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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
(AMENDMENT NO. 1)
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
iBIZ TECHNOLOGY CORP.
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(Exact name of registrant as specified in its charter)
Florida 86-0933890
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1919 West Lone Cactus, Phoenix, Arizona 85021
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (623) 492-9200
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Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common stock, $.001 par value per share
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PART I
DESCRIPTION OF BUSINESS
iBIZ HISTORY
iBIZ Technology Corp. (the "Company" or "iBIZ") was originally
incorporated under the laws of the State of Florida in 1994. From its
incorporation through December 31, 1998, the Company operated as a development
stage company with no operations or revenues while it sought to identify a
strategic business combination with a private operating company. To facilitate
the acquisition of a private company doing business outside of its initial
purpose upon incorporation, the corporation changed its name to EVC Ventures,
Inc. in May 1998 and to INVNSYS Holding Corporation in October 1998.
Effective January 1, 1999, the Company entered into a Plan of
Reorganization and Stock Exchange Agreement with INVNSYS Technology Corporation
("INVNSYS") and various shareholders of INVNSYS (the "Reorganization"). As a
result of the Reorganization, INVNSYS became a wholly-owned subsidiary of the
Company. On February 1, 1999, INVNSYS Holding Corporation changed its name to
iBIZ Technology Corp.
While operating as a development stage company, the Company's
officers and directors were not compensated for their services. From
incorporation through December 31, 1994, Mr. Julio A. Padilla served as
President and sole Director. Mr. Eric P. Littman served as President and sole
Director from January 1, 1995 through July 9, 1998. Thereafter, Mr. John Xinos
served as President, Secretary, and Treasurer from July 10, 1998 through
December 31, 1998. Messrs. Padilla, Littman and Xinos are no longer involved in
the management of iBIZ and are believed not to be shareholders.
The Company conducts business solely through its operating
subsidiary INVNSYS. For the convenience of the reader, hereinafter, this Form
10-SB/A will refer to the parent company as iBIZ and the wholly-owned operating
company as INVNSYS.
INVNSYS (formerly known as SouthWest Financial Systems, Inc.)
was founded in 1979. Under the direction of INVNSYS' founder, Kenneth Schilling,
the company initially focused on distributing front-end bank branch automation
computer systems for networking applications. INVNSYS acted as a regional
distributor for SHARP Electronics ("SHARP"), a privately held Japanese
manufacturer of computers and electronic devices. In addition, INVNSYS also
distributed the products of Billcon Company, Ltd., and Glory, manufacturers of
bank automation and money processing systems.
In 1985, INVNSYS became a master distributor of SHARP products
and acquired the exclusive rights to distribute SHARP products to financial
institutions in the western United States. Between 1987 and 1990, INVNSYS won
various awards from SHARP for outstanding sales performance. Also during this
time, INVNSYS began to participate in the design of computer systems for
financial institutions. In cooperation with Wells Fargo Bank and SHARP,
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INVNSYS produced the first plain paper facsimile machine in 1990.
In 1992, INVNSYS began to design and build its own computer
systems, focusing on integrated systems for the banking industry. In 1993,
INVNSYS terminated its relationship with SHARP and focused on developing its own
products. In approximately 1994, INVNSYS began working in conjunction with Epson
America ("Epson"), a leading manufacturer of point-of-sale computer products, in
the development of products for the banking industry. For example, INVNSYS
designed a software program which enabled Epson transactional printers to
produce cashier's checks, an industry innovation. In addition, in cooperation
with Epson, INVNSYS designed and marketed a stackable computer system for
financial institutions. In 1996, INVNSYS produced its first entry into the
market for complete computer systems with its Vision 2000 Multimedia
Notestation, an Intel Pentium-based computer/printer combination. In October
1998, INVNSYS began to market its current line of business transaction
computers, the iT series.
iBIZ's principal offices are located at 1919 West Lone Cactus,
Phoenix, Arizona 85021. iBIZ maintains a website at www.ibizcorp.com. The
information on the website should not be considered part of this Form 10-SB/A.
PRODUCTS
INVNSYS engages in the business of designing, manufacturing
and distributing small-footprint desktop computers, transaction printers,
general purpose financial application keyboards, numeric keypads, cathode ray
tube ("CRT") and liquid crystal display ("LCD") monitors and related products.
INVNSYS also markets a line of original equipment manufacturer ("OEM") notebook
computers and distributes a line of Epson transactional printers.
INVNSYS' continued success is dependant upon the introduction
of new products and the enhancement of existing products. INVNSYS is actively
engaged in the design and development of additional computers and peripherals to
augment its present product line. Currently, INVNSYS designs many of its
products in-house. INVNSYS employs a four-person product design and development
staff which is managed directly by Kenneth Schilling. During 1998, INVNSYS did
not incur costs specifically allocated to research and development. During
fiscal 1999, INVNSYS spent Five Thousand Fourteen Dollars ($5,014.00) on
expenses directly allocated for research and development. Although for financial
accounting purposes INVNSYS has historically not allocated any significant
expenses to research and development because its equipment manufacturers
actually implement the innovations of senior level management of INVNSYS, iBIZ
considers salaries paid to senior level management involved in product design
and development as costs related to research and development.
Because of the rapid pace of technological advances in the
personal computer industry, INVNSYS must be prepared to design, develop,
manufacture and market new and more powerful hardware products in a relatively
short time span. While INVNSYS believes that it has been successful to date in
accomplishing that goal, there can be no assurance that it will continue
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to do so in the future.
Business Application Small Footprint Computers
INVNSYS believes its iT-8000 has the smallest footprint of any
desktop personal computer in the industry. (A "footprint" is the amount of desk
space the computer terminal covers.) The iT-8000 provides the convenience of a
small footprint and the power of a traditional desktop unit. The iT-8000's
compact dimensions allow it to be installed in areas where the physical space
available to install a computer is limited. These applications include corporate
workstations, branch bank teller platforms, supermarkets and other retail
point-of-sale ("POS") machines. The iT-8000 is also suited to other
space-conscious settings such as a hospital patient bedside.
Standard features include extra serial ports for attaching
peripheral devices such as magnetic card readers or check readers and a built-in
LAN connection. Currently, the iT-8000 may be configured with Intel Pentium
processors with MMX Technology (75Mhz through 233Mhz), from 2 to 256 megabyte
("MB") random access memory ("RAM"), a standard 2.5" hard drive, providing
current industry capacity of up to 13 gigabyte ("GB"), and 10.4", 12.0" or 13.3"
color LCD panels.
Personal Computers
Capitalizing on its knowledge and success in designing
computer systems for the financial institution industry, INVNSYS has expanded
its product line to include personal home computers.
Sahara. The Sahara Databook is a small footprint desktop
computer which integrates optional Intel Pentium II/III processor power,
simplified networking and sophisticated manageability features into a compact
form. INVNSYS believes its flexible design allows original equipment
manufacturers ("OEMS") to deliver a range of uses, from a fully-featured
corporate workstation to a stripped-down network personal computer. The Sahara
is sold in four basic configurations, each allowing customers to pick the
options most suitable for their purposes.
Safari. The Safari is a small footprint computer with a full
array of local area network ("LAN"), P.O.S., entertainment and internet
applications. The Safari is offered with a range of processors including Intel
Pentium, Cyrix, IBM, and AMD, may provide up to 256 MB RAM, and can be equipped
with an optional LCD panel, 20X Slim Size CD-ROM drive and a 3D full duplex
sound module.
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Keyboards
Historically, INVNSYS has designed and marketed a range of
keyboards and numeric keypads for financial institutions. Such products
currently include the Geno 628 data pad, the Serial data numeric-only key pad,
the ACK-540GP keyboard, and the TV-3682, a space-efficient keyboard designed for
bank branch teller applications. The TV-3682 is encoded with a proprietary
software which allows the keyboard to be used with any computer without the need
to install a driver. To aid numeric input, the numeric pad is given prominence
over the alpha pad. The TV-3682 also incorporates a touchpad mouse with no
moving parts, which saves space and improves reliability.
Capitalizing on the expanding market for powerful, handheld
organizers, INVNSYS recently introduced its KeySync Keyboard ("KeySync"). The
KeySync directly connects to all Palm devices, including the Palm5, PalmPilot
and PalmIII produced by 3COM, and allows users to more easily input data into
their organizers. The KeySync is integrated with the Palm products through
KeyLink software, exclusively designed for and licensed to INVNSYS.
The KeySync's dimensions are 10" x 4-1/2" x 1-1/4" (LxWxH),
and offers a sixty-two (62) key keyboard, six (6) programmable function keys and
uses three (3) "AAA" batteries to minimize draining the Palm's battery. In
addition to Palm products, future KeySync releases may also be used as an input
device to function with the Casio Cassiopeia, Everex Freestyle, and Philips Nino
Palm PC handheld organizer product lines.
Palm Pilot Accessories
INVNSYS recently began selling a foldable cradle to hold the
various Palm Pilot products. Management believes this cradle is easier to use
than the products offered by competitors. INVNSYS also began selling a 12-volt
power adapter to enable recharging of the batteries used in the Palm Pilot in a
vehicle's cigarette lighter.
Displays and Monitors
INVNSYS also offers a line of space-saving, zero-emission LCD
flat panel displays under the name "iView." INVNSYS believes these LCD monitors
provide superior viewing angles, graphic display and brightness over
conventional monitors while consuming less energy. Moreover, LCD panels do not
flicker like conventional CRT monitors, thus reducing eye strain and user
fatigue. INVNSYS' LCD panels take up less than one-tenth of the space needed for
an equivalent cathode ray tube ("CRT") monitor and are some of the thinnest
available on the market. INVNSYS believes that the flat LCD panel gives the
monitor a competitive edge over conventional CRT products by providing
equivalent screen sizes in less space.
The computer industry is currently experiencing a shortage of
LCD panels. To
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date, INVNSYS has been able to obtain adequate supplies of LCD panels and has
not experienced any significant production delays as a result of the shortage.
However, if the shortage continues and INVNSYS' demand increases, INVNSYS may
experience difficulties in meeting customer demand.
INVNSYS also offers a range of conventional CRT monitors in
sizes 14 to 21 inches with digital controls.
Planned Product Introductions
Thin-client Terminals. Presently, INVNSYS is developing a line
of "thin-client" computers. Thin-client computers are scaled down devices with
limited memory and no local storage capability designed to be integrated with a
centralized server. In a thin-client environment, network software applications
remain on the server, while the terminal functions as the gateway to the system.
INVNSYS believes thin-client systems offer increased manageability and better
security as all applications run on the server and not the terminal.
INVNSYS' thin-client computer, the iTerm-8000 (a derivative of
the iT-8000), will support up to a 233 Mhz processor, 128 MB RAM, optional
floppy and hard drives, and offers an attached LCD monitor. The iTerm 8000 will
come with Citrix Systems, Inc. ("Citrix") Independent Computing Architecture
("ICA") as the server application which will be compatible with Citrix MetaFrame
and WinFrame software.
iT-9000. INVNSYS is currently developing a new small footprint
Pentium II/III computer with attachable LCD monitor, currently called the
iT-9000. The iT-9000 combines numerous technologies into less than one
square-foot of desktop space. As a highly flexible, open-architecture platform,
the iT-9000 can be configured for multiple computing roles. The iT-9000 will
provide functions for visual Internet access, in-home video monitoring, family
message center, home security, home control and high-resolution television
reception. INVNSYS believes that by eliminating the necessity of assembling
numerous electronic components, the iT-9000 will present an all-in-one solution
to office desktop overcrowding. With its optional under-cabinet mounting,
INVNSYS believes the iT-9000 will provide a solution to extremely limited home
and office work areas.
The iT-9000 will offer a flip-down LCD panel, and will utilize
the latest Pentium III processor technology. The iT-9000 is undergoing final
product evaluation and has an anticipated consumer delivery slated for the
fourth quarter of 1999 or the first quarter of 2000.
Lapboard. INVNSYS is also in the final stages of development
of a wireless keyboard to be marketed under the name "Lapboard." This keyboard
incorporates RF wireless technology and is suitable for a variety of
applications including general computing, Web TV and Dish Technology. The
Lapboard is ergonomically designed and features an elevated palm rest allowing
the hands to be in a more natural position above the alpha keys, thus
alleviating stress on the wrist. In addition, the Lapboard will offer a "bottom
case" contoured for the user's
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lap. INVNSYS has incorporated several flexible design elements into the
Lapboard, such as an interchangeable pointing device for users who prefer a
trackball instead of the standard mouse touchpad. A joystick module and a
sixteen (16) key programmable keypad have also been designed as interchangeable
elements. INVNSYS currently anticipates full production of the keyboard for a
November 1999 delivery.
OEM Notebook Computers
In addition to designing its own products, INVNSYS also offers
a complete line of competitively priced, build-to-order notebook computers
manufactured by Twinhead Corporation ("Twinhead") and marketed under the name
"iBook." Currently, INVNSYS offers three (3) notebook models, the Apache,
Phoenix and RoadRunner.
RoadRunner. INVNSYS believes the RoadRunner offers powerful
computing power in a lightweight design. At only 1" high and 3.7 pounds, the
RoadRunner is half the weight of most competing notebooks.
The RoadRunner offers Intel Pentium processors with MMX
Technology up to 366Mhz, as well as Pentium III processors, a built in 56k
fax/modem, external FDD/24X CD-ROM module or DVD drive, a full size keyboard and
a full 12.1" TFT screen offering resolution as high as 800 x 600 pixels. The
RoadRunner offers 32 MB of memory, which can be upgraded to 160 MB. Utilizing
Twinhead's patented (pending) battery auto calibration system and the notebook's
Advanced Configuration and Power Interface ("ACPI") power management standard,
which automatically monitors and optimizes battery use, the RoadRunner provides
up to 2.5 hours of full battery usage.
Apache. The Apache offers high performance in an ultra-slim
(1.54 mm high), compact unit. Models have a range of central processing units
("CPU's") from the Celeron MMC1 366Mhz to the fastest of mobile processors, the
Dixon Pentium II MMC1 400Mhz. The Apache has a 16-bit stereo sound system with
built-in stereo speakers and microphone supporting full-duplex sound, a 3D
graphics system with 2 MB of video RAM operating over a 64-bit memory bus and a
built-in 24X CD-ROM, which is interchangeable with a 2X DVD-ROM drive. The
Apache offers resolution as high as 1024 x 768 pixels with its 13.3" (XGA) or
12.1" (SVGA) built-in TFT screen.
The Apache can be installed with up to 256 MB of memory using
industry-standard Synchronous Dual in-line Memory Modules ("SO DIMM"). To
improve slow input/output, the Apache also features a fast hard disk drive, an
optional built-in 56 Kbps modem and a 32-bit CardBus PC card drive. The Apache
also offers an infrared port which allows wireless file transfer and printing to
other infrared-enabled systems.
INVNSYS believes power saving is a major concern for notebook
users. To address this issue, the Apache offers a processor which consumes up to
forty percent (40%) less energy than a comparable desktop processor. In
addition, the Apache has numerous user-
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controlled power management routines including suspend to RAM and suspend to
disk. The Apache comes with Twinhead's patented (pending) battery auto
calibration system, which monitors and optimizes battery use automatically.
Using ACPI in tandem with battery auto calibration, battery life can be extended
to more than three (3) hours on one charge. The battery will automatically
recharge in approximately four (4) hours when the AC adapter is plugged in and
the notebook is in suspend mode.
INVNSYS believes the Apache is designed to be user friendly.
It offers OSD (On-Screen Display), which allows the user to see volume and
brightness changes as made. Screen brightness can be changed with special hot
keys. The modular 9.5 mm hard disk drive may be removed, thus allowing users to
switch hard disk drives quickly and keep data secure.
Phoenix. INVNSYS believes the Phoenix is a desktop computer
replacement, providing the user with accelerated graphics in a portable package.
This notebook is designed to provide all the functions of a powerful desktop
multimedia system in a compact, lightweight notebook format. The Phoenix weighs
6.8 pounds and measures 12.2" x 9.8" x 1.6" (LxWxH). INVNSYS believes it is
slimmer and lighter than most other notebooks while providing superior
performance and convenience.
The Phoenix utilizes the latest Intel Pentium II 300 to 400
MHz processors. The notebook features a 10 GB hard disk drive, an optional
built-in 56 Kbps modem, two (2) PC Card slots with integrated CardBus and Zoomed
Video, an infrared port and a built-in 24X CD-ROM, which is interchangeable with
a 2X DVD-ROM drive.
The Phoenix incorporates the latest 2X AGP-bus interface,
which is four (4) times faster than the fastest PCI-bus. In addition, the
Phoenix offers 4 MB of video RAM operating over a 64-bit memory bus, a VGA chip,
and a hardware DVD accelerator with MPEG II support which allows users to watch
full-screen video without dropping frames.
The Phoenix may be configured with a 1024 x 768 pixel built-in
13.3" or 14.1"(XGA) FTF screen and may be connected to an external monitor or
television via built-in ports.
For sound applications, the Phoenix offers the ESS Maestro-2M
PCI, which is the latest industry standard, is compatible with the 16-bit Sound
Blaster Pro, and supported by Microsoft DirectAudio and Direct 3D for use in
Windows NT 5.0 or Windows 98 systems. It features integrated 3D audio effects as
well as dual channel full duplex operation.
The Phoenix comes with an Intel MMC2 CPU module, which allows
for easy upgrades. In addition, the notebook's modular design allows for several
configurations. The notebook may be configured with anywhere from 32 to 256 MB
of RAM. The modular hard disk drive may be removed and replaced with an
alternate drive. Users also have the choice of 24X CD-ROM or 2X DVD-ROM,
depending on their needs. Also available in the Phoenix is an LS-120 drive,
which reads and writes to 120MB Superdisks as well as standard 3.5" floppy
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disks. An additional expandability option for the Phoenix is the proprietary
port replicator, which duplicates all of the connectors that are available on
the rear side of the notebook and adds one extra PS/2 port, one stereo line-out
connector and a Game/MIDI port.
For communications, the Phoenix offers an optional 56 Kbps
fax/modem which facilitates dial-up networking, a full duplex sound system and
built-in microphone and stereo speakers which allow the Phoenix to be installed
with voicemail and speakerphone functions. Network connections are possible
through a 32-bit CardBus slot. In addition, the Phoenix offers an infrared port
which allows wireless file transfer and printing to other infrared-enabled
systems.
The Phoenix supports all the new functions provided with the
Windows 98 operating system. Power management is optimized with an advanced
power management system. Whenever the notebook's processor is not operational
for a short time, the processor becomes idle so that it consumes less power.
When the processor resumes working, it returns to full speed almost
instantaneously with no loss of performance. The Phoenix also supports
Twinhead's patented (pending) battery auto calibration system, which monitors
and optimizes battery use at the touch of a key, ensuring longer battery life.
Epson Computers and Peripherals
INVNSYS is an authorized distributor of Epson computers and
peripherals. INVNSYS distributes the Epson TM-U325, a low cost, high speed
transaction printer. In addition, INVNSYS distributes the Epson TM-U375, a high
speed transaction printer which has the ability to prepare and print cashier's
checks and money orders, including signatures. Management believes this feature
is not available in competing products and the inclusion of this product
increases INVNSYS' ability to offer proprietary products in the marketplace.
Currently, INVNSYS distributes refurbished models of Epson's
iT-U375, a combination computer/printer. This hybrid offers a computer in the
base of a transaction printer, thereby reducing the space required for
operation. Originally manufactured for the retail POS market, INVNSYS currently
utilizes this product in financial institution applications.
INVNSYS intends to market an internet service provider
offering a reduced monthly rate for customers who purchase INVNSYS' hardware or
peripherals. Many of INVNSYS' competitors presently offer similar services.
Management believes this Internet service will expand its ability to market and
sell its hardware products without suffering any significant decrease in
margins. However, there is no assurance that competitor's aggressive price
reductions through implementation of a similar strategy will not negatively
impact the overall profitability of INVNSYS or that the Internet service will be
effectively implemented.
SERVICES
INVNSYS recently started a new line of business through hiring
Rick A.
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Christopher as Chief Technology officer. Mr. Christopher has network integration
service accounts with American Express and Motorola. INVNSYS plans to expand its
network integration servicing business as the market permits.
MARKETING, SALES AND DISTRIBUTION
INVNSYS markets and distributes products directly to end users
through a direct sales force, regional re-sellers, value-add providers in the
banking and POS market and Internet commerce sites. INVNSYS has a direct sales
force of six (6) employees, directed by Mr. Schilling, who market INVNSYS'
products to financial institutions.
In addition to direct sales, INVNSYS also sells its full range
of products directly to retail customers through its website at
www.ibizcorp.com. The website is linked to an Online Consumer site on Yahoo!
Recently, INVNSYS entered into an agreement with Cyberian Outpost, Inc. to
market INVNSYS' products on its website www.outpost.com. Management believes
that direct sales to end users allows INVNSYS to more efficiently and
effectively meet customer needs by providing products which are tailored for the
customer's individual requirements at a more economical price.
INVNSYS distributes a line of Epson computers and
transactional printers. INVNSYS participates in Epson's MasterVar program which
provides INVNSYS a non-exclusive right to sell, support and service Epson
computer peripherals in the United States and Canada. In addition, INVNSYS may
sell Epson personal computers in conjunction with sales of Epson peripherals or
INVNSYS' products.
INVNSYS also distributes its products to regional resellers
and, to a lesser extent, national distributors. For example, INVNSYS has entered
into a vendor agreement for KeySync with MicroAge, Inc., one of the largest
hardware distributors in North America. INVNSYS believes this agreement will
provide a major distribution channel for INVNSYS' products.
In February 1999, INVNSYS entered into a marketing agreement
with Global Telephone Communication, Inc. ("Global"), whereby Global will market
INVNSYS' products in the Pacific Rim. Management believes that Global, through a
joint venture with Pacific Assets International, will provide access to numerous
banks throughout Asia, including Mainland China, Hong Kong, Taiwan, South Korea,
Malaysia, Indonesia and Japan.
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MANUFACTURING
INVNSYS' products are engineered and manufactured by various
entities in Taiwan. Currently, INVNSYS has an agreement with DataComp, a private
Taiwanese company, to manufacture INVNSYS' keyboards and keypads. INVNSYS'
iT-8000 computers are currently manufactured by Puritron, a Taiwanese company.
INVNSYS' LCD's are manufactured by Sampo Technology, a Taiwanese manufacturer,
and receive varying customization ranging from cosmetic items to enhancing
components such as stereo speakers and touchpad screens from Acana Peripherals
Corporation, a Taiwanese company. INVNSYS' Sahara and Safari desktop computers
are currently manufactured by First International Computer in Taiwan.
These manufacturers build INVNSYS' products to INVNSYS'
specifications with non-proprietary components. Therefore, the vast majority of
parts used in INVNSYS' products are available to INVNSYS' competitors. Although
INVNSYS has not experienced difficulties in the past relating to engineering and
manufacturing, the failure of INVNSYS' manufacturers to produce products of
sufficient quantity and quality could adversely affect INVNSYS' ability to sell
the products its customers demand.
INVNSYS engages in final assembly, functional testing and
quality control of its products in its Phoenix, Arizona facility. Management
believes INVNSYS' completion of the final stages of manufacturing allows INVNSYS
to ensure quality control for its products manufactured overseas.
INVNSYS has entered into an agreement with Twinhead
Corporation, a Taiwanese manufacturer of notebook computers ("Twinhead") to
produce build-to-order notebook computers and a 15" LCD flat panel display. The
design, engineering and manufacturing of INVNSYS' notebook computers is done
entirely by Twinhead. Management believes this relationship allows INVNSYS to
offer a broader range of products to its customers without the cost of research
and development and manufacturing.
INVNSYS has experienced no product delays or cancellation of
orders as a result of the recent earthquake in Taiwan. Management believes that
certain costs of components may face a temporary increase as a result of the
earthquake, however, INVNSYS believes most of the increase in costs will be
recouped through increased prices paid by customers.
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LICENSES
Citrix Systems, Inc. On December 30, 1998, INVNSYS entered a
licensing agreement with Citrix Systems, Inc. ("Citrix") for the use of Citrix
Independent Computing Architecture ("ICA"), an emerging industry standard for
server based computing (the "ICA Agreement"). Under the ICA Agreement, INVNSYS
is granted a non-exclusive, non-transferable right to incorporate ICA into
Citrix-approved iBIZ products. The license is for a term of two (2) years and
automatically renews for successive one (1) year periods unless either party
gives notice of an intent to allow the agreement to expire at the end of the
then current term.
In addition, INVNSYS and Citrix have entered into a Citrix
Business Alliance Membership Agreement dated February 22, 1999 (the "CBA
Agreement"). For a membership fee, CBA membership entitles INVNSYS to
engineering, sales, and marketing support by Citrix, as well as access to beta
releases of new Citrix products and discounted current software products.
Microsoft, Inc. In June 1999, INVNSYS entered into an
agreement with Microsoft, Inc. to become a OEM system builder. Participation in
this program will allow INVNSYS to install genuine Microsoft operating systems
in selected applications with full support from Microsoft. In addition, this
agreement entitles INVNSYS to pre-production versions of Microsoft products and
enables INVNSYS to provide input into development and design of new products.
KeyLink Software License. iBIZ has an exclusive, perpetual
license to use, distribute and offer for sale with associated hardware, the
software which facilitates the connection between the KeySync keyboard and the
3COM Palm devices.
PATENTS AND TRADEMARKS
INVNSYS holds no United States or foreign patents for its
products. However, INVNSYS is currently assessing potential patent applications
for keyboard products under development. In general, INVNSYS believes that its
continued success will depend primarily upon the technical expertise, creative
skills, and management abilities of its officers, directors, and key employees
rather than on patent ownership.
iBIZ has filed an application with the United States Patent
and Trademark Office for the use of the names "iBIZ" and "KeySync" and is
currently investigating various other product trademarks.
YEAR 2000 ISSUES
Management believes that all of INVNSYS' current products are
Year 2000 compliant. INVNSYS has recently completed a conversion of its internal
systems, such as
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accounting programs and management believes all internal systems are Year 2000
compliant. Management estimates the Company has incurred costs of approximately
$20,600 to address the Year 2000 computer issue. iBIZ has not conducted an
assessment of the impact of third-party's systems on INVNSYS and it can give no
assurance that failure of third-party systems will not have a material effect on
INVNSYS' operations. As INVNSYS' products and internal systems are all believed
to be Year 2000 compliant, management has not developed a specific contingency
plan beyond that which is required to deal with the day-to-day operations of the
business.
SERVICE AND SUPPORT
INVNSYS provides its customers with a comprehensive service
and support program. Technical support is provided to customers via a toll-free
telephone number as well as through the iBIZ website. The number is available
Monday through Friday 8:00 a.m. to 5:00 p.m., Arizona time. INVNSYS maintains a
staff of approximately ten (10) technical and customer support representatives
who respond to telephone inquiries.
Also available on iBIZ's website are links to files for
software patches and drivers used for software updates.
INVNSYS' products have either a one year (1) or three year (3)
limited warranty covering parts and service. In addition, INVNSYS offers
extended service agreements, which may extend warranty coverage for up to two
(2) additional years. Under the Virtual Spare program, INVNSYS provides
replacement units by next-day shipment in the event a customer's unit fails.
Under this program, customers have, at no additional expense, the option to have
their existing hard-drive configuration installed on the replacement unit. The
customer's units are then returned to INVNSYS' Phoenix facility for service.
Under INVNSYS' On-Site program, customers have the ability to have a
Company-owned spare on-site for immediate availability in the event of a
failure. Failed units are then returned to INVNSYS' facility for service and
returned to replace the spare for future needs. INVNSYS believes its Virtual
Spare and On-Site programs eliminate the need for on-site technical support for
the replacement units and reduce set-up time at customer facilities.
COMPETITION
The personal computer industry is highly competitive. INVNSYS
competes at the product level with various other personal computer manufacturers
and at the distribution level primarily with computer retailers, on-line
marketers and the direct sales forces of large personal computer manufacturers.
At the product level, the personal computer industry is
characterized by rapid technological advances in both hardware and software
development and by the frequent introduction of new and innovative products.
There are approximately 100 manufacturers of personal computers, the majority of
which have greater financial, marketing and technological
13
<PAGE> 14
resources than INVNSYS. Competitors at this level include IBM, Compaq, Dell, and
Gateway 2000. Gateway 2000 and NEC, among other competitors, have recently
introduced smaller desk top computers than have been manufactured in the past.
However, those computers are targeted for the consumer and not for the corporate
customer and are more expensive than the computers offered by INVNSYS. INVNSYS'
main competitors for its planned product line of thin-client computer systems
include specialty manufacturers such as WYSE Technology.
Competitive factors include product quality and reliability,
price to performance characteristics, marketing capability, and corporate
reputation. In addition, a segment of the industry competes primarily for
customers on the basis of price. Although the INVNSYS' products are price
competitive, INVNSYS does not attempt to compete solely on the basis of price.
The intense nature of competition in the computer industry
subjects INVNSYS to numerous competitive disadvantages and risks. For example,
many major companies will exclude consideration of INVNSYS' products due to
limited size of the company. Moreover, INVNSYS' current revenue levels cannot
support a high level of national or international marketing and advertising
efforts. This in turn, makes it more difficult for INVNSYS to develop its brand
name and create customer awareness. Additionally, INVNSYS' products are
manufactured by third parties in Taiwan. As such, INVNSYS is subject to numerous
risks and uncertainties of reliance on offshore manufacturers, including, taxes
or tariffs, non-performance, quality control, and civil unrest. Also, as INVNSYS
holds no patents, the vast majority of parts used in its products are available
to its competitors.
Management believes that it can compete effectively by
providing computers and peripherals utilizing unique designs and space-saving
qualities, such as small footprints. Although Management believes it has been
successful to date, there can be no assurance that INVNSYS will be able to
compete successfully in the future.
CUSTOMERS
Throughout its history, INVNSYS' ability to deliver innovative
product designs and quality customer service has enabled it to provide products
to major financial institutions including Wells Fargo, Bank of America, Security
Pacific, Northrim Bank, and First Interstate Banks. Currently, no single
customer accounts for more than ten percent (10%) of INVNSYS' revenues.
EMPLOYEES; LABOR RELATIONS
As of November 24, 1999, INVNSYS had approximately twenty-five
(25) full-time employees. No employee of INVNSYS is represented by a labor union
or is subject to a collective bargaining agreement. INVNSYS has never
experienced a work-stoppage due to labor difficulties and believes that its
employee relations are good.
14
<PAGE> 15
FCC REGULATIONS
The Federal Communications Commission (the "FCC") has adopted
regulations setting radio frequency emission standards for computing equipment.
Management believes all of INVNSYS' current products meet applicable FCC and
foreign requirements.
INVNSYS is in the process of exploring foreign operations.
Many foreign jurisdictions require governmental approval prior to the sale or
shipment of personal computing equipment and in certain jurisdictions such
requirements are more stringent than in the United States. Any delays or
failures in obtaining necessary approvals from foreign jurisdictions may impede
or preclude INVNSYS' efforts to penetrate such markets.
LITIGATION
iBIZ is not a party to any material pending litigation.
USE OF TRADEMARKS AND TRADENAMES
All trademarks and tradenames used in this Form 10-SB/A are
the property of their respective owners.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Through its operating subsidiary, INVNSYS, iBIZ designs,
manufactures, and distributes small footprint desktop computers, transaction
printers, general purpose financial application keyboards, numeric keypads,
CRT's, LCD monitors and related products. INVNSYS also markets a line of OEM
notebook computers and distributes a line of Epson transactional printers.
SELECTED FINANCIAL INFORMATION.
<TABLE>
<CAPTION>
Year Ended
----------
10/31/97 10/31/98
-------- --------
<S> <C> <C>
Statement of Operations Data
Net sales $ 2,350,459 $ 3,402,681
Gross profit $ 771,019 $ 1,182,885
Operating income (loss) $ (403,889) $ 112,882
Net earnings (loss) after tax $ (321,109) $ 7,863
Net earnings (loss) per share $ (32.11) $ 0.79
<CAPTION>
10/31/97 10/31/98
-------- --------
<S> <C> <C>
Balance Sheet Data
Total assets $ 1,309,954 $ 1,653,998
Total liabilities $ 1,821,151 $ 1,999,231
Stockholders' equity (deficit) $ (511,197) $ (345,233)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
----------
10/31/98 10/31/99
-------- --------
<S> <C> <C>
Statement of Operations Data
Net sales $ 3,402,681 $ 2,079,331
Gross profit $ 1,182,885 $ 470,602
Operating income (loss) $ 37,600 $ (983,264)
Net earnings (loss) after tax $ 7,863 $ (954,099)
Net earnings (loss) per share $ 0.79 $ (.038)
Balance Sheet Data
Total assets $ 1,653,998 $ 1,081,956
Total liabilities $ 1,999,231 $ 1,511,019
Stockholders' equity (deficit) $ (345,233) $ (429,063)
</TABLE>
16
<PAGE> 17
RESULTS OF OPERATIONS.
Fiscal year ended October 31, 1998 compared to fiscal year ended October 31,
1997.
Revenues. Sales increased by approximately 45% from $2,350,459
for the fiscal year ended October 1997 to $3,402,681 for the fiscal year ended
October 1998. The increase was mainly as a result of greater demand for INVNSYS'
iT business application products and new product introductions and shipments for
its keyboards.
Cost of Sales. The cost of sales increased by approximately
41% from $1,579,440 in the fiscal year ended October 1997 to $2,219,796 in the
fiscal year ended October 1998. The increase in cost of sales is attributable to
a similar percentage increase in sales and reflects hardware costs which
remained fairly stable over the two-year period.
Gross Profit. Gross profit increased from approximately
$771,019.00 in October 1997 to $1,182,885.00 in October 1998. The increase
resulted primarily from the increase in revenues coupled with a slight decline
in the costs of products components.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses decreased approximately 9% in the fiscal year ended
October 1997 to the fiscal year ended October 1998. The decrease resulted
primarily from cost reductions in promotion, insurance, payroll, payroll taxes,
rent, telephone and entertainment.
Interest Expense. Interest expense of $75,282 for the fiscal
year ended October 1998 and of $74,147 for the fiscal year ended October 1997
was accrued on notes payable to Community First National Bank (primarily
extended for working capital purposes).
Income Taxes. Because INVNSYS incurred a loss of approximately
$471,130 for the fiscal year ended October 1997, INVNSYS obtained a refund of
$150,021. For the fiscal year ended October 1998, INVNSYS incurred taxes of
$75,372 even though income before taxes was only $83,235. The significant tax on
nominal income resulted from certain non-deductible expenses.
Net Earnings. A loss in fiscal year October 1997 of $321,109
increased to a profit of $7,863 for fiscal year ended October 1998.
Profitability resulted primarily from a dramatic increase in sales and a
decrease in selling, general and administrative expenses.
Fiscal year ended October 31, 1999 compared to fiscal year ended October 31,
1998.
Revenues. Sales decreased by approximately 64% from $3,402,681
in the fiscal year ended October 1998 to $2,079,331 in the fiscal year ended
October 1999. The decrease was mainly as a result of the focus by management on
raising financing for iBIZ and a transition to a new line of products.
INVNSYS experiences short product life cycles and the declining revenues reflect
declining sales volumes for existing products which were not replaced
17
<PAGE> 18
by any significant sales of new products which management estimates did not
exceed $10,000.
Cost of Sales. The cost of sales of $2,219,796 in the fiscal
year ended October 1998 declined to $1,608,729 in the fiscal year ended October
1999, or an approximate 38% decrease. This decline reflects a coinciding
decrease in the sale of products resulting in the purchase of less hardware from
INVNSYS' overseas suppliers.
Gross Profit. Gross profit decreased by approximately 60%
from $1,182,885 in the fiscal year ended October 1998 to $470,602 in the fiscal
year ended October 1999. The significant decrease resulted primarily from the
decrease in revenues coupled with the cost of sales which did not decrease in
direct proportion to the decrease in revenues. Gross profits also decreased as a
result of selling more products to retailers at lower prices and a decline in
maintenance service income, both of which reflected greater competitiveness in
the product sector.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased approximately 36% from $1,070,003 in the
fiscal year ended October 1998 to $1,453,866 for the fiscal year ended October
1999. The increase was primarily due to costs of consulting paid in connection
with the acquisition, legal and accounting fees associated with the acquisition
and an increase in the salaries of INVNSYS' key employees.
Interest Expense. Interest expense of $49,537 for the fiscal
year ended October 1999 and of $75,282 for the fiscal year ended October 1998
was accrued on notes payable to Community First National Bank primarily extended
for working capital purposes. The decline in interest expense resulted from
repayment of most of the principal of the notes in June, 1999.
Net Earnings. Net earnings decreased from $7,863 for the
fiscal year ended October 1998 to a loss of $954,099 for the fiscal year ended
October 1999. The loss resulted from an increase in the selling, general and
administrative expenses, a cost of sales decrease which was not in proportion to
the decrease in revenues, and a substantial decrease in revenues for the fiscal
year ended October 1999.
Liquidity and Capital Resources
For the year ended October 1997, INVNSYS supplemented cash
flow with proceeds from notes payable of approximately $138,000. At year end,
INVNSYS had an overdraft of $14,133. For the year ending October 1998, INVNSYS
received an advance from iBIZ Technology Corp. (prior to the acquisition) for
approximately $158,101. INVNSYS also repaid notes of approximately $211,631. For
the fiscal year ended October 1998, INVNSYS had an overdraft of $13,500.
Historically, INVNSYS has had and now iBIZ has significant
problems with liquidity. The Company has been unable to generate sufficient
internal cash flow to fund all of its obligations. Outside sources of
18
<PAGE> 19
financing consisting of bank loans have been insufficient. While INVNSYS pays
most of its suppliers in full prior to delivery of product by its manufacturers
of hardware in Taiwan, its banking customers are not obligated to make payments
until 30 days after delivery of products. INVNSYS is in an industry subject to
rapid obsolescence and change. It will continue to need to raise additional
substantial funds for research and development and production of new products.
During 1999, INVNSYS repaid $225,000 on an outstanding loan
from Community First National Bank in the amount of $350,000 and delinquent
payroll taxes, penalties and interest of approximately $260,000.
Beginning in November 1, 1998 and continuing through November
18, 1999, iBIZ raised approximately $1,845,411 though sales of iBIZ common stock
and convertible debentures which it used to finance the working capital needs of
its wholly-owned subsidiary, INVNSYS. Management believes that iBIZ has
sufficient reserves and will generate sufficient cash flow from operations to
operate through January 31, 2000. However, iBIZ will need to raise additional
short term capital to maintain its ongoing business beyond January 31,2000. iBIZ
is actively seeking to obtain a significant capital infusion to avoid continuing
reliance on short term capital sources. There is no assurance that iBIZ will
raise the necessary capital to remain in business beyond January 31, 1999 or
that unforeseen events may result in the need for additional capital sooner than
January 31, 1999. If at any time iBIZ is unable to raise financing through
additional sales of common stock it may be forced into insolvency.
DESCRIPTION OF PROPERTY
On July 1, 1999, iBIZ began leasing an approximately 15,000
square foot custom-built office building located at 1919 West Lone Cactus,
Phoenix, Arizona. The facility is used for administration, design, engineering
and assembly of products. iBIZ's lease ("Lease") is for a term of twenty-six and
one-half years (26.5), with monthly rental payments of $12,800.00, subject to
annual increases, plus taxes and operating costs.
The facility is leased from Lone Cactus Capital Group, L.L.C.,
a limited liability company in which Kenneth Schilling is a member. The Lease is
personally guaranteed by Mr. Schilling and his wife, Diane. Management believes
this new facility will provide adequate space to accommodate the iBIZ's
current plan of growth and expansion.
19
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
the beneficial ownership of iBIZ's common stock as of November 24, 1999, by:
- all directors
- each person who is known by iBIZ to be the beneficial owner of more than
five percent (5%) of the outstanding common stock
- each executive officer named in the Summary Compensation Table below
- all directors and executive officers as a group
The number of shares beneficially owned by each director or
executive officer is determined under rules of the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
the SEC rules, beneficial ownership includes any shares as to which the
individual has the sole or shared voting power or investment power. In addition,
beneficial ownership includes any shares which the individual has the right to
acquire within sixty (60) days of November 24, 1999, through the exercise of any
stock option or other right. Unless otherwise indicated, each person listed
below has sole investment and voting power (or shares such powers with his or
her spouse). In certain instances, the number of shares listed includes (in
addition to shares owned directly), shares held by the spouse or children of the
person, or by a trust or estate of which the person is a trustee or an executor
or in which the person may have a beneficial interest.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Beneficially Owned
--------------------------------------------------------------------------------------------------------------------
Name and Address of Vested
Beneficial Owner Shares Options(1) Total(1) Percent(1)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling(2) -- 200,000 200,000 0.8%
8512 W. Via Montoya, Peoria, AZ 85382
Moorea Trust(2) 12,120,000 -- 12,120,000 45.9%
8512 W. Via Montoya, Peoria, AZ 85382
Terry S. Ratliff 1,771,200 300,000 2,071,200 7.8%
5312 W. Westwind Drive, Glendale, AZ 85310
Mark H. Perkins 1,771,200 300,000 2,071,200 7.8%
16410 N. 9th Place, Phoenix, AZ 85022
All directors and officers as group
(5 persons) 15,662,400 1,675,000 17,337,400 61.8%
</TABLE>
(1) Includes options vested on November 24, 1999 and options which will become
vested on or before January 23, 2000.
(2) Kenneth and Diane Schilling are husband and wife and hold the shares as
trustees under the Moorea Trust dated December 18, 1991.
iBIZ Technology Corp. Stock Option Plan
The iBIZ Technology Corp. Stock Option Plan (the "Plan")
provides for the grant of stock options to purchase common stock to eligible
directors, officers, key employees, and
20
<PAGE> 21
service providers of iBIZ. The Plan covers an aggregate maximum of five million
(5,000,000) shares of common stock and provides for the granting of both
incentive stock options (as defined in Section 422 of the Internal Revenue Code
of 1986, as amended) and non-qualified stock options (options which do not meet
the requirements of Section 422). Under the Plan, the exercise price may not be
less than the fair market value of the common stock on the date of the grant of
the option. As of October 31, 1999, two million eight hundred fifty thousand
(2,850,000) options ("the Options")had been granted under the plan at exercise
prices of $0.75 and $1.00. The Options are granted for a period of ten (10)
years, subject to earlier cancellation upon termination of employment,
resignation, disability and death. The Options vest pursuant to the terms of
each individual option, which to date have ranged from immediate to a five (5)
year period.
The Board of Directors (the "Board") administers and
interprets the Plan and is authorized to grant options thereunder to all
eligible persons. In the event the Board has at least two (2) members who are
not either employees or officers of iBIZ or of any parent or subsidiary of iBIZ,
the Plan will be administered by a committee of not less than two (2) persons
who are such independent directors. The Board designates the optionees, the
number of shares subject to the options and the terms and conditions of each
option. Certain changes in control of iBIZ, as defined in the Plan, will cause
the options to vest immediately. Each option granted under the Plan must be
exercised, if at all, during a period established in the grant which may not
exceed ten (10) years from the date of grant. An optionee may not transfer or
assign any option granted and may not exercise any options after a specified
period subsequent to the termination of the optionee's employment with iBIZ. The
Board may make such amendments to the Plan from time to time it deems proper and
in the best interests of iBIZ provided it may not take any action which
disqualifies any option granted under the Plan as an incentive stock option or
which adversely effects or impairs the rights of the holder of any option under
the Plan.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth W. Schilling 47 President, Chief Executive Officer, Director
Terry S. Ratliff 41 Vice President, Controller, Director
Mark H. Perkins 35 Vice President of Operations, Director
Richard A. Christopher 34 Chief Technology Officer
Jeffrey A. Slosky 41 Director of Marketing
</TABLE>
Kenneth W. Schilling, founded INVNSYS' predecessor, SouthWest
Financial Systems, in 1979, and has been Chief Executive Officer, President and
a Director since INVNSYS' founding. Mr. Schilling studied for a B.S. in
electrical engineering at the University of Pittsburgh from 1970 to 1972 but
left for military service prior to receiving his degree.
21
<PAGE> 22
Terry S. Ratliff, joined INVNSYS in 1989 as controller and
currently serves as Vice President, and Controller. Ms. Ratliff was appointed to
iBIZ's Board of Directors on March 5, 1999. Ms. Ratliff graduated from Nicholls
State University in Thibodaux, Louisiana where she received a B.A. in
accounting.
Mark H. Perkins, joined INVNSYS in 1994 and currently serves
as Vice President of Operations. Mr. Perkins was appointed to iBIZ's Board of
Directors on March 5, 1999. Prior to his joining INVNSYS, Mr. Perkins was
employed at American Express as a project manager for major systems
implementation, a position he held for eight (8) years. Mr. Perkins earned a
degree in business management from California State University-Sonoma.
Richard A. Christopher, joined iBIZ September 1, 1999, and
currently serves as Chief Technology Officer. Prior to joining iBIZ, Mr.
Christopher was the President of A Better Computer Solution, Inc., a provider of
network integration and related services he founded in 1991. He also served in
the U.S. Navy from 1982 through 1994. Mr. Christopher attended Arizona State
University where he studied engineering.
Jeffrey A. Slosky, joined iBIZ as a marketing consultant in
January 1999 and became a full-time employee in July 1999. Mr. Slosky currently
serves as Director of Marketing where he is responsible for product and
corporate marketing, including the design of advertising and products sheets.
From October 1991 through November 1998, he was the founder and partner of
Scottsdale Cellular, LLC, a provider of cellular telecommunications technology.
Mr. Slosky earned a B.S. in Marketing/Advertising from Arizona State University
in 1980.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid or
accrued by the Company to Mr. Schilling, iBIZ's current chief executive officer
during fiscal years ended 1998 and 1999.
<TABLE>
<CAPTION>
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS(1) PAYOUT COMPENSATION
($) ($) ($) ($) (#) ($) ($)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Schilling, 1998 $200,000
President, Chief Executive ----
Officer 1999 $200,000
250,000
</TABLE>
(1) Includes 50,000 options granted for service as a director of iBIZ.
22
<PAGE> 23
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING PERCENT OF TOTAL
OPTIONS/ OPTIONS/SARS
SARS GRANTED TO EMPLOYEES EXERCISE OF
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (1) YEAR ($/SH) DATE
(a) (b) (c) (d) (e)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling 250,000 10.6% $0.75 4/21/09
</TABLE>
(1) Includes 50,000 options granted for service as a director of iBIZ. 200,000
options vested upon granting on April 22, 1999, and 25,000 will vest on
April 22, 2000 and April 22, 2001 respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED ON VALUE FISCAL YEAR END AT FISCAL QUARTER ENDED
EXERCISE (#) REALIZED EXERCISABLE/ JUNE 30, 1999
NAME ($) UNEXERCISABLE EXERCISABLE/
UNEXERCISABLE (1)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling -0- -0- 200,000/50,000 $182,000/$45,500
</TABLE>
(1) Based on closing price of the common stock on October 29, 1999, at $0.91.
Compensation of Directors
Pursuant to the terms of their employment agreements,
effective April 22, 1999, Messrs. Schilling, Perkins and Ms. Ratliff each
received fifty thousand (50,000) options to purchase fifty thousand (50,000)
shares of common stock in consideration for their services as directors of
iBIZ. Each director holds office until the next annual meeting of shareholders
or until their successors are elected and qualified.
Employment Agreement for Kenneth W. Schilling
Effective March 5, 1999, Kenneth W. Schilling and iBIZ entered
into an Employment Agreement (the "Agreement"), as amended as of September 8,
1999.
Under the Agreement, Mr. Schilling has been retained to act as
President and Chief Executive Officer of iBIZ. The Agreement is for a term of
two (2) years ending March 4, 2001. Under the Agreement, Mr. Schilling shall
receive an annual base salary of $200,000.00. In addition, effective April 22,
1999, Mr. Schilling received two hundred fifty thousand
23
<PAGE> 24
(250,000) options to purchase two hundred fifty thousand (250,000) shares of
common stock of iBIZ at an exercise price of $0.75 per share. Two hundred
thousand (200,000) options were issued in consideration of Mr. Schilling's
services as an officer of iBIZ and fifty thousand (50,000) options were issued
in consideration for services as a director. Two hundred thousand (200,000)
options vested upon granting on April 22, 1999, and twenty-five thousand
(25,000) options will vest on April 22, 2000 and April 22, 2001, respectively.
The Agreement provides that upon total and permanent
disability, as defined in the Agreement, iBIZ shall pay Mr. Schilling such
benefits as may be provided to officers of iBIZ under any Company provided
disability insurance or similar policy or under any iBIZ adopted disability
plan. In the absence of such policy or plan, iBIZ shall continue to pay Mr.
Schilling for a period of not less than six (6) months the compensation then in
effect as of the effective date of his termination.
Mr. Schilling may terminate the Agreement upon written notice,
within thirty (30) days following the occurrence of an event constituting "Good
Reason," as defined below. Upon the termination by Mr. Schilling for Good
Reason, Mr. Shilling will be entitled to receive a payment equal to the lesser
of: (1) an amount equal to one-half of his annual base salary in effect at the
time of termination; or (2) the remaining compensation due to Mr. Schilling
under the terms of the Agreement. If Mr. Schilling fails to exercise his rights
to terminate the Agreement for Good Reason within thirty (30) days following an
event constituting Good Reason, such rights shall expire and be of no further
force or effect.
"Good Reason" is defined to mean the occurrence of any of the
following events without Mr. Schilling's consent: (1) assignment of Mr.
Schilling to any duty substantially inconsistent with his position or duties
contemplated by the Agreement or a substantial reduction of his duties
contemplated by the Agreement; (2) the removal of any titles bestowed under the
Agreement; (3) any material breach or failure of iBIZ to carry out the
provisions of the Agreement after notice and an opportunity to cure; and (4) the
relocation of Mr. Schilling, his corporate office facilities, or personnel
outside the Phoenix metropolitan area.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Reorganization, INVNSYS operated as a
closely-held private corporation. While a private company, INVNSYS made loans
totaling $992,037 to Kenneth Schilling. These loans are payable on demand and
accrued interest at eight percent (8%) during 1997 and six percent (6%) during
1998 and 1999. As of October 31, 1999, the balance of the loans payable by Mr.
Schilling to INVNSYS totaled Three Hundred Forty-six Thousand Two Hundred
Twenty-six Dollars ($346,226.00). Effective October 31, 1999, Mr. Schilling, as
trustee of the Moorea Trust, pledged 500,000 shares of iBIZ common stock to
secure this debt.
iBIZ leases its facility from Lone Cactus Capital Group,
L.L.C., a limited liability company in which Kenneth Schilling is a member. iBIZ
believes the terms of the lease are at an arms-length fair market rate.
24
<PAGE> 25
DESCRIPTION OF SECURITIES
General. IBIZ's Articles of Incorporation authorize the
issuance of 100,000,000 shares of common stock, $.001 par value. As of November
24, 1999, there were 26,370,418 shares of common stock outstanding and an
aggregate of 3,250,000 options and warrants to purchase common stock.
Common Stock. Holders of shares of common stock are entitled
to one vote for each share of common stock held of record on all matters
submitted to a vote of the shareholders. Each share of common stock is entitled
to receive dividends as may be declared by iBIZ's Board of Directors out of
funds legally available. Management, however, does not presently intend to pay
any dividends. In the event of liquidation, dissolution or winding up of iBIZ,
the holders of common stock are entitled to share ratably in all assets
remaining after payment in full of all creditors of iBIZ and the liquidation
preferences of any outstanding shares of preferred stock, if any. There are no
redemption or sinking fund provisions applicable to the common stock.
25
<PAGE> 26
PART II
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
IBIZ's common stock is currently traded on the OTC Bulletin
Board. The common stock was initially listed under the symbol "EVCV" on June 3,
1998, and trading began on July 16, 1998. On October 26, 1998, the Company
changed its trading symbol to "IBIZ." The following charts indicate the high and
low sales price for iBIZ's common stock for each quarter between September 30,
1998 and September 30, 1999. The high and low sales prices for the month ended
October 31, 1999, were $1.31 and $0.84 respectively.
[BAR GRAPH]
FISCAL 1998 COMMON STOCK PRICES
EVCV - iBIZ
<TABLE>
<CAPTION>
Quarter Ended
-------------
Stock Price Sept. 98 Dec. 98
----------- -------- -------
<S> <C> <C>
High $3.06 $2.69
Low 2.25 1.88
</TABLE>
[BAR GRAPH]
FISCAL 1999 COMMON STOCK PRICES
iBIZ
<TABLE>
<CAPTION>
Quarter Ended
-------------
Stock Price Mar. 99 Jun. 99 Sept. 99
----------- -------- ------- --------
<S> <C> <C> <C>
High $2.06 $2.44 $2.22
Low 0.94 0.56 0.94
</TABLE>
26
<PAGE> 27
As of November 24, 1999, Management believes there to be 59
holders of record of iBIZ's common stock. To date, iBIZ has not paid any
dividends on its common stock. iBIZ does not currently intend to pay dividends
in the future.
LEGAL PROCEEDINGS
iBIZ is not currently a party to any lawsuit or proceeding.
However, iBIZ is subject to lawsuits occurring in the regular course of
business. Most such lawsuits involve claims for money damages. iBIZ carries
insurance to protect itself against such claims, subject to any applicable
deductibles. iBIZ can give no assurances that future lawsuits will not have a
material adverse effect on iBIZ's financial condition or results of operations.
RECENT SALES OF UNREGISTERED SECURITIES
iBIZ Technology Corp.
On July 10, 1998, iBIZ issued 3,000,000 shares of common
stock, $.001 par value, at a sales price of $.05 per share totaling $150,000.
iBIZ relied upon Regulation D, Rule 504 promulgated under the Securities Act
with respect to these sales.
Between November 13, 1998 and January 13, 1999, iBIZ issued
540,318 shares of common stock, $.001 par value, at a sales price of $.35 per
share totaling $189,111.30. iBIZ relied upon Regulation D, Rule 506 promulgated
under the Securities Act with respect to these sales.
Effective January 1, 1999, iBIZ entered into a Plan of
Reorganization and Share Exchange Agreement with INVNSYS and the below
referenced individuals. Pursuant to the Reorganization, iBIZ issued 16,000,000
shares of common stock, $.001 par value, in exchange for one hundred percent
(100%) of the outstanding shares of INVNSYS. The shares were allocated as
follows:
<TABLE>
<CAPTION>
NO. OF SHARES
-------------
<S> <C>
Moorea Trust dated December 18, 1991 12,120,000
Terry Ratliff 1,771,200
Mark Perkins 1,771,200
Paul Russo 46,400
Frank Ligammari 33,600
Richard Bielfelt 28,800
Terry Neild 228,800
</TABLE>
The shares issued by iBIZ were issued pursuant to the
exemption provided by Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").
27
<PAGE> 28
From March 8, 1999 through November 18, 1999, iBIZ issued
1,730,100 shares of common stock, $.001 par value, at a sales price of $.50 per
share and 640,318 shares of common stock, $.001 par value, at a sales price of
$.35 totaling an aggregate of $1,089,161. iBIZ relied upon Regulation D, Rule
506 promulgated under the Securities Act with respect to these sales.
From April 22, 1999 through May 13, 1999, iBIZ issued options
to purchase 2,850,000 shares of common stock, $.001 par value to employees and
various consultants. The exercise price of the options is the fair market value
on the date of grant, which ranged from $0.75 to $1.00 per share. iBIZ relied
upon either Rule 701 or Section 4(2) with respect to the granting of the
options.
On June 30, 1999, iBIZ issued Two Hundred Thousand Dollars
($200,000.00) of convertible debentures (the "Debentures"). The Debentures are
due on June 21, 2000, bear interest at eight percent (8%) per annum, and are
unsecured. Under the terms of the Debentures, iBIZ is obligated to use its best
efforts to include the shares issuable upon conversion of the Debentures in a
registration statement filed with the SEC under the Securities Act
("Registration Statement") by June 21, 2000. Upon the effectiveness of the
Registration Statement, the Debentures shall automatically convert to 300,000
fully paid and nonassessable shares of common stock, $.001 par value.
Effective May 1999, iBIZ issued a warrant entitling the holder
to acquire 400,000 shares of common stock, $.001 par value, at an exercise price
of $0.75 per share for the first 300,000 shares and $1.00 per share for the
remaining 100,000 shares.
In November 1999, iBIZ issued convertible debentures in the
amount of Six Hundred Thousand Dollars ($600,000.00) ( the "$600k Debentures")
pursuant to that certain Securities Purchase Agreement dated November 9, 1999,
by and between Globe United Holdings, Inc. ("Globe") and iBIZ (the "SPA"). The
$600k Debentures accrue interest at seven percent (7%) per annum and are due
November 9, 2004. iBIZ is obligated to make payments of accrued interest on the
first day of April and November each year the $600k Debentures are outstanding.
At the holder's option, iBIZ may make interest payments in the form of shares of
common stock (calculated as if a portion of principal as described below).
Globe may, at any time, convert all or a portion of the
outstanding principal amount, together with any accrued but unpaid interest,
into that number of shares of common stock equal to the quotient obtained by
dividing (i) the principal amount of the debenture to be converted by (ii) the
Applicable Conversion Price. The Applicable Conversion Price is defined as the
lesser of (i) $0.94 or (ii) the product obtained by multiplying (x) the Average
Closing Price (as defined in the $600k Debentures) by (y) .80. In addition, the
holder of the $600k Debentures may require iBIZ to redeem the $600k Debentures
for cash at a redemption price equal to one hundred twenty percent (120%) of the
aggregate principal and accrued interest outstanding in the event of a Change in
Control of iBIZ (as defined in the $600k Debentures).
28
<PAGE> 29
In connection with the issuance of the $600k Debentures, iBIZ
issued a warrant to purchase 100,000 shares of common stock at a purchase price
of $0.94 per share ("Warrant"). The Warrant is immediately exercisable and
expires November 9, 2004.
iBIZ has also agreed to provide Globe certain registration
rights for the common stock issuable upon conversion of the respective
convertible securities. In particular, iBIZ is obligated to file, no later than
forty-five (45) days after the Closing Date (as defined in the SPA) a
registration statement covering the resale of the common stock issuable upon
conversion of the $600k Debentures and the Warrant.
The SPA provides iBIZ shall not, without the prior written
consent of Globe, offer or sell, shares of its capital stock or any security or
other instrument convertible into or exchangeable for shares of common stock, in
each case for a period commencing on November 9, 1999, and ending on the earlier
of (i) one hundred eighty (180) days after the date on which a registration
statement relating to common stock issuable upon conversion of the Warrants and
the Debentures, is declared effective by the SEC or (ii) the date on which Globe
shall have converted all of the Debentures into common stock (the "Lock-Up
Period"), except that iBIZ (i) may issue securities for the aggregate
consideration of at least $7.5 million in connection with a bona fide, firm
commitment, underwritten public offering under the Securities Act; and (ii) may
issue shares of common stock upon the exercise or conversion of currently
outstanding options, warrants and other convertible securities; (iii) may issue
additional options to purchase up to 1,000,000 shares of its common stock to its
directors, officers and employees in connection with its existing stock option
plans.
In addition, iBIZ is restricted from registering any shares of
its capital stock (other than shares to be received upon exercise by existing
option and warrant holders) until the later to occur of (i) the expiration of
the Lock-Up Period or (ii) the registration statement filed by iBIZ covering
shares to be issued to Globe upon conversion of its debentures has been
effective under the Securities Act for a period of at least one-hundred and
eighty (180) days.
In addition, the SPA grants Globe a right of first refusal on
purchases of additional securities for a period of eighteen (18) months. The SPA
further provides that so long as the Debentures or Warrant are outstanding, iBIZ
shall not (i) declare or pay any dividends or make distributions to any holder
of common stock or (ii) acquire any common stock of iBIZ.
iBIZ relied upon Regulation D, Rule 506 promulgated under the
Securities Act with respect to the issuance of the $600k Debentures and the
Warrant.
29
<PAGE> 30
INVNSYS Technology Corporation
Effective November 1, 1997, INVNSYS issued the following
shares of common stock, One Dollar ($1.00) par value:
<TABLE>
<CAPTION>
NO. OF SHARES
-------------
<S> <C>
Moorea Trust dated December 18, 1991 605
Terry Ratliff 1,550
Mark Perkins 1,550
Paul Russo 40
Frank Ligammari 30
Richard Bielfelt 25
Terry Neild 200
</TABLE>
INVNSYS relied on either Rule 701 promulgated under the
Securities Act or Section 4(2) of the Securities Act with respect to all sales
and offers referenced above.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitation of Liability and Indemnification Matters. iBIZ's
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Florida law, a director or officer of iBIZ shall not be personally liable to
iBIZ or its shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of iBIZ's Articles of
Incorporation, as amended, is to eliminate the right of iBIZ and its
shareholders (through shareholders' derivative suits on behalf of iBIZ) to
recover damages against a director or officer for breach of the fiduciary duty
of care as a director or officer (including breaches resulting from negligent or
grossly negligent behavior), except under certain situations defined by statute.
iBIZ believes that the indemnification provisions in its Articles of
Incorporation, as amended, are necessary to attract and retain qualified persons
as directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 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 Act and will
be governed by the final adjudication of such issue.
30
<PAGE> 31
PART F/S
FINANCIAL STATEMENTS
1. INVNSYS Technology Corporation formerly known as Southwest
Financial Systems, Inc. Financial Statements October 31, 1998 and 1997,
originally issued June 14, 1999, and reissued November 22, 1999.
2. iBIZ Technology Corporation Financial statements for the one
year period ended October 31, 1999.
31
<PAGE> 32
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
F-1
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................................... 1
FINANCIAL STATEMENTS
Balance Sheets........................................................................... 2
Statements of Income..................................................................... 3
Statement of Changes in Stockholders' Equity............................................. 4
Statements of Cash Flows................................................................. 5-6
Notes to Financial Statements............................................................ 7-18
</TABLE>
F-2
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Invnsys Technology Corporation
Formerly known as Southwest Financial Systems, Inc.
Phoenix, Arizona
We have audited the accompanying balance sheets of Invnsys Technology
Corporation formerly known as Southwest Financial Systems, Inc., as of October
31, 1998 and 1997, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the 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 Invnsys Technology Corporation as
of October 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
June 14, 1999 (original issuance date)
November 22, 1999 (reissue date)
F-3
<PAGE> 35
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 200 $ 412
Accounts receivable, trade 153,536 91,073
Other receivables 1,500 1,000
Corporation income tax refund 0 19,919
Inventories 323,397 202,320
Prepaid expenses, current 24,577 3,882
--------------- ----------------
TOTAL CURRENT ASSETS 503,210 318,606
--------------- ----------------
PROPERTY AND EQUIPMENT 76,536 97,069
--------------- ----------------
OTHER ASSETS
Note receivable, related party 906,620 666,103
Deposits 20,155 17,765
Prepaid expenses, long-term 2,423 5,655
Deferred tax assets 145,054 204,756
--------------- ----------------
TOTAL OTHER ASSETS 1,074,252 894,279
--------------- ----------------
TOTAL ASSETS $ 1,653,998 $ 1,309,954
=============== ================
</TABLE>
F-4
<PAGE> 36
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ 13,700 $ 14,545
Accounts payable, trade 780,815 691,944
Customer deposits 395,264 267,630
Notes payable, current 28,378 215,976
Accrued liabilities 63,243 30,713
Sales and payroll taxes payable 255,410 61,840
Corporation income taxes payable,
Current 17,841 13,741
Deferred income 71,031 110,797
------------------ -----------------
TOTAL CURRENT LIABILITIES 1,625,682 1,407,186
------------------ -----------------
LONG-TERM LIABILITIES
Notes payable 365,325 389,358
Deferred income taxes payable 8,224 24,607
------------------ -----------------
TOTAL LONG-TERM LIABILITIES 373,549 413,965
------------------ -----------------
STOCKHOLDER'S EQUITY
Common stock, $1.00 par value,
100,000 shares authorized,
10,000 shares issued and outstanding 10,000 10,000
Advance from IBIZ Technology Corp. 158,101 0
Retained earnings (deficit) (513,334) ( 521,197)
------------------ -----------------
TOTAL STOCKHOLDER'S EQUITY
(DEFICIT) (345,233) ( 511,197)
------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY (DEFICIT) $ 1,653,998 $ 1,309,954
================== =================
</TABLE>
F-5
<PAGE> 37
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SALES $ 3,402,681 $ 2,350,459
COST OF SALES 2,219,796 1,579,440
----------- ----------
GROSS PROFIT 1,182,885 771,019
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,070,003 1,174,908
----------- ----------
INCOME (LOSS) FROM OPERATIONS 112,882 (403,889)
----------- ----------
OTHER INCOME (EXPENSES)
Interest expense (75,282) (74,147)
Interest income 40,320 27,848
Miscellaneous income 3,815 10,835
Gain/loss on disposition of assets 1,500 (6,177)
Loss on Investment property 0 (25,600)
----------- ----------
TOTAL OTHER INCOME (EXPENSE) (29,647) (67,241)
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
(REFUND) 83,235 (471,130)
INCOME TAXES (REFUND) 75,372 (150,021)
----------- ----------
NET INCOME (LOSS) $ 7,863 $ (321,109)
=========== ==========
NET INCOME (LOSS) PER COMMON SHARE
Basic and Diluted $ 0.79 $ (32.11)
=========== ==========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 10,000 10,000
=========== ==========
</TABLE>
F-6
<PAGE> 38
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADVANCE
FROM IBIZ
COMMON STOCK TECHNOLOGY RETAINED
SHARES AMOUNT CORP. EARNINGS
------ ------ ----- --------
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1996 10,000 $ 10,000 $ 0 $ ( 200,088)
NET (LOSS) FOR THE YEAR
ENDED OCTOBER 31, 1997 0 0 0 ( 321,109)
--------------- --------------- ----------------- ------------------
BALANCE, OCTOBER 31, 1997 10,000 10,000 0 ( 521,197)
ADVANCE FROM IBIZ
TECHNOLOGY CORP. 0 0 158,101 0
NET INCOME FOR THE YEAR
ENDED OCTOBER 31, 1998 0 0 0 7,863
--------------- --------------- ----------------- ------------------
BALANCE, OCTOBER 31, 1998 10,000 $ 10,000 $ 158,101 $ ( 513,334)
=============== =============== ================= ===================
</TABLE>
F-7
<PAGE> 39
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 7,863 $ ( 321,109)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation 38,604 92,407
Gain/loss on disposition of equipment and
investment properties ( 1,500) 31,777
Increase (decrease) in
Accounts receivable, trade ( 62,463) 29,242
Other receivables ( 500) 3,000
Income tax refunds 19,919 56,146
Inventories ( 121,077) 98,263
Prepaid expenses ( 17,463) 8,794
Deferred tax asset 59,702 ( 204,756)
Deposits ( 2,390) 73
Accounts payable 88,871 ( 32,201)
Customer deposits 127,634 267,630
Accrued liabilities and taxes 226,100 ( 32,104)
Corporation income taxes payable ( 12,283) 12,469
Deferred income ( 39,766) 30,136
--------------- ----------------
NET CASH FLOWS PROVIDED
BY OPERATING ACTIVITIES 311,251 39,767
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ( 18,071) ( 97,923)
Loans to related party ( 240,517) ( 35,000)
Proceeds from sale of property and equipment 1,500 0
--------------- ----------------
NET CASH FLOWS (USED) BY
INVESTING ACTIVITIES ( 257,088) ( 132,923)
--------------- ----------------
</TABLE>
F-8
<PAGE> 40
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft $ (845) $ 0
Advance from IBIZ Technology Corp. 158,101 0
Proceeds from notes payable 0 138,000
Repayments of notes payable (211,631) (32,364)
--------- ---------
NET CASH FLOWS PROVIDED (USED)
BY FINANCING ACTIVITIES (54,375) 105,636
--------- ---------
NET INCREASE (DECREASE) IN CASH (212) 12,480
CASH BALANCE (OVERDRAFT), BEGINNING
OF YEAR 412 (26,613)
--------- ---------
CASH BALANCE, END OF YEAR $ 200 $ 412
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year:
Interest $ 61,117 $ 74,108
========= =========
Taxes $ 850 $ 50,913
========= =========
</TABLE>
F-9
<PAGE> 41
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Invnsys Technology Corporation, formerly known as Southwest Financial
Systems, Inc., was incorporated in the State of Arizona on July 30,
1980 and is in the business of selling retail and wholesale
financial, computing and communication equipment. They also provide
repair services and sell maintenance contracts. The corporation
currently operates a service center in Phoenix, Arizona.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Uncollectible accounts receivable are written off at the time
management specifically determines them to be uncollectible. In
addition, the allowance for doubtful accounts is provided at an
amount determined by management.
A summary of accounts receivable and the allowance for doubtful
accounts is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Accounts receivable $156,036 $ 98,073
Allowance for doubtful accounts 2,500 7,000
-------- --------
Net accounts receivable $153,536 $ 91,073
======== ========
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost (determined principally
by the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacement,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and
equipment are retired or otherwise disposed of, the asset and related
accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or
charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
F-10
<PAGE> 42
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the
goods are shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being
reported evenly over the life of the contracts. Such unearned
portion is recorded as deferred income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and pretax
financial income and between the tax bases of assets and
liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed
in FASB Statement No., 109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income
taxes.
F-11
<PAGE> 43
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET EARNINGS PER SHARE
The company adopted Statement of Financial Accounting Standards
No. 128 that requires the reporting of both basic and diluted
earnings per share. Basic earnings per share is computed by
dividing net income available to common shareowners by the
weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common
stock.
RISKS AND UNCERTAINTIES
The company is in the computer and computer technology industry.
The company's products are subject to rapid obsolescence and
management must authorize funds for research and development
costs in order to stay competitive.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The company has financial instruments, none of which are held
for trading purposes. The company estimates that the fair value
of all financial instruments at October 31, 1998 and 1997, as
defined in FASB 107, does not differ materially from the
aggregate carrying values of its financial instruments recorded
in the accompanying balance sheet. The estimated fair value
amounts have been determined by the company using available
market information and appropriate valuation methodologies.
Considerable judgement is required in interpreting market data
to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the
company could realize in a current market exchange.
NOTE 3 INVENTORIES
At October 31, 1998 and 1997, inventories were comprised of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Computer equipment $208,725 $161,212
Office equipment 25,693 25,689
Depot 9,343 9,343
Demo units 77,576 4,016
Parts 2,060 2,060
-------- --------
Totals $323,397 $202,320
======== ========
</TABLE>
F-12
<PAGE> 44
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 4 PROPERTY AND EQUIPMENT
At October 31, 1998 and 1997, property and equipment and
accumulated depreciation consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Tooling $ 68,100 $ 68,100
Machinery and equipment 30,656 75,104
Office furniture and equipment 60,406 45,476
Vehicles 39,141 59,596
Leasehold improvements 18,044 18,044
-------- --------
216,347 266,320
Less accumulated depreciation 139,811 169,251
-------- --------
Total property and equipment $ 76,536 $ 97,069
======== ========
</TABLE>
The depreciation expenses for the years ended October 31, 1998
and 1997 were $38,604 and $92,407, respectively.
NOTE 5 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
The related note is unsecured, payable on demand and accrues
interest at 6% for 1998 and 8% for 1997. At October 31, 1998 and
1997, management believed the notes would not be collected
within the current operating cycle and classified the asset as a
long-term asset. $615,250 of the loan was repaid in 1999
Total $ 906,620 $666,103
========== ========
</TABLE>
F-13
<PAGE> 45
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 6 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales
price when orders are received. These funds are recorded as
customer deposits and are applied to the customer invoices when
the merchandise is shipped.
NOTE 7 INCOME TAXES
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Income (loss) from continuing operations
before income taxes $ 83,235 $(471,130)
--------- ---------
The provision for income taxes were estimated as follows:
Currently payable $ 0 $ 0
Deferred 75,372 (150,021)
--------- ---------
A reconciliation of the provision for income taxes compared with
the amounts at the U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory income tax rates $ 75,372 $(150,021)
--------- ---------
Deferred income tax assets and liabilities reflect the impact of
temporary differences between amounts of assets and liabilities for
financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws. The net deferred tax assets is $ 136,830 $ 180,139
--------- ---------
</TABLE>
Temporary differences and carry forwards that gave rise to deferred
tax assets and liabilities included the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------- -----------
<S> <C> <C> <C> <C>
Net operating loss $116,382 $ 0 $176,591 $ 0
Accrued expenses and miscellaneous 8,497 0 7,990 0
Tax credit carryforward 20,175 0 20,175 0
Depreciation 0 8,224 0 24,607
-------- -------- -------- --------
</TABLE>
F-14
<PAGE> 46
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 7 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Subtotals $145,054 $ 8,224 $204,756 $ 24,607
Less valuation allowance 0 0 0 0
-------- -------- -------- --------
Total deferred taxes $145,054 $ 8,224 $204,756 $ 24,607
======== ======== ======== ========
</TABLE>
Realization of the net deferred tax assets is dependent on
future reversals of existing taxable temporary differences and
adequate future taxable income, exclusive of reversing temporary
differences and carryforwards. Although realization is not
assured, management believes that is more likely than not that
the net deferred tax assets will be realized. The amount of the
net deferred assets considered realizable, however, could be
reduced in the near term if actual future taxable income is
lower than estimated, or if there are differences in the timing
or amount of future reversals of existing taxable temporary
differences.
NOTE 8 TAX CARRYFORWARD
The company has the following tax carryforwards at October 31,
1998:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
------------------ ---------- -----------------
<S> <C> <C>
Net operating loss
October 31, 1997 $ 342,302 October 31, 2012
Capital loss
October 31, 1997 25,600 October 31, 2002
Contribution
October 31, 1995 1,536 October 31, 2000
October 31, 1996 2,068 October 31, 2001
</TABLE>
NOTE 9 PAYROLL TAXES PAYABLE
At October 31, 1998, the company was delinquent in the payment
and filing of payroll tax returns in the amount of $236,923. The
payroll taxes were paid in 1999.
F-15
<PAGE> 47
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 10 NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable to Community First National Bank due in monthly
payments of interest of approximately $3,100. Interest is
computed at national prime as stated in the Wall Street Journal
plus 3 percent. The principal amount is due July 31, 2000. This
note is secured by accounts receivable, general intangibles and
all equipment and leasehold improvements. The shareholder has
personally guaranteed the loan and the bank is the beneficiary
of an insurance policy on the life of the shareholder $340,613 $334,890
Note payable to Community First National Bank due in monthly
installments of principal and interest of $3,754 until May 7,
1999. Interest is computed at national prime as stated in the
Wall Street Journal plus 3 percent. This note is secured by
accounts receivable, general intangibles and all equipment and
leasehold improvements. The shareholder has personally
guaranteed the loan and the bank is the beneficiary of an
insurance policy on the life of the shareholder
The loan was paid off in 1999 23,737 64,798
Note payable to Community First National Bank due in monthly
payments of principal and interest of $545 with interest at 7
percent until March 7, 2004. The note is secured by
an automobile 29,353 33,646
</TABLE>
F-16
<PAGE> 48
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 10 NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable to an individual payable in one payment of $50,000
on February 1, 1998 and a final balance and accrued interest on
May 21, 1998. The note is secured by a houseboat
owned by a stockholder of the company $ 0 $100,000
Unsecured note payable from an individual
with interest computed at 14%. Principal
and accrued interest is due December 5, 1997 0 72,000
-------- --------
393,703 605,334
Less: current portion of long-term debt 28,378 215,976
-------- --------
Net long-term debt $365,325 $389,358
======== ========
Maturities of long-term debt are as follows:
1998 1997
-------- --------
Year ended October 31,
1998 $ 0 215,976
1999 28,378 29,790
2000 345,588 339,865
2001 5,336 5,336
2002 5,721 5,721
2003 & thereafter 8,680 8,646
-------- --------
$393,703 $605,334
======== ========
</TABLE>
F-17
<PAGE> 49
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 11 OPERATING LEASE - REAL ESTATE
The company leases office space under a non-cancelable operating
lease agreement expiring on July 15, 1999. The lease provides
for annual rentals of approximately $40,000 plus increases due
to changes in the consumer price index and building operating
costs. The lease is guaranteed by the major stockholders of the
company.
Future minimum lease payments, excluding taxes and expenses, are
as follows for the years ending October 31:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
1998 $ 0 $ 47,320
1999 35,128 35,128
-------------- --------------
$ 35,128 $ 82,448
============== ==============
</TABLE>
NOTE 12 ADVERTISING
The company expenses all advertising as incurred. For the years
ended October 31, 1998 and 1997, the company charged to
operations $89,656 and $24,721, respectively, in advertising
costs.
NOTE 13 INTEREST
The company incurred interest expenses for the years ended
October 31, 1998 and 1997 of $75,282 and $74,147, respectively.
NOTE 14 WARRANTY RESERVE
In 1998, the company established a warranty reserve of $ 10,000
to cover any potential warranty costs on computer equipment that
are not reimbursed by the computer manufacturer's warranty.
NOTE 15 ECONOMIC DEPENDENCY
The company purchases the majority of its computer equipment
from three suppliers.
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
On January 1, 1999, the company issued 16,000,000 shares of
newly issued restricted common stock for 100% of the issued and
outstanding stock of Invnsys Technology Corporation. Invnsys
Technology Corporation became a wholly-owned subsidiary of IBIZ
Technology Corp. and the acquisition was accounted for as a
reverse acquisition. On the consolidated financial statements,
the reverse acquisition method requires that the net assets of
Invnsys Technology Corporation be transferred to IBIZ Technology
Corp. at book value and the statement of operations include the
operations of both companies from the beginning of their fiscal
years which was November 1, 1998 for both companies.
F-18
<PAGE> 50
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
(CONTINUED)
The following unaudited pro-forma combined financial date as of
October 31, 1998, has been derived from the historical financial
statements of IBIZ Technology Corp. and Invnsys Technology
Corporation giving effect to the business combination using the
reverse acquisition method of accounting. This information is
for illustration purposes only and is not necessarily indicative
of the consolidated financial position or results of operations
which would have been realized had the acquisition been
considered to occur as of the date for which the pro-forma
financial statements are presented. The pro-forma financial
statements also are not necessarily indicative of the
consolidated position or results of operations in the future.
Pro-Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
Invnsys IBIZ
Technology Technology Pro-forma Pro-forma
Corporation Corp. Adjustments Consolidated
----------- ----- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Cash $ 200 $ 0 $ 0 $ 200
Accounts receivable 153,536 0 0 153,536
Inventories 323,397 0 0 323,397
Other 26,077 247,175 (247,175) 26,077
----------- ----------- ----------- -----------
Total current assets 503,210 247,175 (247,175) 503,210
Property and equipment 76,536 0 0 76,536
Other assets 1,074,252 0 0 1,074,252
----------- ----------- ----------- -----------
Total $ 1,653,998 $ 247,175 $ (247,175) $ 1,653,998
=========== =========== =========== ===========
Liabilities
Accounts payable $ 780,815 $ 9,048 $ ( 247,175) $ 542,688
Customer deposits 395,264 0 0 395,264
Other liabilities 449,603 0 0 449,603
----------- ----------- ----------- -----------
Total current
liabilities 1,625,682 9,048 (247,175) 1,387,555
Long-term debt 373,549 0 0 373,549
----------- ----------- ----------- -----------
Total liabilities 1,999,231 9,048 (247,175) 1,761,104
Stockholders' equity (345,233) 238,127 0 (107,106)
----------- ----------- ----------- -----------
Total $ 1,653,998 $ 247,175 $ (247,175) $ 1,653,998
=========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 51
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
(CONTINUED)
Pro-Forma Consolidated Statement of Income
<TABLE>
<CAPTION>
Invnsys IBIZ
Technology Technology Pro-forma Pro-forma
Corporation Corp. Adjustments Consolidated
----------- ----- ----------- ------------
<S> <C> <C> <C> <C>
Sales $ 3,402,681 $ 0 $ 0 $ 3,402,681
Cost of sales 2,219,796 0 0 2,219,796
------------ ------------ ------------ ------------
Gross Profit 1,182,885 0 0 1,182,885
Selling, general and
administrative expenses $ 1,070,003 $ 71,766 $ 0 $ 1,141,769
------------ ------------ ------------ ------------
Income from operations 112,882 (71,766) 0 41,116
Other income (expense) (29,647) 0 0 (29,647)
------------ ------------ ------------ ------------
Income before income
taxes 83,235 (71,766) 0 11,469
Income taxes 75,372 0 0 75,372
------------ ------------ ------------ ------------
Net income (loss) $ 7,863 $ (71,766) $ 0 $ (63,903)
============ ============ ============ ============
Loss per common share $ (0.003)
============
Weighted average number of
shares of common stock 24,000,000
============
</TABLE>
Pro-forma financial information for the year ended October 31,
1997 is not presented as IBIZ Technology Corp. was an inactive
public shell and had no activity.
NOTE 17 OFFICERS' COMPENSATION
On March 5, 1999, the company entered into three employment
agreements with the following officers:
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
------- ----------- ----------
<S> <C> <C> <C>
Annual compensation $200,000 $ 88,000 $ 88,000
</TABLE>
F-20
<PAGE> 52
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 17 OFFICERS' COMPENSATION (CONTINUED)
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
------- ----------- ----------
<S> <C> <C> <C>
Options for IBIZ Technology
Corp. stock 250,000 350,000 350,000
shares shares shares
Exercise price per share $ 0.75 $ 0.75 $ 0.75
</TABLE>
NOTE 18 INCOME TAXES FOR YEAR ENDED OCTOBER 31, 1998
The net income before taxes was $83,235 and the corporation
income taxes was $75,372. The large tax was due to the fact
that the following expenses were incurred but not deductible
for income tax purposes:
<TABLE>
<CAPTION>
<S> <C>
Penalties $ 70,661
Travel and entertainment 5,184
Country club dues 8,920
Warranty reserves 10,000
Other (64)
--------
Total $ 94,701
========
</TABLE>
F-21
<PAGE> 53
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
F-22
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ACCOUNTANTS' REPORT ...................................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet......................................... 2
Consolidated Statement of Operations............................... 3
Consolidated Statement of Changes in Stockholders' Deficit......... 4
Consolidated Statement of Cash Flows............................... 5-6
Notes to Consolidated Financial Statements......................... 7-19
</TABLE>
F-23
<PAGE> 55
ACCOUNTANTS' REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Consolidated Subsidiary
Phoenix, Arizona
We have reviewed the accompanying consolidated balance sheet of IBIZ Technology
Corp. and Consolidated Subsidiary as of October 31, 1999, and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the year then ended, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of IBIZ Technology Corp. and Consolidated
Subsidiary.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As shown in the financial statements,
the company incurred a net loss of $954,099 during the year ended October 31,
1999, and, as of that date had a working capital deficit of $897,121 and a
shareholders' deficit of $429,063. In addition sales have declined significantly
from prior years. As discussed in note 22 to the financial statements, the
company's significant operating losses and capital needs raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
MOFFITT & COMPANY, P.C.
SCOTTSDALE, ARIZONA
November 18, 1999
F-24
<PAGE> 56
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 25,343
Accounts receivable, trade 212,537
Inventories 317,360
Prepaid expenses 38,984
----------
TOTAL CURRENT ASSETS $ 594,224
PROPERTY AND EQUIPMENT 124,747
OTHER ASSETS
Note receivable, related party 346,226
Deposits 16,759
----------
TOTAL OTHER ASSETS 362,985
----------
TOTAL ASSETS $1,081,956
==========
</TABLE>
F-25
<PAGE> 57
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable, trade $ 840,856
Customer deposits 115,408
Notes payable, current 67,497
Accrued liabilities 92,369
Sales and payroll taxes payable 98,082
Corporation income taxes payable 19,078
Deferred income 58,055
Convertible debentures payable 200,000
-----------
TOTAL CURRENT LIABILITIES $ 1,491,345
LONG - TERM LIABILITIES
Notes payable 19,674
-----------
TOTAL LONG - TERM LIABILITIES 19,674
STOCKHOLDERS' DEFICIT
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding - 26,370,418 shares 26,370
Paid in capital in excess of par value of stock 1,086,266
Retained earnings (deficit) (1,541,699)
-----------
TOTAL STOCKHOLDERS' DEFICIT (429,063)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,081,956
===========
</TABLE>
F-26
<PAGE> 58
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
SALES $ 2,079,331
COST OF SALES 1,608,729
-------------
GROSS PROFIT 470,602
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,453,866
-------------
(LOSS) BEFORE OTHER INCOME (983,264)
OTHER INCOME (EXPENSE)
Cancellation of debt $ 154,933
Other income 32,339
Interest income 28,260
Interest expense (49,537)
-----------
TOTAL OTHER INCOME, NET 165,995
-------------
(LOSS) BEFORE INCOME TAXES (817,269)
INCOME TAXES 136,830
-------------
NET (LOSS) $ (954,099)
=============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ (.038)
=============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 25,116,013
=============
</TABLE>
F-27
<PAGE> 59
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
SHARES AMOUNT
---------- -----------
<S> <C> <C>
BALANCE, NOVEMBER 1, 1998 8,000,000 $ 8,000
ISSUANCE OF COMMON STOCK
FOR ACQUISITION OF INVNSYS
TECHNOLOGY CORPORATION
AND TRANSFER OF NET ASSETS
AT BOOK VALUE PER REVERSE
ACQUISITION 16,000,000 16,000
ISSUANCE OF COMMON STOCK
FOR CASH
AT .35(CENT)PER SHARE 640,318 640
AT .50(CENT)PER SHARE 1,730,100 1,730
FEES AND COSTS FOR ISSUANCE
OF STOCK 0 0
NET (LOSS) FOR THE YEAR ENDED
OCTOBER 31, 1999 0 0
---------- ----------
BALANCE, OCTOBER 31, 1999 26,370,418 $ 26,370
========== ==========
</TABLE>
F-28
<PAGE> 60
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
------------ ------------- -------------
<S> <C> <C>
$ 145,282 $ 154,111 $ (74,266)
(6,000) 0 (513,334)
223,471 0 0
863,320 (154,111) 0
(139,807) 0 0
0 0 (954,099)
----------- ----------- -----------
$ 1,086,266 $ 0 $(1,541,699)
=========== =========== ===========
</TABLE>
F-29
<PAGE> 61
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (954,099)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation 42,104
Increase (decrease) in
Accounts receivable, trade (59,001)
Other receivables 1,500
Inventories 6,037
Prepaid expenses (11,984)
Deferred tax asset 145,054
Deposits 3,396
Accounts payable 50,993
Customer deposits (279,856)
Accrued liabilities and taxes (126,965)
Deferred income (12,976)
-----------
NET CASH FLOWS (USED)
BY OPERATING ACTIVITIES $ (1,195,797)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (90,315)
Repayment of related party loans 644,614
-----------
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES 554,299
</TABLE>
F-30
<PAGE> 62
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Bank overdraft $ (13,700)
Net proceeds from issuance of common stock 786,873
Proceeds from issuance of convertible debentures 200,000
Decrease in notes payable (306,532)
----------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES $ 666,641
---------
NET INCREASE IN CASH 25,143
CASH BALANCE, NOVEMBER 1, 1998 200
---------
CASH BALANCE, OCTOBER 31, 1999 $ 25,343
=========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year:
Interest $ 56,766
=========
Taxes $ 0
=========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of company stock for investment in
Invnsys Technology Corporation $ 16,000
=========
</TABLE>
F-31
<PAGE> 63
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The company was organized on April 6, 1994, under the laws of
the State of Florida. In January, 1999, the company acquired
Invnsys Technology Corporation, an Arizona corporation. Per the
acquisition agreement, the company issued 16,000,000 shares of
newly issued restricted common stock for 100% of the issued and
outstanding stock of Invnsys Technology Corporation.
Invnsys Technology Corporation is in the business of selling
retail and wholesale, financial, computing and communication
equipment. They also provide repair services and sell
maintenance contracts. The corporation currently operates a
service center in Phoenix, Arizona.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
IBIZ Technology Corp. and its wholly owned subsidiary, Invnsys
Technology Corporation.
All material inter-company accounts and transactions have been
eliminated.
CORPORATION NAME CHANGES
The corporation has changed its name as follows:
1. At date of incorporation - Exotic Video City, Inc.
2. May 28, 1998 - EVC Ventures, Inc.
3. October 10, 1998 - Invnsys Holding Corporation
4. January 21, 1999 - IBIZ Technology Corp.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Uncollectible accounts receivable are written off at the time
management specifically determines them to be uncollectible. In
addition, the allowance for doubtful accounts is provided at an
amount determined by management.
INVENTORIES
Inventories are stated at the lower of cost (determined
principally by first-in, first-out method) or cost.
F-32
<PAGE> 64
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while
replacement, maintenance and repairs, which do not improve or
extend the lives of the respective assets, are expensed. At the
time property and equipment are retired or otherwise disposed
of, the asset and related accumulated depreciation accounts are
relieved of the applicable amounts. Gains or losses from
retirements or sales are credited or charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
<TABLE>
<S> <C>
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
</TABLE>
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the goods
are shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being
reported evenly over the life of the contracts. Such unearned
portion is recorded as deferred income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and pretax
financial income and between the tax bases of assets and
liabilities and their reported amounts
F-33
<PAGE> 65
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
in the financial statements. Deferred tax assets and liabilities
are included in the financial statements at currently enacted
income tax rates applicable to the period in which the deferred
tax assets and liabilities are expected to be realized or
settled as prescribed in FASB Statement No., 109, Accounting for
Income Taxes. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the
provision for income taxes.
NET EARNINGS PER SHARE
The company adopted Statement of Financial Accounting Standards
No. 128 that requires the reporting of both basic and diluted
earnings per share. Basic earnings per share is computed by
dividing net income available to common shareowners by the
weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common
stock. In accordance with FASB 128, potentially dilutive
warrants and options that would have an anti-dilutive effect on
net loss per share are excluded.
RISKS AND UNCERTAINTIES
The company is in the computer and computer technology industry.
The company's products are subject to rapid obsolescence and
management must authorize funds for research and development
costs in order to stay competitive.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The company has financial instruments, none of which are held
for trading purposes. The company estimates that the fair value
of all financial instruments at October 31, 1999, as defined in
FASB 107, does not differ materially from the aggregate carrying
values of its financial instruments recorded in the accompanying
balance sheet. The estimated fair value amounts have been
determined by the company using available market information and
appropriate valuation methodologies. Considerable judgement is
required in interpreting market data to develop the estimates of
fair value, and accordingly, the estimates are not necessarily
indicative of the amounts that the company could realize in a
current market exchange.
NOTE 3 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful
accounts is as follows:
<TABLE>
<S> <C>
Accounts receivable $ 215,037
Allowance for doubtful accounts 2,500
-----------
$ 212,537
===========
</TABLE>
F-34
<PAGE> 66
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 4 INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Computer and components:
Finished products $218,018
Demonstration and loaner units 56,009
Depot units 18,302
Office 24,712
Parts 319
--------
Total inventories $317,360
========
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consisted
of:
<TABLE>
<S> <C>
Tooling $ 68,100
Machinery and equipment 39,032
Office furniture and equipment 105,627
Vehicles 39,141
Leasehold improvements 17,031
--------
268,931
Less accumulated depreciation 144,184
--------
Total property and equipment $124,747
========
</TABLE>
The depreciation expenses for the year ended October 31, 1999 is
$ 42,104.
NOTE 6 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<S> <C>
The related note is secured by 500,000 shares of common stock in
the company, payable on demand and accrues interest at 6%. At October
31, 1999, management believed the notes would not be collected within
the current operating cycle and classified the asset as a long-term asset. $ 346,226
=========
</TABLE>
F-35
<PAGE> 67
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 7 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales
price when orders are received. These funds are recorded as
customer deposits and are applied to the customer invoices when
the merchandise is shipped.
NOTE 8 INCOME TAXES
<TABLE>
<S> <C>
(Loss) from continuing operations
before income taxes $ (954,099)
-----------
The provision for income taxes is estimated as follows:
Currently payable $ 0
Deferred 136,830
-----------
A reconciliation of the provision for income taxes compared with
the amounts at the U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory income tax rates $ 136,830
-----------
Deferred income tax assets and liabilities reflect the impact of
temporary differences between amounts of assets and liabilities for
financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws. The net deferred tax assets is: $ 0
-----------
Temporary differences and carry forwards that
gave rise to deferred tax assets and liabilities
included the following:
</TABLE>
<TABLE>
<CAPTION>
Deferred Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Net operating loss $261,863 $ 0
Accrued expenses and miscellaneous 9,030 0
Tax credit carryforward 20,175 0
Depreciation 0 6,199
-------- --------
</TABLE>
F-36
<PAGE> 68
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 8 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
Deferred Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Subtotals $ 291,068 $ 6,199
Valuation allowance (291,068) (6,199)
--------- ---------
Total deferred taxes $ 0 $ 0
========= =========
</TABLE>
As discussed in note 22, there is substantial doubt about the
company's ability to continue as a going concern. Consequently,
the company must maintain a 100% valuation allowance for the
deferred taxes as there is doubt that the company will generate
profits which will be absorbed by the tax differences.
A reconciliation of the valuation allowance is as follows:
<TABLE>
<S> <C>
Balance, October 31, 1998 $ 0
Addition to allowance for year ended October 31, 1999 291,068
--------
Balance, October 31, 1999 $291,068
========
</TABLE>
NOTE 9 TAX CARRYFORWARD
The company has the following tax carryforwards at October 31,
1999:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
--------------------- --------- -----------------
<S> <C> <C>
Net operating loss
October 31, 1997 $342,302 October 31, 2012
October 31, 1999 796,236 October 31, 2019
Capital loss
October 31, 1997 25,600 October 31, 2002
Contribution
October 31, 1995 1,536 October 31, 2000
October 31, 1996 2,068 October 31, 2001
October 31, 1999 2,081 October 31, 2004
</TABLE>
F-37
<PAGE> 69
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 10 NOTES PAYABLE
<TABLE>
<S> <C>
Note payable to Community First National Bank due in monthly
payments of interest of approximately $3,100. Interest is
computed at national prime as stated in the Wall Street Journal
plus 3 percent. The principal amount is due July 31, 2000. This
note is secured by accounts receivable, general intangibles and
all equipment and leasehold improvements. The shareholder has
personally guaranteed the loan and the bank is the beneficiary of
an insurance policy on the life of the shareholder. $62,426
Note payable to Community First National Bank due in monthly
payments of principal and interest of $545 with interest at 7
percent until March 7, 2004. The note is secured by an automobile. 24,745
-------
87,171
Less: current portion 67,497
-------
Net long-term debt $19,674
=======
Maturities of long-term debt are as follows:
Year ended October 31,
2000 $67,497
2001 5,336
2002 5,721
2003 6,135
2004 2,482
-------
$87,171
=======
</TABLE>
F-38
<PAGE> 70
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 11 COMMON STOCK PURCHASE WARRANTS
The company has issued the following common stock purchase warrants:
<TABLE>
<CAPTION>
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
---- --------- ---- --------
<S> <C> <C> <C>
May 7, 1999 100,000 3 years $ 0.75
May 13, 1999 100,000 3 years $ 1.00
May 7, 1999 300,000 3 years $ 0.75
May 7, 1999 300,000 10 years $ 0.75
May 13, 1999 100,000 10 years $ 1.00
</TABLE>
NOTE 12 CONVERTIBLE DEBENTURES
On June 30, 1999, the company authorized $200,000 of convertible
debentures. The debentures bear interest at 8%, are unsecured and are
due on June 21, 2000.
Upon the effectiveness of the required registration statements, the
debentures will automatically convert into 300,000 fully paid and
nonassessable shares of common stock of the company.
NOTE 13 REAL ESTATE LEASE
On June 1, 1999, the company leased a new facility from a related
entity. The lease commenced on July 1, 1999, requires initial annual
rentals of $153,600 (with annual increases) plus taxes and operating
costs and expires on December 31, 2024. The company has also
guaranteed the mortgage on the premises.
Future minimum lease payments, excluding taxes and expenses, are as
follows:
<TABLE>
<S> <C>
October 31, 2000 $ 156,160
October 31, 2001 163,968
October 31, 2002 172,168
October 31, 2003 180,780
October 31, 2004 189,820
November 1, 2004 - December 31, 2004 6,676,000
</TABLE>
NOTE 14 ADVERTISING
The company expenses all advertising as incurred. For the year ended
October 31, 1999, the company charged to operations $15,492 in
advertising costs.
F-39
<PAGE> 71
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 15 INTEREST
The company incurred interest expenses for the year ended October 31,
1999 of $49,537.
NOTE 16 RESEARCH AND DEVELOPMENT COSTS
The company incurred research and development costs for the year
ended October 31, 1999 of $5,014.
NOTE 17 WARRANTY RESERVE
The company established a warranty reserve of $10,000 to cover any
potential warranty costs on computer equipment that are not covered
by the computer manufacturer's warranty.
NOTE 18 ECONOMIC DEPENDENCY
The company purchases the majority of its computer equipment from
three suppliers.
NOTE 19 OFFICERS' COMPENSATION
On March 5, 1999, the company entered into three employment
agreements with the following officers:
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
--------- ----------- ----------
<S> <C> <C> <C>
Annual compensation $ 200,000 $ 88,000 $ 88,000
=========== =========== ===========
</TABLE>
NOTE 20 STOCK OPTIONS
On January 31, 1999, the corporation adopted a stock option plan for
the purpose of providing an incentive based form of compensation to
the directors, key employees and service providers of the
corporation.
The stock subject to the plan and issuable upon exercise of options
granted under the plan are shares of the corporation's common stock,
$.001 par value, which may be either unissued or treasury shares. The
aggregate number of shares of common stock covered by the plan and
issuable upon exercise of all options granted shall be 5,000,000
shares, which shares shall be reserved for use upon the exercise of
options to be granted from time to time.
F-40
<PAGE> 72
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
The company issued the following options:
<TABLE>
<CAPTION>
DATE OF NUMBER VESTING
ISSUANCE OF SHARES RECIPIENT PERIOD TERM
-------- --------- --------- ------ ----
<S> <C> <C> <C> <C>
April 22, 1999 800,000 Officers One year 10 years
50% immediately
50% in six months
April 22, 1999 240,000 Employees Five years 10 years
20% per year
April 22, 1999 200,000 Employee Five years 10 years
10% immediately
balance over four
years
April 22, 1999 150,000 Directors Two years 10 years
50% per year
May 7, 1999 500,000 Employee Immediately 10 years
May 7, 1999 85,000 Employees Five years 10 years
10,000 shares
immediately
balance over five
years
May 7, 1999 375,000 Employee After two years, 10 years
--------- 50% per year
2,350,000
=========
</TABLE>
The exercise price is the fair market value of the shares (average of
bid and ask price) at the date of the grant which was .75(cents) per
share.
The company applied APB Opinion 25 and related interpretations in
accounting for this stock option plan. Had compensation costs for the
company's plan been determined based on the fair value at the grant
date consistent with the method of FASB Statement 123, the company's
net
F-41
<PAGE> 73
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
income and earnings per share would not have changed.
The fair value of the option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of
30%, (3) risk-free interest rate of 6.40%, and (4) expected life of
10 years.
A summary of the stock options is as follows:
<TABLE>
<CAPTION>
SHARES
------
<S> <C>
Outstanding at November 1, 1998 0
Granted during the year 2,350,000
---------
Outstanding at October 31, 1999 2,350,000
=========
</TABLE>
Information regarding stock options outstanding as of October 31,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
PRICE EXERCISE CONTRACTUAL
RANGE SHARES PRICE LIFE
----- ------ -------- -----------
<S> <C> <C> <C>
$ .75(cents) 2,350,000 $ .75 9 years, 6 months
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------
WEIGHTED
AVERAGE
PRICE EXERCISE
RANGE SHARES PRICE
----- ------ --------
<S> <C> <C>
$ 0 0 N/A
</TABLE>
Since the exercise price and the fair market value of the stock were
the same, there is no compensation costs to report and required
pro-forma net income and earnings per share are the
F-42
<PAGE> 74
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
same as the historical financial statement presentations.
NOTE 21 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
On January 1, 1999, the company issued 16,000,000 shares of newly
issued restricted common stock for 100% of the issued and outstanding
stock of Invnsys Technology Corporation. Invnsys Technology
Corporation became a wholly-owned subsidiary of IBIZ Technology Corp.
and the acquisition was accounted for as a reverse acquisition.
The details of the results of operation (unaudited) for each separate
company, prior to the date of combination, that are included in the
current net income are:
<TABLE>
<CAPTION>
INVNSYS IBIZ
TECHNOLOGY TECHNOLOGY
CORPORATION CORP.
----------- -----------
<S> <C> <C>
Sales $ 402,127 $ 0
Cost of sales 239,704 0
--------- ---------
Gross profit 162,423 0
Selling, general and administrative
expenses 243,094 27,742
--------- ---------
(Loss) before income taxes (refund) (80,671) (27,742)
Income taxes (refund) (20,150) 0
--------- ---------
Net (loss) $ (60,521) $ (27,742)
========= =========
</TABLE>
There were no adjustments in the net assets of the combining
companies to adopt the same accounting policies.
Each of the companies had an October 31 fiscal year so no accounting
adjustments were necessary.
An (unaudited) reconciliation of revenues and earnings reconciled
with the amounts shown in the combined financial statements is as
follows:
<TABLE>
<S> <C>
Net (loss) on IBIZ Technology Corp. at December 31, 1998 $ (27,742)
Add Invnsys Technology Corporation (loss)
for November 1, 1998 to December 31, 1998 (60,521)
Additional net (loss) from January 1, 1999 to October 31, 1999 (865,836)
---------
Net (loss) for the year ended October 31, 1999 $(954,099)
=========
</TABLE>
F-43
<PAGE> 75
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 22 GOING CONCERN
These financial statements are presented on the basis that the
company is a going concern. Going concern contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business over a reasonable length of time. The
accompanying financial statement show that current liabilities exceed
current assets by $897,021 and a shareholders' deficit of $429,063.
In addition, sales have declined significantly from prior years. As
described in note 23, the company obtained $600,000 of additional
capital in November 1999.
NOTE 23 SUBSEQUENT EVENT
In November 1999, the company issued $600,000 of 7% convertible
debentures under the following terms and conditions:
1. Due date - November 9, 2004.
2. Interest only on April 1 and November 1 of each year
commencing January 1, 2000.
3. Warrants to purchase 100,000 shares of common stock at $
0.94 per share.
4. Conversion terms - The debenture holder shall have the
right to convert all or a portion of the outstanding
principal amount of this debenture plus any accrued
interest into such number of sales of common stock as shall
equal the quotient obtained by dividing the principal
amount of this debenture by the applicable conversion
price.
5. Conversion price - Lesser of (i) $ 0.94 (fixed price) or
(ii) the product obtained by multiplying the average
closing price by $ 0.80.
6. Average closing price - The debenture holder shall have the
election to choose any three trading days out of twenty
trading days immediately preceding the date on which the
holder gives the company a written notice of the holders'
election to convert outstanding principal of this
debenture.
7. Redemption by company - If there is a change in control of
the company, the holder of the debenture can request that
the debenture be redeemed at a price equal to 125% of the
aggregate principal and accrued interest outstanding under
this debenture.
8. The debentures are unsecured.
9. Any further issuance of common stock or debentures must be
approved by debenture holders.
10. Debenture holders have a eighteen month right of first
refusal on future disposition of stock by the company.
11. Restriction on payment of dividends, retirement of stock or
issuance of new securities.
F-44
<PAGE> 76
PART III
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
2.01(1) Plan of Reorganization and Stock Exchange Agreement dated
January 1, 1999
3.01(1) Articles of Incorporation, as amended
3.02(1) Bylaws
10.1(1) Citrix Business Alliance Membership Agreement dated
February 10, 1999, between INVNSYS and Citrix Systems, Inc.
10.2(1) Client Software License Agreement dated December 30, 1998,
between INVNSYS and Citrix Systems, Inc.
10.3(1) iBIZ Technology Corporation Distributed Software License
Agreement dated June 2, 1999, between iBIZ and Jeremy
Radlow
10.4(1) 3Com Designed for Palm Computing Platform Logo License
Agreement, between iBIZ and Palm Computing, Inc.
10.5(1) iBIZ Technology Corp. Stock Option Plan dated January 31,
1999
10.6(1) Form of Stock Option
10.7(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone
Cactus Capital Group, L.L.C.
10.8(1) Strategic Teaming and Marketing Agreement dated February
18, 1999, between iBIZ and Global Telephone Communication,
Inc.
10.9(1) Form of iBIZ Technology Corp. Common Stock Purchase Warrant
10.10(1) Form of iBIZ Technology Corp. Convertible Debenture
10.11(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Kenneth Schilling
10.12(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Terry Ratliff
10.13(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Mark Perkins
10.14(2) Securities Purchase Agreement dated November 9, 1999,
between iBIZ and Globe United Holdings, Inc.
10.15(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ
and Globe United Holdings, Inc.
10.16(2) Warrant dated November 9, 1999
10.17(2) Registration Rights Agreement dated November 9, 1999,
between iBIZ and Globe United Holdings, Inc.
21.(1) Subsidiaries of Registrant
27.(2) Financial Data Schedule
</TABLE>
---------------
(1.) Incorporated by reference from iBIZ's Form 10-SB, File No. 027619,
filed with the SEC on October 13, 1999.
(2.) Filed herewith.
<PAGE> 77
Pursuant to the requirements of Section 12 of the Securities Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated this 30th day of November, 1999
IBIZ TECHNOLOGY CORP., A FLORIDA
CORPORATION
By: /s/ Kenneth W. Schilling
______________________________________________
Kenneth W. Schilling, President, Director
By: /s/ Terry S. Ratliff
______________________________________________
Terry S. Ratliff, Vice President,
Comptroller, Director
By: /s/ Mark H. Perkins
______________________________________________
Mark H. Perkins, Vice President of Operations,
Director
<PAGE> 78
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
2.01(1) Plan of Reorganization and Stock Exchange Agreement dated
January 1, 1999
3.01(1) Articles of Incorporation, as amended
3.02(1) Bylaws
10.1(1) Citrix Business Alliance Membership Agreement dated
February 10, 1999, between INVNSYS and Citrix Systems, Inc.
10.2(1) Client Software License Agreement dated December 30, 1998,
between INVNSYS and Citrix Systems, Inc.
10.3(1) iBIZ Technology Corporation Distributed Software License
Agreement dated June 2, 1999, between iBIZ and Jeremy
Radlow
10.4(1) 3Com Designed for Palm Computing Platform Logo License
Agreement, between iBIZ and Palm Computing, Inc.
10.5(1) iBIZ Technology Corp. Stock Option Plan dated January 31,
1999
10.6(1) Form of Stock Option
10.7(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone
Cactus Capital Group, L.L.C.
10.8(1) Strategic Teaming and Marketing Agreement dated February
18, 1999, between iBIZ and Global Telephone Communication,
Inc.
10.9(1) Form of iBIZ Technology Corp. Common Stock Purchase Warrant
10.10(1) Form of iBIZ Technology Corp. Convertible Debenture
10.11(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Kenneth Schilling
10.12(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Terry Ratliff
10.13(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Mark Perkins
10.14(2) Securities Purchase Agreement dated November 9, 1999,
between iBIZ and Globe United Holdings, Inc.
10.15(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ
and Globe United Holdings, Inc.
10.16(2) Warrant dated November 9, 1999
10.17(2) Registration Rights Agreement dated November 9, 1999,
between iBIZ and Globe United Holdings, Inc.
21.(1) Subsidiaries of Registrant
27.(2) Financial Data Schedule
</TABLE>
---------------
(1). Incorporated by reference from iBIZ's Form 10-SB, File No. 027619,
filed with the SEC on October 13, 1999.
(2). Filed herewith.
<PAGE> 1
EXHIBIT 10.14
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of November 9, 1999
(this "Agreement"), is entered into by and between iBIZ TECHNOLOGY CORP., a
Florida corporation (the "Company"), and GLOBE UNITED HOLDINGS, INC., a British
Virgin Islands Corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and delivering
this Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act;
WHEREAS, the Purchaser wishes to purchase, and the Company wishes to
issue and sell, for an aggregate purchase price of $600,000 upon the terms and
conditions of this Agreement, $600,000 aggregate principal amount (the
"Debentures") of the Company's 7% Convertible Debentures which Debentures shall
be in the form attached as Exhibit A, and warrants (the "Warrants") to purchase
100,000 shares of the Company's Common Stock, par value $.001 per share (the
"Common Stock"); and
WHEREAS, the Debentures are convertible into shares of the Company's
Common Stock on the terms set forth therein, and the Warrants (which shall be in
substantially the form attached as Exhibit B) may be exercised for the purchase
of Common Stock, on the terms set forth therein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
a. PURCHASE OF DEBENTURES. Purchaser hereby agrees to purchase
from the Company, and the Company hereby agrees to issue and sell to the
Purchaser, the Debentures and the Warrants for an aggregate purchase price
of $600,000 which shall be payable on the date hereof in next day funds.
b. CLOSINGS. The Debentures and Warrants to be purchased by
Purchaser hereunder, in definitive form, and in such denominations as
Purchaser or its representative, if any, may request upon at least
forty-eight
<PAGE> 2
hours' prior notice to the Company, shall be delivered by or on behalf of
the Company for the account of Purchaser, against payment by the Purchaser
of the aggregate purchase price of $600,000 therefor by wire transfer to
an account of the Company, all at the offices of Laufer, Halberstam &
Karish, One Liberty Plaza, 37' Floor, New York, New York 10006, New York
time on the date hereof, or at such other time and date as Purchasers or
their representative, if any, and the Company may agree upon in writing,
such date being referred to herein as the "Closing Date."
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and agrees
with, the Company as follows:
a. The Purchaser is (i) experienced in making investments of
the kind described in this Agreement and the related documents, (ii) able,
by reason of the business and financial experience of its management, to
protect its own interests in connection with the transactions described in
this Agreement and the related documents, and (iii) able to afford the
entire loss of its investment in the Debentures and Warrants.
b. All subsequent offers and sales of the Debentures and
Warrants and the Common Stock issuable upon conversion or exercise of, or
in lieu of interest payments on, the Debentures and Warrants, it shall
have purchased shall be made pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable exemption
from such registration.
c. The Purchaser understands that the Debentures and the
Warrants are being offered and sold to it in reliance upon exemptions from
the registration requirements of the United States federal securities
laws, and that the Company is relying upon the truth and accuracy of the
Purchaser's representations and warranties, and the Purchaser's compliance
with its agreements, each as set forth herein, in order to determine the
availability of such exemptions and the eligibility of the Purchaser to
acquire the Debentures and the Warrants.
d. The Purchaser: (A) has been provided with sufficient
information with respect to the business of the Company and such documents
relating to the Company as the Purchaser has requested and Purchaser has
carefully reviewed the same including, without limitation, the Company's
Form 10-SB (the "Form 10") filed with the Securities and Exchange
Commission on October 13, 1999 (the "Commission"), (B) has been provided
2
<PAGE> 3
with such additional information with respect to the Company and its
business and financial condition as the Purchaser, or the Purchaser's
agent or attorney, has requested, and (C) has had access to management of
the Company and the opportunity to discuss the information provided by
management of the Company and any questions that the Purchaser had with
respect thereto have been answered to the full satisfaction of the
Purchaser.
e. The Purchaser has the requisite corporate power and
authority to enter into this Agreement and the registration rights
agreement, dated as of the date hereof, between the Company and the
Purchaser (the "Registration Rights Agreement").
f. This Agreement and the Registration Rights Agreement and
the transactions contemplated hereby and thereby, have been duly and
validly authorized by the Purchaser; and such agreements, when executed
and delivered by each of the Purchaser and the Company will each be a
valid and binding agreement of the Purchaser, enforceable in accordance
with their respective terms, except to the extent that enforcement of each
such agreement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter
in effect relating to creditors' rights generally and to general
principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Purchaser that:
a. ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Florida. Each of the Company's subsidiaries, if any, is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction. Each of the Company and its subsidiaries, if any,
is duly qualified as a foreign corporation in all jurisdictions in which
the failure to so qualify would have a material adverse effect on the
Company and its subsidiaries taken as a whole. Schedule 3a lists all
subsidiaries of the Company and, except as noted therein, all of the
outstanding capital stock of all such subsidiaries is owned of record and
beneficially by the Company.
b. CAPITALIZATION. On the date hereof, the authorized capital
of the Company consists of 100,000,000 shares of Common Stock, par value
$.001 per share, of which 23,933,418 shares are issued and outstanding.
Schedule 3b sets forth all of the options, warrants and convertible
securities of the Company, and any other rights to acquire securities of
the Company (collectively, the "Derivative Securities") which are
outstanding on the date hereof, including in each case (i) the name and
class of such Derivative Securities, (ii) the issue date of such
Derivative Securities, (iii) the number of
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shares of Common Stock of the Company into which such Derivative
Securities are convertible as of the date hereof, (iv) the conversion or
exercise price or prices of such Derivative Securities as of the date
hereof, (v) the expiration date of any conversion or exercise rights held
by the owners of such Derivative Securities and (vi) any registration
rights associated with such Derivative Securities. Schedule 3b also sets
forth all registration rights associated with the Common Stock.
c. CONCERNING THE COMMON STOCK AND THE WARRANTS. The
Debentures and Warrants, and Common Stock issuable upon conversion of, or
in lieu of interest payments on, the Debentures, and upon exercise of the
Warrants so issued, when issued, shall be duly and validly issued, fully
paid and non-assessable, will not be subject to preemptive rights and will
not subject the holder thereof to personal liability by reason of being
such a holder. There are currently no preemptive rights of any stockholder
of the Company, as such, to acquire the Debentures or the Warrants, or the
Common Stock issuable to the Purchaser pursuant to the terms of the
Debentures or the Warrants.
d. REPORTING COMPANY STATUS. After the Company's Form 10 is
declared effective by the Commission, the Company will file reports with
the Commission pursuant to Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Common Stock is listed and
traded on the OTC Bulletin Board ("OTC"), and the Company is not aware of
any pending or contemplated action or proceeding of any kind to suspend
the trading of the Common Stock.
e. AUTHORIZED SHARES. The Company has available a sufficient
number of authorized and unissued shares of Common Stock as may be
necessary to effect the conversion of the Debentures and the exercise of
the Warrants. The Company understands and acknowledges the potentially
dilutive effect to the Common Stock of the issuance of shares of Common
Stock upon the conversion of the Debentures and the exercise of the
Warrants. The Company further acknowledges that its obligation to issue
shares of Common Stock upon conversion of the Debentures and upon exercise
of the Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any
case under 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"). In the
event the Company becomes a debtor under the Bankruptcy Code, the Company
hereby waives to the fullest extent permitted any rights to relief it may
have under 11 U.S.C. Section 362 in respect of the conversion of the
Debentures and the exercise of the Warrants. At the direction of
Purchaser, the Company agrees, without cost or expense to the Purchaser,
to take or consent to any and all action necessary to effectuate relief
under 11 U.S.C. Section 362.
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f. LEGALITY. The Company has the requisite corporate power and
authority to enter into this Agreement and the Registration Rights
Agreement, and to issue and deliver the Debentures, the Warrants and the
Common Stock issuable upon conversion of, or in lieu of interest payments
on the Debentures and the exercise of the Warrants.
g. TRANSACTION AGREEMENTS. This Agreement, the Registration
Rights Agreement, the Debentures and the Warrants (collectively, the
"Primary Documents"), and the transactions contemplated hereby and
thereby, have been duly and validly authorized by the Company; this
Agreement has been duly executed and delivered by the Company and this
Agreement is, and the other Primary Documents, when executed and delivered
by the Company, will each be, a valid and binding agreement of the
Company, enforceable in accordance with their respective terms, except to
the extent that enforcement of each of the Primary Documents may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity.
h. NON-CONTRAVENTION. The execution and delivery of this
Agreement and each of the other Primary Documents, and the consummation by
the Company of the transactions contemplated by this Agreement and each of
the other Primary Documents, does not and will not conflict with or result
in a breach by the Company of any of the terms or provisions of, or
constitute a default under, the Articles of Incorporation or By-laws of
the Company, or any indenture, mortgage, deed of trust or other agreement
or instrument to which the Company or any of its subsidiaries is a party
or by which they or any of their properties or assets are bound, or any
existing applicable law, rule, or regulation or any applicable decree,
judgment or order of any court or United States or foreign federal or
state regulatory body, administrative agency, or any other governmental
body having jurisdiction over the Company, its subsidiaries, or any of
their properties or assets. Except as set forth on Schedule 3(h), neither
the filing of the registration statement required to be filed by the
Company pursuant to the Registration Rights Agreement nor the offering or
sale of the Debentures or the Warrants as contemplated by this Agreement
gives rise to any rights, other than those which have been waived or
satisfied on or prior to the date hereof, for or relating to the
registration of any shares of the Common Stock. Schedule 3(h)(1) hereto
lists all material agreements and instruments to which the Company or any
of its subsidiaries is a party or by which any of their properties or
assets are bound.
i. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization,
stock exchange or market or the stockholders of the Company is required to
be
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obtained by the Company for the entry into or the performance of this
Agreement and the other Primary Documents.
j. SEC FILINGS. None of the reports or documents filed by the
Company with the Commission contained, at the time they were filed, any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein, or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. However, at the time of filing the Form 10, interim financial
statements for the nine month period ended July 31, 1999 had been prepared
internally by the Company and not reviewed by the Company's outside
accounting firm ("Unreviewed Financials"). Prior to the effectiveness of
the Form 10, the Unreviewed Financials may undergo significant revisions
and the Form 10 itself may also undergo significant revisions as a result
of SEC comments and review.
k. STABILIZATION. Neither the Company, nor, to the knowledge
of the Company, any of its affiliates, has taken or may take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock.
1. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
Company's public filings with the Commission, since the filing of the Form
10, there has been no material adverse change nor any material adverse
development in the business, properties, operations, financial condition,
prospects, outstanding securities or results of operations of the Company.
m. FULL DISCLOSURE. There is no fact known to the Company that
has not been disclosed in writing to the Purchaser (i) that could
reasonably be expected to have an adverse effect upon the condition
(financial or otherwise) or the earnings, business affairs, properties or
assets of the Company or (ii) that could reasonably be expected to
materially and adversely affect the ability of the Company to perform the
obligations set forth in the Primary Documents.
n. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company
has good and marketable title to all of its material properties and
assets, both real and personal, and has good title to all its leasehold
interests, in each case subject only to mortgages, pledges, liens,
security interests, conditional sale agreements, encumbrances or charges
created in the ordinary course of business.
o. PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has
sufficient title and ownership of all patents, trademarks, service marks,
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trade names, internet domain names, copyrights, trade secrets,
information, proprietary rights and processes necessary for the conduct of
its business as now conducted and as proposed to be conducted, and such
business does not and would not conflict with or constitute an
infringement on the rights of others.
p. PERMITS. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now
conducted, the lack of which would materially and adversely affect the
business or financial condition of the Company. The Company is not in
default in any respect under any of such franchises, permits, licenses or
similar authority.
q. ABSENCE OF LITIGATION. Except as disclosed in the Company's
public filings with the Commission, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body
pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company or any of its subsidiaries, in
which an unfavorable decision, ruling or finding would have an adverse
effect on the properties, business, condition (financial or other) or
results of operations of the Company and its subsidiaries, taken as a
whole, or the transactions contemplated by the Primary Documents, or which
would adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, the Primary
Documents.
r. NO DEFAULT. Each of the Company and its subsidiaries is not
in default in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its
property may be bound which default could result in a material adverse
effect on the Company.
s. TRANSACTIONS WITH AFFILIATES. Except as disclosed in the
Company's public filings with the Commission, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors or affiliates that, had they existed on the date the
Form 10 was filed, would have been required to be disclosed in the
Company's Form 10.
t. EMPLOYMENT MATTERS. The Company is in compliance in all
respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would have any
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liability; the Company has not incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
u. INSURANCE. The Company maintains property and casualty,
general liability, personal injury and other similar types of insurance
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from,
and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny
coverage under or cancel, discontinue or not renew any insurance policy
covering the Company or any of its Subsidiaries presently in force.
v. TAXES. All applicable tax returns required to be filed by
the Company and each of its subsidiaries have been prepared and filed in
compliance with all applicable laws, or if not yet filed have been granted
extensions of the filing dates which extensions have not expired, and all
taxes, assessments, fees and other governmental charges upon the Company,
its subsidiaries, or upon any of their respective properties, income or
franchises, shown in such returns and on assessments received by the
Company or its subsidiaries to be due and payable have been paid, or
adequate reserves therefor have been set up if any of such taxes are being
contested in good faith; or if any of such tax returns have not been filed
or if any such taxes have not been paid or so reserved for, the failure to
so file or to pay would not in the aggregate have a material adverse
effect on the business or financial condition of the Company and its
subsidiaries, taken as a whole. The Company is disputing certain tax
penalties and interest thereon as set forth on Schedule 3v hereto.
w. FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor any
of its directors, officers or other employees has (i) used any Company
funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to any political activity; (ii) made any
direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977,
as amended; or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other similar payment to any person.
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x. INTERNAL CONTROLS. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
y. INVESTMENT COMPANY ACT. The Company is not conducting, and
will not conduct, its business in a manner which would cause it to become,
an "investment company," as defined in Section 3(a) of the Investment
Company Act of 1940, as amended.
z. BROKERAGE FEES. Other than an amount equal to $60,000
payable by the Company as a placement fee, the Company has not incurred
any liability for any consulting fees or agent's commissions in connection
with the offer and sale of the transactions contemplated by this
Agreement.
aa. PRIVATE OFFERING. Subject to the accuracy of the
Purchaser's representations and warranties set forth in Section 2 hereof,
(i) the offer, sale and issuance of the Debentures and the Warrants, (ii)
the issuance of Common Stock in lieu of interest payments on the
Debentures and the Warrants and (iii) the conversion and/or exercise of
such securities into shares of Common Stock, each as contemplated by this
Agreement, are exempt from the registration requirements of the Securities
Act. The Company agrees that neither the Company nor anyone acting on its
behalf will offer any of the Debentures and the Warrants, or any similar
securities for issuance or sale, or solicit any offer to acquire any of
the same from anyone so as to render the issuance and sale of such
securities subject to the registration requirements of the Securities Act.
The Company has not offered or sold the Debentures or the Warrants by any
form of general solicitation or general advertising, as such terms are
used in Rule 502(c) under the Securities Act.
bb. FULL DISCLOSURE. The representations and warranties of the
Company set forth in this Agreement (and the schedules thereto) do not
contain, any untrue statement of a material fact or omit any material fact
necessary to make the statements contained herein, in light of the
circumstances under which they were made, not misleading.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
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a. TRANSFER RESTRICTIONS. The Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, (1) none of the
Debentures, the Warrants or the Common Stock issuable upon conversion of,
or in lieu of interest payments on, the Debentures or upon exercise of the
Warrants, have been, or are being, registered under the Securities Act,
and such securities may not be transferred unless (A) subsequently
registered thereunder or (B) they are transferred pursuant to an exemption
from such registration; and (2) any sale of the Debentures, the Warrants
or the Common Stock issuable upon conversion or exchange thereof (the
"Securities") made in reliance upon Rule 144 under the Securities Act may
be made only in accordance with the terms of said Rule. The provisions of
Section 4(a) and 4(b) hereof, together with the rights of the Purchaser
under this Agreement and the other Primary Documents, shall be binding
upon any subsequent transferee of the Debentures and the Warrants.
b. RESTRICTIVE LEGEND. The Purchaser acknowledges and agrees
that, until such time as the Securities shall have been registered under
the Securities Act or the Purchaser demonstrates to the reasonable
satisfaction of the Company that such registration shall no longer be
required, such Securities shall bear a restrictive legend in substantially
the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION SHALL NO LONGER BE REQUIRED.
c. FILINGS. The Company undertakes and agrees that it will
make all required filings in connection with the sale of the Securities to
the Purchaser as required by United States laws and regulations, or by any
domestic securities exchange or trading market, and if applicable, the
filing of a notice on Form D (at such time and in such manner as required
by the Rules and Regulations of the Commission), and to provide copies
thereof to the Purchaser promptly after such filing or filings.
d. NASDAQ LISTING. The Company undertakes and agrees that it
will file an application with the NASDAQ market within 30 days after
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meeting the criteria required by the NASD Bylaws for listing to list the
Company's Common Stock (including, but not limited to, all of the shares
of Common Stock issuable upon conversion of, or in lieu of interest
payments on, the Debentures, and upon exercise of the Warrants) on the
NASDAQ Small-Cap Market. The Company further agrees and covenants that,
once the Company's Common Stock becomes listed on the NASDAQ Small-Cap
Market it will not seek to have the trading of its Common Stock through
the NASDAQ Small-Cap Market suspended or terminated, will use its best
efforts to maintain its eligibility for trading on the NASDAQ Small-Cap
Market (including, the filing of a listing application with NASDAQ to list
all of the shares of Common Stock issuable upon conversion of, or in lieu
of interest payments on, the Debentures and upon the exercise of the
Warrants) and, if such trading of its Common Stock is suspended or
terminated, will use its best efforts to requalify its Common Stock or
otherwise cause such trading to resume.
e. REPORTING STATUS. So long as the Purchaser beneficially
owns any of the Securities or any Debentures and any shares of Common
Stock issuable upon conversion thereof (collectively with the Securities,
the "Collective Securities"), the Company shall timely file all reports
required to be filed with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act and shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such termination.
f. STATE SECURITIES FILINGS. The Company shall from time to
time promptly take such action as the Purchaser or any of its
representatives, if applicable, may request to qualify the Collective
Securities for offering and sale under the securities laws (other than
United States federal securities laws) of the jurisdictions in the United
States as shall be so identified to the Company, and to comply with such
laws so as to permit the continuance of sales therein.
g. USE OF PROCEEDS. The Company will use all of the net
proceeds from the issuance of the Debentures and the Warrants to make
investments in the Company's subsidiaries and for working capital.
h. RESERVATION OF COMMON STOCK. The Company will at all times
have authorized and reserved for the purpose of issuance a sufficient
number of shares of Common Stock to provide for the conversion of the
Debentures and the exercise of the Warrants. The Company will use its best
efforts at all times to maintain a number of shares of Common Stock so
reserved for issuance that is no less than two (2) times the maximum
number that could be issuable upon the conversion of the Debentures and
the exercise in full of the Warrants.
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i. SALES OF ADDITIONAL SHARES. The Company shall not, directly
or indirectly, without the prior written consent of the Purchaser, offer,
sell, offer to sell, contract to sell or otherwise dispose of any shares
of its capital stock or any security or other instrument convertible into
or exchangeable for shares of Common Stock, in each case for a period
commencing on the date hereof and ending on the earlier of (i) one hundred
eighty (180) days after the date on which a registration statement
relating to Common Stock issuable upon conversion of any of the Warrants
and the Debentures, is declared effective by the Securities and Exchange
Commission or (ii) the date on which Purchaser shall have converted all of
the Debentures into Common Stock (the "Lock-Up Period"), except that the
Company (i) may issue securities for the aggregate consideration of at
least $7.5 million in connection with a bona fide, firm commitment,
underwritten public offering under the Securities Act; and (ii) may issue
shares of Common Stock upon the exercise or conversion of currently
outstanding options, warrants and other convertible securities; (iii) may
issue options to purchase up to 1,000,000 shares of its Common Stock to
its directors, officers and employees in connection with its existing
stock option plans. In addition, the Company agrees that it will not cause
any shares of its capital stock that are issued in connection with a
transaction of the type contemplated by such clause (or upon the
conversion or exercise of other securities that are issued in connection
with such transaction) or that were issued in connection with any
financing, acquisition or other transaction that occurred prior to the
date of this agreement to be covered by a registration statement that is
declared effective by the Commission until the later to occur of (A) the
expiration of the Lock-Up Period or (B) the registration statement filed
by the Company pursuant to its obligations under the Registration Rights
Agreement has been effective under the Securities Act for a period of at
least one-hundred and eighty (180) days.
j. RIGHT OF FIRST REFUSAL. Subject to Section 4(i), if during
the 18 month period following the Lock-Up Period the Company shall desire
to sell, offer to sell, contract to sell or otherwise dispose of any
shares of its capital stock or any security or other instrument
convertible into or exchangeable for shares of Common Stock (collectively,
the "Offered Securities") to a prospective investor (the "Prospective
Investor"), the Company shall notify (the "Offer Notice") the Purchasers
in accordance with Section 11 hereof of the terms (the "Third Party
Terms") on which the Company proposes to sell, contract to sell or
otherwise dispose of the Offered Securities to the Prospective Investor.
If, within the 5 business day period following the Purchaser's receipt of
the Offer Notice, the Purchaser desires to purchase all and not less than
all of the Offered Securities on the Third Party Terms, the Company shall
be required to sell the Offered Securities (or any portion thereof so
desired by the Purchasers) to the Purchaser and the
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Company shall not be permitted to sell such Offered Securities to the
Prospective Investor.
k. ADDITIONAL REGISTRATION STATEMENTS. At any time during the
period ending on the first date that follows a period of 180 consecutive
days following the effectiveness of the Registration Statement (as defined
in the Registration Rights Agreement) during which there has been no
Blackout Event (as defined in the Registration Rights Agreement) relating
to such Registration Statement, the Company agrees that it will not cause
any registration statement (other than the Registration Statement) to be
declared effective by the Commission.
l. STOCKHOLDER APPROVAL. The Company agrees to use its best
efforts (including obtaining any vote of its stockholders required by
applicable law or Nasdaq Bylaws) to authorize and approve the issuance of
the Common Stock issuable upon conversion of the Debentures and upon
exercise of the Warrants, to the extent that such conversion or issuance
results in the issuance of 20% or more of the Company's outstanding Common
Stock; provided, however, that the failure to obtain any such stockholder
approval shall not limit any of Purchaser's rights hereunder or pursuant
to any Primary Document.
m. OWNERSHIP. At no time shall the Purchaser (including its
officers, directors and affiliates) maintain in the aggregate beneficial
ownership (as defined for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended) of shares of Common Stock in excess of
4.9% of the Company's outstanding Common Stock unless the Purchaser gives
the Company at least sixty-one days notice that it intends to increase its
ownership percentage.
n. RETURN OF DEBENTURES ON CONVERSION AND WARRANTS ON
Exercise. (i) Upon any conversion by Purchaser of less than all of the
aggregate principal amount of Debentures then outstanding, the Company
shall issue and deliver to Purchaser within three (3) days of the
Conversion Date (as defined herein), a new certificate or certificates
for, as applicable, the total principal amount of Debentures which
Purchaser has not yet elected to convert (with the number of and
denomination of such new certificate(s) designated by Purchaser).
(ii) Upon any partial exercise by Purchaser of Warrants, the
Company shall issue and deliver to Purchaser within three (3) days of the
date on which such Warrants are exercised, a new Warrant or Warrants
representing the number of adjusted shares of Common Stock covered
thereby, in accordance with the terms thereof.
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o. REPLACEMENT DEBENTURES AND STOCK PURCHASE WARRANTS. (i) The
certificate(s) representing the Debentures held by Purchaser shall be
exchangeable, at the option of Purchaser, at any time and from time to
time at the office of Company, for certificates with different
denominations representing, as applicable, an equal aggregate principal
amount of Debentures, as requested by Purchaser upon surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
(ii) The Warrants will be exchangeable, at the option of
Purchaser, at any time and from time to time at the office of the Company,
for other Warrants of different denominations entitling the holder thereof
to purchase in the aggregate the same number of shares of Common Stock as
are purchasable under such Warrants. No service charge will be made for
such transfer or exchange.
p. DIVIDENDS OR DISTRIBUTIONS; PURCHASES OF EQUITY SECURITIES.
So long as any portion of the Warrants or the Debentures remain
outstanding, the Company agrees that it shall not (a) declare or pay any
dividends or make any distributions to any holder or holders of Common
Stock, or (b) purchase or otherwise acquire for value, directly or
indirectly, any shares of Common Stock or equity security of the Company.
q. NO SENIOR INDEBTEDNESS. Other than indebtedness relating to
a credit line in the aggregate principal amount not in excess of
$1,000,000, until the expiration of the Lock-up Period, the Company agrees
that neither the Company nor any direct or indirect subsidiary of the
Company shall create, incur, assume, guarantee, secure or in any manner
become liable in respect of any indebtedness, or permit any liens, claims
or encumbrances to exist against the Company or any direct or indirect
subsidiary of the Company or any of their assets, unless junior to the
Debentures in all respects.
r. NO AMENDMENT OF CURRENTLY OUTSTANDING DEBENTURES. So long
as any portion of the Debentures or the Warrants remain outstanding, the
Company covenants and agrees that the Company shall not, without the
consent of the Purchaser, amend any of the terms of any currently
outstanding debentures.
5. TRANSFER AGENT INSTRUCTIONS
a. The Company warrants that no instruction, other than the
instructions referred to in this Section 5 hereof prior to the
registration and sale under the Securities Act of the Common Stock
issuable upon conversion of the Debentures or upon exercise of the
Warrants, will be given by the Company to the transfer agent and that the
shares of Common Stock issuable upon conversion of, or in lieu of interest
payments on, the Debentures or upon
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exercise of the Warrants, shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing
in this Section shall affect in any way the Purchaser's obligations and
agreement to comply with all applicable securities laws upon resale of the
Collective Securities. If the Purchaser provides the Company with an
opinion of counsel that registration of a resale by the Purchaser of any
of the Collective Securities in accordance with Section 4(a) of this
Agreement is not required under the Securities Act, the Company shall
permit the transfer of the Collective Securities and, in the case of the
Common Stock, promptly instruct the Company's transfer agent to issue one
or more certificates for Common Stock without legend in such names and in
such denominations as specified by the Purchaser.
b. Purchaser shall exercise its right to convert the
Debentures or to exercise the Warrants, by faxing an executed and
completed Notice of Conversion or Form of Election to Purchase, as
applicable, to the Company, and delivering within three (3) business days
thereafter, the original Notice of Conversion (and the related original
certificates representing the Debentures) or Form of Election to Purchase
(and the related original Warrants) to the Company by hand delivery or by
express courier, duly endorsed. Each date on which a Notice of Conversion
or Form of Election to Purchase is faxed in accordance with the provisions
hereof shall be deemed a "Conversion Date." The Company will transmit the
certificates representing the Common Stock issuable upon conversion of any
Debentures or upon exercise of any Warrants (together with the
certificates representing the Debentures not so converted or the Warrants
not so exercised) to the Purchaser via express courier as soon as
practicable, but in all events no later than three (3) business days of
the Conversion Date relating to Debentures or Warrants (each such delivery
date, together with the Interest Delivery Date referred to in paragraph c
below, is referred to herein as a "Delivery Date"). For purposes of this
Agreement, any conversion of the Debentures or the exercise of the
Warrants shall be deemed to have been made immediately prior to the close
of business on the Conversion Date.
c. The Company will transmit the certificates representing the
Common Stock issuable in lieu of any dividends payable on any Debentures,
to the Purchaser via express courier as soon as practicable, but in all
events no later than three (3) business days after the interest (or
dividend) payment date applicable to which such Common Stock is delivered
(the "Interest Delivery Date").
d. In lieu of delivering physical certificates representing
the Common Stock issuable upon the conversion of, or in lieu of interest
payments (or dividends) on, the Debentures, or upon the exercise of the
Warrants,
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<PAGE> 16
provided the Company's transfer agent is participating in the Depositary
Trust Company ("DTC") Fast Automated Securities Transfer program, on the
written request of the Purchaser, who shall have previously instructed the
Purchaser's prime broker to confirm such request to the Company's transfer
agent, the Company shall cause its transfer agent to electronically
transmit such Common Stock to the Purchaser by crediting the account of
the Purchaser's prime broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system no later than the applicable Delivery Date.
e. The Company understands that a delay in the issuance of
Common Stock beyond the applicable Delivery Date could result in an
economic loss to the Purchaser. As compensation to the Purchaser for such
loss, the Company agrees to pay to the Purchaser for late issuance of
Common Stock upon conversion of, or in lieu of interest payments (or
dividend payments) on, the Debentures, or upon exercise of the Warrants,
the sum of $1,000 per day for each (i) 10,000 shares of Common Stock
purchased upon the exercise of Warrants, or (ii) 10,000 shares of Common
Stock purchased upon conversion of Debentures. The Company shall pay any
payments that are payable to the Purchaser pursuant to this Section 5 in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue actual damages for the Company's failure to so
issue and deliver Common Stock to the Purchaser. Furthermore, in addition
to any other remedies which may be available to the Purchaser, in the
event that the Company fails for any reason to effect delivery of such
Common Stock within five (5) business days after the relevant Delivery
Date, the Purchaser will be entitled to revoke the relevant Notice of
Conversion or Form of Election to Purchase by delivering a notice to such
effect to the Company, whereupon the Company and the Purchaser shall each
be restored to their respective positions immediately prior to delivery of
such Notice of Conversion or Form of Election to Purchase. For purposes of
this Section 5, "business day" shall mean any day in which the financial
markets of New York are officially open for the conduct of business
therein.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE DEBENTURES AND
WARRANTS
The Purchaser understands that the Company's obligation to issue the
Debentures and the Warrants on the Closing Date to the Purchaser pursuant to
this Agreement is conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement as if made on the
Closing Date and the performance by the Purchasers on or before the
Closing Date of all covenants and agreements of the Purchasers required to
be performed on or before the Closing Date.
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<PAGE> 17
b. The absence or inapplicability of any and all laws, rules
or regulations prohibiting or restricting the transactions contemplated
hereby, or requiring any consent or approval which
shall not have been obtained.
7. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE THE DEBENTURES
AND THE WARRANTS
The Company understands that the Purchaser's obligation to purchase
the Debentures and the Warrants on the Closing Date is conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the
Closing Date, and the performance by the Company on or before the Closing
Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date.
b. On the Closing Date, the Purchaser shall have received an
opinion of counsel for the Company, dated the Closing Date, in
substantially the form as attached in Exhibit D.
c. The Company shall have executed and delivered to the
Purchaser (i) a signed counterpart to the Registration Rights Agreement,
(ii) the Debentures and (iii) the Warrants.
d. On the Closing Date, the Purchaser shall have received a
certificate executed by the President or the Chairman of the Company and
by the Chief Financial Officer of the Company, stating that all of the
representations and warranties of the Company set forth in this Agreement
are accurate as of the Closing Date and that the Company has performed all
of its covenants and agreements required to be performed under this
Agreement on or before the Closing Date.
e. On the Closing Date, the Purchaser shall have received from
the Company such other certificates and documents as it or its
representatives, if applicable, shall reasonably request, and all
proceedings taken by the Company in connection with the Primary Documents
contemplated by this Agreement and the other Primary Documents and all
documents and papers relating to such Primary Documents shall be
satisfactory to the Purchaser.
f. On or prior to the Closing Date, there shall not have
occurred any of the following: (i) a suspension or material limitation in
the trading of securities generally on the New York Stock Exchange, NASDAQ
or
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<PAGE> 18
the NASDAQ Bulletin Board; (ii) a general moratorium on commercial banking
activities in New York declared by the applicable banking authorities;
(iii) the outbreak or escalation of hostilities involving the United
States, or the declaration by the United States of a national emergency or
war; or (iv) a change in international, political, financial or economic
conditions, if the effect of any such event, in the judgment of the
Purchasers, makes it impracticable or inadvisable to proceed with the
purchase of the Debentures and the Warrants on the terms and in the manner
contemplated in this Agreement and in the other Primary Documents.
g. The Company shall have delivered to the Purchaser
reimbursement of the Purchaser's out-of-pocket costs and expenses incurred
in connection with the transactions contemplated by this Agreement
(including fees and disbursements of the Purchaser's legal counsel in an
amount not to exceed $22,500).
8. INDEMNIFICATION
A. Indemnification of Purchaser by the Company.
The Company hereby agrees to indemnify and hold harmless the
Purchaser, its affiliates and their respective officers, directors, partners,
shareholders, employees and members (collectively, the "Buyer Indemnitees"),
from and against any and all losses, claims, damages, judgments, penalties,
liabilities and deficiencies (collectively, "Losses"), and agrees to reimburse
the Buyer Indemnitees for all out-of-pocket expenses (including the fees and
expenses of legal counsel), in each case promptly as incurred by the Buyer
Indemnitees and to the extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
or
2. any failure by the Company to perform any of its covenants,
agreements, undertakings or obligations set forth in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement.
B. Indemnification of the Company by Purchaser.
Purchaser hereby agrees to indemnify and hold harmless the Company,
its affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
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<PAGE> 19
(including the fees and expenses of legal counsel), to the extent arising out of
or in connection with any breach of any of Purchaser's representations or
warranties contained in this Agreement, the annexes, schedules or exhibits
hereto or any instrument, agreement or certificate entered into or delivered by
Purchaser pursuant to this Agreement.
C. Third Party Claims. Promptly after receipt by either party hereto
seeking indemnification pursuant to this Section 8 (an "Indemnified Party") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section 8 is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party by the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
D. Other Claims.
19
<PAGE> 20
In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
9. EXPENSES
The Company covenants and agrees with the Purchaser that the Company
will pay or cause to be paid the following: (a) the fees, disbursements and
expenses of the Purchaser's counsel in connection with the issuance of the
Collective Securities payable on the Closing Date, (b) all expenses in
connection with registration or qualification of the Collective Securities for
offering and sale under state securities laws as provided in Section 4(f)
hereof, and (c) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section, including the fees and disbursements of the Company's counsel,
accountants and other professional advisors, if any. If the Company fails to
satisfy its obligations or to satisfy any condition set forth in this Agreement,
as a result of which the Collective Securities are not delivered to the
Purchaser on the terms and conditions set forth herein, the Company shall
reimburse the Purchaser for any out-of-pocket expenses incurred in making
preparations for the purchase, sale and delivery of the Collective Securities
not so delivered.
10. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York, without regard to principles of conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement or any of the transactions contemplated
hereby, and hereby waives, to the maximum extent permitted by law, any
objection, including any objections based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. This Agreement may be
signed in one or more counterparts, each of which shall be deemed an original.
The headings of this Agreement are for convenience of reference only and shall
not form part of, or affect the interpretation of this Agreement. This Agreement
and each of the Primary Documents have been entered into freely by each of the
parties, following consultation with their respective counsel, and shall be
interpreted fairly in accordance with its respective terms, without any
construction in favor of or against either party. If any provision of this
20
<PAGE> 21
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or unenforceability of this
Agreement in any other jurisdiction. This Agreement shall inure to the benefit
of, and be binding upon the successors and assigns of each of the parties
hereto, including any transferees of the Warrants and the Debentures. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
COMPANY: IBiz Technology Corp
1919 West Lone Cactus
Phoenix, Arizona 85021
Att.: Kenneth W. Schilling, President
Tel.: 623-492-9200
Fax: 623-492-9921
WITH A COPY TO:
Gammage & Burnham
Two North Central Avenue, Suite 1800
Phoenix, AZ 85004
Att: Steven Boatwright, Esq.
Tel.: 602-256-4439
Fax: 602-256-4475
PURCHASER: Akara Building
Wickhams Cay #1
Road Town Tortola
British Virgin Islands
WITH A COPY TO:
Laufer Halberstam & Karish
21
<PAGE> 22
One Liberty Plaza, 37th Floor
New York, New York 10006
Attn: Michael J. Halberstam, Esq.
Tel.: (212)267-0600
Fax: (212)267-1924
12. SURVIVAL
The agreements, covenants representations and warranties of the
Company and the Purchaser shall survive the execution and delivery of this
Agreement and the delivery of the Securities hereunder.
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<PAGE> 23
IN WITNESS WHEREOF, this Securities Purchase Agreement has been duly
executed by each of the undersigned.
iBIZ TECHNOLOGY CORP
By:________________________
Kenneth Shilling
President
[PURCHASER]
By:________________________
Name:___________________
Title: Authorized Person
23
<PAGE> 24
EXHIBIT INDEX
EXHIBIT A FORM OF DEBENTURE
EXHIBIT B FORM OF WARRANTS
EXHIBIT C FORM OF REGISTRATION RIGHTS
AGREEMENT
EXHIBIT D OPINION OF COUNSEL
24
<PAGE> 1
EXHIBIT 10.15
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION SHALL NO LONGER BE REQUIRED.
7% CONVERTIBLE DEBENTURE DUE NOVEMBER 9, 2004
$600,000 November 9, 1999
New York, New York
1. CONSIDERATION. FOR VALUE RECEIVED, IBIZ TECHNOLOGY CORP., a
Florida corporation (the "undersigned" or the "Company"), hereby promises to pay
to the order of GLOBE UNITED HOLDINGS, INC., a British Virgin Islands
corporation at its offices located at Akara Building, Wickhams Cay #1, Road Town
Tortola, British Virgin Islands or at such other place as the holder hereof (the
"holder" or the "Registered Holder") shall designate to the undersigned in
writing, in lawful money of the United States of America or in New York Clearing
House Funds, the principal amount of Six Hundred Thousand Dollars, and to pay
interest (computed on the basis of a 360-day year and the actual number of days
elapsed) on the unpaid principal amount hereof at the rate of seven (7%)
percent per annum. The undersigned promises to pay the said principal sum and
interest in accordance with the terms of this Debenture.
2. PAYMENT. Until this Debenture is completely retired the
undersigned shall make payments of accrued interest on this Debenture on the
first day of April and November in each year (commencing with January 1, 2000),
computed at the rate of 7% per annum on the unpaid principal balance of this
Debenture for the period from the date of this Debenture until the date of such
interest payment. On November 9, 2004 (the "Maturity Date") the undersigned
shall pay the holder all unpaid principal and interest on this Debenture.
Principal and interest shall be payable at the most recent address
as the Registered Holder shall have designated to the Company in writing. No
payment of the principal of the Debenture may be made prior to the Maturity Date
by the Company without the consent of the Registered Holder, except as otherwise
provided herein. At the Registered Holder's option, any interest payments on
this Debenture may be made in the form of the issuance to the holder of the
Company's common stock, par value $.001 per share (the "Common Stock"), with the
number of shares of
<PAGE> 2
such Common Stock to be payable in respect of such interest payments to be
determined in accordance with the provisions of Section 6, as if such interest
payment were a portion of the principal amount of the Debenture to be converted
into Common Stock.
3. OVERDUE INTEREST PAYMENTS. Interest on the indebtedness evidenced
by this Debenture after default or maturity accelerated or otherwise shall be
due and payable at the rate of eighteen (18%) percent per annum, subject to the
limitations of applicable law.
4. HOLIDAYS. If this Debenture or any installment hereof becomes due
and payable on a Saturday, Sunday or public holiday under the laws of the State
of New York, the due date hereof shall be extended to the next succeeding
business day and interest shall be payable at the rate of seven (7%) percent
per annum during such extension. All payments received by the holder shall be
applied first to the payment of all accrued interest payable hereunder.
5. ISSUANCE OF DEBENTURES. This Debenture has been issued by the
Company pursuant to the authorization of the Board of Directors of the Company
(the "Board") and issued pursuant to a Securities Purchase Agreement, dated as
of the date hereof, by and between the Company and the Purchasers identified
therein (the "Securities Purchase Agreement"). Pursuant to the Securities
Purchase Agreement, the Company issued an aggregate of $600,000 principal amount
of the Debentures and warrants to purchase 100,000 shares of Common Stock (the
"Warrants"). The Securities Purchase Agreement contains certain additional terms
that are binding upon the Company and each Registered Holder of the Debentures.
A copy of the Securities Purchase Agreement may be obtained by any registered
holder of the Debentures from the Company upon written request. Capitalized
terms used but not defined herein shall have the meanings set forth in the
Securities Purchase Agreement. The Debentures, together with any debentures from
time to time issued in replacement thereof, whether pursuant to transfer and
assignment, partial conversion thereof or otherwise, are collectively referred
to herein as the "Debentures."
6. CONVERSION. (a) Subject to and in compliance with the provisions
hereof, the holder shall have the right to convert all or a portion of the
outstanding principal amount of this Debenture into such number of shares of
Common Stock (the shares of Common Stock issuable upon conversion of, and
issuable in respect of interest payments on, this Debenture are hereinafter
referred to as the "Conversion Shares") as shall equal the quotient obtained by
dividing (x) the principal amount of this Debenture to be converted by (y) the
Applicable Conversion Price (as hereinafter defined) and by surrender of this
Debenture, such surrender to be made in the manner provided herein.
2
<PAGE> 3
(b) For purposes hereof the term "Applicable Conversion Price" shall
mean the lesser of (i) $0.94 (the "Fixed Price") or (ii) the product obtained by
multiplying (x) the Average Closing Price (as hereinafter defined) by (y) .80.
For purposes hereof the "Average Closing Price" with respect to any
conversion elected to be made by the holder shall be the average of the daily
closing bid prices (each such price is referred to individually as a "Floating
Reference Price" and, collectively, as the "Floating Reference Prices") for any
three trading days, as selected by the holder, out of the twenty trading days
immediately preceding the date on which the holder gives the Company a written
notice of the holder's election to convert outstanding principal of this
Debenture. The closing bid price on any trading day shall be (a) if the Common
Stock is then listed or quoted on either the NASD Bulletin Board, the NASDAQ
SmallCap Market or the NASDAQ National Market, the reported closing bid price
for the Common Stock as reported by Bloomberg, L.P. ("Bloomberg") or The Wall
Street Journal (the "Journal") on such day (or, if not so reported, as otherwise
reported by The Nasdaq Small Cap Market), (b) if the Common Stock is listed on
either the American Stock Exchange or New York Stock Exchange, the last reported
sales price for the Common Stock on such exchange on such day as reported by
Bloomberg or the Journal or (c) if no such prices are reported for the Common
Stock by Bloomberg or the Journal, then the average of such prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the prices of the Common Stock cannot be calculated on
such date on any of the foregoing bases, such prices on such date shall be the
fair market value as determined by an unaffiliated investment bank selected by
Registered Holder for which the calculation is required in order to determine
the Applicable Conversion Price. "Trading day" shall mean any day on which the
Company's Common Stock is traded for any period on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
(c) If, during any period following the issuance of this Debenture,
as a result of the occurrence of any of the events set forth in Section 3(f) or
3(g) of the Registration Rights Agreement, dated as of the date hereof, by and
between the Company and the purchasers set forth therein (the "Registration
Rights Agreement"), the Purchasers set forth therein are not able to sell shares
of Common Stock issuable upon conversion of, or in lieu of interest payments on,
this Debenture pursuant to a registration statement filed pursuant to such
agreement, the Registered Holder shall have the right, for any purpose under
this Debenture during such period and thereafter, to designate as the Applicable
Conversion Price any Conversion Price that would have been applicable during
such period had the Registered Holder delivered a Notice of Conversion with
respect to any portion of this Debenture. "Conversion Date" shall have the
meaning given such term in Section 5(b) of the Securities Purchase Agreement.
(d) The Registered Holder shall convert this Debenture in accordance
with Section 5 of the Securities Purchase Agreement. If the Company
3
<PAGE> 4
fails to deliver to the holder a certificate or certificates for shares of
Common Stock in the period set forth in the Securities Purchase Agreement, the
Company shall pay a penalty to the Registered Holder as set forth in Section
5(e) of the Securities Purchase Agreement.
(e) If the entire outstanding principal amount of this Debenture is
not converted, the Company shall also issue and deliver to such holder a new
Debenture of like tenor in the principal amount equal to the principal which was
not converted and dated the effective date of conversion. Each conversion shall
be deemed to have been effected immediately prior to the close of business on
the date on which a Notice of Conversion shall have been delivered as aforesaid,
and the person or persons in whose name or names any certificate of certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares represented
thereby at such time on such date.
(f) All shares of Common Stock delivered upon conversion of this
Debenture will, upon delivery, be duly authorized, validly issued and fully paid
and nonassessable.
(g) No fractional shares of Common Stock shall be issued upon
conversion of this Debenture. Instead of any fractional share of Common Stock
which would otherwise be deliverable upon the conversion of a principal of this
Debenture the Company shall pay to the holder an amount in cash (computed to the
nearest cent) equal to the Average Closing Price multiplied by the fraction of a
share of Common Stock represented by such fractional interest.
(h) The issuance of certificates for shares of Common Stock upon any
conversion of this Debenture shall be made without charge to the payee hereof
for any tax or other expense in respect to the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued only in the name of the registered holder of this
Debenture.
7. REDEMPTION BY COMPANY. (a) If while this Debenture is outstanding
there shall occur a Change in Control of the Company (as defined below), then,
at the option of the Registered Holder, the Company shall, on the effective date
of and subject to the consummation of such Change in Control, redeem this
Debenture for cash from the Registered Holder at a redemption price equal to
125% of the aggregate principal and accrued interest outstanding under this
Debenture. Nothing in this subsection shall limit the Registered Holder's right
to convert this Debenture on or prior to such Change in Control. For purposes
hereof, a "Change in Control" shall be deemed to have occurred if (A) any person
or group (as defined for purposes of Regulation 13D of the Securities Exchange
Act of 1934, as amended) (excluding persons who on the date hereof are
beneficial owners of shares of the Company's voting stock and affiliates of such
persons) shall have become the
4
<PAGE> 5
beneficial owner or owners of more than 50% of the outstanding voting stock of
the Company; (B) there shall have occurred a merger or consolidation in which
the Company or an affiliate of the Company is not the survivor or in which
holders of the Common Stock of the Company shall have become entitled to receive
cash, securities of the Company other than voting common stock or securities of
any other person; (C) at any time persons constituting the Existing Board of
Directors cease for any reason whatsoever to constitute at least a majority of
the members of the Board of Directors of the Company; or (D) there shall have
occurred a sale of all or substantially all the assets of the Company. For
purposes hereof, the term "Existing Board of Directors" shall mean the persons
constituting the Board of Directors of the Company on the date hereof, together
with each new director whose election, or nomination for election by the
Company's stockholders is approved by a vote of the majority of the members of
the Existing Board of Directors who are in office immediately prior to the
election or nomination of such director.
(b) At any time that the number of shares of Common Stock issued
upon conversion of the Debentures and in respect of interest payments on the
Debentures, shall equal 4,750,000 (a "Redemption Event"), the Corporation shall,
at its election, either (x) redeem all of the principal amount then outstanding
under this Debenture for cash in an amount equal to (A) the quotient of (i) the
aggregate principal and accrued interest outstanding under this Debenture and
(ii) the Applicable Conversion Price as if this Debenture had been converted on
the Debenture Redemption Date multiplied by (B) the Average Closing Price of
shares of Common Stock for the five (5) trading days immediately preceding the
Debenture Redemption Date, or (y) if required, call a special meeting of its
stockholders for the purpose of approving the transactions contemplated by the
Securities Purchase Agreement, including the issuance of the Debenture on the
terms set forth therein, together with any other approvals that shall be
required so as to cause the transactions contemplated by the Securities Purchase
Agreement to remain in compliance with the Rules and Regulations of The Nasdaq
Stock Market (including Rules 4300 and 4310 of Nasdaq's Non-Qualitative
Designation Criteria in connection with conversions of Debentures; such
approvals are referred to herein as the "Required Approvals"). The Corporation
shall determine within five (5) business days following the receipt of a Notice
of Conversion which of such actions it shall take, and shall promptly furnish
notice to each of the holders of Debenture as to such determination, including,
if applicable, a notice of redemption.
(c) If the Corporation elects to call a special meeting of its
stockholders pursuant to Subsection 7(b) of this Debenture to obtain the
Required Approvals, the Corporation shall use its best efforts to obtain such
Required Approvals within forty five (45) days (or 75 days if the information
statement is reviewed by the Commission) of the Initial Closing Date (such forty
five (45) day (or seventy five (75) day) period is referred to herein as an
"Approval Period"). If the Corporation does not obtain the Required Approvals
within the Approval Period and the Corporation receives a Notice of Conversion
after the termination of the Approval
5
<PAGE> 6
Period, the Corporation must redeem, in accordance with this Section 7 of this
Debenture, any principal amount of Debentures outstanding after the Corporation
has issued in excess of 4,750,000 shares of Common Stock in connection with
conversions of this Debenture.
(d) If the Corporation elects, pursuant to this Section 7, to redeem
this Debenture on the occurrence of a Debenture Redemption Event, it shall
redeem such Debenture at the price determined in accordance with Subsection 7(b)
of this Debenture. If the Corporation shall have elected, pursuant to this
Subsection 7(b), to obtain the Required Approvals but shall not have done so by
the later of the occurrence of the Debenture Redemption Event or the expiration
of the Approval Period, it shall furnish a redemption notice to the Purchasers
within three (3) business days after the expiration of the Approval Period.
(e) If the Company elects to redeem the Debentures pursuant to any
of the terms or conditions set forth in this Section 7, the Company shall remit
the redemption price to the Registered Holder thereof immediately upon such
redemption.
8. COVENANTS.
(a) The Company will pay all taxes, assessments and governmental
charges lawfully levied or assessed upon it, its property and any part thereof,
and upon its income for profits, and any part thereof, before the same shall
become delinquent; and will duly observe, and conform to, all lawful
requirements of any governmental authority relative to any of its property, and
all covenants, terms and conditions upon or under which any of its property is
held; provided that nothing in this Section shall require the Company to observe
or conform to any requirement of governmental authority or to pay any such tax,
assessment or governmental charges so long as the validity thereof shall be
contested in good faith.
(b) Subject to the other provisions of this Debenture, the Company
at all times will maintain its corporate existence and right to carry on its
business and will duly procure all necessary renewals and extensions thereof and
use its best efforts to maintain, preserve and renew all of its rights, powers,
privileges and franchises; provided, however, that nothing herein contained
shall be construed to prevent the Company from ceasing or omitting to exercise
any rights, powers, privileges or franchises which, in the judgment of the
Board, can no longer be profitably exercised, nor to prevent the consolidation,
merger or liquidation of any subsidiary or subsidiaries of the Company with or
into the Company.
(c) The Company will at no time close its stock transfer books
against the transfer of any shares of Common Stock issued or issuable upon the
conversion of, or in lieu of payments on, the Debentures, in any manner which
interferes with the timely conversion of such Debentures.
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<PAGE> 7
(d) As used in this Debenture, the term "Common Stock" shall mean
the Company's authorized common stock, par value $0.001 per share. The Company
shall not, without the prior written consent of the Registered Holder of this
Debenture, issue any shares of its capital stock, other than as permitted by the
Securities Purchase Agreement or in exchange for Debentures as provided
hereunder. The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily be entitled to
vote for the election of the directors of the Company.
(e) As used in this Debenture, the term "Primary Documents" shall
have the meaning set forth in the Securities Purchase Agreement. The Company
will not, by amendment of its Articles of Incorporation or By-laws or through
any reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder or pursuant to any of the Primary Documents by the
Company, and will at all times assist in good faith in the carrying out of all
the provisions of this Debenture and the Primary Documents and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the Registered Holders of the Debentures against
impairment.
(f) In the event of any taking by the Company of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend) or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Company shall mail to each Registered Holder of the
Debentures, at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
9. LIMITATION ON CERTAIN CORPORATE ACTS. The Company hereby
covenants and agrees that upon any consolidation or merger or upon the transfer
of all or substantially all of the property or assets of the Company, the due
and punctual payment of the principal and interest on all the Debentures
according to their tenor and the due and punctual performance and observance of
all the terms, covenants and conditions of the Debentures and the Primary
Documents to be kept and performed by the Company shall be expressly assumed by
the corporation formed by such consolidation, or into which the Company shall
have merged or by the purchaser of
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<PAGE> 8
such property or assets; and such assumption shall be an express condition of
such merger or consolidation agreement or agreement for the transfer of property
or assets.
10. EVENTS OF DEFAULT. In case one or more of the following events
of default shall have occurred:
(a) default in the due and punctual payment of interest upon or
principal of any of the Debentures as and when the same becomes due and payable
either at maturity or otherwise; or
(b) failure to deliver the shares of Common Stock required to be
delivered upon conversion of Debentures or exercise of the Warrants in the
manner and at the time required by Section 5 of the Securities Purchase
Agreement; or
(c) failure of the Company to have authorized the number of shares
of Common Stock issuable upon conversion of the Debentures or exercise of the
Warrants; or
(d) failure on the part of the Company to duly observe or perform
any of its other covenants or agreements contained in the Debentures or in the
Primary Documents, or to cure any material breach in a material representation
or covenant contained in the Primary Documents for a period of ten (10) days
after the date on which written notice of such failure or breach requiring the
same to be remedied has been given by a Registered Holder to the Company; or
(e) a decree or order by a court having jurisdiction has been
entered adjudging the Company (or any Material Subsidiary) a bankrupt or
insolvent, or approving a petition seeking reorganization of the Company (or any
Material Subsidiary) under any applicable bankruptcy law and such decree or
order has continued undischarged or unstayed for a period of thirty (30) days;
or a decree or order of a court having jurisdiction for the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the
Company (or any Material Subsidiary) or of all or substantially all of its
property, or for the winding-up or liquidation of its affairs, has been entered,
and has remained in force undischarged or unstayed for a period of thirty (30)
days; or
(f) the Company (or any Material Subsidiary) institutes proceedings
to be adjudicated a voluntary bankrupt, or consents to the filing of a
bankruptcy proceeding against it, or files a petition or answer or consent
seeking reorganization under applicable law, or consents to the filing of any
such petition or to the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due; or if the
Company (or any Material Subsidiary) shall suffer any writ of attachment or
execution or any similar process to be issued or levied against it
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<PAGE> 9
or any significant part of its property which is not released, stayed, bonded or
vacated within thirty (30) days after its issue or levy; or if the Company (or
any Material Subsidiary) takes corporate action in furtherance of any of the
aforesaid purposes or conditions; or
(g) if any default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at the
time outstanding any indebtedness of the Company (or a Material Subsidiary, as
hereinafter defined), in excess of $25,000, or which results in such
indebtedness, in an aggregate amount (with other defaulted indebtedness) in
excess of $25,000 becoming due and payable prior to its due date and if such
indenture or instrument so requires, the holder or holders thereof (or a trustee
on their behalf) shall have declared such indebtedness due and payable; or
(h) if any of the Company or its subsidiaries shall default in the
observance or performance of any material term or provision of a material
agreement to which it is a party or by which it is bound, and such default is
not waived or cured within the applicable grace period; or
(i) if a final judgment which, either alone or together with other
outstanding final judgments against the Company and its subsidiaries, exceeds an
aggregate of $25,000 shall be rendered against the Company (or any Material
Subsidiary) and such judgment shall have continued undischarged or unstayed for
thirty (30) days after entry thereof;
then, and in each and every such case, so long as such event of
default has not been remedied and unless the principal of all the Debentures has
already become due and payable, the holders of not less than fifty-one percent
(51%) in principal amount of the Debentures then outstanding, by notice in
writing to the Company, may declare the principal of all the Debentures then
outstanding and the interest accrued thereof, if not already due and payable, to
be due and payable immediately, and upon any such declaration the same shall
become and shall be immediately due and payable, anything herein contained to
the contrary notwithstanding.
For purposes of this Section 10, "Material Subsidiary" means any
subsidiary with respect to which the Company has directly or indirectly
invested, loaned, advanced or guaranteed the obligations of, an aggregate amount
exceeding fifteen percent (15%) of the Company's gross assets, or the Company's
proportionate share of the assets or net income of which (based on the
subsidiary's most recent financial statements) exceed fifteen percent (15%) of
the Company's gross assets or net income, respectively, or the gross revenues of
which exceed fifteen percent (15%) of the gross revenues of the Company based
upon the most recent financial statements of such subsidiary and the Company.
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<PAGE> 10
11. TRANSFERABILITY. This Debenture is transferable, in whole or in
part, only in accordance with the terms of the Securities Purchase Agreement.
The Registered Holder may submit a written request, in person or by his duly
authorized attorney, for a transfer of the Debenture on the register of the
Company maintained at its principal offices. The Company may deem and treat the
person in whose name this Debenture is registered as the absolute owner hereof,
for the purpose of receiving payment of the principal thereof and interest
hereon, whether or not the same shall be overdue, and for all other purposes
whatsoever, including but without limitation, the giving of any written notices
required hereunder, and the Company shall not be affected by any notice to the
contrary.
12. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS.
(a) If the Company, at any time while the Debentures are
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (ii) issue any securities payable in shares of Common Stock, (iii)
subdivide the outstanding shares of Common Stock into a larger number of shares,
(iv) combine outstanding shares of Common Stock into a smaller number of shares,
the Fixed Price and each Floating Reference Price prior to the date of any such
occurrence (collectively, the "Reference Prices") shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 12(a) shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of an issuance, a subdivision or a combination.
(b) In the event that the Company issues or sells any Common Stock
or securities which are convertible into or exchangeable for its Common Stock or
any convertible or exchangeable securities, or any warrants or other rights to
subscribe for or to purchase or any options for the purchase of its Common Stock
or any such convertible or exchangeable securities (other than shares or options
issued pursuant to the Company's employee or director option plans or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Securities Purchase Agreement and listed in the Company's most recent
periodic report filed under the Exchange Act) at an effective purchase price per
share which is less than the Fixed Price then in effect, then the Fixed Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying such
Fixed Price then in effect by a fraction, (x) the numerator of which shall be
the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale, plus (2) the number of shares of Common Stock which
the aggregate consideration received by the Company
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<PAGE> 11
for such additional shares would purchase at such Fixed Price then in effect;
and (y) the denominator of which shall be the number of shares of Common Stock
of the Company outstanding immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible or exchangeable securities, warrants, options or
other rights to subscribe for or to purchase or exchange for, shares of Common
Stock ("Exchangeable Securities"), the maximum number of shares of Common Stock
issuable upon exercise, conversion or exchange of such Exchangeable Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Exchangeable Securities.
(c) If the Company, at any time while the Debentures are
outstanding, shall distribute to all holders of Shares of Common Stock evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Section 12(b) above) then in each
such case the Fixed Price thereafter shall be determined by multiplying the
Fixed Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction of which the denominator shall be the Market Price for Shares of Common
Stock (as defined below) determined as of the record date mentioned above, and
of which the numerator shall be such Market Price for Shares of Common Stock on
such record date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so distributed applicable to
one outstanding share of Common Stock as determined by the Board in good faith;
provided, however that in the event of a distribution exceeding 25% of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized investment banking firm or firm of independent chartered
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the Board and holders of a majority in interest of the Debentures.
In either case the adjustments shall be described in a statement provided to all
holders of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one outstanding share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
"Market Price for Shares of Common Stock" shall mean the price
of one share of Common Stock determined as follows:
(i) If the Common Stock is listed on NASDAQ, the
closing bid price on the date of valuation;
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<PAGE> 12
(ii) If the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange, the closing bid price on
such exchange on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common Stock
is quoted in the over-the-counter market, another recognized
exchange, on the pink sheets or the OTC Bulletin Board, the lesser
of (A) the lowest sales price or (B) the mean between the last
reported "bid" and "asked" prices thereof on the date of valuation;
and
(iv) If neither clause (i), (ii) or (iii) above applies,
the market value as determined by a nationally recognized investment
banking firm or other nationally recognized financial advisor
retained by the Company for such purpose, taking into consideration,
among other factors, the earnings history, book value and prospects
for the Company, and the prices at which shares of Common Stock
recently have been traded. Such determination shall be conclusive
and binding on all persons.
(d) (1) In the event that at any time or from time to time after the
Closing Date, the Common Stock issuable upon the conversion of the Debentures is
changed into the same or a different number of shares of any class or classes of
stock, whether by merger, consolidation, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Paragraph 12), then and as a
condition to each such event provision shall be made in a manner reasonably
acceptable to the holders of Debentures so that each holder of Debentures shall
have the right thereafter to convert such Debenture into the kind of stock
receivable upon such recapitalization, reclassification or other change by
holders of shares of Common Stock, all subject to further adjustment as provided
herein. In such event, the formulae set forth herein for conversion and
redemption shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect the market
price of the class or classes of stock (applying the same factors used in
determining the Fixed Price) issued in connection with the above described
transaction.
(2) If at any time or from time to time after the Closing Date
there is a capital reorganization of the Common Stock, including by way of a
sale of all or substantially all of the assets of the Company (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Paragraph 12), then, as a part of and a
condition to such reorganization, provision shall be made in a manner reasonably
acceptable to the holders of the Debentures so that the holders of the
Debentures shall thereafter be entitled to receive upon conversion of the
Debentures the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital
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<PAGE> 13
reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Paragraph 12 with respect to the rights of
the holders of the Debentures after the reorganization to the end that the
provisions of this Paragraph 12 shall be applicable after that event and be as
nearly equivalent as may be practicable, including, by way of illustration and
not limitation, by equitably adjusting the formulae set forth herein for
conversion and redemption to reflect the market price of the securities or
property (applying the same factors used in determining the Market Price for
Shares of Common Stock) issued in connection with the above described
transaction.
(e) If at any time during the period ending twelve (12) months after
the Closing Date, the Company sells or agrees to sell (including pursuant to a
letter of intent, term sheet, or similar means) shares of Common Stock or
securities or options convertible into, exercisable for, or exchangeable for,
shares of Common Stock (other than (i) a sale pursuant to a bona fide registered
public offering of shares of Common Stock by the Company conducted on the basis
of a firm commitment underwriting raising at least $10,000,000 or (ii) shares or
options issued pursuant to the Company's employee, director or consultant stock
option plans) then, if the effective or maximum sales price of the shares of
Common Stock with respect to such transaction (including the effective or
maximum conversion exercise or exchange price) ("Other Price") is less than the
Fixed Price of the Debentures at such time, the Company, at the option of a
holder exercised by written notice to the Company, shall adjust the Fixed Price
applicable to the Debentures of such holder not yet converted in form and
substance reasonably satisfactory to such holder of Debentures so that the
conversion price applicable to those Debentures shall, in no event, be greater,
after giving effect to all other adjustments contained therein, than the Other
Price.
(f) Whenever any element of the Applicable Conversion Price is
adjusted pursuant to Section 12(a), (b), (c), (d) or (e), the Company shall
promptly mail to each holder of the Debentures, a notice setting forth the
Applicable Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(g) In the event of any taking by the Company of a record date of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
any security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company, shall
deliver to each holder of Debentures at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution, security or right and
the amount and character of such dividend, distribution, security or right.
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<PAGE> 14
13. REMEDIES CUMULATIVE. The rights, powers and remedies given to
the payee under this Debenture shall be in addition to all rights, powers and
remedies given to it by virtue of the Purchase Agreement, any document or
instrument executed in connection therewith, or any statute or rule of law.
14. NON-WAIVER. Any forbearance, failure or delay by the payee in
exercising any right, power or remedy under this Debenture, the Primary
Documents, any documents or instruments executed in connection therewith or
otherwise available to the payee shall not be deemed to be a waiver of such
right, power or remedy, nor shall any single or partial exercise of any right,
power or remedy preclude the further exercise thereof.
15. MODIFICATIONS AND WAIVERS. No modification or waiver of any
provision of this Debenture, the Primary Documents or any documents or
instruments executed in connection therewith shall be effective unless it shall
be in writing and signed by the payee, and any such modification or waiver shall
apply only in the specific instance for which given.
16. ATTORNEY'S FEES. If this Debenture shall not be paid when due
and shall be placed by the Registered Holder hereof in the hands of an attorney
for collection, through legal proceedings or otherwise, or if this Debenture
shall not be converted into shares of Common Stock on the Conversion Date, and
an action is brought by the Registered Holder with respect thereto, the Company
shall pay attorney's fees to the Registered Holder hereof, together with
reasonable costs and expenses of collection or enforcement incurred in
connection with any such action.
17. ENFORCEMENT; SPECIFIC PERFORMANCE. (a) In case any one or more
Events of Default shall occur and be continuing, a Registered Holder of a
Debenture then outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law.
(b) The Company expressly agrees that each Registered Holder may not
have adequate remedies at law if the Company does not perform its obligations
under this Debenture. Upon a breach of the terms or covenants of this Debenture
by the Company, the Registered Holder shall, each in addition to all other
remedies, be entitled to obtain injunctive relief, and an order for specific
performance of the Company's obligations hereunder.
18. This Debenture and the rights and obligations of the parties
hereto, shall be governed, construed and interpreted according to the laws of
the State of New York. The Company agrees that any final judgment after
exhaustion of all appeals or the expiration of time to appeal in any such action
or proceeding shall be
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<PAGE> 15
conclusive and binding, and may be enforced in any federal or state court in the
United States by suit on the judgment or in any other manner provided by law.
Nothing contained in this Debenture shall affect or limit the right of the
Registered Holder to serve any process or notice or motion or other application
in any other manner permitted by law, or limit or affect the right of the
Registered Holder to bring any action or proceeding against the Company or any
of its property in the courts of any other jurisdiction. The Company hereby
consents to the jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising under
this Debenture, and hereby waives, to the maximum extent permitted by law, any
objection, including any objections based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
19. PAYEE DEFINED. The term "payee" as used herein shall be deemed
to include the payee and its successors, endorsees and assigns.
20. WAIVER OF PRESENTMENT, ETC. The undersigned hereby waives
presentment, demand for payment, protest, notice of protest and notice of
non-payment hereof.
21. HEADINGS. The headings contained in this Debenture are for
reference purposes only and shall not affect the meaning of interpretation of
this Debenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed as of the date first written above.
By:________________________________________
Name: Kenneth W. Schilling
Title: Chairman
NOTICE OF CONVERSION
The conversion form appearing below should only be executed by the
Registered Holder desiring to convert all or part of the principal amount of the
Debenture attached hereto.
CONVERSION FORM
Date: _______________________
TO: iBIZ TECHNOLOGY CORP.
1919 West Lane Cactus
Phoenix, Arizona 85027
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<PAGE> 16
The undersigned hereby exercises the conversion privilege upon the
terms and conditions set forth in the attached Debenture, to the extent of the
maximum number of shares of Common Stock issuable pursuant to the terms of
Section 6 of the Debenture, and accordingly, authorizes the Company to apply
$_______________ principal amount of the attached Debenture to payment in full
for such shares of Common Stock. Please register such shares and make delivery
thereof as follows:
Registered in the Name of (Giving First or Middle Name in Full)
Name______________________________________
(Please Print)
Address___________________________________
DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to persons
other than the Registered Holder.
Name______________________________________
(Please Print)
Address___________________________________
Signature_________________________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfer unto
_____________________________ the within Debenture and all rights thereunder,
hereby irrevocably authorizing the Company to transfer said Debenture on the
books of the Company, with full power of substitution in the premises.
Dated: ___________________________________
Signature: _____________________________________
Print Name: ____________________________________
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EXHIBIT 10.16
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: 100,000
WARRANT
To Purchase Common Stock of
IBiz Technology Corp.
THIS IS TO CERTIFY THAT GLOBE UNITED HOLDINGS, INC., a British
Virgin Islands corporation, or registered assigns, is entitled, at any time from
the Warrant Issuance Date (as hereinafter defined) to the Expiration Date (as
hereinafter defined), to purchase from IBiz Technology Corp., a Florida
corporation (the "Company"), 100,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part,
including fractional parts, at a purchase price per share equal to $ 0.94
(subject to any adjustments made to such amount pursuant to Section 4 hereto) on
the terms and conditions and pursuant to the provisions hereinafter set forth.
I. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the consolidated book value of the Company as of the
last day of any month immediately preceding such date, divided by the number of
Fully Diluted Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of the exercise prices for such shares) by a
firm of independent certified public accountants of recognized national standing
selected by the Company and reasonably acceptable to the Holder.
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<PAGE> 2
"Business Day" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.001 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Warrant Price" shall mean, $ 0.94 subject to any
adjustments to such amount made in accordance with Section 4 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean November 9, 2004.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant, outstanding on such date,
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining book value or
net income per share.
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"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or Warrant
Stock set forth, herein is registered on the books of the Company maintained for
such purpose.
"Market Price" per Common Share means the average of the closing bid
prices of the Common Shares as reported on the National Association of
Securities Dealers Automated Quotation System for the National Market,
("NASDAQ") or, if such security is not listed or admitted to trading on the
NASDAQ, on the principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter market on
the day in question as reported by the National Association of Security Dealers,
Inc., or a similar generally accepted reporting service, as the case may be, for
the five (5) trading days immediately preceding the date of determination.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and Globe United
Holdings, Inc., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
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"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith by and between the Company and Globe
United Holdings, Inc., as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Issuance Date" shall mean any date on which Warrants are
issued pursuant to the Securities Purchase Agreement.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. From and after the Warrant Issuance Date and until
5:00 P.M., New York City time, on the Expiration Date, Holder may exercise this
Warrant, on any Business Day, for all or any part of the number of shares of
Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment by cash, check or bank draft payable to the Company
of the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank or by the Holder's surrender of Warrant Stock (or the right
to receive such number of shares) having an aggregate Market Price equal to the
Warrant Price for all shares then being purchased and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event
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<PAGE> 5
within three (3) Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as Holder
shall request in the notice and shall be registered in the name of Holder or,
subject to Section 9, such other name as shall be designated in the notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other Person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Warrant Price. If this Warrant shall
have been exercised in part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased shares of
Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant.
The Holder shall be entitled to exercise the Warrant notwithstanding
the commencement of any case under 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"). In the event the Company is a debtor under the Bankruptcy
Code, the Company hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C. Section 362 in respect of the Holder's
exercise right. The Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
exercise of the Warrant. The Company agrees, without cost or expense to the
Holder, to take or consent to any and all action necessary to effectuate relief
under 11 U.S.C. Section 362.
2.2. Payment of Taxes and Charges. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and without any preemptive rights. The
Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof.
Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock on the relevant exercise date.
Continued Validity. A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration
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<PAGE> 6
Statement under the Securities Act or sold pursuant to Rule 144 thereunder),
shall continue to be entitled with respect to such shares to all rights to which
it would have been entitled as Holder under Sections 9, 10 and 14 of this
Warrant. The Company will, at the time of exercise of this Warrant, in whole or
in part, upon the request of Holder, acknowledge in writing, in form reasonably
satisfactory to Holder, its continuing obligation to afford Holder all such
rights; provided, however, that if Holder shall fall to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Sections 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney. Upon such
surrender, the Company shall, subject to Section 9, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2 Division and Combination. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its own
expense the new Warrant or Warrants under this Section 3.
3.4 Maintenance of Books. The Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
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The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice at the time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall:
(a)take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions.
(a) If at any time prior to the Expiration Date the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of.
(i) cash,
(ii) any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
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<PAGE> 8
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
(b) In case the Company shall issue any Common Stock or any rights,
options or warrants to all holders of record of its Common Stock entitling all
holders to subscribe for or purchase shares of Common Stock at a price per share
less than the Market Price per share of the Common Stock on the date fixed for
such issue, the Current Warrant Price in effect immediately prior to the close
of business on the date fixed for such determination shall be reduced to the
amount determined by multiplying such Current Warrant Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the aggregate of
the offering price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such Market Price and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to the close of business on the date fixed for such determination plus the
number of shares of Common Stock so offered for subscription or purchase, such
reduced amount to become effective immediately after the close of business on
the date fixed for such determination. For the purposes of this clause (b), (i)
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company and (ii) in the case of any rights,
options or warrants which expire by their terms not more than 60 days after the
date of issue, sale, grant or assumption thereof, no adjustment of the Current
Warrant Price shall be made until the expiration or exercise of all rights,
options or warrants, whereupon such adjustment shall be made in the manner
provided in this clause (b), but only with respect to the shares of Common Stock
actually issued pursuant thereto. Such adjustment shall be made successively
whenever any event specified above shall occur. In the event that any or all
rights, options or warrants covered by this clause (b) are not so issued or
expire or terminate before being exercised, the Current Warrant Price then in
effect shall be appropriately readjusted.
4.3. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
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(a) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date of
its occurrence.
(b) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
1/10th of a share.
(c) When Adjustment Not Required. If the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good faith
of the fair value of any item under this Section 4, such determination may be
challenged in good faith by the Holder, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the Holder.
4.4. Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the
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Company) shall expressly assume the due and punctual observance and performance
of each and every covenant and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed appropriate, subject to the
Holder's consent, in order to provide for adjustments of shares of Common Stock
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.4 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.5. Other Action Affecting Common Stock. In case at any time or from time
to time the Company shall take any action in respect of its Common Stock, other
than any action taken in the ordinary course of the Company's business or any
action described in this Section 4, which would, in the opinion of an
unaffiliated investment bank selected by Holder, have a materially adverse
effect upon the rights of the Holder, the number of shares of Common Stock
and/or the purchase price thereof shall be adjusted in such manner as may be
equitable in the circumstances, as determined in good faith by an unaffiliated
investment bank selected by Holder.
4.6. Certain Limitations. Notwithstanding anything herein to the contrary,
the Company agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Current Warrant Price to be less than the
par value per share of Common Stock.
4.7. No Voting Rights. This Warrant shall not entitle its Holder to any
voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. Notice of Adjustments. Whenever the number of shares of Common Stock
for which this Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by an executive officer of the Company setting forth,
in reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated, specifying the number of shares of Common Stock
for which this Warrant is exercisable and (if such adjustment was made pursuant
to Section 4.4 or 4.5) describing the number and kind of any other shares of
stock or
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Other Property for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to be
delivered to the Holder in accordance with Section 14.2. The Company shall keep
at its office or agency designated pursuant to Section 12 copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by the Holder or any prospective purchaser of a
Warrant designated by the Holder.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other distribution,
or any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 Business Days' prior written notice of the date on which a record date
shall be selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 Business Days prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause also shall
specify (i) the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the
amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
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6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
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exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof
8. TAKING OF RECORD: STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, the Company will in
each such case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time close its stock
transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. Restrictive Legend. The Holder by accepting this Warrant and any
Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon
exercise hereof may not be assigned or otherwise transferred unless and until
(i) the Company has received an opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration statement relating to such securities has
been filed by the Company and declared effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a
legend substantially worded as follows unless such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended
(the "Act") or any state securities laws. The securities may
not be offered for sale, sold, assigned, offered, transferred
or otherwise distributed for value except (i) pursuant to an
effective registration statement under the Act or any state
securities laws or (ii) pursuant to an exemption from
registration or prospectus delivery requirements under the Act
or any state securities laws in respect of which the Company
has received an opinion of counsel satisfactory to the Company
to such effect. Copies of the agreement covering both the
purchase of the securities and restricting their transfer may
be obtained at no cost by written
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request made by the holder of record of this certificate to
the Secretary of the Company at the principal executive
offices of the Company."
a) Except as otherwise provided in this Section 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and the securities represented hereby have
not been registered under the Securities Act of 1933, as
amended, or any state securities laws and may not be
transferred in violation of such Act, the rules and
regulations thereunder or any state securities laws or the
provisions of this Warrant."
9.2. Notice of Proposed Transfers. Prior to any Transfer or attempted
Transfer of any Warrants or any shares of Restricted Common Stock, the Holder
shall give five days' prior written notice (a "Transfer Notice") to the Company
of Holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to Holder an
opinion that the proposed Transfer of such Warrants or such Restricted Common
Stock may be effected without registration under the Securities Act or state
securities laws. After the Company's receipt of the Transfer Notice and opinion,
such Holder shall thereupon be entitled to Transfer such Warrants or such
Restricted Common Stock, in accordance with the terms of the Transfer Notice.
Each certificate, if any, evidencing such shares of Restricted Common Stock
issued upon such Transfer and the Warrant issued upon such Transfer shall bear
the restrictive legends set forth in Section 9.1, unless in the opinion of such
counsel such legend is not required in order to ensure compliance with the
Securities Act.
9.3. Required Registration. Pursuant to the terms and conditions set forth
in the Registration Rights Agreement, the Company shall prepare and file with
the Commission not later than the 45th day after the Closing Date, a
Registration Statement relating to the offer and sale of the Common Stock
issuable upon exercise of the Warrants and shall cause the Commission to declare
such Registration Statement effective under the Securities Act as promptly as
practicable but no later than 90 days after the Closing Date.
9.4. Termination of Restrictions. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common
Stock issuable upon the exercise of the Warrants) and the legend requirements of
Section 9.1 shall terminate as to any particular Warrant or share of Warrant
Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of
the Warrants) (i) when and so long as such security shall have been effectively
registered under the Securities Act and applicable state securities laws and
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disposed of pursuant thereto or (ii) when the Company shall have received an
opinion of counsel that such shares may be transferred without registration
thereof under the Securities Act and applicable state securities laws.
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legends set forth in Section 9.1.
9.5. Listing on Securities Exchange. If the Company shall list any shares
of Common Stock on any securities exchange, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of, all shares of
Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant, such office to be
initially located at 1919 West Lone Cactus, Phoenix, Arizona 85021, fax:
623-492-9921, provided,
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however, that the Company shall provide prior written notice
to Holder of a change in address no less than 30 days prior
to such change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder
to purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. MISCELLANEOUS
14.1. Nonwaiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Expiration Date. If the
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, the Company shall pay to
Holder such amounts as shall be sufficient to cover any direct and indirect
losses, damages, costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
14.2. Notice Generally. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
(1) if to the Company, to:
IBiz Technology Corp.
1919 West Lone Cactus
Phoenix, Arizona 85021
Fax: 623-492-9921
Attention: Kenneth Schilling, President
(2) if to the Holder, to:
Globe United Holdings
Akara Building
Wickhams Cay #1
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Road Town Tortola
British Virgin Islands
With a copy to:
Laufer Halberstam & Karish, LLP
One Liberty Plaza
37th Floor
New York, New York 10006
Attention: Michael J. Halberstam, Esq.
Tel: (212) 267-0600
Fax:(212) 267-1924
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. Indemnification. The Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant.
14.4. Remedies. Holder in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
14.5. Successors and Assigns. Subject to the provisions of Sections 3.1
and 9, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of the Company and the successors and
assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
14.6. Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived only with the prior written consent of
the Company and the Holder.
14.7. Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law,
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but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
14.8. Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
14.9. Governing Law. This Warrant shall be governed by the laws of the
State of New York, without regard to the provisions thereof relating to conflict
of laws.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: November 9, 1999
IBIZ TECHNOLOGY CORP.
By: __________________________
Name:
Title:
Attest:
By: _________________________
Name:
Title:
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<PAGE> 20
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of _______ Shares of Common Stock of IBiz Technology
Corp. and herewith makes payment therefor in cash or by check or bank draft made
payable to the Company, all at the price and on the terms and conditions
specified in this Warrant and requests that certificates for the shares of
Common Stock hereby purchased (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to_______________
whose address is ________________ and, if such shares of Common Stock shall not
include all of the shares of Common Stock issuable as provided in this Warrant,
that a new Warrant of like tenor and date for the balance of the shares of
Common Stock issuable hereunder be delivered to the undersigned.
_______________________________________
(Name of Registered Owner)
_______________________________________
(Signature of Registered Owner)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint ______________
attorney-in-fact to register such transfer on the books of IBiz Technology Corp.
maintained for the purpose, with full power of substitution in the premises.
Dated: ______________________ Print Name:_____________________
Signature:______________________
Witness:________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
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<PAGE> 1
EXHIBIT 10.17
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 9, 1999 (this
"Agreement"), is made by and between IBIZ TECHNOLOGY CORP., a Florida
corporation, with headquarters located at 1919 West Lone Cactus, Phoenix,
Arizona 85027 (the "Company") and GLOBE UNITED HOLDINGS, INC., a British Virgin
Islands corporation, (the "Purchaser").
WITNESSETH:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of the
date hereof, among the Purchaser and the Company (the "Securities Purchase
Agreement"), the Company has agreed to issue and sell to the Purchaser, (i)
$600,000 aggregate principal amount of the Company's 7% Convertible Debentures
(the "Debentures") and (ii) warrants (the "Warrants") to purchase 100,000 shares
of the Company's Common Stock, par value $.001 per share (the "Common Stock");
WHEREAS, pursuant to the terms of the Debentures and the Warrants, (i)
upon the conversion of the Debentures, (ii) in lieu of dividend payments on the
Debentures and (iii) upon exercise of the Warrants, the Company will, in each
case, issue to the Purchaser shares of Common Stock (such shares of Common Stock
are collectively referred to herein as the "Shares"); and
WHEREAS, to induce the Purchasers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
(a) "Effectiveness Deadline" shall have the meaning set
forth in section 2(a)(i) hereof.
(b) "Filing Deadline" shall have the meaning set forth
in Section 2(a)(i) hereof.
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(c) "Registration Statement" means a registration
statement or registration statements of the Company filed under the Securities
Act covering Registrable Securities relating to the Debentures and Warrants.
(d) "Register," "Registered," and "Registration" refer
to a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "Commission").
(e) "Registrable Securities" means the Shares.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATIONS.
(i) Registration Statement. The Company shall prepare,
as soon as practicable, but in no event later than 45 days after the Closing
Date (as defined in the Securities Purchase Agreement) (the "Filing Deadline"),
file with the Commission a Registration Statement or Registration Statements (as
necessary) on Form SB-2, covering the resale of all of the Registrable
Securities. In the event that Form SB-2 is unavailable and/or inappropriate for
such a registration, the Company shall use such other form as is available and
appropriate for such a registration. Any Registration Statement prepared
pursuant hereto shall register for resale at least that number of shares of
Common Stock equal to the product of (x) 2.0 and, (y) the sum of (i) the maximum
number of Shares that are issuable upon conversion of the Debentures, on the
date of filing, and (ii) the maximum number of Shares issuable upon exercise of
the Warrants, in each case, without regard to any limitation on any holder's
ability to convert any of the Warrants or the Debentures. Such Registration
Statement shall state that, in accordance with Rule 416 under the Securities
Act, it also covers such indeterminate number of additional Shares as may become
issuable upon conversion of such Debentures or exercise of such Warrants (i)
resulting from any adjustment in the applicable Conversion Price of such
Debentures or the Exercise Price of such Warrants or (ii) to prevent dilution
resulting from stock splits or stock dividends. If at any time two (2.0) times
the sum of (i) the maximum number of Shares into which the Debentures may be
converted and (ii) the maximum number of Shares issuable upon exercise of the
Warrants, exceeds the total number of Shares so registered, the Company shall,
within five (5) business days after receipt of a written notice from the
Purchaser, either (i) amend the Registration Statement or Registration
Statements filed by the Company pursuant to this section, if such Registration
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<PAGE> 3
Statement has not been declared effective by the Commission at that time, to
register all of the Shares into which the Debentures and the Warrants may be
converted, or (ii) if such Registration Statement has been declared effective by
the Commission at that time, file with the Commission an additional Registration
Statement on Form SB-2, or such other appropriate form, to register the number
of Shares into which the Debentures may be converted that exceed the number of
Shares already registered. The Company shall use its best efforts to have the
Registration Statement declared effective within the earliest to occur of (i)
ninety (90) days following the Closing Date (ii) if the Commission elects not to
conduct a review of the Registration Statement, the date which is three (3)
business days after the date upon which either the Company or its counsel is so
notified, whether orally or in writing that the Commission will not conduct a
review of such Registration Statement; or (iii) if the Registration Statement is
reviewed by the Commission, the date which is three (3) business days after the
date upon which the Company or its counsel is notified by the Commission,
whether orally or in writing, that the Commission has no further comments with
respect to the Registration Statement or that the Registration Statement may be
declared effective (the earliest of such dates is referred to herein as the
"Effectiveness Deadline.") Notwithstanding anything to the contrary contained
herein or in any of the Securities Purchase Agreement, the Debentures or the
Warrants (collectively, the "Primary Documents"), the Company shall take all
action necessary to ensure that the Registration Statement includes only the
Registrable Securities and those securities set forth on Schedule 1 hereto.
(ii) The Company shall keep each Registration Statement
effective pursuant to Rule 415 at all times until such date as is the earlier of
(i) the date on which all of the Registrable Securities have been sold and (ii)
the date on which the Registrable Securities (in the opinion of counsel to the
Purchaser) may be immediately sold without restriction (including without
limitation as to volume by each holder thereof) without registration under the
Securities Act (the "Registration Period").
(b) PAYMENTS BY THE COMPANY.
(i) (A) If the Registration Statement covering the
Registrable Securities is not filed with the Commission on or prior to the
Filing Deadline, (B) if the Registration Statement covering the Registrable
Securities is not effective on or prior to the Effectiveness Deadline, (C) if
the number of Shares listed for trading on the OTC Bulletin Board or reserved by
the Company for issuance shall be insufficient, for any period of five (5)
consecutive days at any time after the Effectiveness Deadline, for issuance upon
the conversion of the Debentures and the exercise of the Warrants, or (D) upon
the occurrence of a Blackout Event (as described in Section 3(f) or Section 3(g)
below), for any period of five (5) consecutive days at any time after the
Effectiveness Deadline (each of the events described in clauses (A) through (D)
of this paragraph are referred to herein as a
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<PAGE> 4
"Registration Default"), the Company will make payments to the Purchaser in such
amounts and at such times as shall be determined pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by
the Company to the Purchaser as of each thirty (30) day period during which a
Registration Default shall be in effect (each such period, a "Default Period")
shall be equal to two percent of the purchase price paid by such Purchaser for
all of the Debentures and Warrants (the "Purchase Price"); provided that, with
respect to any Default Period during which the relevant Registration Defaults
shall have been cured, the Periodic Amount shall be pro rated for the number of
days during such period during which the Registration Defaults were pending; and
provided, further, that the payment of such Periodic Amounts shall not relieve
the Company from its continuing obligations to register the Warrants and Shares
pursuant to Section 2(a).
(iii) Each Periodic Amount shall be payable by the
Company in cash or other immediately available funds to the Purchaser monthly,
without demand therefor by the Purchaser.
(iv) The parties acknowledge that the damages which may
be incurred by the Purchaser if the Registration Statement is not filed by the
Filing Deadline, if the Registration Statement has not been declared effective
by the Effectiveness Deadline, or if the provisions of Section 3(e) or 3(f)
become applicable, may be difficult to ascertain. The parties agree that the
Periodic Amount represents a reasonable estimate on the part of the parties, as
of the date of this Agreement, of the amount of such damages.
(c) PIGGYBACK REGISTRATION. (i) If at any time or from time to
time, the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a Registration
relating solely to employee share option plans or pursuant to an acquisition
transaction on Form S-4, the Company will:
A) provide to the Purchaser written notice
thereof as soon as practicable prior to filing the Registration Statement; and
(B) include in such Registration Statement and
in any underwriting involved therein, all of the Registrable Securities
specified in a written request by the Purchaser made within fifteen (15) days
after receipt of such written notice from the Company.
(ii) If the Registration is for a registered public
offering involving an underwriting, the Company shall so advise the Purchaser as
a part of the written notice given pursuant to this Section. In such event, the
rights of the Purchaser hereunder shall include participation in such
underwriting and the inclusion of the Registrable Securities in the underwriting
to the extent provided herein. To the
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<PAGE> 5
extent that the Purchaser proposes to distribute its securities through such
underwriting, the Purchaser shall (together with the Company and any other
security holders of the Company distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section, if the managing underwriter
of such underwriting determines that marketing factors require a limitation of
the number of shares to be offered in connection with such underwriting, the
managing underwriter may limit the number of Registrable Securities to be
included in the Registration and underwriting (provided, however, (a) the
Registrable Securities shall not be excluded from such underwritten offering
prior to any securities held by officers and directors of the Company or their
affiliates, (b) the Registrable Securities shall be entitled to at least the
same priority in an underwritten offering as any of the Company's existing
security holders, and (c) the Company shall not enter into any agreement that
would provide any security holder with priority in connection with an
underwritten offering greater than the priority granted to the Purchaser
hereunder). The Company shall so advise any of its other security holders who
are distributing their securities through such underwriting pursuant to their
respective piggyback registration rights, and the number of shares of
Registrable Securities and other securities that may be included in the
registration and underwriting shall be allocated among the Purchaser and all
other security holders of the Company in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by the Purchaser and
such other security holders at the time of the filing of the registration
statement. If the Purchaser disapproves of the terms of any such underwriting,
it may elect to withdraw therefrom by written notice to the Company. Any
Registrable Securities so excluded or withdrawn from such underwriting shall be
withdrawn from such Registration.
(d) INTENTIONALLY OMITTED.
(e) PRIORITY IN FILING. Subject to the terms of the
Securities Purchase Agreement, from the date hereof until 180 days following the
effective date of the Registration Statement pursuant to Section 2(a) of this
Agreement, the Company shall not permit the registration of any of its
securities under the Securities Act to become effective, other than those
covered by this Agreement and those described in Schedule 3b of the Securities
Purchase Agreement, without the prior written approval of the Purchaser. The
foregoing notwithstanding, the Company may permit a registration statement to
become effective during the foregoing period provided that such registration
statement relates to a firm commitment underwritten offering of the Company's
securities that provides the Company with at least $7.5 million.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall do each of the following:
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<PAGE> 6
(a) Prepare and file with the Commission the registration
statements required by Section 2 of this Agreement and such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectuses used in connection with the Registration
Statement, each in such form as to which the Purchaser and its counsel shall not
have objected, as may be necessary to keep the Registration current at all times
during the Registration Period, and, during the Registration Period, comply with
the provisions of the Securities Act with respect to the disposition of all of
the Registrable Securities until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement;
(b) Furnish to the Purchaser, if the Registrable Securities of
the Purchaser are included in the Registration Statement, and its legal counsel
identified to the Company, promptly after the same is prepared and publicly
distributed, filed with the Commission, or received by the Company, a copy of
the Registration Statement, each preliminary prospectus, each final prospectus,
and all amendments and supplements thereto and such other documents, as the
Purchaser may reasonably request in order to facilitate the disposition of its
Registrable Securities;
(c) As soon as practicable, furnish to the Purchaser and its
counsel copies of any correspondence between the Company and the Commission with
respect to any registration statement or amendment or supplement thereto filed
pursuant to this Agreement;
(d) Use all best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Purchaser may request,
(ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period and (iv) take all other actions necessary
or advisable to qualify the Registrable Securities for sale in such
jurisdictions;
(e) List such securities on the OTC Bulletin Board and all the
other national securities exchanges on which any securities of the Company are
then listed, and file any filings required by the OTC Bulletin Board and/or such
other exchanges;
(f) As promptly as practicable after becoming aware of such
event, notify each Purchaser of the occurrence of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and to use its
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<PAGE> 7
best efforts to promptly prepare a supplement or amendment to the Registration
Statement or other appropriate filing with the Commission to correct such untrue
statement of omission, and to deliver a number of copies of such supplement or
amendment to the Purchaser as the Purchaser may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify the Purchaser who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the underwriters) of the issuance by the
Commission or any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time, and to use its best
efforts to promptly obtain the withdrawal of such stop order or other suspension
of effectiveness;
(h) As promptly as practicable after becoming aware of such
event, notify each Purchaser who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time, and
to use its best efforts to promptly obtain the withdrawal of such stop order or
other suspension of effectiveness (the occurrence of any of the events described
in paragraphs (f) and (g) of this Section 3 is referred to herein as a "Blackout
Event");
(i) During the period commencing upon (i) the Purchaser's
receipt of a notification pursuant to Section 3(f) above, or (ii) the entry of a
stop order or other suspension of effectiveness of the Registration Statement
described in Section 2(a) above, and ending at such time as (y) the Company
shall have completed the applicable filings (and if applicable, such filings
shall have been declared effective) and shall have delivered to the Purchaser
the documents required pursuant to Section 3(e) above, or (z), such stop order
or other suspension of the effectiveness of the Registration Statement shall
have been removed, the Company shall be liable to remit the payments required to
be paid pursuant to Section 2(b) above;
(j) If the offering is underwritten, at the request of a
Purchaser, to furnish on the date that Registrable Securities are delivered to
the underwriters for sale pursuant to such registration: (i) an opinion dated
such date of counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to any Purchaser selling
Registrable Securities in connection with such underwriting, stating that such
registration statement has become effective under the Securities Act and that
(A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act and (B)
the registration statement, the related prospectus and each amendment or
supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements or other financial data contained
therein) and (ii) a letter dated such date from the Company's independent public
accountants addressed to the
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underwriters and to such Purchasers, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five (5) business days prior to the date of such
letter) with respect to such registration as such underwriters may reasonably
request; and
(k) Cooperate with the Purchaser to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and to enable such certificates
for the Registrable Securities to be in such denominations or amounts, as the
case may be, as the Purchaser may reasonably request, and registered in such
names as the Purchaser may request; and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchaser) an appropriate instruction
and opinion of such counsel.
4. OBLIGATIONS OF THE PURCHASER. In connection with the
registration of the Registrable Securities, the Purchaser shall furnish to the
Company such information regarding itself, the Warrants and Registrable
Securities held by it, and the intended method of disposition of the Warrants
and the Registrable Securities held by it, as shall be reasonably required to
effect the registration of such Warrants and such Registrable Securities, and
the Purchaser shall execute such documents in connection with such registration
as the Company may reasonably request. At least five (5) days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
the Purchaser of the information the Company included in the Registration
Statement.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
discounts and commissions and other fees and expenses of investment bankers and
other than brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to Section 3, but including, without
limitation, all registration, listing, and qualification fees, printing and
accounting fees, and the fees and disbursements of counsel for the Company, and
the fees of one counsel to the Purchaser with respect to each Registration
Statement filed pursuant hereto, shall be borne by the Company provided, that
the expenses of such Purchaser's counsel shall not exceed $5,000.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
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(a) The Company will indemnify and hold harmless the Purchaser,
each of its officers, directors and shareholders, and each person, if any, who
controls the Purchaser within the meaning of the Securities Act or the Exchange
Act (each, an "Indemnified Person"), against any losses, claims, damages,
liabilities or expenses joint or several) incurred (collectively, "Claims") to
which any of them may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the
Commission) or the omission to state therein any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state or
foreign securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state or foreign securities law (the matters in foregoing
clauses (i) through (iii) being, collectively, "Violations"). The Company shall,
subject to the provisions of Section 6(b) below, reimburse the Purchaser,
promptly as such expenses are incurred and are due and payable, for any legal
and other costs, expenses and disbursements in giving testimony or furnishing
documents in response to a subpoena or otherwise, including without limitation,
the costs, expenses and disbursements, as and when incurred, of investigating,
preparing or defending any such action, suit, proceeding or investigation
(whether or not in connection with litigation in which the Purchaser is a
party), incurred by it in connection with the investigation or defense of any
such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i) apply to
any Claim arising out of or based upon a modification which occurs in reliance
upon and in conformity with information furnished in writing to the Company by
or on behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (ii) with respect to any preliminary prospectus, inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the final prospectus, as then amended or supplemented, if such final
prospectus was timely made available by the Company pursuant to Section 3(b)
hereof; (iii) be available to the extent that such Claim is based upon a failure
of the Purchaser to deliver or to cause to be delivered the prospectus made
available by the Company, if such prospectus was timely made available by the
Company pursuant
9
<PAGE> 10
to Section 3(b) hereof; or (iv) apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Purchaser pursuant to Section 9. Each Purchaser will indemnify
the Company and its officers and directors against any Claims arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of the
Purchaser, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company in this Section 6.
(b) Promptly after receipt by an Indemnified Person under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and to the
extent that the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person, provided, however, that an Indemnified Person shall have the right to
retain its own counsel with the reasonable fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person and any other party
represented by such counsel in such proceeding. In such event, the Company shall
pay for only one separate legal counsel for the Purchaser, and such legal
counsel shall be selected by the Purchaser. The failure to deliver written
notice to an indemnifying party within a reasonable time after the commencement
of any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person under this Section 6, except to the extent that the
indemnifying party is materially prejudiced in its ability to such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of an unconditional and irrevocable release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any
provisions relating to indemnification or contribution contained in the
underwriting agreements
10
<PAGE> 11
entered into among the Company, the underwriters and the Purchaser in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in such underwriting agreements shall be controlling
as to the Registrable Securities included in the public offering; provided,
however, that if, as a result of this Section 6(d), the Purchaser, its officers,
directors, partners or any person controlling the Purchaser is or are held
liable with respect to any Claim for which they would be entitled to
indemnification hereunder but for this Section 6(d) in an amount which exceeds
the aggregate proceeds received by the Purchaser from the sale of Registrable
Securities included in a registration pursuant to such underwriting agreement
(the "Excess Liability"), the Company shall reimburse the Purchaser for such
Excess Liability.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited under applicable law, the
indemnifying party agrees to contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the Indemnified Person on the other hand
in connection with the statements or omissions which resulted in such Claim, as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and the Indemnified Person shall be determined by reference
to, among other things, whether the untrue statement of a material fact or the
omission to state a material fact on which such Claim is based relates to
information supplied by the indemnifying party or by the Indemnified Person, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. Notwithstanding the forgoing,
(a) no contribution shall be made under circumstances where the payor would not
have been liable for indemnification under the fault standards set forth in
Section 6, (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net proceeds
received by such seller from the sale of such Registrable Securities. The
Company and the Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro-rata allocation
(even if the Purchaser and any other party were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in this Section.
8. REPORTS UNDER EXCHANGE ACT.
With a view to making available to the Purchaser the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Purchaser to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
11
<PAGE> 12
(i) make and keep public information available, as those
terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(iii) furnish to the Purchaser so long as the Purchaser
owns Registrable Securities, Debentures or Warrants promptly upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or periodic report of the Company and such other reports and
documents so filed by the Company and (iii) such other information as may be
reasonably requested to permit the Purchaser to sell such securities pursuant to
Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by Purchaser to any transferee of all or any portion of
the principal amount of Debentures or the Warrants, or the underlying Common
Stock held by Purchaser (collectively, the "Securities") if: (a) Purchaser
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment; (b) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of the name and address of
such transferee or assignee; (c) at or before the time the Company receives the
written notice contemplated by clause (b) of this sentence, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein; and (d) the transfer of the relevant Securities complies with
the restrictions set forth in Section 4 of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Purchaser.
Any amendment or waiver effected in accordance with this Section 10 shall be
binding upon Purchaser and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Warrants or
Registrable Securities whenever such person or entity owns of record such
Warrants or Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Warrants or Registrable Securities, the Company shall act
upon the basis of the instructions, notice
12
<PAGE> 13
or election received from the registered owner of such Warrants or Registrable
Securities.
(b) Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten (10) days advance
written notice to each of the other parties hereto.
COMPANY: iBIZ TECHNOLOGY CORP.
1919 West Lone Cactus
Phoenix, Arizona 85027
ATTN: Kenneth Schilling
Tel.: 623-492-9200
Fax: 623-492-9921
WITH COPIES TO:
Gammage & Burnham
2 North Central Avenue
Phoenix, Arizona 85004
ATTN: Steven Boatwright, Esq.
Tel.: 602-256-0566
Fax: 602-256-4475
PURCHASER: Akara Building
Wickhams Cay #1
Road Town Tortola
British Virgin Islands
WITH COPIES TO:
Laufer Halberstam & Karish, P.C.
One Liberty Plaza, 37th Floor
New York, New York 10006
ATTN: Michael J. Halberstam, Esq.
Tel.: (212) 267-0600
Fax: (212) 267-1924
13
<PAGE> 14
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, except for provisions with
respect to internal corporate matters of the Company which shall be governed by
the corporate laws of the State of Florida. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such validity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. Subject to the provisions of Section 10 hereof, this
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure for the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company to
perform its obligations under Section 2(a), or any delay in such performance
could result in direct damages to the Purchaser, and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay. Nothing herein shall limit the Purchaser's right to
pursue any claim seeking such direct damages.
14
<PAGE> 15
IN WITNESS WHEREOF, this Agreement has been duly executed by the
undersigned.
"COMPANY"
IBIZ TECHNOLOGY CORP.
By: ________________________________________
Name: Kenneth Schilling
Title: President/CEO
IN WITNESS WHEREOF, this Agreement has been duly executed by the
undersigned.
"PURCHASER"
GLOBE UNITED HOLDINGS, INC.
By: _________________________________________
Name:
Title: Authorized Person
15
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<S> <C>
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<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 25,343
<SECURITIES> 0
<RECEIVABLES> 215,037
<ALLOWANCES> (2,500)
<INVENTORY> 317,360
<CURRENT-ASSETS> 594,224
<PP&E> 124,747
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0
0
<COMMON> 26,370
<OTHER-SE> 455,433
<TOTAL-LIABILITY-AND-EQUITY> 1,081,956
<SALES> 2,079,331
<TOTAL-REVENUES> 2,079,331
<CGS> 1,608,729
<TOTAL-COSTS> 1,608,729
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 49,537
<INCOME-PRETAX> (817,269)
<INCOME-TAX> 136,830
<INCOME-CONTINUING> (954,099)
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<NET-INCOME> (954,099)
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