation), shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of
the Corporation or any other corporation to vote any shares of the
Corporation's stock held by it in a fiduciary capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairman of the Board, or, in the absence of such person,
the President of the Corporation, or, in the absence of such person, such
person
Efox.net, Inc. ByLaws
Page 2
<PAGE> 4
as may be chosen by the holders of a majority of the shares entitled to vote
who are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine
the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seems to
him or her to be in order. The Secretary of the Corporation shall act as
secretary of the meeting, but in his or her absence the chairman of the meeting
may appoint any person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder of record according to the records of the
corporation. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held. Persons whose stock is pledged shall be entitled
to vote unless the pledgor in a transfer on the books of the corporation has
expressly empowered the pledgee to vote the pledged shares, in which case only
the pledgee or his or her proxy shall be entitled to vote. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for such stockholder by proxy. Such a proxy may be prepared,
transmitted and delivered in any manner permitted by applicable law. Voting
at meetings of stockholders need not be by written ballot unless such is
demanded at the meeting before voting begins by a stockholder or stockholders
holding shares representing at least eleven percent (11%) of the votes entitled
to vote at such meeting, or by such stockholder's or stockholders' proxy;
provided, however, that an election of directors shall be by written ballot if
demand is so made by any stockholder at the meeting before voting begins. If a
vote is to be taken by written ballot, then each such ballot shall state the
name of the stockholder or proxy voting and such other information as the
chairman of the meeting deems appropriate. Unless otherwise provided in the
Certificate of Incorporation or a Certificate of Designation relating to a
series of Preferred Stock, directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. Unless otherwise provided
by applicable law, the Certificate of Incorporation or these Bylaws, every
matter other than the election of directors shall be decided by the affirmative
vote of the holders of a majority of the shares of stock entitled to vote
thereon that are present in person or represented by proxy at the meeting and
are voted for or against the matter.
Section 1.8 Action at Meeting. When a quorum is present at any meeting,
Efox.net, Inc. ByLaws
Page 3
<PAGE> 5
action of the stockholders on any matter properly brought before such meeting,
other than the election of directors, shall require, and may be effected by,
the affirmative vote of the holders of a majority in interest of the stock
present or represented by proxy and entitled to vote on the subject matter,
except where a different vote is expressly required by law, the Certificate of
Incorporation or these Bylaws, in which case such express provision shall
govern and control. The election of directors shall be determined by a
plurality of votes cast. If the Certificate of Incorporation so provides, no
ballot shall be required for the election of directors unless requested by a
stockholder present or represented at the meeting and entitled to vote in the
election.
Section 1.9: Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. If no record date is fixed by the Board of
Directors, then the record date shall be as provided by applicable law. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 1.10: List of Stockholders Entitled to Vote. A complete list of
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number
of shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.11: Inspectors of Elections.
(a) Applicability. Unless otherwise provided in the Corporation's
Certificate of Incorporation or required by the Delaware General Corporation
Efox.net, Inc. ByLaws
Page 4
<PAGE> 6
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional, and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced by the inspectors at the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
and ballots, the inspectors shall be limited to an examination of the proxies,
Efox.net, Inc. ByLaws
Page 5
<PAGE> 7
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent
more votes than the holder of a proxy is authorized by the record owner to cast
or more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
(a) Annual Meeting of Stockholders.
(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of the notice provided for in this Section 1.12, who is entitled to
vote at such meeting and who complies with the notice procedures set forth in
this Section 1.12.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph
(a)(i) of this Section 1.12, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on
the sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the ninetieth (90th) day
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prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the corporation. Such
stockholder's notice shall set forth: (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected; (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, and (2) the class and number of shares of the corporation that are owned
beneficially and held of record by such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
corporation is increased and there is no public announcement by the corporation
naming all of the nominees for director or specifying the size of the increased
board of directors at least seventy (70) days prior to the first anniversary of
the preceding year's annual meeting (or, if the annual meeting is held more
than thirty (30) days before or sixty (60) days after such anniversary date, at
least seventy (70) days prior to such annual meeting), a stockholder's notice
required by this Section 1.12 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary of the corporation at the principal executive
office of the corporation not later than the close of business on the tenth
(10th) day following the day on which such public announcement is first made by
the corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the corporation's notice of such meeting.
Nominations
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of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12
shall be delivered to the Secretary of the corporation at the principal
executive offices of the corporation not earlier than the ninetieth (90th) day
prior to such special meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such special meeting or the tenth
(10th) day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(c) General.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 1.12. Except as otherwise provided by
law or these bylaws, the chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.12 and, if any proposed nomination or
business is not in compliance herewith, to declare that such defective proposal
or nomination shall be disregarded.
(ii) For purposes of this Section 1.12, the term "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in
a document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to section 13, 14 or 15(d) of the Exchange Act.
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(iii) Notwithstanding the foregoing provisions of this Section 1.12,
a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 1.12 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall
consist of one or more members. The initial number of directors shall be One
(1), and thereafter shall be fixed from time to time by resolution of the Board
of Directors. No decrease in the authorized number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
Directors need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. Subject to the
provisions of the Corporation's Certificate of Incorporation, each Director
shall serve until his or her successor is elected and qualified, or until his
or her earlier resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with cause, by the holders of a majority of the
shares then entitled to vote at an election of directors and (ii) any vacancy
occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
shall, unless the Board of Directors determines by resolution that such vacancy
or newly created directorship shall be filled by the stockholders, be filled
only by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. No director nor the entire Board of
Directors may be removed without cause.
Section 2.3: Regular Meetings. Regular meetings of the Board of
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
Notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of
Directors
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may be called by the Chairman of the Board, the President or a majority of the
members of the Board of Directors then in office and may be held at any time,
date or place, within or without the State of Delaware, as the person or
persons calling the meeting shall fix. Notice of the time, date and place of
such meeting shall be given, orally or in writing, by the person or persons
calling the meeting to all directors at least four (4) days before the meeting
if the notice is mailed, or at least forty-eight (48) hours before the meeting
if such notice is given by telephone, hand delivery, telegram, e-mail,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
or such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee, respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
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required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation
their services as members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting of such
committee who are not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided in a resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in subsection (a) of Section 151 of the Delaware General
Corporation Law, fix the designations and any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation, or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the Corporation, or fix the
number of shares of any series of stock or authorize the increase or decrease
of the shares of any series), adopting an agreement of merger or consolidation
under Sections 251 or 252 of the Delaware General Corporation Law, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
the Bylaws of the Corporation; and
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unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize
the issuance of stock or adopt a certificate of ownership and merger pursuant
to section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of
a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the
Board of Directors; provided, however, that the Board of Directors may empower
the Chief Executive Officer of the Corporation to appoint officers other than
the Chairman of the Board, the Chief Executive Officer, the President, the
Chief Financial Officer or the Treasurer. Each officer shall hold office until
his or her successor is elected and qualified or until his or her earlier
resignation or removal. Any number of offices may be held by the same person.
Any officer may resign at any time upon written notice to the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
Board of Directors and such supervisory powers, if any, as may be given by the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, direction and control of the
business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
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subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board of
Directors or which, in the judgment of the Chief Executive Officer, should be
executed on behalf of the Corporation; to sign certificates for shares of stock
of the Corporation; and, subject to the direction of the Board of Directors, to
have general charge of the property of the Corporation and to supervise and
control all officers, agents and employees of the Corporation. The President
shall be the Chief Executive Officer of the Corporation unless the Board of
Directors shall designate another officer to be the Chief Executive Officer.
If there is no President, and the Board of Directors has not designated any
other officer to be the Chief Executive Officer, then the Chairman of the Board
shall be the Chief Executive Officer.
Section 4.3: Chairman of the Board. The Chairman of the Board shall have
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these Bylaws and as the Board of
Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board, and/or to any other officer, the President shall
have the responsibility for the general management the control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of President or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's
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absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of
chief financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
and securities of the Corporation. The Treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform
such other duties and have such other powers as are commonly incident to the
office of Treasurer, or as the Board of Directors or the President may from
time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the President may from
time to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.10: Removal. Any officer of the Corporation shall serve at the
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
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an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to agree
to indemnify the Corporation and/or to give the Corporation a bond sufficient
to indemnify it, against any claim that may be made against it on account of
the alleged loss, theft or destruction of any such certificate or the issuance
of such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Officers and Directors. Each person who
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
or she (or a person of whom he or she is the legal representative), is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer or employee of another corporation, or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, shall be indemnified and held harmless
by the Corporation to the fullest extent permitted by the Delaware General
Corporation Law, against all expenses, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that the
Corporation shall indemnify any such person seeking indemnity in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
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(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
requires, the payment of such expenses incurred by such a director or officer
in advance of the final disposition of such proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified
under this Article VI or otherwise; and provided, further, that the Corporation
shall not be required to advance any expenses to a person against whom the
Corporation directly brings a claim, in a proceeding, alleging that such person
has breached his or her duty of loyalty to the Corporation, committed an act or
omission not in good faith or that involves intentional misconduct or a knowing
violation of law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this
Article VI shall limit the ability of the Corporation, in its discretion, to
indemnify or advance expenses to persons whom the Corporation is not obligated
to indemnify or advance expenses pursuant to this Article VI. The Board of
Directors of the Corporation shall have the power to delegate to such officer
or other person as the Board of Directors shall specify the determination of
whether indemnification shall be given to any person pursuant to this Section
6.3.
Section 6.4: Indemnification Contracts. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts
with any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
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ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
required by law, all notices required to be given pursuant to these Bylaws
shall be in writing and may in every instance be effectively given by hand
delivery (including use of a delivery service), by depositing such notice in
the mail, postage prepaid, or by sending such notice by prepaid telegram,
e-mail, overnight express courier, mailgram or facsimile. Any such notice
shall be addressed to the person to whom notice is to be given at such person's
address as it appears on the records of the Corporation. The notice shall be
deemed given (i) in the case of hand delivery, when received by the person to
whom notice is to be given or by any person accepting such notice on behalf of
such person, (ii) in the case of delivery by mail, upon deposit in the mail,
(iii) in the case of delivery by overnight express courier, on the first
business day after such notice is dispatched, and (iv) in the case of delivery
via telegram, e-mail, mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors or members of
a committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or
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participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; (ii) the material facts as to
his, her or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying
in good faith upon records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of the
Corporation's
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officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be
held to be invalid, illegal, unenforceable or in conflict with the provisions
of the Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall
remain in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Subject to Section 6.5 of these Bylaws
Stockholders of the Corporation holding at least fifty-five (55%) percent of
the Corporation's outstanding voting stock shall have the power to adopt, amend
or repeal Bylaws. To the extent provided in the Corporation's Certificate of
Incorporation, the Board of Directors of the Corporation shall also have the
power to adopt, amend or repeal Bylaws of the Corporation, except insofar as
Bylaws adopted by the stockholders shall otherwise provide.
Efox.net, Inc. ByLaws
Page 19
<PAGE> 21
CERTIFICATION OF BYLAWS
OF
Efox.net Inc.
(A DELAWARE CORPORATION)
KNOW ALL BY THESE PRESENTS:
I, Joseph R. Preston, certify that I am Secretary of Efox.net Inc., a
Delaware corporation (the "Company"), that I am duly authorized to make and
deliver this certification, that the attached Bylaws are a true and correct
copy of the Bylaws of the Company in effect as of the date of this certificate.
<TABLE>
<S> <C> <C>
Dated: , 1999
-------------
------------------------------
Joseph R. Preston, Secretary
</TABLE>
Efox.net, Inc. ByLaws
Page 20
<PAGE> 1
EXHIBIT 3.3
FORM OF STOCK CERTIFICATE
<PAGE> 2
NUMBER SHARES
0
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
EFOX.NET, INC.
TOTAL AUTHORIZED ISSUE
20,000,000 SHARES PAR VALUE $.001 EACH
SEE REVERSE FOR
CERTAIN DEFINITIONS
[SPECIMEN]
THIS IS TO CERTIFY THAT_____________________________ IS THE OWNER OF
_____________________ fully paid and non-assessable shares of the
above Corporation transferable only on the books of the Corporation by
the holder hereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly
authorized officers.
DATED
--------------------------- ------------------------------
SECRETARY PRESIDENT
(C) 1999 CORPEX BANKNOTE CO., BAY SHORE N.Y.
[ARTWORK]
<PAGE> 1
DUNCAN, BLUM & ASSOCIATES
ATTORNEYS AT LAW
[email protected]
Carl N. Duncan David E. Blum
5718 TANGLEWOOD DRIVE 1863 KALORAMA ROAD, N.W.
BETHESDA, MARYLAND 20817 WASHINGTON, D.C. 20009
(301) 263-0200 (202) 232-6220
(301) 263-0300 (FAX) (202) 232-7891 (FAX)
February 26, 1999
EXHIBIT 5.1
Efox.net, Inc.
7801 Norfolk Avenue
Bethesda, Maryland 20814
Re: Registration Statement on Form SB-1 Relating to the
Offer and Sale of $6,000,000 Shares of Common Stock
Gentlemen:
Since January 22, 1999, this firm has acted as securities counsel for
Efox.net, Inc. (the "Company"), a Delaware corporation organized under the
Delaware General Corporate Law, in connection with the registration under the
Securities Act of 1933, as amended, of shares of common stock (the "Shares") in
the Company, having a maximum aggregate offering price of $6,000,000, pursuant
to the referenced Registration Statement.
You have requested our opinion regarding the legality of the Shares
registered pursuant to the Registration Statement on Form SB-1 (the
"Registration Statement"). We have examined originals or copies, certified to
our satisfaction, of such records, agreements and other instruments of the
Company, certificates or public officials, certificates of the officers or
other representatives of the Company, and other documents, as we have deemed
necessary as a basis for the opinions hereinafter set forth. As to various
questions of fact material to such opinions, we have, when relevant facts were
not independently established, relied upon written certifications of officers
and references, including (but not limited to) statements contained in the
Registration Statement.
Our opinions, insofar as they address issues of Delaware law, are
based solely upon our review of (i) the records of the Company; (ii) the
Delaware General Corporate Law; and (iii) a certified copy of the Company's
January 22, 1999 Articles of Incorporation and February 11, 1999 Certificate of
Amendment thereto. Subject to the foregoing, we do not express our opinion
herein concerning any law other than the federal laws of the United States.
We have assumed the genuineness of all signatures on documents
reviewed by or presented to us, the legal capacity of natural persons, the
authenticity of all items submitted to us as originals and the conformity with
originals of all items submitted to us as copies.
Based upon the foregoing, we are of the opinion that:
1. The Company is a duly organized, validly existing corporation under
the laws of the State of Delaware.
<PAGE> 2
2. The Shares of the Company to be offered pursuant to the Prospectus
forming a part of the Registration Statement are validly authorized
and when (a) the pertinent provisions of the Securities Act of 1933,
as amended, and such state securities laws and regulations as may be
applicable have been complied with and (b) such Shares have been duly
delivered against payment therefor as contemplated by the offer
contained in the Prospectus, such Shares will be validly issued, fully
paid and non-assessable under the law of Delaware.
Our opinion is expressed as of the date hereof, and we do not assume
any obligations to update or supplement our opinion to reflect any fact or
circumstances which hereafter comes to our attention or any change in the law
that hereafter occurs.
We hereby consent to the reference to our firm in the "Legal Matters"
section of the Prospectus and to the inclusion of this opinion as an Exhibit to
the Registration Statement.
DUNCAN, BLUM & ASSOCIATES
By: /s/ Carl N. Duncan
------------------------------------
Carl N. Duncan, Managing Partner
<PAGE> 1
EXHIBIT 10.1
FORM OF ESCROW AGREEMENT
<PAGE> 2
ESCROW AGREEMENT
THIS AGREEMENT made this ____ day of February, 1999 between EFOX.NET,
INC., a Delaware corporation, having a principal place of business located at 3
Bethesda Metro Center , Suite 700, Bethesda, MD 20814 ("Efox"), and U.S. Trust
Company of New York, a Trust company chartered by the New York State Banking
Commission, having a principal place of business located at NY, NY ("Escrow
Agent", and collectively with Efox referred to as the "Parties").
WHEREAS, Efox intends to file a registration statement on Form SB-1
with the Securities and Exchange Commission and with the various states to
offer not less than $1,000,000 nor more than $6,000,000 of securities (the
"Offering"); and
WHEREAS, the Offering provides, among other terms, that unless and
until one million dollars are received from the Offering, it shall not close
and all funds delivered by investors, plus interest, shall be returned to the
investors; and
WHEREAS, once the minimum Offering has been obtained and disbursed,
the additional Offering proceeds are to be disbursed to Efox on a monthly
basis; and
WHEREAS, Efox desires to have said Offering proceeds received,
invested, safeguarded and disbursed by an independent, trust company; and
WHEREAS, Escrow Agent is an independent trust company and is willing
to serve Efox under the terms of the Offering and this Agreement;
NOW THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, receipt of which is
hereby acknowledged, the Parties hereto agree as follows:
1. Definitions.
a. Business Day: Shall mean any day except Saturday, Sunday, a
legal holiday in the District of Columbia, or a day on which banking
institutions in the State of New York are authorized or required by Law or
Executive Order to be closed.
b. Escrow Account: Shall mean an interest bearing demand deposit
account established at a commercial banking institution or other financial
services institution located in the State of
Efox.net, Inc. Escrow Agreement
Page 1
<PAGE> 3
New York whose accounts are insured by the Federal Deposit Insurance
Corporation, the Securities Investors Protection Corporation, or any successor
agency thereto.
c. Escrow Agent: Shall mean U.S. Trust Company of New York.
d. Escrowed Funds: Shall mean the Offering proceeds, including
interest earned on said cash balances, if any, held in the Escrow Account
pursuant to this agreement. To the extent that the Offering does not raise one
million dollars by the time required in the Offering or any extensions thereof,
all Escrowed Funds and all interest earned thereon, shall be returned to the
investors. To the extent the Offering raises one million or more dollars, the
interest earned on all of the proceeds shall be disbursed to Efox for its use.
e. Maximum Offering Proceeds: Shall mean Six Million Dollars US
($6,000,000).
f. Minimum Offering Proceeds: Shall mean One Million Dollars
US($1,000,000).
g. Offering: Shall mean Efox's registration statement on Form
SB-1 filed with the Securities and Exchange Commission and the various states
which provides for the offer and sale of securities to raise a minimum of one
million dollars and a maximum of six million dollars. Said Offering may
conducted for a period of 24 months from its effective date.
All terms not otherwise defined herein shall have the meanings set
forth in the Offering.
2. Creation of New Escrow Accounts. Upon receipt of the Escrowed Funds
Escrow Agent shall deposit said funds into the Escrow Account.
3. Terms of Escrow.
a. Delivery of Offering Proceeds. Investors shall be directed to
deliver their investment proceeds directly to Escrow Agent during the term of
the Offering. Escrow Agent shall collect and account for all Offering proceeds
on a daily basis, and shall provide Efox with daily reports of the incoming
proceeds.
b. Release of Escrowed Funds to Efox. Within one (1) Business
Day after receipt by Escrow Agent of the Minimum Offering Proceeds, Escrow
Agent shall disburse the Escrowed Funds being held in the Escrow Account to
Efox. Thereafter, Escrow Agent shall disburse the Escrowed Funds to Efox on a
monthly basis. Once the Maximum Offering Proceeds have been received and
disbursed by Escrow Agent to Efox, this Agreement shall be an terminated.
c. Failure to achieve the Minimum Offering Proceeds. In the
event that The Minimum Offering Proceeds have not been delivered to Escrow
Agent by the end of the Offering term, the
Efox.net, Inc. Escrow Agreement
Page 2
<PAGE> 4
Escrowed Funds then on deposit with Escrow Agent shall be returned along with
all interest accrued thereon to the investors.
d. Manner of Distribution. Escrowed Funds shall be disbursed in
the form of a wire transfer to Efox's bank account set forth below its
signature.
4. Dispute Resolution Methods.
a. Binding Arbitration. The Parties hereto shall give all other
Parties written notice of any controversy or claim arising out of or relating
to this Escrow Agreement or the breach thereof. All Parties shall then have 10
calendar days from receipt of such notice to resolve the claim or dispute. In
the event such claim or dispute is not resolved within this 10 day time frame,
such claim or dispute shall immediately be referred to, and settled by, binding
arbitration before one (1) neutral arbitrator selected by the American
Arbitration Association ("AAA") or other similar organization acceptable to the
Parties in accordance with the rules of the AAA. The arbitration is to be held
in Washington DC, at a mutually agreed upon site. The parties agree that the
laws of the State of Maryland shall apply. That decision shall be enforceable
and judgement upon the award rendered by the arbitrator will be binding upon
the parties and may be entered in any court of record having jurisdiction and
may be relied upon by the Escrow Agent.
b. Costs. The costs associated with any arbitration or court
proceeding shall be apportioned by the arbitrator or court.
5. Interest on Escrowed Funds. the Parties agree and understand that
Escrowed Funds shall be held in an interest bearing escrow account. Interest
paid to Efox shall be reported under the tax ID number set forth below its
signature affixed hereto. Other recipients of the interest shall be responsible
for the payment of all taxes on such interest.
6. Notices. Any and all notices to be given by any Parties shall be in
writing and shall be given in person, or by facsimile with transmission
confirmed, or by overnight courier service with confirmation of delivery
requested, prepaid, and addressed as follows unless a change of such address
has been given and acknowledged:
To Efox:
Efox.net, Inc.
3 Bethesda Metro Center, Suite 700
Bethesda, Maryland 20814
ATTENTION: Joseph R. Preston, Pres. & CEO
Tel. No. (301) 652-0999
Fax No. (301) 652-4235
Efox.net, Inc. Escrow Agreement
Page 3
<PAGE> 5
With a Copy to:
Joyce & Jacobs, Attorney At Law, L.L.C.
1019 19th Street, NW (Penthouse-2)
Washington, DC 20036
Attn: Harvey S. Jacobs, Esq.
Tel. No. (202) 457-0100
Fax No. (202) 457-0186
To Escrow Agent:
U.S. Trust Company of New York
ATTENTION: Glen Mitchell
Tel. No. (212) 852-1643
Fax No.(212) 852-1626
Any such notice so delivered shall be deemed for all purposes of this Escrow
Agreement to have been given when written confirmation of receipt has been
obtained, or, in the case of facsimile, when confirmation of transmission
received.
7. Concerning the Escrow Agent. To induce the Escrow Agent to act
hereunder, it is agreed by the Parties hereto that:
a. Duty of Care. The Escrow Agent shall not be under any duty to
give the Escrowed Funds held by it hereunder any greater degree of care than it
gives its own similar property and shall only invest Escrowed Funds held
hereunder in the following types of investments: U.S. Treasury or U.S.
Treasury-backed securities; Overnight Repurchase Agreements; Mutual Funds
Primarily investing in such securities; and such other investments as Efox
shall direct in writing to Escrow Agent.
b. Entire Agreement. This Escrow Agreement and the Offering sets
forth all the duties of the Escrow Agent with respect to any and all matters
pertinent hereto. No implied duties or obligations shall be read into this
Escrow Agreement against the Escrow Agent.
c. Indemnification; Hold Harmless. The Escrow Agent shall not be
liable, except for its own negligence or misconduct, and, except with respect
to claims based upon such negligence
Efox.net, Inc. Escrow Agreement
Page 4
<PAGE> 6
or misconduct that are successfully asserted against the Escrow Agent, the
other Parties hereto shall jointly and severally indemnify and hold harmless
the Escrow Agent (and any successor Escrow Agent) from and against any and all
losses, liabilities, claims, actions, damages and expenses, including
reasonable attorneys' fees and disbursements, arising out of and in connection
with this Escrow Agreement.
d. Reliance. The Escrow Agent shall be entitled to rely upon any
order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder without being required to determine the authenticity
or the correctness of any fact stated therein or the propriety or validity or
the service thereof. The Escrow Agent may act in reliance upon any instrument
or signature believed by it to be genuine and may assume that any person
purporting to give notice or receipt or advice or make any statement or execute
any document in connection with the provisions hereof has been duly authorized
to do so.
e. Action upon Advice of Counsel. The Escrow Agent may act
pursuant to the advice of counsel with respect to any matter relating to this
Escrow Agreement and shall not be liable for any action taken or omitted in
accordance with such advice.
f. Escrow Agent as Stakeholder. The Escrow Agent does not have
any interest in the Escrowed Funds deposited hereunder but is serving as escrow
holder only and having only possession thereof. Efox shall pay or reimburse
the Escrow Agent upon request, for any transfer taxes relating to the Escrowed
Funds incurred in connection herewith and shall indemnify and hold harmless the
Escrow Agent from any amounts that it is obligated to pay in the way of
transfer taxes. Any payments of income from an Escrow Account shall be subject
to withholding regulations then in force with respect to United States taxes.
The Efox will instruct the investors to provide Escrow Agent with appropriate
W-9 forms for tax i.d., number certification, or non-resident alien
certifications.
g. No Representations. The Escrow Agent makes no representation
as to the validity, value, genuineness or the collectibility of any document or
instrument held by or delivered to it.
h. No Advice. The Escrow Agent shall not be called upon to
advise any Party as to the wisdom in taking or refraining from taking any
action with respect to any Escrowed Funds deposited hereunder.
i. Resignation. The Escrow Agent (and any successor Escrow
Agent) may at any time and in its sole discretion resign as such by delivering
the Escrowed Funds to any successor Escrow Agent jointly designated by the
Parties hereto in writing, or to any court of competent jurisdiction, whereupon
the Escrow Agent shall be discharged of and from any and all further
obligations arising in connection with this Escrow Agreement. The resignation
of the Escrow Agent will take effect on the earlier of (a) the appointment of a
successor (including a court of competent
Efox.net, Inc. Escrow Agreement
Page 5
<PAGE> 7
jurisdiction) or (b) the day which is 30 days after the date of delivery of its
written notice of resignation to the Parties hereto. If at that time the
Escrow Agent has not received a designation of a successor Escrow Agent, the
Escrow Agent's sole responsibility shall be to safekeep the Escrowed Funds
until receipt of a designation of successor Escrow Agent or a joint written
disposition instruction by the Parties hereto or a final order of a Court of
competent jurisdiction.
j. Arbitrators; Third Parties. The Escrow Agent shall have no
responsibility for the contents of any writing of the arbitrators or any third
party contemplated herein as a means to resolve disputes and may rely without
any liability upon the contents thereof.
k. Fees. The Escrow Agent's fees, disbursements, advancements,
and costs incurred or made up to the final disbursement date shall be capped at
a total of Three Thousand Two hundred Fifty Dollars US($3,250) and shall
deducted from the Escrowed Funds disbursed unless otherwise provided for by the
Parties.
8. Miscellaneous.
a. Headings. The headings in this Escrow Agreement are for the
convenience of reference only and shall not limit or otherwise affect the terms
and provisions hereof.
b. Counterparts. This Escrow Agreement may be executed in any
number of counterparts and by different Parties hereto on separate
counterparts, but all such counterparts shall together constitute one and the
same instrument.
c. Term. This Escrow Agreement shall commence on the date signed
by all of the Parties hereto and will continue for a maximum period of two (2)
years unless earlier terminated in accordance with its terms.
d. Binding Nature; Assignment; Choice of Law. This Escrow
Agreement shall be binding upon and inure solely to the benefit of the Parties
hereto and their respective successors and assigns, heirs, administrators and
representatives and shall not be enforceable by or inure to the benefit of any
third party except as provided in paragraph 7(i) with respect to a resignation
by the Escrow Agent. No Party may assign any of its rights or obligations
under this Escrow Agreement without the written consent of the other Parties.
This Escrow Agreement shall be construed in accordance with and governed by the
internal law of the State of Maryland (without reference to its rule as to
conflicts of law).
e. Amendments. This Escrow Agreement may only be modified by a
writing signed by all of the Parties hereto, and no waiver hereunder shall be
effective unless in a writing signed by the Party to be charged.
Efox.net, Inc. Escrow Agreement
Page 6
<PAGE> 8
f. Survival of Agreement. The provisions set forth in paragraph
7 shall survive notwithstanding any termination of this Escrow Agreement or the
resignation of the Escrow Agent.
IN WITNESS WHEREOF, each party, intending hereto to be bound
has caused this Agreement to be executed as of the day and year first written
above.
<TABLE>
<S> <C>
ESCROW AGENT EFOX.NET, INC.
U.S. Trust Company of New York a Delaware Corporation
- --------------------------------------- ------------------------------
By: By: Joseph R. Preston
----------------------------------- ------------------------------
Its: Its: President and CEO
----------------------------------
Tax ID: Tax ID:
-------------------------------- -----------------------
</TABLE>
Efox.net, Inc. Escrow Agreement
Page 7
<PAGE> 1
EXHIBIT 10.3
FORM OF MODEL RELEASE AGREEMENT
<PAGE> 2
MODEL RELEASE AND AGREEMENT
THIS MODEL RELEASE AND AGREEMENT ("Agreements") is entered into and
effective this _____ day of February, 1999, by and between Efox.net, Inc. A
Delaware corporation having its principal place of business at 7801 Norfolk
Avenue, Bethesda, MD 20814 (hereinafter referred to as "Efox"), and the
undersigned model having a residence set forth below her signature (hereinafter
referred to as "Model") (collectively, the "Parties").
WITNESSETH:
WHEREAS, Efox has undertaken the design and development of an
adult-oriented website ("website"); and
WHEREAS, photographs, including nude and semi-nude photographs of
Models, will comprise a significant portion of the website content; and
WHEREAS, Model is willing to create exclusive photographic content
("Photos") for Efox under a "work made for hire" arrangement as that term is
defined by the United States Copyright Laws; and
WHEREAS, Model understands that Efox intends to own all world-wide
intellectual property rights (copyright, trademark, servicemark, patents,
common-law ) in and to the website, all of the photos taken of the Model, and
any and all other content created for Efox for use on the website or for any
other Efox purposes;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the Parties
hereto agree as follows:
1. WORK FOR HIRE: Model agrees to create Photos and understands that
those Photos are being created under the direction and control of Efox, and
agrees that the Photos shall be deemed a work made for hire by an independent
contractor under the United States Copyright Laws (17 U.S.C. 101, et seq.) and,
by virtue of this agreement, are the sole property of Efox free and clear from
all claims of any nature relating to Model's contributions and other efforts,
including the right to copyright or obtain trade and service marks upon the work
in the name of Efox as author and proprietor thereof and any termination rights
thereto. Model understands and agrees that Efox owns all right, title, and
interest in the Photos and has the right to register all copy, trade and service
mark rights therein in its own name as author in the United States of America
and in all foreign countries.
2. MODEL COMPENSATION: Efox shall pay Model the compensation set
forth in Attachment A for her services in the creation of the Photos.
3. EFOX TO CONTROL PHOTOS: Model agrees that Efox has the right to
supervise and control direct the creation of the Photos. Efox has the exclusive
right to use (or not use) the Photos, any part or parts thereof, as it sees fit.
Efox may alter the Photos, add to, or combine same with any other Photos,
drawings, or effects at its sole discretion. Model understands that the Photos
may be displayed, on the Efox website, the Internet and further displayed,
distributed and digitized for use under all existing medium and any and all
media yet to be created.
4. ASSIGNMENT OF ALL RIGHTS TO EFOX: The Parties agree that Efox
shall have full ownership of the Photos with no rights of ownership in Model.
Model agrees that in the event this Agreement is determined by a court, not to
be a work for hire agreement under the federal copyright laws, this Agreement
shall operate as an irrevocable assignment by Model to Efox of the copy, trade
and service mark rights to the Photos, including all rights thereunder, in
perpetuity. Under this irrevocable assignment, Model hereby assigns to Efox the
sole and exclusive right, title, and interest in and to the Photos, without
<PAGE> 3
further consideration, and agrees to assist Efox in registering and from time to
time enforcing, at Efox's expense, all copyrights and other rights and
protections relating to the Photos in any and all countries.
5. RELEASE: Model hereby hereby releases, remises, quitclaims, and
forever discharges the Efox, its officers, directors, shareholders, employees,
agents, partners, attorneys, affiliates, successors and assigns from all
actions, claims for relief, causes of action, suits, debts, dues, sums of money,
bonds, bills, specialties, covenants, contracts, controversies, agreements,
promises, variances, trespass, damages, judgments, extents, executions, claims,
liens, and demands whatsoever, in law, admiralty, or equity which Model ever
had, now has, or hereafter can, shall, or may have against Efox, its officers,
directors, shareholders, employees, agents, partners, attorneys, affiliates,
successors and assigns, by reason of the this Agreement. Model further
understands and agrees that this Agreement is given in connection with the
creation of Photos and the timely delivery of the compensation called for
hereunder. This Agreement is absolute and unconditional and contains the entire
agreement between the Parties. This Agreement may not be changed or otherwise
modified in any way without a writing signed by all Parties. All understandings
and agreements between Parties are merged into this Agreement. Parties are not
relying on any statement, representation, warranty, or other promise, express or
implied, oral or written, in fact or in law, made by Efox or other person,
except as stated herein.
6. MODEL REPRESENTATIONS AND WARRANTIES: Model represents that: she
is over the age of 18; is competent to enter into this Agreement and create the
Photos. Model further states that she has carefully read this Agreement, has had
the opportunity to have this Agreement reviewed by counsel of her choosing,
knows and understands the contents hereof and signs this Agreement as her own
free act. Model represents that she has not modeled for any other online website
and agrees hereafter not to model for any other online website. Model
acknowledges that Efox shall have the exclusive rights to Models's likeness for
online purposes.
7. GOVERNING LAW: This Agreement shall be governed by the laws of the
State of Maryland. The Circuit Courts for Montgomery County, Maryland shall have
exclusive jurisdiction to hear claims arising from or relating to the terms or
subject matter of this Agreement.
This Agreement is executed by the Parties hereto in the State of Maryland.
Efox.net, Inc. MODEL:
a Delaware corporation in formation
By: By:
------------------------------ -----------------------------
Joseph R. Preston, CEO
Print Name:
---------------------
Address:
------------------------
--------------------------------
--------------------------------
Tel:
----------------------------
Proof of Age:
-------------------
Date: Date:
------------------------ ---------------------------
<PAGE> 4
ATTACHMENT A.
1. Terms of Engagement: Model shall perform the following service for Efox:
Model for nude and/or semi-nude photos to be used by Efox in connection with its
adult-oriented website.
2. As Compensation for said services, Model shall receive the following
compensation:
Stock:
500 shares of stock in Efox.net, Inc. a Delaware corporation ("Shares"). Shares
may bear certain restrictions on their transfer as a result of certain Federal
and State securities laws and regulations and/or the terms and conditions of a
Stock Incentive Plan. Models understand that Efox cannot guarantee that the
Shares can be sold or that the Shares will have any value when Model may seek to
sell or otherwise transfer same. Model understands and agrees to assume the
risks associated with the Shares.
3. Model, as an independent contractor of Efox, shall be responsible for
providing all of her own wardrobe and effects, shall provide the pre-approved
model release form, and shall be responsible for any and all tax consequences
arising from this Agreement.
<PAGE> 1
EXHIBIT 10.4
WEB SITE PROGRAMMING SERVICES
AGREEMENT BETWEEN REGISTRANT
AND THE ADRENALINE GROUP
<PAGE> 2
February 10, 1999
Joseph Preston, CEO
Efox.net, Inc.
7801 Norfolk Avenue, Suite 208
Bethesda, MD 20814
Dear Mr. Preston:
Thank you for selecting the Adrenaline Group as your contractor to develop
Efox.net's online entertainment and commerce Web site. We are very excited to
begin working on your project. This letter will summarize the key points of our
previous discussions and will serve as an official agreement about the nature of
our working relationship.
The Adrenaline Group will devote approximately 100 person hours per month over 2
calendar months to your project. Project activities will include planning,
developing, and deploying Efox.net's Web site. Your deliverables will include
planning documents, design documents, source code and executable code.
Contingent upon efox.net's timely delivery of the site design and content, we
believe that this is sufficient time to accomplish a working Web site.
The cost to you of our services will be $125 per hour beginning Tuesday February
12, 1999. This compensation covers labor only and does not include anticipated
or unanticipated other direct costs, including the costs of hardware and
commercial off-the-shelf software components. We will purchase no of the shelf
hardware or software components without Efox.net's prior consent. The payment
schedule and terms are as follows:
<TABLE>
<CAPTION>
Payment Billing Date Amount Description Due
<S> <C> <C> <C> <C>
1 February 2, 1998 $5,000 Project Initiation N/A
2 March 1, 1998 Hourly at $125/hr Month 1 completion Net 15
3 April 1, 1998 Hourly at $125/hr Month 2 completion Net 15
</TABLE>
This offer is good for 15 DAYS. Please call me if you have any questions. We
look forward to working with you.
Sincerely,
Greg DuPertuis, President
The Adrenaline Group, Inc.
<PAGE> 3
CONFIDENTIAL INFORMATION. DO NOT REDISTRIBUTE.
THE ADRENALINE GROUP, INC.
- --------------------------------------------------------------------------------
02/26/99
page 2 of 6
PROJECT ACTIVITIES
1. Coordinate procurement of hardware and software
2. Coordinate activities with Germane Systems, Global Center and other
relevant product and service vendors
3. Install, configure, test and debug Web server, email server, database
server and other development and administration software tools
4. Design and deploy Oracle database
5. Deploy tape backup system
6. Document system configuration
7. Deploy online Web content including HTML, GIF/JPEG images, PDF documents,
and Word documents
8. Develop, deploy and test an online open member registration system
9. Coordinate with Certificate Authority in order to configure SSL based
secure Web site
10. Coordinate with Merchant Services Provider in order to configure Web based
credit card billing services
11. Plan and document scalable, multi-server system architecture
- --------------------------------------------------------------------------------
703.471.7930 http://www.adrenalinegroup.com
<PAGE> 4
CONFIDENTIAL INFORMATION. DO NOT REDISTRIBUTE.
THE ADRENALINE GROUP, INC.
- --------------------------------------------------------------------------------
02/26/99
Services Agreement page 3 of 6
THIS PROGRAMMING SERVICES AGREEMENT (this "Agreement") is made and entered into
this February 2, 1999, by and between The Adrenaline Group, Inc., a corporation
with offices at 1041 Sterling Road, Herndon, VA 20170 (hereinafter "Vendor") and
Efox.net, Inc., a corporation with offices at 7801 Norfolk Avenue, Suite 208,
Bethesda, MD 20814 (hereinafter "Customer").
1. Definitions. For purposes of this Agreement, the following capitalized
terms shall have the meaning ascribed to them below:
CODE shall mean computer-programming code. Unless otherwise specified, Code
shall include such computer programming code in both object code and source
code forms.
CONFIDENTIAL INFORMATION shall mean web site content, efox.net business
strategies and documentation, DELIVERABLES (including drafts and associated
materials), product design and functionality, concepts and definitions and
any other information that Customer indicates to be confidential and Vendor
acquires (as a result of disclosure by Customer, access to Customer
facilities, analysis of Customer's products or enhancements, or otherwise)
in connection with the SERVICES.
DELIVERABLES shall mean all CODE, DOCUMENTATION, and other media,
materials, or other objects produced as a result of the Services or
delivered by Vendor in the course of providing the SERVICES.
DOCUMENTATION shall mean any written materials that relate to particular
Code or the programming or development thereof, including materials useful
for design (for example, logic manuals, flow charts, and principles of
operation).
SERVICES shall mean programming and development services relating to
existing and planned products and enhancements of Customer or Customer's
customers, whether heretofore or hereafter provided by Vendor.
2. Scope of Services; Compensation. All Services provided by Vendor shall be
subject to this Agreement, unless otherwise agreed upon by both parties in
writing.
The Services may be described more specifically in statements of work set
forth in writing and signed by both parties.
The terms for compensation of Vendor shall be agreed upon by both parties
in writing. Customer shall be responsible for reimbursement of expenses
incurred by Vendor only as stated in such agreement.
3. Confidential Information. Vendor shall receive and hold all Confidential
Information in trust and confidence for Customer. Vendor may not use any
Confidential Information except as authorized by Customer and for the
benefit of Customer. Vendor may disclose Confidential Information only to
those employees who have a "need to know" in order to help Vendor perform
the Services and who are legally bound to maintain the confidentiality of
the Confidential Information.
Vendor shall be responsible for the safekeeping of all materials and media
containing Confidential Information and shall account for such materials
and media at Customer's request. So long as Vendor uses reasonable efforts
to maintain the confidentiality of Customer's
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<PAGE> 5
CONFIDENTIAL INFORMATION. DO NOT REDISTRIBUTE.
THE ADRENALINE GROUP, INC.
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Confidential Information and materials, Vendor shall not be liable for
disclosure or theft of such Information or materials by third parties who
obtain the Confidential Information or materials by improper means.
The foregoing confidentiality obligations shall remain in effect until two
(2) years after any relevant Services are completed or terminated and
Vendor has delivered to Customer or destroyed the materials and media
containing Confidential Information associated with such Services.
Notwithstanding the previous sentence, Vendor will respect in perpetuity
all applicable copyrights and trademarks of Customer.
4. Rights in Deliverables. All Deliverables shall be deemed to be works made
for hire and shall belong exclusively to Customer and its designees. If by
operation of law any of the Deliverables, including all related
intellectual property rights are not owned in their entirety by Customer
automatically upon their creation, then Vendor agrees to assign, and hereby
assigned, to Customer and its designees the ownership of such Deliverables,
including all related intellectual property rights.
Customer may obtain and hold in its own name copyrights, registrations, and
other protection that may be available in the Deliverables. Vendor agrees
to provide any assistance required to perfect such protection. In addition,
any know-how or programming techniques learned, developed or discovered by
Vendor during performance of these services shall remain the intellectual
property of the Vendor.
Vendor may include in the Deliverables preexisting materials only if such
pre-existing materials are either provided by Customer or if they are owned
or licensable without restriction by Vendor. To the extent that preexisting
materials owned or licensed by Vendor are included in the Deliverables,
Vendor shall identify any such materials prior to commencement of the
services involving such materials. Vendor grants to Customer (as an
exception to the transfer and assignment provided in the first paragraph of
this Section) and irrevocable, non-exclusive, worldwide, royalty-free right
and license to use, execute, reproduce, display, perform, and distribute
(internally and externally) copies of, and prepare derivative works based
upon, such materials, and the right to authorize others to do any of the
foregoing.
5. Term and Termination.
A. This Agreement shall commence upon the effective date and continue until
all of the obligations of the parties have been performed or until earlier
terminated as provided herein.
B. Vendor's appointment as consultant pursuant to this Agreement and this
Agreement shall terminate upon the occurrence of any of the following
events:
(i) In the event either party defaults in any material obligation owed
to the other party pursuant to this Agreement, then this Agreement may
be terminated if the default is not cured following at least fifteen
(15) days' written notice to the defaulting party.
(ii) Either party is bankrupt or insolvent, or bankruptcy or insolvency
proceedings are instituted against a party and the proceeding is not
dismissed within sixty (60) days after commencement.
(iii) Services or disrupted for more than thirty (30) days due to
death, disability or departure of principal developer(s).
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CONFIDENTIAL INFORMATION. DO NOT REDISTRIBUTE.
THE ADRENALINE GROUP, INC.
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C. Section 3, Confidentiality, shall survive the expiration or termination of
this Agreement. In the event of early termination due to Vendor's default
or pursuant to subsection B. (iii). above. Vendor agrees to deliver the
Software then completed. In addition, should Customer default in making
payment to Vendor for services completed, Vendor may, at its option,
recover all outstanding fees owed plus reasonable interest or have all
right, title and interest in any deliverables reverts back to Vendor.
D. If the Agreement is terminated due to the death or disability of one of
Vendor's Developers, then Vendor shall deliver that part of the Software
then completed, provided payment is made by Customer for such completed
part.
6. Notices. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in
writing and shall be deemed to have been given when mailed by certified or
registered mail, postage prepaid, or by commercial overnight delivery
service addressed as follows.
If to Customer to:
Joseph Preston, CEO
Efox.net, Inc.
7801 Norfolk Avenue, Suite 208
Bethesda, MD 20814
With a copy to:
Harvey S. Jacobs, Esq
Joyce and Jacobs, Attorneys at Law LLP
1019 19th Street NW, Penthouse 2
Washington D.C. 20008
If to Vendor to:
Scott McLoughlin or Greg DuPertius
The Adrenaline Group, Inc.
1041 Sterling Road, Suite 201
Herndon, VA 20170
Or to such other address as identified by a party to the other in writing.
7. No Waiver. The failure of a party to require strict performance of any
provision of this Agreement by the other, or the forbearance to exercise
any right or remedy, shall not be construed as a waiver by such party of
any such right or remedy or preclude any other or further exercise thereof
or the exercise of any other right or remedy.
8. Successors. This Agreement shall be binding upon and inure to the benefit
of the successors and assignees of Efox.net, Inc. It is understood that
this is a personal services contract and as such The Adrenaline Group shall
not permit this contract to be assigned to or performed by any other party.
9. Severability. If any term of this Agreement is held by a court of competent
jurisdiction to be invalid or unenforceable, then this Agreement, including
all of the remaining terms, will remain in full force and effect as if such
invalid or unenforceable term had never been included.
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CONFIDENTIAL INFORMATION. DO NOT REDISTRIBUTE.
THE ADRENALINE GROUP, INC.
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10. General Provisions. Each party warrants that it is and will remain free of
any obligations and restrictions that would interfere or be inconsistent
with its performance of the Agreement.
Vendor agrees to take further actions and execute and deliver such further
agreements or other instruments as Customer may reasonably request to give
effect to the ownership and license provisions of Section 4 of this
Agreement.
References to "Vendor" in this Agreement shall include any majority-owned
or controlled subsidiary or affiliate. Except of such subsidiaries or
affiliates, Vendor may not subcontract the services without Customer's
prior written consent.
This Agreement supersedes all other communications, understandings and
agreements relating to the subject matter hereof. It may be amended only in
writing.
This Agreement shall be governed by the laws of the State of Virginia as
they pertain to a contract executed, delivered, and performed in that
State.
In WITNESS WHEREOF, this Agreement has been executed and delivered by
authorized representatives of both parties as of the date first indicated
above.
11. PREEXISTING MATERIALS.
adrenaline.* Java packages
adrenalinex.* Java packages
*backup.bat Oracle backup scripts
Accepted and agreed to:
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Greg DuPertuis, President Date
The Adrenaline Group, Inc.
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Joseph Preston, CEO Date
Efox.net, Inc.
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703.471.7930 http://www.adrenalinegroup.com
<PAGE> 1
EXHIBIT 10.5
OFFICE LEASE BETWEEN REGISTRANT
AND PEEL PROPERTIES
<PAGE> 2
[PEEL PROPERTIES LETTERHEAD]
LEASE AGREEMENT
THIS AGREEMENT OF LEASE (this "Lease") is made and entered
into on the 21st day of January, 1999, at 4401 East-West Highway, Bethesda,
Maryland 20814, by and between William F. and Barbara K. Peel (hereinafter
referred to as "Peel Properties") and efox.net, Inc. (hereinafter referred to
as "Tenant").
For and in consideration of the rental and of the covenants and
agreement hereinafter set forth to be kept and performed by Tenant, Peel
Properties hereby leases to Tenant and Tenant hereby leases from Peel
Properties the Premises herein described for the Term, as hereafter defined, at
the rental and subject to and upon all of the terms, covenants and agreements
hereinafter set forth.
ARTICLE I
FUNDAMENTAL LEASE PROVISIONS AND TERMINOLOGY
1.1 Parties and Basic Terms. The Parties and Basic Terms of this
Lease are as follows:
DATE OF LEASE: January 16, 1999
PEEL PROPERTIES AND Peel Properties
ADDRESS FOR 4401 East-West Highway
NOTICE: Bethesda, Maryland 20814
Attention: Denise N. Peel
TENANT AND efox.net, Inc.
ADDRESS FOR 4401 East West Highway, Suite 208
NOTICE: Bethesda, Maryland 20814
Attention: Joe Preston
PREMISES: 380 Rentable Square Feet on the Second Floor in a
five story office building (the "Building"), located
at 7801 Norfolk Avenue, Montgomery County, Bethesda,
Maryland.
<PAGE> 3
LEASE TERM: Three (3) Months
ANNUAL BASE RENT: Year 1: $6,648.00
SECURITY DEPOSIT: One (1) Month Annual Base Rent ($554.00)
USE: General Office
ARTICLE 2
TERM
2.1 Term Defined. The word "Term" as hereinafter used in this
Lease shall be the Initial Term.
2.2 Initial Term. The "Initial Term" of this Lease shall commence
on January 16 , 1999 (the "Commencement Date"). The Initial Term shall be
Three (3) Months from the Commencement Date ending on April 30, 1999.
2.3 Option to Renew. Peel Properties hereby grants Tenant an
option to renew this Lease for an additional One- Three (3) Month term.
Written notice of Tenant's intention to exercise this option must be received
by Peel Properties prior to ninety (90) days before the expiration of the
initial term. Commencing with the option term, the base rental shall be
adjusted on the anniversary date at the rate of Three Percent (3%) above the
then current annual rate. All other terms and conditions set forth in this
Lease will remain in full force and effect.
2.4 Hold-Over. If Tenant, with Peel Properties' consent, remains
in possession of the Premises after expiration or termination of the Term, or
after the date of any notice given by Peel Properties to Tenant terminating
this Lease, such possession by Tenant shall be deemed to be a month-to-month
tenancy terminable on 30 days' notice given at any time by either party hereto.
The amount of the Annual Base Rent for the hold-over period shall be 125% of
the amount of Annual Base Rent for the year immediately preceding the
commencement of the respective hold-over period. All provisions of this Lease
except those pertaining to the Term shall apply to the month-to-month tenancy.
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<PAGE> 4
ARTICLE 3
ANNUAL BASE RENT
3.1 Annual Base Rent. The "Annual Base Rent" for the Initial Term
shall be as follows:
<TABLE>
<CAPTION>
Annual Base Rent Monthly Installment
---------------- -------------------
<S> <C>
Year 1 $6,648.00 $554.00
</TABLE>
3.2 Rent Payment. Tenant shall pay the Annual Base Rent for the
Premises in 12 equal monthly installments during each year of the Term in
advance by the first day of each and every calendar month, without deduction,
offset, prior notice or demand, in lawful money of the United States. The
monthly installment shall be paid at the then current rate for the fractional
month during which the Lease commenced and/or terminates. All payments of rent
shall be made in cash or by check payable to Peel Properties at its address set
forth in this Lease or to such other persons and place as may be designated by
notice in writing by Peel Properties to Tenant from time to time. Tenant shall
pay to Peel Properties upon signing this Lease a Rental Deposit in the amount
of one month's rent (for Year 1, as stated above) which shall apply to the
first month's rent otherwise due under the Lease.
3.3 Security Deposit. Upon the execution of this Lease, Peel
Properties shall receive from Tenant the sum of one (1) month Annual Base Rent,
Five Hundred Fifty-four and NO/100 Dollars ($554.00) in the form of cash to be
held by Peel Properties or Peel Properties' assignee as security for the
payment of any rentals and any other sums of money for which Tenant shall
become liable to Peel Properties under this Lease, and for the faithful
performance by Tenant of all other obligations hereunder (the "Security
Deposit").
The full amount of the Security Deposit (less any sums
expended by Peel Properties to cure Tenant's default) shall be returned to
Tenant upon expiration or upon the sooner termination of this Lease, provided
that Tenant is not in default under the terms of this Lease on such date. The
Security Deposit may be used in whole or in part, by the Peel Properties at
Peel Properties' sole discretion from time to time for any purpose including
but not limited to making any payments due to it from Tenant or to cure any
default of Tenant hereunder or for any purpose consistent with Peel Properties'
development and operation of the Project. If Peel Properties uses any portion
of the Security Deposit to make any payments due to it from Tenant or to cure
any default of Tenant hereunder, Tenant shall, upon demand, promptly reimburse
Peel Properties for the amount so used and Tenant's failure to do so within
five (5) days after Peel Properties' demand thereof, shall constitute a default
hereunder.
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ARTICLE 4
REPAIRS, MAINTENANCE AND OPERATION
4.1 Peel Properties' Obligations to Maintain and Operate. Peel
Properties shall keep in good order, condition and repair the exterior and all
structural portions of the Building, the plumbing, air conditioning, heating
and electrical systems, the windows and floors on the Premises (excluding
carpeting and other floor covering installed by Tenant or as part of the Tenant
Improvements), and all Necessary Site Improvements and other Open Area
Improvements, if any, made by Peel Properties, including parking areas and
grounds of the site. Repairs shall be conducted to minimize interference with
Tenant's business.
Notwithstanding anything contained in this Paragraph 4.1 to
the contrary, Peel Properties' obligations as set forth in this Paragraph 4.1
shall not include the repair of any damage to the Premises, Building, Necessary
Site Improvements, Open Area and Open Area Improvements arising from any
negligence of Tenant or Tenant's agents, contractors, employees, invitees or
guests. In such event, Peel Properties shall have the right, but not the
obligation, to make such repairs arising from such negligence of Tenant or
Tenant's Agents, Contractors, Employees, invitees or guests and the reasonable
cost of such repairs arising from such negligence of Tenant or Tenant's Agents,
Contractors, Employees, invitees or guests and the reasonable cost of such
repairs not reimbursed to Peel Properties by an insurance company covering such
damage, in the sole discretion of Peel Properties, shall be either (a) paid to
Peel Properties as Additional Rent or (b) paid by Tenant promptly after demand
by Peel Properties with interest at the rate of twelve percent (12%) per annum
from the later date of the date expended or the date Tenant receives notice
from Peel Properties thereof, but in no event to exceed the maximum rate of
interest permitted by law.
4.2 Tenant's Obligations. Tenant, at its sole cost and expense,
shall keep in good order, condition and repair the Tenant Improvements
installed by or for Tenant and any improvements installed by Tenant after the
Commencement Date. Without limiting the foregoing, Tenant shall maintain and
repair all interior walls and partitions, all floors, wall and window
coverings, and false (or "dropped") ceilings and doors which are installed as
part of the Tenant Improvements. Tenant shall also maintain and repair all of
Tenant's furnishings, trade fixtures and equipment. Tenant shall not commit or
permit waste in or about the Premises, or any nuisance or illegal activity in
or about the Premises.
4.3 Surrender. Upon the expiration or earlier termination of this
Lease, Tenant shall surrender the Premises in the same condition as received,
broom clean, ordinary wear and tear excepted; provided, however, that Peel
Properties may require that any or all of the Tenant Improvements installed or
constructed and fixtures and equipment, remain on the Premises and be
surrendered with the Premises. Tenant shall have no obligation to remove any
of the improvements constructed by Peel Properties' or Tenant's contractors.
Tenant at its sole cost shall repair any damage to the Building or of the
Premises caused by or in connection with the removal of any articles of
personal property, business or trade fixtures, or other improvements which
Tenant is
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<PAGE> 6
entitled or required to remove, including without limitation thereto, repairing
the floors and patching and painting the walls. Tenant shall indemnify Peel
Properties against any loss or liability resulting from delay by Tenant in so
surrendering the Premises, including, without limitation, any claims made by
any succeeding tenants founded on such delay.
ARTICLE 5
USE OF PREMISES
5.1 Use. Tenant shall use the Premises for general office use,
and for no other purpose without the written consent of Peel Properties first
received which shall not be unreasonably withheld, conditioned or delayed.
Tenant, in such use of the Premises, shall take all safety precautions
necessary to safeguard the Premises, the Building and the people therein, the
Property and other buildings or structures thereon or people using the Property
and such other buildings or structures.
5.2 Compliance With Law. Tenant shall at its sole expense comply
with and conform to all laws and regulations, County, Commonwealth and federal,
present or future, in any way relating to the condition, or Tenant's particular
use or occupancy of the Premises throughout the Term of the Lease.
5.3 Insurance. Tenant shall not keep, use, sell or offer for sale
on the Premises any article, or conduct any activity thereon, which may be
prohibited by the standard form of fire insurance policy; and, if Tenant does
keep, use, sell or offer for sale any such article or if any acts are performed
on the Premises by Tenant which increases the rate of fire insurance premiums
on the Building occupied by Tenant, Tenant agrees to pay to Peel Properties on
demand the amount of increase in fire insurance premiums attributable thereto
provided Tenant shall have first received notice and an opportunity to cure any
such act which would cause such insurance premiums to increase.
ARTICLE 6
INSURANCE
6.1 Liability Insurance. Tenant shall at all times during the
Term hereof and at its own cost and expense procure and continue in force
Worker's Compensation Insurance and Personal Injury Liability and Property
Damage Liability Insurance (for tenant owned improvements and fixtures)
adequate to protect Peel Properties and naming Peel Properties as an additional
insured (in the liability contract) against liability, injury or death of any
person in connection with the area, operation or condition of the Premises.
Such insurance shall be in an amount of not less than $1,000,000.00 with
combined single limit coverage for death, bodily injury or property damage per
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<PAGE> 7
occurrence. Peel Properties shall have the right to increase the amount of
required insurance coverage every five (5) years, such increases to be in a
reasonable amount. The limits of such insurance shall not limit the liability
of Tenant. Said insurance shall have a Peel Properties' Protective Liability
endorsement attached thereto.
ARTICLE 7
INDEMNITY
EXEMPTION OF PEEL PROPERTIES FROM LIABILITY
7.1 Indemnity. Tenant shall indemnify and hold Peel Properties
harmless from and against any and all claims of liability for any injury or
damage to any person or property arising from Tenant's use of, or from the
conduct of Tenant's business, or from any activity, work or thing done, or
permitted by Tenant in or about the premises whether such claims arise from the
use, conduct, business, activity, work or thing on the Premises, Building or
Project Site. Tenant shall further indemnify and hold Peel Properties harmless
from and against any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under this
Lease, or arising from any negligence of Tenant or Tenant's agents, contractors
or employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such action or proceeding brought
against Peel Properties by reason of any such claim.
7.2 Exemption of Peel Properties from Liability. Except in
circumstances caused by Peel Properties' willful misconduct or gross
negligence, Peel Properties shall not be liable for injury to Tenant's business
or loss of income therefrom or for damage which may be sustained by the Tenant,
its goods, wares, merchandise or property, its employees, invitees, customers,
agents or contractors or any other person in or about the Premises, Building or
Project Site caused by or resulting from fire, steam, electricity, gas, water
or rain, which may leak or flow from or into any part of the Premises, Building
or Project Site, or from the breakage, leakage, obstruction or other defects of
the pipes, sprinkler, wires, appliances, plumbing, air conditioning or lighting
fixtures of the same, whether the said damage or injury results from conditions
arising upon the Premises or upon any portions of the Building or Project Site,
or from other sources or places and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible to Tenant.
Peel Properties shall not be liable for any damages arising from any act or
neglect of any other tenant, subtenant or occupant of the Premises.
ARTICLE 8
ASSIGNMENT AND SUBLETTING
8.1 Restrictions and Authorizations. Tenant shall not assign this
Lease or any interest therein and shall not sublet the Premises or any part
thereof or any right or privilege appurtenant
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<PAGE> 8
thereto or suffer any other person (the agents and servants of Tenant excepted)
to occupy or use the Premises or any portion thereof, without the written
consent of Peel Properties first had and obtained, which consent shall not be
unreasonably withheld, conditioned or delayed.
ARTICLE 9
PEEL PROPERTIES' REMEDIES UPON BREACH
9.1 Tenant Breach Defined. As used in this Lease, "breach" means
any of the following:
(a) The failure of Tenant to pay or cause to be paid when
due any rent, monies or charges required by this Lease to be paid or caused to
be paid by Tenant.
(b) The failure of Tenant to do or cause to be done any
act, other than the payment of rent, monies or charges, required by this Lease
to be done or cause to be done by Tenant;
(c) Tenant causing, permitting or suffering to be done
any act (i) required by this Lease to have the prior written consent of Peel
Properties, unless such consent is so obtained, or (ii) prohibited by this
Lease; and
(d) Any (i) attachment, execution or other judicial levy
upon the leasehold estate in which Peel Properties has an interest or right to
purchase hereunder or any property, (ii) assignment of the said leasehold
estate for the direct or indirect benefit of creditors of tenant, (iii)
judicial appointment of a receiver or similar officer to take possession of
said leasehold estate or the Premises or (iv) filing of any petition by, for or
against Tenant under any chapter of the Federal Bankruptcy Act.
9.2 Default of Tenant. In the event of any failure to pay any
rent due hereunder within ten (10) days after written notice of such default
shall have been given to Tenant, or if Tenant or an agent of Tenant shall
falsify any report required to be furnished to Peel Properties pursuant to the
terms of this Lease, or if Tenant or any guarantor of this Lease shall become
bankrupt or insolvent, or file any debtor proceedings or take or have taken
against Tenant or any guarantor in any court pursuant to any statute either of
the United States or of any State or Commonwealth a petition in Bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or
trustee of all or a portion of Tenant's or any such guarantor's property, or if
Tenant or any such guarantor makes an assignment for the benefit of creditors,
or petitions for or enters into an arrangement, or if Tenant shall vacate or
abandon said Premises within the first twenty-four (24) months of the Initial
Term of the Lease, or if Tenant shall suffer this Lease to be taken under any
writ of execution, then Peel Properties, in addition to all other rights or
remedies it may have, shall have the immediate right to re-enter the Premises
which right of re-entry shall include the right to lock out the Tenant and take
sole possession of Premises, with or without terminating this Lease, and may
remove all persons and property from the Premises and such property may be
removed and stored in a public warehouse or
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<PAGE> 9
elsewhere at the cost of, and for the account of, Tenant; and Peel Properties
may, in addition to all other remedies at any time, terminate this Lease,
without notice to Tenant, in which event Tenant shall remain liable for the
payment of rent and for all other obligations contained herein for the balance
of the term, subject to a credit to Tenant for any sums received by Peel
Properties from the re-renting of the Premises for any portion of the Term.
Any suit by Peel Properties for unpaid rent shall not be deemed a waiver of the
right to bring such other action or actions as Peel Properties deems necessary
to collect unpaid rent for any period or periods of time in the Term. Peel
Properties may exercise any right under this Paragraph 9.2 without service of
notice or resort to legal process and without being deemed guilty of trespass,
or becoming liable for any loss or damage which may be occasioned thereby.
Such notice of default shall also operate as a Notice to Quit and Tenant hereby
expressly waives any other notice required by law. And it is further
understood that Tenant shall pay, in addition to the rentals and other sums
agreed to be paid hereunder, such additional sums as the court may adjudge
reasonable as attorneys' fees in any suit or action instituted by Peel
Properties to enforce the provisions of this Lease, or the collection of the
rentals due Peel Properties hereunder. In the event of Tenant's default and
subsequent recovery of possession of the Premises by Peel Properties, Peel
Properties shall diligently pursue all reasonable action to relet the Premises
on reasonable terms in order to mitigate its damages.
9.3 Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Peel Properties of rent and other sums due hereunder will cause Peel
Properties to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and account charges and late charges which may be
imposed on Peel Properties by the term of any mortgage or trust deed covering
the Premises. Accordingly, if any installment of rent or any other sum due
from Tenant shall not be received by Peel Properties or Peel Properties'
designee within five (5) days after such amount shall be due, Tenant shall pay
to Peel Properties a late charge equal to six percent (6%) of such overdue
amount.
9.4 Additional Remedies of Peel Properties. The remedies provided
in this Article 9 are not exclusive, but are supplemental and additional to any
other legal or equitable rights and remedies Peel Properties may have for
Tenant's breach hereunder.
ARTICLE 10
PEEL PROPERTIES ENTRY ON PREMISES
Upon twenty-four (24) hour notice to Tenant, except in the event of an
emergency when notice is not required, Peel Properties shall have the right to
enter the Premises. Tenant agrees that Peel Properties, or Peel Properties'
representative, may at all reasonable times and during reasonable business
hours, have free access to the Premises for the purposes of examining or
inspecting the condition thereof, or showing the Premises to prospective
lenders, purchasers, or tenants (as to tenants only during the last ninety (90)
days of the term and provided any option to extend has not been exercised) or
of exercising any right or power reserved to Peel Properties under the terms
and
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<PAGE> 10
provisions of this Lease. Additionally, Peel Properties, its contractors or
agents shall have the right to enter the Premises for the purpose of completing
tenant improvement work for other tenants in the Building. On each and every
occasion Peel Properties enters the Premises, Peel Properties shall use his
best efforts to minimize any disturbance to Tenant's business.
ARTICLE 11
ADDITIONAL PROVISIONS
11.1 Subordination. At Peel Properties' option, this Lease shall
be subject and subordinate to the lien of any mortgages or deeds of trust in
any amount or amounts whatsoever now or hereafter placed on or against the
Premises or on or against the execution and delivery of any further instruments
on the part of Tenant to effectuate such subordination; provided, however, that
no mortgage and/or deed of trust entered into after this Lease is executed
shall be prior to this Lease unless it contains a "nondisturbance" clause
providing that Tenant's rights and interest under this Lease shall be
recognized so long as Tenant shall not be in default hereunder. Tenant
covenants and agrees to execute and deliver upon demand without charge therefor
such further instruments (such as a title company standard form subordination
agreement) evidencing such subordination of this Lease to the lien of any such
mortgages or deeds of trust as may be required by Peel Properties.
11.2 Quiet Environment. Peel Properties covenants and agrees with
Tenant, that upon Tenant paying rent and other monetary sums due under this
Lease and performing its covenants and conditions, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises for the Term.
11.3 Captions; Attachments; Gender. This Lease shall be
interpreted in accordance with its fair meaning and intent, and not strictly
for or against either party. The captions of the Articles of this Lease are
for convenience only and shall not be deemed to be relevant in resolving any
question of interpretation or construction of any section of this Lease. The
words "Peel Properties" and "Tenant," as used herein, shall include the plural
as well as the singular. Words used in neuter gender include the masculine and
feminine and words used in the masculine or feminine gender include the neuter.
If there be more than one tenant, the obligations hereunder imposed upon the
Tenant shall be joint and several. If the tenants are husband and wife, the
obligations shall extend individually to their sole and separate property as
well as to their community property. The term "Peel Properties" shall mean
only the owner or the owners at the time in question of the fee title to the
Building, including the Premises. The obligations contained in this Lease to
be performed by Peel Properties shall be binding on Peel Properties' successors
and assigns only during their respective periods of ownership.
11.4 Entire Agreement. This Lease, along with any exhibits and
attachments hereto, constitutes the entire agreement between Peel Properties
and Tenant relative to the Premises, and this Lease and the exhibits and
attachments may be altered, amended or revoked only by an
- 9 -
<PAGE> 11
instrument in writing signed by both Peel Properties and Tenant. Peel
Properties and Tenant agree hereby that all prior and contemporaneous oral
agreements between and among themselves and their agents and representatives
relative to the leasing of the Premises are merged in or revoked by this Lease.
11.5 Severability. If any term or provision of this Lease shall,
to any extent, be determined by a court of competent jurisdiction to be invalid
or unenforceable, the remainder of this Lease shall not be affected thereby,
and each term and provision of this Lease shall be valid and be enforceable to
the fullest extent permitted by law.
11.6 Binding Effect. The parties hereto agree that all the provisions
hereof are to be construed as both covenants and conditions as though the words
importing such covenants and conditions were used in each separate paragraph
hereof; subject to any provisions hereof restricting assignment or subletting
by Tenant, this Lease shall bind and inure to representatives, successors and
assigns.
11.7 Choice of Law. This Lease is deemed to have been executed at
Peel Properties' principal place of business in Montgomery County, Maryland;
this lease shall be governed by the laws of the State of Maryland; and, venue
shall lie in Montgomery County, Maryland with regard to any court action.
11.8 Waiver. No covenant, term or condition or the breach thereof
shall be deemed waived, except by written consent of the party against whom the
waiver is claimed any waiver or the breach of any covenant, term or condition
shall not be deemed to be a waiver of any preceding or succeeding breach of the
same or any other covenant, term or condition. Acceptance by Peel Properties
or any performance by Tenant after the time the same shall have become due
shall not constitute a waiver by Peel Properties of the breach or default of
any covenant, term or condition unless otherwise expressly agreed to Peel
Properties in writing. Acceptance by Peel Properties of overdue rent or any
partial payment of rent shall be deemed a waiver only as to the rent so
accepted, and shall not waive any existing breach or default other than
nonpayment of the rent so accepted.
11.9 Surrender of Premises. The voluntary or other surrender of
this Lease by Tenant, or a mutual cancellation thereof shall not work a merger
and shall, at the option of the Peel Properties, terminate all or any existing
subleases or subtenancies, or may, at the option of the Peel Properties,
operate as an assignment to it of any or all such subleases or subtenancies.
11.10 Notices. All notices or demands of any kind required or
desired to be given by Peel Properties or Tenant hereunder shall be in writing
and shall be deemed delivered on the third day after depositing the notice or
demand in the United States mail, certified or registered, postage prepaid,
addressed to the Peel Properties or Tenant, respectively, at the addresses set
forth after their signatures at the end of this Lease.
- 10 -
<PAGE> 12
11.11 Amounts Payable as Additional Rent. All taxes, charges,
costs, expenses and interest which Tenant is required to pay under this Lease
and all damage, costs and expenses which Peel Properties may incur by reason of
Tenant's default shall be deemed Additional Rent and, in the event of
nonpayment by Tenant, Peel Properties shall have the same rights and remedies
as for nonpayment of the rent provided in this Lease.
11.12 Compliance With Laws, Regulations and Rules. Tenant
covenants and hereby agrees to comply with any and all requirements of the
constituted public authorities, and with the terms of any Commonwealth or
Federal statute or local ordinance or regulation applicable to Tenant or its
use of the Premises, and save Peel Properties harmless from any penalties,
fines, costs, expenses or damages resulting from failure to do so. Further,
Tenant covenants and hereby agrees to comply with all rules and regulations of
Peel Properties in effect at the time of execution of this Lease or at any time
or times and from time to time promulgated by Peel Properties, which Peel
Properties in its reasonable discretion shall deem necessary in connection with
the Premises and the Building of which the Premises are a part. Any rules and
regulations shall be imposed equally on all office tenants in the Building. If
there is any inconsistency between this Lease and any rules and regulations,
this Lease shall govern.
IN WITNESS WHEREOF, the undersigned parties have executed this Lease
as of the date first above written.
<TABLE>
<S> <C>
PEEL PROPERTIES: TENANT:
efox.net, Inc.
By: /s/ DENISE N. PEEL By: /s/ JOE PRESTON
---------------------------------------- ------------------------------------------------
Denise N. Peel Joe Preston
Its: Agent Its: CEO and President
--------------------------------------- -----------------------------------------------
</TABLE>
- 11 -
<PAGE> 13
GUARANTY
FOR VALUE RECEIVED, in consideration for and as an inducement to Peel
Properties to enter into the foregoing Lease, the undersigned, Guarantor,
hereby guarantees to Peel Properties, its legal representatives, successors,
and assigns, the full and faithful performance and observance by Tenant, its
successors and assigns, of all terms, covenants, conditions, agreements,
restrictions, and limitations of the Lease, including without limitation, the
payment of all rent and compliance with any rules and regulations prescribed by
Peel Properties, together with the payment of all costs, attorney's fees, and
other expenses incurred by Peel Properties in enforcing such performance and
observation.
Guarantor further covenants that (1) the liability of the Guarantor is
primary, shall not be subject to deduction for any claim or offset,
counterclaim or defense which Tenant may have against Peel Properties, and Peel
Properties may proceed against Guarantor separately or jointly, before, after
or simultaneously with any proceeding against Tenant for default; (2) this
Guaranty shall not be terminated or impaired in any manner whatsoever by reason
of the assertion by Peel Properties against Tenant of any of the rights or
remedies reserved to Peel Properties pursuant to the provisions of such lease,
by reason of summary or other proceedings against Tenant, by the omission of
Peel Properties to enforce any of its rights against Tenant, or by reason of
any extension of time or indulgence granted by Peel Properties to Tenant; (3)
Guarantor expressly waives any requirement of notice of non-payment,
non-performance or non-observance, or proof of notice or demand; (4) this
Guaranty shall be absolute and unconditional and shall remain and continue in
full force and effect as to any renewal, extension, amendment, additions,
assignments, sublease, transfer or other modification of the Lease; and (5) in
any action or proceeding brought by Peel Properties against Guarantor on
account of this Guaranty, all obligations and liabilities of Guarantor pursuant
to this Guaranty shall be binding upon the heirs, personal representatives and
assigns of the Guarantor. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Maryland.
<TABLE>
<S> <C>
GUARANTOR:
/s/ JOE PRESTON Date: 1/21/99
---------------------------------- -----------------------------
Joe Preston, Individually
</TABLE>
- 12 -
<PAGE> 1
EXHIBIT 10.6
TELEPHONE SERVICES AGREEMENT
BETWEEN REGISTRANT
AND INTEROFFICE/BETHESDA
<PAGE> 2
InterOffice/Bethesda
3 Bethesda Metro Center
Suite 700
Bethesda, MD 20814
OfficeAccess 1
THIS AGREEMENT is made and entered into January 1, 1999 by and between
InterOffice/Bethesda (InterOffice) and Efox.net, Inc. (Client)
TERM: The commencement date shall be January 1, 1999 and shall terminate upon
receipt of thirty (30) written notice from either party effective from the
first day of any month.
SERVICES RENDERED: Under this Agreement, InterOffice will transfer calls and
take a reasonable number of messages and telephone calls for Client, between
the hours of 8:45 a.m. and 5:30 p.m. ("normal working hours"), Monday through
Friday excluding any company holidays. Client will have the use of one voice
mailbox. Mail will be received and sorted and Client has the option of having
InterOffice forward mail once a week for a fee plus postage and supply costs,
plus twenty percent (20%). Client is entitled to three (3) hours per month use
of an office (if available), workstation or conference room during "normal
business hours". Client has access to all business support services which will
be billed on a monthly basis. Client's name will be placed in the lobby
directory for a one-time fee of $25.20.
Client recognizes that InterOffice or InterOffice's agent has expended
considerable time, effort and expense in hiring and training its employees, and
that the hiring of an employee by Client would save considerable time and
expense in training and procurement and would cause InterOffice or
InterOffice's agent to expend additional time and expense. Therefore, during
the term and for six (6) months after its expiration, if Client hires an
employee of InterOffice or Interoffice's agent who was an employee at any
InterOffice Center during any portion of the term or for six (6) months after
its expiration, Client agrees to pay InterOffice a procurement fee of
$10,000.00.
COMPENSATION: Client agrees to remit to InterOffice a fee of $175.00 per month
for the above mentioned services, due and payable on the first day of the
month. Failure to provide payment by the 7th business day will result in a 5%
late payment penalty on the outstanding balance and discontinuation of service.
Client shall indemnify and hold harmless InterOffice from and against any loss,
damage or liability occasioned by or resulting from any default hereunder or
any willful or negligent act on the part of the Client, its agents, employees,
or invitees, or persons permitted on the Premises by Client. InterOffice shall
save Client harmless from and against any loss, damage or liability occasioned
by or resulting from the willful acts or gross negligence of InterOffice, its
employees or agents. Client expressly agrees to waive, and agrees not to make
any claim for damages, direct or consequential, arising out of any failure to
furnish any service or facility, any error or omission with respect thereto, or
any delay or interruption of the same, assuming such service or facility is not
unreasonably withheld.
ENTIRE AGREEMENT: The above provisions represent the entire Agreement between
both parties. It is agreed that any changes or alterations to the Agreement
will be made in writing to the other party.
<TABLE>
<S> <C> <C> <C>
Date: 1/6/99 By: /s/ Joseph R. Preston Date: By: [SIG]
------ --------------------- ---------- --------------------------
Efox.net, Inc. InterOffice/Bethesda
</TABLE>
<PAGE> 1
EXHIBIT 10.7
MASTER SERVICES AGREEMENT
BETWEEN REGISTRANT
AND FRONTIER GLOBAL CENTER
<PAGE> 2
[FRONTIER LOGO] MASTER SERVICE AGREEMENT NO. ___
- --------------------------------------------------------------------------------
This Master Services Agreement (this "Agreement") is entered into as
the 10th day of February, 1999 ("Effective Date") by and between the entity
indicated on the Services Order Form attached hereto, with an office at the
address listed on the Services Order Form, ("Client"), and Frontier
GlobalCenter, Inc., a corporation with offices at 1154 East Arques Ave.,
Sunnyvale, CA, ("Frontier GlobalCenter"), and describes the terms and
conditions pursuant to which Frontier GlobalCenter shall license to Client
certain Software and provide certain Services (as defined below).
In consideration of the mutual promises and upon the terms and
conditions set forth below, the parties agree as follows:
1. NATURE OF AGREEMENT This is an Agreement for the provision by Frontier
GlobalCenter of Internet connectivity services (the "Bandwidth"), the lease of
equipment to provide such services (the "Hardware"), the availability of space
to store and operate such Hardware ("Space") and the licensing of software to
provide such Services (the "Software"), together comprising an Internet
connectivity and collocation package to be provided by Frontier GlobalCenter
under this Agreement (together, the "Services").
2. SERVICE ORDERS
2.1. ORDERS. Client may issue one or more service orders describing the
Bandwidth, Space, Hardware, and Software that Client desires ("Service Order").
Each Service Order will set forth the prices, initial term of Services and
other information in the form set forth in the Service Order Form. No Service
Order shall be effective until accepted by Frontier GlobalCenter. All Service
Orders will be subject to the terms and conditions of this Agreement, and the
terms of this Agreement shall supersede any terms and conditions which may
appear on Client's order form, or purchase order.
2.2. CANCELLATION. In the event that Client cancels or terminates a Service
Order at any time for any reason whatsoever other than expiration of a Service
Order or a Service Interruption (as defined below), Client agrees to pay
Frontier GlobalCenter as a cancellation fee all Monthly Recurring Charges
specified in the Service Order for the balance of the term therefor, which
shall become due and owing as of the effective date of cancellation or
termination.
2.3. IP ADDRESSES. Frontier GlobalCenter may assign on a temporary basis a
reasonable number of Internet Protocol Addresses ("IP Addresses") from the
address space assigned to the Frontier GlobalCenter by InterNIC. Client
acknowledges that the IP Addresses are the sole property of Frontier
GlobalCenter, are assigned to Client as part of the Service, and are not
"portable," as such term is used by InterNIC. Frontier GlobalCenter reserves
the right to change the IP Address assignments at any time; however, Frontier
GlobalCenter shall use reasonable efforts to avoid any disruption to Client
resulting from such renumbering requirement. Frontier GlobalCenter will give
Client reasonable notice of any such renumbering. Client agrees that it will
have no right to IP Addresses upon termination of this Agreement, and that any
renumbering required of Client after termination shall be the sole
responsibility of Client.
3. SOFTWARE LICENSE AND RIGHTS
3.1. LICENSE. During the term of the applicable Service Order, Frontier
GlobalCenter grants Client a non-transferable, nonexclusive license to use the
Software in object code form only, solely on the Hardware in conjunction with
the Services.
3.2. PROPRIETARY RIGHTS. This Agreement transfers to Client neither title
nor any proprietary or intellectual property rights to the Software, Hardware,
documentation, or any copyrights, patents, or trademarks, embodied or used in
connection therewith, except for the rights expressly granted herein.
3.3. LICENSE RESTRICTIONS. Client agrees that it will not itself, or
through any parent, subsidiary, affiliate, agent or other third party:
3.4.1. copy the Software except as expressly allowed under this Agreement.
In the event Client makes any copies of the Software, Client shall reproduce
all proprietary notices of Frontier GlobalCenter on any such copies;
3.4.2. reverse engineer, decompile, disassemble, or otherwise attempt to
derive source code from the Software;
3.4.3. sell, lease, license or sublicense the Software or the documentation;
3.4.4. write or develop any derivative software or any other software program
based upon the Software or any Confidential Information (as defined below); or
3.4.5. use the Software to provide processing services to third parties, or
otherwise use the Software on a 'service bureau' basis.
4. HARDWARE TERMS AND CONDITIONS
4.1. INSTALLATION. Frontier GlobalCenter will use commercially reasonable
efforts to install the Hardware as the Hardware is shipped to Frontier
GlobalCenter. At Client's request, Frontier GlobalCenter will work with the
Client on an installation plan to define installation time frame and
requirements.
4.2. PURCHASE AND TITLE OF HARDWARE. If so indicated on the Service Order,
Client shall purchase the Hardware and deliver, at Client's expense, the
Hardware to the Space. Client agrees that the Hardware shall reside at the
Space during the term of this Agreement.
[FRONTIER LOGO] MSA Rev. 1.5 April 22, 1998 1
<PAGE> 3
[FRONTIER LOGO] MASTER SERVICE AGREEMENT NO. ___
- --------------------------------------------------------------------------------
4.3. LEASE OF HARDWARE. If so indicated on the Service Order, Client shall
lease the Hardware, and Frontier GlobalCenter shall obtain and deliver to the
Space the Hardware. In the event Client leases the Hardware, the following
terms and conditions shall apply: The Hardware is and shall remain the property
of Frontier GlobalCenter. Client shall not have taken, or attempt to take, any
right, title or interest therein or permit any third party to take any interest
therein. Client will not transfer, sell, assign, sublicense, pledge, or
otherwise dispose of, encumber or suffer a lien or encumbrance upon or against
the Hardware or any interest in the Hardware. Client will use the Hardware
only at the Space. Client will not move the Hardware from that facility
without Frontier GlobalCenter's prior written permission. Client shall be
responsible for any damage to the Hardware. Client will use the Hardware only
for the purpose of exercising its rights under this Agreement.
4.4. RENT TO OWN. If so indicated on the Service Order, Client shall lease
the Hardware on a "rent to own" plan. In such event, all of the terms and
conditions in Section 4.3 shall apply, and the following terms and conditions
shall also apply. At the end of the term of the Service Order, providing
Client is not in breach of this Agreement, Client shall have the option to
purchase the Hardware. The purchase price shall be as indicated on the Service
Order. Upon payment by Client of the purchase price, title in the Hardware
shall pass to Client at the Space. Unless the Service Order is extended by
mutual agreement, Client shall immediately delete, or shall allow Frontier
GlobalCenter to delete, all copies of the Software, associated documentation,
or any other materials of Frontier GlobalCenter resident on the Hardware.
5. SPACE
5.1. LICENSE TO OCCUPY. Frontier GlobalCenter grants to Client a
non-exclusive license to occupy the Space. Client acknowledges that it has
been granted only a license to occupy the Space and that it has not been
granted any real property interests in the Space. In the event, however, that
this arrangement shall be construed by the owner of the building in which the
Space is situated to be such a grant and if the landlord of the building
asserts such a grant to be a violation of the lease under which Frontier
GlobalCenter occupies its premises, Frontier GlobalCenter agrees to cooperate
with Client in obtaining the approvals Client may need to obtain from the
landlord.
5.2. MATERIAL AND CHANGES. Client shall not make any construction changes
or material alterations to the interior or exterior portions of the Space,
including any cabling or power supplies for the Hardware, without obtaining
Frontier GlobalCenter's prior written approval for Client to have the work
performed. Alternatively, Client may request Frontier GlobalCenter to perform
the work. Frontier GlobalCenter reserves the right to perform and manage any
construction or alterations within the Space areas at rates to be negotiated
between the Parties hereto. Client agrees not to erect any signs or devices to
the exterior portion of the Space without submitting the request to Frontier
GlobalCenter and obtaining Frontier GlobalCenter's advance written approval.
5.3. DAMAGE. Client agrees to reimburse Frontier GlobalCenter for all
reasonable repair or restoration costs associated with damage or destruction
caused by Client's personnel, Client's agents, Client's suppliers/contractors,
or Client's visitors during the term or as a consequence of Client's removal of
the Hardware or property installed in the Space.
5.4. INSURANCE. Unless otherwise agreed, Client agrees to maintain, at
Client's expense, (i) Comprehensive General Liability Insurance in an amount
not less than One Million Dollars ($1,000,000) per occurrence for bodily injury
or property damage, (ii) Employer's Liability in an amount not less than Five
Hundred Thousand Dollars ($500,000) per occurrence, and (iii) Worker's
Compensation in an amount not less than that prescribed by statutory limits.
Prior to taking occupancy of the Collocation Space, Client shall furnish
Frontier GlobalCenter with certificates of insurance which evidence the minimum
levels of insurance set forth herein. Client shall also maintain insurance
covering Hardware or property owned or leased by Client against loss or
physical damage.
5.5. REGULATIONS. Client shall comply with and not violate all of Frontier
GlobalCenter's safety, health and operational rules and regulations, which may
be amended by Frontier GlobalCenter from time to time. Client's failure to
comply with Frontier GlobalCenter's rules and regulations shall constitute a
material default under this Agreement. Frontier GlobalCenter may, in its sole
discretion, limit Client's access to a reasonable number of authorized Client
employees or designees. Client shall not interfere with any other clients of
Frontier GlobalCenter, or such other clients' use of the Space.
5.6. DISCLAIMER. Frontier GlobalCenter does not make any representation or
warranty whatsoever as to the fitness of the Space for Client's use. Client
hereby assumes any and all risks associated with Client, its agents or
employees' use of the Space and shall indemnify, defend and hold harmless
Frontier GlobalCenter from any and all claims, liabilities, judgments, causes
of action, damages, costs, and expenses (including reasonable attorneys' and
experts' fees), caused by or arising in connection with such use.
6. SERVICE INTERRUPTIONS
6.1. 99% UPTIME GUARANTEE. In the event of Downtime (as defined below),
the monthly fee payable for the Services shall be reduced as follows:
6.1.1. if the total Downtime in the calendar month is more than seven
and two-tenths (7.2) hours, but does not exceed fourteen and
four-tenths (14.4) hours, the monthly fee for that month shall be
reduced by one-third (33.3%);
6.1.2. if the total Downtime in the calendar month is more than
fourteen and four-tenths (14.4) hours, but does not exceed twenty-one
and
[FRONTIER LOGO] MSA Rev. 1.5 April 22, 1998 2
<PAGE> 4
[FRONTIER LOGO] MASTER SERVICE AGREEMENT NO. ___
- --------------------------------------------------------------------------------
six tenths (21.6) hours, the monthly fee for that month shall be
reduced by two-thirds (66.6%); and
6.1.3. If the total Downtime in the calendar month is more than
twenty-one and six-tenths (21.6) hours, the monthly fee for that month
shall be waived.
For the purposes of this Section, Downtime shall mean any interruption of one
(1) minute or more in the availability to users of any Web site residing on the
Hardware and made available through the Services, only if such interruption is
due to either (i) failure by Frontier GlobalCenter to manage a server anomaly
so as to avoid interruption in Web availability, or (ii) a disruption in the
connection between any such server and the Internet. For purposes of this
Section, the Internet is deemed to consist of services that commence where
Frontier GlobalCenter transmits a Client's content to Frontier GlobalCenter's
carrier(s) at the Frontier GlobalCenter border router port(s). Such carriers
provide Frontier GlobalCenter with private and dedicated bandwidth. Frontier
GlobalCenter undertakes no obligation for the circuit or link between Frontier
GlobalCenter's facilities and such carrier's services. If router packet loss is
excess of seventy percent (70%) and is sustained for sixty (60) seconds or
more, Frontier GlobalCenter will classify this an "outage." If an "outage"
continues for a time period of more than two (2) minutes, then such outage will
be deemed Downtime.
6.2. INVESTIGATION OF SERVICE INTERRUPTIONS. At Client's request, Frontier
GlobalCenter will investigate any report of Downtime, and attempt to remedy any
Downtime expeditiously. Frontier GlobalCenter reasonably determines that all
facilities, systems and equipment furnished by Frontier GlobalCenter are
functioning properly, and that Downtime arose from some other cause, Frontier
GlobalCenter reserves the right to recover labor and materials cost for
services actually performed at the usual and customary rates for similar
services provided by Frontier GlobalCenter to clients in the same locality.
6.3. TERMINATION. Client may terminate a Service Order in the event of
Downtime of either twenty-four (24) hours of cumulative time during any
continuous twelve (12) month period, or any continuous Downtime of eight (8)
hours or more.
6.4. SOLE REMEDY. The terms and conditions of this Section 6 shall be
Client's sole remedy and Frontier GlobalCenter's sole obligation for any
Downtime.
7. USER CONTENT. Client is solely responsible for the content of any
postings, data, or transmissions using the Services ("Content"), or any other
use of the Services by Client or by any person or entity Client permits to
access the Services (a "User"). Client represents and warrants that it and any
User will not use the services for unlawful purposes (including without
limitation infringement of copyright or trademark, misappropriation of trade
secrets, wire fraud, invasion of privacy, and libel), or to interfere with or
disrupt other network users, network services or network equipment.
Disruptions include without limitation distribution of unsolicited advertising
or chain letters, repeated harassment of other network users, wrongly
impersonating another such user, falsifying one's network identity for improper
or illegal purposes, sending unsolicited mass e-mailings, propagation of
computer worms and viruses, and using the network to make unauthorized entry to
any other machine accessible via the network. If Frontier GlobalCenter has
reasonable grounds to believe that Client or a User is utilizing the Services
for any such illegal or disruptive purpose, Frontier GlobalCenter may suspend
or terminate Services immediately upon notice to Client. Client shall defend,
indemnify, hold harmless Frontier GlobalCenter from and against all liabilities
and costs (including reasonable attorney's fees) arising from any and all
claims by any person arising out of Client's use of the Services, including
without limitation any content.
8. PRICING AND PAYMENT TERMS
8.1. PAYMENT TERMS. Client shall pay the fees set forth in the Services
Order Form according to the terms set forth therein. Client agrees to pay a
late charge of two percent (2%) above the prime rate as reported by the Wall
Street Journal at the time of assessment or the maximum lawful rate, whichever
is less, for all undisputed amounts not paid within thirty (30) days of receipt
of invoice.
8.2. LATE PAYMENTS. In the event of non-payment by Client of sums over-due
hereunder for more than sixty (60) days, Frontier GlobalCenter may upon written
notice to Client either retain any equipment or other assets of Client then in
Frontier GlobalCenter's possession and sell them in partial satisfaction of
such unpaid sums, or request Client to remove equipment from Frontier
GlobalCenter's premises within ten (10) days. If Client fails to so remove,
Frontier GlobalCenter may deliver the equipment to Client at the latter's
address for notices at Client's expense for shipment and insurance, and Client
shall be obligated to accept such delivery.
8.3. PRICE INCREASES. Frontier GlobalCenter shall not increase the prices
for services during the initial term of any Service Order, but may thereafter
change prices upon sixty (60) days written notice.
9. MAINTENANCE AND SUPPORT Frontier GlobalCenter shall provide Client
with maintenance and support of the Software and Hardware, if any ("Maintenance
and Support") as specified in the Service Specification.
9.1 EXCLUSIONS. Maintenance and Support shall not include services for
problems arising out of (a) modification, alteration or addition or attempted
modification, alteration or addition of the Hardware or Software undertaken by
persons other than Frontier GlobalCenter or Frontier GlobalCenter's authorized
representatives; or (b) programs or hardware supplied by Client.
[FRONTIER LOGO] MSA Rev. 1.5 April 22, 1998 3
<PAGE> 5
[FRONTIER LOGO] MASTER SERVICE AGREEMENT NO. ___
- --------------------------------------------------------------------------------
9.2. CLIENT DUTIES. Client shall document and promptly report all errors
or malfunctions of the Hardware or Software to Frontier GlobalCenter. Client
shall take all steps necessary to carry out procedures for the rectification of
errors or malfunctions within a reasonable time after such procedures have been
received from Frontier GlobalCenter. Client shall maintain a current backup
copy of all programs and data. Client shall properly train its personnel in
the use and application of the Hardware and Software.
10. TERM AND TERMINATION
10.1. TERM. The term of this Agreement shall commence on the Effective Date
and continue indefinitely unless terminated in accordance with this Section 10.
The term of each Service Order shall be as indicated therein. The term of any
Service Order may be extended upon mutual agreement.
10.2. TERMINATION UPON DEFAULT. Either party may terminate this Agreement
in the event that the other party materially defaults in performing any
obligation under this Agreement and such default continues unremedied for a
period of thirty (30) days following written notice of default. In the event
this Agreement is terminated due to Frontier GlobalCenter's breach, Frontier
GlobalCenter shall refund to Client any Services fees on a straight line
prorated basis.
10.3. TERMINATION UPON INSOLVENCY. This Agreement shall terminate,
effective upon delivery of written notice by a party, (i) upon the institution
of insolvency, receivership or bankruptcy proceedings or any other proceedings
for the settlement of debts of the other party; (ii) upon the making of an
assignment for the benefit of creditors by the other party; or (iii) upon the
dissolution of the other party.
10.4. EFFECT OF TERMINATION. The provisions of Sections 1, 2.3, 3.2, 3.3,
7, 10.4, 11, 12, 13 and 14 shall survive termination of this Agreement. All
other rights and obligations of the parties shall cease upon termination of
this Agreement. The term of any license granted hereunder shall expire upon
expiration or termination of this Agreement
11. CONFIDENTIAL INFORMATION. All information identified disclosed by
either party ("Disclosing Party") to the other party ("Receiving Party"), if
disclosed in writing, labeled as proprietary or confidential, or if disclosed
orally, reduced to writing within thirty (30) days and labeled as proprietary
or confidential ("Confidential Information") shall remain the sole property of
Disclosing Party. Except for the specific rights granted by this Agreement,
Receiving Party shall not use any Confidential Information of Disclosing Party
for its own account. Receiving Party shall use the highest commercially
reasonable degree of care to protect Disclosing Party's Confidential
Information. Receiving Party shall not disclose Confidential Information to
any third party without the express written consent of Disclosing Party (except
solely for Receiving Party's internal business needs, to employees or
consultants who are bound by a written agreement with Receiving Party to
maintain the confidentiality of such Confidential Information in a manner
consistent with this Agreement). Confidential Information shall exclude
information (i) available to the public other than by a breach of this
Agreement; (ii) rightfully received from a third party not in breach of an
obligation of confidentiality; (iii) independently developed by Receiving Party
without access to Confidential Information; (iv) known to Receiving Party at
the time of disclosure; or (v) produced in compliance with applicable law or a
court order, provided Disclosing Party is given reasonable notice of such law
or order and an opportunity to attempt to preclude or limit such production.
Subject to the above, Receiving Party agrees to cease using any and all
materials embodying Confidential Information, and to promptly return such
materials to Disclosing Party upon request.
12. LIMITATION OF LIABILITY. FRONTIER GLOBALCENTER'S LIABILITY FOR ALL
CLAIMS ARISING OUT OF THIS AGREEMENT SHALL BE LIMITED TO THE AMOUNT OF FEES
PAID BY CLIENT TO FRONTIER GLOBALCENTER UNDER THIS AGREEMENT. IN NO EVENT
SHALL FRONTIER GLOBALCENTER BE LIABLE FOR ANY LOSS OF DATA, LOSS OF PROFITS,
COST OF COVER OR OTHER SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES
ARISING FROM OR IN RELATION TO THIS AGREEMENT OR THE USE OF THE SERVICES,
HOWEVER CAUSED AND REGARDLESS OF THEORY OF LIABILITY. THIS LIMITATION WILL
APPLY EVEN IF FRONTIER GLOBALCENTER HAS BEEN ADVISED OR IS AWARE OF THE
POSSIBILITY OF SUCH DAMAGES.
13. DISCLAIMER OF WARRANTIES. FRONTIER GLOBALCENTER SPECIFICALLY DISCLAIMS
ALL WARRANTIES EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NON-INFRINGEMENT OF THE SYSTEM OR SERVICES PROVIDED BY FRONTIER GLOBALCENTER
HEREUNDER.
14. MISCELLANEOUS
14.1. INDEPENDENT CONTRACTOR. The relationship of Frontier GlobalCenter and
Client established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed to (i) give either party
the power to direct and control the day-to-day activities of the other; (ii)
constitute the parties as partners, joint ventures, co-owners or otherwise as
participants in a joint undertaking; or (iii) allow either party to create or
assume any obligation on behalf of the other party for any purpose whatsoever.
14.2. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be given by registered or certified mail addressed to the
addresses first written above. Such notice shall be deemed to be given upon
the
[FRONTIER LOGO] MSA Rev. 1.5 April 22, 1998 4
<PAGE> 6
[FRONTIER LOGO] MASTER SERVICE AGREEMENT NO. ___
- --------------------------------------------------------------------------------
earlier of actual receipt or three (3) days after it has been sent, properly
addressed and with postage prepaid. Either party may change its address for
notice by means of notice to the other party given in accordance with this
Section.
14.3. ASSIGNMENT. Client may not assign this Agreement, in whole or in
part, either voluntarily or by operation of law, and any attempt to do so shall
be a material default of this Agreement and shall be void.
14.4. GOVERNING LAW. This Agreement shall be interpreted according to the
laws of the State of California without regard to or application of
choice-of-law rules or principles. The parties hereby agree to the exclusive
jurisdiction of the state and federal courts located in Fairfax, Virginia.
14.5. ENTIRE AGREEMENT AND WAIVER. This Agreement shall constitute the
entire agreement between Frontier GlobalCenter and Client with respect to the
subject matter hereof and all prior agreements, representations, and statement
with respect to such subject matter are superseded hereby, including without
limitation any non-disclosure agreement previously executed between the
parties. This Agreement may be changed only by written agreement signed by
both Frontier GlobalCenter and Client. No failure of either party to exercise
or enforce any of its rights under this Agreement shall act as a waiver of
subsequent breaches; and the waiver of any breach shall not act as a waiver of
subsequent breaches.
14.6. SEVERABILITY. In the event any provision of this Agreement is held by
a court of other tribunal of competent jurisdiction to be unenforceable, that
provision will be enforced to the maximum extent permissible under applicable
law, and the other provisions of this Agreement will remain in full force and
effect.
14.7. NON-SOLICITATION. During the term of this agreement and for a period
of one (1) year thereafter, Neither party shall solicit, nor attempt to solicit
the services, of any employee or subcontractor of the other without the prior
written consent of the employer.
14.8. SUBSTITUTION. Frontier GlobalCenter may substitute, change or modify
the Software or Hardware at any time, but shall not thereby alter the technical
parameters of the Services.
Frontier GlobalCenter Client
/s/ [SIG] /s/ [SIG]
- ------------------------------------------ --------------------------------
By: Peter Ferris By: Joseph R. Preston
---------------------------------- ------------------------
Title: SVP, Sales Frontier Global Ctr. Title: President
---------------------------------- ------------------------
[FRONTIER LOGO] MSA Rev. 1.5 April 22, 1998 5
<PAGE> 7
[FRONTIER LOGO] MASTER SERVICE AGREEMENT NO. ___
- --------------------------------------------------------------------------------
SERVICE SPECIFICATION
COLLOCATION SERVICE
Frontier GlobalCenter will provide a level of service which includes the
following features and options:
GENERAL FEATURES:
MAINTENANCE OF THE SPACE (INCLUDING JANITORIAL SERVICES):
In connection with the Space made available hereunder, Frontier GlobalCenter or
its landlord shall perform services that support the overall operation of each
Space at no additional charge to Client. Those services include the following;
* Janitorial Services
* 24 x 7 Access to the Space
* Authorized Security System Access to Raised Floor Collocation Space
* Primary A/C 110 volt Power to the Space
* Backup Power- UPS Systems & Battery Plant (30 - 60 minute survivability
objective)
* Generator Back-up (Sustained backup power)
* HVAC Systems for facility air conditioning
* Fire Control Systems
* Network Monitoring Systems
* Redundant Network Connectivity and Hardware
* 19" Rack Spaces for installation of Hardware
* 10-base-T or 100-base-T switched port with direct high speed Internet
backbone connection.
24X7 NOC SUPPORT: Will provide proactive site monitoring with ExpressLane(TM)
statistics on Client information base; including bandwidth usage, statistics
and network availability reporting, host monitoring and management interface,
access to Frontier GlobalCenter incident tracking system to expedite fault
resolution and remote server reboot.
24X7 CONSOLE ACCESS: Frontier GlobalCenter facilities in Sunnyvale and Herndon
will provide systems which allow Clients access to a terminal with a connection
to servers inside the Data Centers.
FRONTIER GLOBALCENTER ESCALATION PLAN AND PROCEDURES: To be provided in the
Frontier GlobalCenter Welcome Package 5-10 days after contract signing.
RIGHT-OF-WAY AND ACCESS:
Frontier GlobalCenter will allow 24 x 7 access and right-of-way to Client
Hardware located in Frontier GlobalCenter facility at no charge. Clients will
be escorted at all times while in the facility. Access to the facilities will
not be unreasonably be withheld by Frontier GlobalCenter to Clients for
performing appropriate procedures and maintenance of Hardware, facilities, and
systems.
[FRONTIER LOGO] MSA Rev. 1.5 April 22, 1998 6
<PAGE> 8
[FRONTIER LOGO] Service Order #01 Service Order Term: 3 Months
MSA # Service Order Date: 02/08/99
Site Express Estimated Install Date: 1/31/99
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Customer: Joseph R. Preston, CEO Account Rep: Dr. Andrew Lightman
Company: Efox.net, Inc. Senior Account Executive
Address: 7801 Norfolk Avenue Office: GlobalCenter
Suite 208 380 Herndon Parkway
City/St/Zip: Bethesda, MD 20814 Suite 1000
Phone: 301.652.0999 Herndon, Virginia 20170-4820
FAX: 301-652-4235 Phone: (703) 528-0798
Email: [email protected] FAX: (703)-318-0120
Email: [email protected]
</TABLE>
- --------------------------------------------------------------------------------
SITE EXPRESS ONE TIME INSTALLATION FEES:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Item # Description Qty. Unit Price Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 PORT INSTALLATION: 750
Dedicated Switched 10Mbps Fast Ethernet port on Frontier
GlobalCenter Cisco Catalyst 5500 switch. 1 $750
- -----------------------------------------------------------------------------------------------------------------
ONE TIME TOTAL WAIVED
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SITE EXPRESS MONTHLY RECURRING FEES:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Item # Description Qty. Unit Price Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 COMMITTED BANDWIDTH:
Guaranteed dedicated switched 1Mbps bandwidth to the Frontier
GlobalCenter backbone via 100 MBPS port on a Cisco Catalyst h5500
switch. 24x7 Monitoring. DNS Services. 1 $1,000 $1,000
- -----------------------------------------------------------------------------------------------------------------
1A BURSTABLE BANDWIDTH:
Bandwidth above the committed XMbps determined and billed via
the 95th Percentile Rule (See Below). X $1,250 Variable
- -----------------------------------------------------------------------------------------------------------------
2 CO-LOCATION:
One 19" Rack Shelf 1 $250 $250
- -----------------------------------------------------------------------------------------------------------------
MINIMUM MONTHLY RECURRING TOTAL $1,250
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[FRONTIER LOGO]
The information (data) contained in this Service Order is confidential and
proprietary information, and contains trade secrets and other privileged 1
information. It is furnished to the Buyer in confidence and upon the condition
that it be used only for internal evaluation purposes, and not divulged or
disclosed to third parties without the written consent of Frontier
GlobalCenter. Terms outlined in this Service Order/Quote are valid and may be
accepted for 60 (sixty) days from the Service Order Date. April 1998, Rev.
1.0
<PAGE> 9
[FRONTIER LOGO] Service Order #01 Service Order Term: 3 Months
MSA # Service Order Date: 02/08/99
Site Express Estimated Install Date: 1/31/99
- -------------------------------------------------------------------------------
95TH PERCENTILE RULE
Every Frontier GlobalCenter client purchases a guaranteed amount of bandwidth
per month on the Frontier GlobalCenter Internet Backbone. Bandwidth
fluctuations do occur over time and there may be certain periods where your
Site will burst over the amount of bandwidth purchased. Frontier GlobalCenter
clients are billed for the guaranteed or committed bandwidth each month.
Bandwidth above that committed amount is determined and billed via Frontier
GlobalCenter's SNMP bandwidth monitoring. Frontier GlobalCenter will sample
(samples equal a data point reflecting bandwidth utilization at that particular
instance) your average bandwidth utilization every 30 minutes and store those
samples for a period of one month.
At the end of the month, all data samples are sorted from highest to lowest and
the top 5% are discarded. The highest remaining data sample will then be
referred to as the "95th Percentile" number. This number will then be used as
the basis in computing the bandwidth rate for that particular month over the
guaranteed or committed bandwidth rate.
- -------------------------------------------------------------------------------
Service Order subject to a Frontier GlobalCenter Master Service Agreement.
Service Order serves as a Purchase Order when signed by an authorized
representative. Please send or FAX signed Service Order to the above Frontier
GlobalCenter address.
Accepted by: /s/ JOSEPH R. PRESTON
-------------------------------
Printed Name: Joseph R. Preston Title: President
------------------------------- -----------------------
PO #: 69 Date: 2/10/99
------------------------------- -----------------------
[FRONTIER LOGO]
The information (data) contained in this Service Order is confidential and
proprietary information, and contains trade secrets and other privileged 2
information. It is furnished to the Buyer in confidence and upon the condition
that it be used only for internal evaluation purposes, and not divulged or
disclosed to third parties without the written consent of Frontier
GlobalCenter. Terms outlined in this Service Order/Quote are valid and may be
accepted for 60 (sixty) days from the Service Order Date. April 1998, Rev.
1.0
<PAGE> 1
EXHIBIT 10.8
ENGAGEMENT AGREEMENT
BETWEEN REGISTRANT AND
DUNCAN, BLUM & ASSOCIATES
<PAGE> 2
DUNCAN, BLUM & ASSOCIATES
5718 TANGLEWOOD DRIVE 1863 KALORAMA ROAD, N.W.
BETHESDA, MARYLAND 20817 WASHINGTON, D.C. 20009
(301) 263-0200 (202) 232-6220
(301) 263-0300 (FAX) (202) 232-7891(FAX)
February 15, 1999
Joseph Preston, President
Efox.net, Inc.
7801 Norfolk Avenue
Bethesda, Maryland 20814
RE: Engagement Agreement
Dear Joe:
Thank you for considering Duncan, Blum & Associates for your
representation in conjunction with the proposed Efox.net DPO and associated
documentation, including (i) registration of the securities with the SEC and
the following 11 jurisdictions (Maryland, Virginia, District of Columbia,
California, New York, Texas, Florida, Georgia, Illinois, Pennsylvania and
Massachusetts) and (ii) a Regulatory Summary and necessary securities filings
to permit your offering to commence. We appreciate the opportunity to work
with you. Because our representation ultimately depends on a high degree of
trust, it is important for both of us to be clear about the costs of and limits
upon our legal services from the outset. For that reason and because pertinent
Rules of Professional Conduct require disclosure of the basis for our fees, in
writing, this firm requires that our clients execute an engagement agreement.
Enclosed is our proposed Attorney-Client Fee Agreement. Except for
the contingent nature of funding and/or moving forward, it is our standard
form. If you have any questions regarding the contemplated agreement, please
do not hesitate to contact me.
Sincerely,
DUNCAN, BLUM & ASSOCIATES
/s/ CARL N. DUNCAN
Carl N. Duncan, Managing Partner
CND:ljo
<PAGE> 3
ATTORNEY-CLIENT FEE AGREEMENT
1. PARTIES AND EFFECTIVE DATE. THIS ATTORNEY-CLIENT FEE AGREEMENT (the
"Agreement") is entered into by and between Efox.net Inc. ("Client")
and Duncan, Blum & Associates ("Attorneys") and takes effect on the
date executed by the final party.
2. SCOPE AND DUTIES. Client retains Attorneys to provide legal
services in connection with its proposed Efox.net direct public
offering ("DPO") and associated documentation, including (i)
registration of the securities with the SEC on form SB-1 and the
following 11 jurisdictions (Maryland, Virginia, District of Columbia,
California, New York, Texas, Florida, Georgia, Illinois, Pennsylvania
and Massachusetts) and (ii) a Regulatory Summary (outlining all
necessary federal and state registrations) and making necessary
securities filings to permit your offering to commence. Attorneys
shall provide those legal services reasonably required to represent
Client, and shall keep Client informed of progress and shall promptly
respond to Client's inquiries. Attorneys' ability to effectively and
efficiently represent Client depends upon the full cooperation of
Client. Absent unexpected difficulties, it is the current intention of
the Client to file with the SEC and the states during February 1999
and be effective during April 1999.
3. RETAINER. Client will deposit with Attorneys the sum of fifteen
thousand ($15,000) as a retainer.
4. LEGAL FEES. The fee shall be capped. Specifically, Client agrees to
pay a fixed fee of fifteen thousand dollars ($15,000)(exclusive of
out-of -pocket disbursements) plus the equity participation outlined
in the following sentence. At the initial and each subsequent closing
for the DPO, Client will have Efox.net Inc. issue shares in such
issuer equal to 1% of the shares then outstanding. (See also "Costs
and Expenses" below.) The $15,000 fixed fee is due by prompt payment
of the retainer set forth above in "Retainer".
5. COSTS AND EXPENSES. In addition to paying legal fees, Client agrees
to pay all costs and expenses incurred by Attorneys including, but not
limited to, the following: process server, facsimile transmission,
express mail and messenger fees; court reporter fees; postage and
photocopying; long-distance telephone charges; filing fees; any travel
meals or lodging; any computerized legal database service; and other
incidental expenses incurred on Client's behalf. Attorneys shall
obtain Client's consent before retaining an outside investigator,
consultant or expert witness or incurring any extraordinary expense
over one hundred dollars ($100). Photocopying and facsimiles will be
charged to Client at cost/page ($.10 and $1.00 per page,
respectively). If Client so directs, Attorneys will charge, to the
extent possible, all such expenses directly to Client's already
established commercial account.
6. MONTHLY STATEMENT. Attorneys shall send to Client periodic
statements, at intervals of approximately 30-days, for any month in
which services are rendered and/or costs incurred, describing all
legal services rendered and costs and expenses incurred by Attorneys
in connection with this matter, and showing the balance of the
retainer, less cost of legal services performed. Client may request
such statements at shorter intervals.
7. CONCLUSION OF SERVICES. When Attorneys' services conclude, all unpaid
charges, if any, shall become payable. After Attorneys' services
conclude, Attorneys will, upon Client's request, deliver Client's file
to Client, together with any Client funds or property in Attorney's
possession.
<PAGE> 4
8. DISCHARGE AND WITHDRAWAL. Client may discharge Attorneys at any time.
Attorneys may withdraw with Client's consent or for good cause. Good
cause includes Client's breach of the Agreement, Client's refusal to
cooperate with Attorneys or any other fact or circumstance that
renders Attorneys' continuing representation unethical or unlawful.
9. GOVERNING LAW. The laws of Maryland govern construction and
interpretation of the Agreement.
10. COLLECTION COSTS. Billings not paid one month from the date of the
invoice will be subject to a late payment charge equal to one percent
(1%) per month of the outstanding balance. Should it become necessary
for Attorneys to enforce the terms and provisions of this Agreement,
Client hereby agrees to pay all costs of collection, including the
costs of any collection agency and reasonable attorneys' fees
incurred.
11. DISCLAIMER OF GUARANTEE. Nothing in this Agreement will be construed
as a guarantee or promise about the outcome of this matter. No one
can make such a guarantee.
DUNCAN, BLUM & ASSOCIATES
Dated: February 15, 1999 By: /s/ CARL N. DUNCAN
---------------------------------------
Carl N. Duncan, Managing Partner
Dated: February 15, 1999 EFOX.NET INC.
By: /s/ JOSEPH PRESTON
---------------------------------------
Joseph Preston, President
<PAGE> 1
EXHIBIT 10.9
ENGAGEMENT AGREEMENT
BETWEEN REGISTRANT AND
GRANT THORNTON, LLP
<PAGE> 2
[GRANT THORNTON LETTERHEAD]
February 10, 1999
Mr. Joe Preston
President
Efox.net, Inc.
7801 Norfolk Avenue
Suite 208
Bethesda, MD 20814
Dear Mr. Preston:
The purpose of this letter is to set forth the terms of our engagement.
We will audit the balance sheets of Efox.net, Inc. as of February 15, 1999 and
the related statements of operations, retained earnings, and cash flows for the
period then ended. Our audit will be made in accordance with generally
accepted auditing standards and will include our examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
An audit is not designed to provide assurance on internal control or to
identify reportable conditions. However, we are responsible for ensuring that
the audit committee or others of equivalent authority or responsibility are
aware of any reportable conditions that come to our attention during the course
of our engagement. Our objective will be the completion of the foregoing audit
and, upon its completion and subject to its findings, the rendering of our
report on financial statements.
As you know, the financial statements are the responsibility of the management
and board of directors of your company who are primarily responsible for the
data and information set forth therein, as well as for the evaluation of the
capability and integrity of the Company's personnel, ensuring that the company
complies with all laws and regulations, and the maintenance of effective
internal control over financial reporting, which includes adequate accounting
records and procedures to safeguard the Company's assets, including those
relating to the Year 2000 issue. It is also the responsibility of management
to make all financial records and related information available to us during
our engagement. Accordingly, our completion of the audit will require
management's cooperation. In addition, as required by generally accepted
auditing standards, our procedures will include obtaining written
representation from management concerning such matters which we will rely upon.
<PAGE> 3
[GRANT THORNTON LOGO]
In providing for an audit to be performed on test basis, generally accepted
auditing standards require the auditor to obtain reasonable, but not absolute,
assurance that the financial statements are free of material misstatement,
whether caused by error or fraud. Accordingly, an audit is not a special
examination designed to detect errors or fraud, nor a guarantee of the accuracy
of the financial statements and is subject to the inherent risk that errors,
irregularities, or illegal acts, if they exist, might not be detected.
However, if we become aware of material errors or any irregularities or illegal
acts during the course of our audit, we will bring them to your attention.
Should you then wish to direct special auditing procedures to such matters, we
would be pleased to work with you to develop a separate engagement for that
purpose.
The Year 2000 issue has received widespread publicity recently. The effect on
a company's computer systems may adversely affect its operations and its
ability to prepare financial statements. An audit under generally accepted
auditing standards is not designed to detect whether a company's systems are
Year 2000 compliant. It is management's responsibility to ensure that its
systems are Year 2000 compliant. Management may also wish to make inquiries to
determine that the systems of relevant third parties such as vendors, service
providers and others are Year 2000 compliant. If during the course of our
engagement, matters relating to the Year 2000 issue should come to our
attention, we will communicate such matters to management.
Our fees for the audit services covered under this letter for the period ended
February 15, 1999, will not exceed $5,000. Out-of-pocket expenses will be
billed in addition to these fees. Billings will be rendered on the following
schedule and are payable upon receipt.
<TABLE>
<S> <C>
February 15, 1999 5,000
</TABLE>
It is understood that our responsibility for such services will extend only to
periods covered by our audit and will not include any claims pertaining to
later periods for which we are not engaged as auditors.
At your request, we may perform various other services including assistance
with the contemplated offering of the Company's stock. The fee associated with
this effort will not exceed $5,000, will be based upon our rates for this type
of work and will be rendered at the time such services are performed and are
payable upon receipt.
This engagement includes only those services specifically described in this
letter and appearances before judicial proceedings, government organizations,
or regulatory bodies arising out of this engagement will be billed to you
separately.
In the unlikely event that differences concerning our services or fees should
arise that are not resolved by mutual agreement, we both recognize that the
matter will probably involve complex business or accounting issues that would
be decided most equitably to us both by a judge hearing the evidence
<PAGE> 4
[GRANT THORNTON LOGO]
without a jury. Accordingly, you and we agree to waive any right to a trial by
jury in any action, proceeding or counterclaim arising out of or relating to
our services and fees for this engagement.
If any portion of this letter is held invalid, it is agreed that such
invalidity shall not affect any of the remaining portions.
As a supplement to this letter, we are enclosing an explanation of certain of
our Firm's Client Service Concepts. We have found that such explanation helps
to clarify our services and enhances our ability to work more closely with our
clients.
If you are in agreement with the terms of this letter, please sign one copy and
return it for our files. We appreciate the opportunity to continue to work
with you.
Very truly yours,
GRANT THORNTON LLP
/s/ CALVIN L. HACKEMAN
Calvin L. Hackeman
Partner
CLH:pac
The foregoing letter fully describes our understanding and is accepted by us.
EFOX.NET, INC.
2/17/99 /s/ JOE PRESTON
- --------------------------- ----------------------------------
Date Joe Preston
President
<PAGE> 1
EXHIBIT 24.1
CONSENT OF COUNSEL
We hereby consent to the reference to us in the Prospectus constituting
part of this Form SB-1 Registration Statement for Efox.net, Inc. under the
caption "Legal Matters."
/s/ DUNCAN, BLUM & ASSOCIATES
DUNCAN, BLUM & ASSOCIATES
Bethesda, Maryland
February 26, 1999
<PAGE> 1
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Efox.net, Inc.
We have issued our report dated February 19, 1999, accompanying the
financial statements of Efox.net, Inc. contained in the Form SB-1 Registration
Statement and Prospectus. We consent to the use of the aforementioned report
in the Registration Statement and Prospectus and to the use of our name as it
appears under the caption "Experts".
GRANT THORNTON LLP
Vienna, Virginia
February 25, 1999
