================================================================================
As filed with the Securities & Exchange Commission on March 11, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
TWO DOG NET, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Utah 7375 68-0394802
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Identification No.) Classification Code No.)
</TABLE>
---------------------------
337 Preston Court
Livermore, CA 94550
(925) 447-0226 tel.
(Address of principal place of business or intended principal place of business)
Sholeh Hamedani
Two Dog Net, Inc.
337 Preston Court
Livermore, CA 94550
(925) 447-0226 tel.
(Name, address and telephone number of agent for service)
---------------------------
Copies to:
Antoine M. Devine, Esquire
Evers & Hendrickson, LLP
155 Montgomery Street, Suite 1200
San Francisco, CA 94104
(415) 772-8109
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------- --------------- -------------------------- -------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Title of each Amount Proposed maximum Proposed minimum Proposed maximum Amount of
class to be offering price aggregate aggregate registration
of securities to registered per unit offering price offering price fee
be registered
- --------------------- --------------- -------------------------- -------------------- ------------------- ------------------
Common, par value 2,000,000 $10.00 $7,000,000 $20,000,000 $6,000
$0.01
- --------------------- --------------- -------------------------- -------------------- ------------------- ------------------
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
<TABLE>
Two Dog Net, Inc.
Cross-Reference Sheet pursuant to Item 501(b)
Showing Location in Prospectus of Information
Required by Items of Form SB-2
<CAPTION>
Registration Statement Item Caption in Prospectus
--------------------------- ---------------------
<S> <C>
1. Front of Registration Statement and Facing Page; Cross-Reference Sheet;
Outside Front Cover of Prospectus Prospectus Cover Page
2. Inside Front and Outside Back Cover Prospectus Cover Page; Prospectus
Pages of Prospectus Back Cover Page
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors; Shares Eligible For
Future Sale
6. Dilution Dilution
7. Selling Security holders Not Applicable
8. Legal Proceedings Not Applicable
9. Plan of Distribution Plan of Distribution
10. Directors, Executive Officers, Promoters Management; Security Ownership of Certain
Beneficial Owners and Management
11. Security Ownership of Certain Beneficial Security Ownership of Certain Beneficial
Owners and Management Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Interest of Named Experts and
Counsel
14. Disclosure of Commission Position on Description of Securities
Indemnification for Securities Act Liabilities
15. Organization Within One Year Prospectus Summary; Risk Factors; Business;
Certain Transactions
16. Description of Business Business
17. Management's Discussion and Analysis Management's Discussion and
Analysis
18. Description of Property Description of Property
19. Certain Relations and Related Certain Transactions
Transactions
<PAGE>
20. Market for Common Equity and Related Outside Front Cover Of Prospectus;
Stockholder Matters Description of Securities; Risk Factors
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements With Change in Accountants
Accountants on Accounting and Financial
Disclosure
</TABLE>
<PAGE>
TWO DOG NET, INC.
[ GRAPHIC OMITTED ]
2,000,000 Shares
common stock
All of the 2,000,000 shares of common stock offered by this Prospectus
are being sold directly by Two Dog Net, Inc. ("TDN" or the "Company"). Prior to
this offering, there has been no public market for the Company's common stock;
therefore, the public offering price has been determined by the Company. The
common stock has been submitted for approval on the NASDAQ National Market under
the symbol "DNET." See "SHARES ELIGIBLE FOR FUTURE RESALE."
This offering is being made directly by the Company for not more than
2,000,000 shares (the "maximum" amount). The minimum number of shares to be sold
in this offering is 700,000 shares. This offering will be terminated upon the
earlier of: the sale of the maximum amount, twelve months after the date of this
Prospectus or the date on which the Company decides to close the offering. A
minimum purchase of 100 shares is required. Until the minimum offering amount is
reached, funds will be held in an escrow account. See "PLAN OF DISTRIBUTION."
The common stock offered hereby involves a high degree of risk.
See "RISK FACTORS" beginning on Page 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Public Proceeds to
Company (1)
Per Share $10.00 $10.00
Total minimum (700,000 shares) $7,000,000 $7,000,000
Total maximum (2,000,000 shares) $20,000,000 $20,000,000
(1) Before deducting estimated expenses of $186,000 payable by the
Company, including registration fees, escrow agent fees, costs of printing,
copying and postage and other offering costs, in addition to legal and
accounting fees.
The date of this Prospectus is , 1999.
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person in any jurisdiction in which such
offer or solicitation is unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any date subsequent to
the date hereof.
The securities are only being offered to persons in those states where
these securities have been registered or qualified. This does not constitute an
offer to sell securities in any state or jurisdiction in which such registration
or qualification has not been obtained. Such registrations or qualifications do
not constitute endorsement or approval by any state securities commission, nor
has any such commission passed upon the accuracy or completeness of this
offering statement or any other selling literature.
No action has been or will be taken by the Company or the Selling
Shareholders that would permit a public offering of the common stock or
possession or distribution of this Prospectus in any jurisdiction where such
action is required, other than in the United States. Persons into whose
possession this Prospectus comes are required by the Company to inform
themselves about and to observe any restrictions as to the offering of the
common stock and the distribution of this Prospectus
Until, 1999 (90 days after the date of this Prospectus) all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
--------------------------
The Company has registered various Internet domain names, including the
following: www.socksurf.com, www.safesock.com, www.sockwatch.com,
www.twodog.net, www.safezone technology.com, www.children's internet.net & .com.
The Company has applied for registration of various trademarks, including the
following: SafeZone Technology, SafeZone, TwoDogNet(TM) and The Children's
Internet. This Prospectus also includes product names and other trade names and
trademarks of the Company and other organizations.
--------------------------
AVAILABLE INFORMATION
The Company became subject to the informational filing requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act") for its current
fiscal year. Upon completion of this offering, the Company will register under
the Exchange Act and will file required annual and quarterly reports.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent public accounting firm
after the end of its fiscal year. The Company's fiscal year ends on December 31.
In addition, the Company will send shareholders quarterly reports with unaudited
financial information for the first three quarters of each fiscal year.
This Prospectus is available in an electronic format. Upon appropriate
request from a resident of those states in which this offering may lawfully be
made, the Company will transmit promptly, without charge, a paper copy of this
Prospectus.
The Company's corporate offices are located at 337 Preston Court,
Livermore, CA 94550. The Company's telephone number is (925) 447-0226. The
Company's facsimile number is (925) 447-5567. The Company's E-mail address is
[email protected], and its Web site is http://www.twodognet.com. A copy of
the Prospectus and Share Purchase Agreement is available at the Company's
Website. Information contained in the Company's Website should not be deemed to
be part of the Prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety and should be read
in conjunction with the more detailed information and Financial Statements,
including Notes, appearing elsewhere in this Prospectus. See "RISK FACTORS" for
a discussion of certain risks associated with an investment in the common stock.
Unless otherwise indicated, the information in this Prospectus gives retroactive
effect to a 1-for-40 reverse stock split of its shares of common stock effected
on March 15, 1996 as part of the Company's reorganization prior to this
offering. See "SHARES ELIGIBLE FOR FUTURE RESALE."
The Company
Two Dog Net, Inc. ("TDN" or the "Company") proposes to provide site
content and navigation tools designed especially for children and families to
access the Internet in a safe environment that emphasizes educating children and
developing their Internet navigation skills. As part of its system development
process, the Company has operated as a local Internet Service Provider ("ISP")
since 1997 under the name "The Socket." This has enabled the Company to develop
and test the user interface for the two primary aspects of the system: the Web
service's content areas that allows users to search a wide range of topics while
teaching Web navigation skills within the proprietary The Children's
Internet(TM) environment, and the search engine ("SafeZone Technology") that
allows users to perform direct searches only to the pre-approved sites on the
Internet. If an individual site is not pre-approved, the site is not accessible
to the user.
The Company's initial primary market will be families with children
ranging from 3 years to 14 years of age. The SafeZone Technology will also
provide users with tools for customizing the scope of Internet access for each
family member as well as tools for safely navigating the Internet. Management
believes the Web service and its related technologies will be the focus of its
future operations and provide the primary source of future revenues and the ISP
segment will have a negligible impact on future financial results.
Strategy
The Company's objective is to become the premier gateway or portal to
the Internet with an emphasis on children's issues. To accomplish this, the
Company's strategy is to offer a unique and engaging on-line experience through
its Web service, named TwoDogNet(TM), which is designed to provide a dynamic
environment focused on educating children through providing entertaining
activities, creating a platform for developing effective Internet navigation
skills and providing the portal from TwoDogNet(TM) to pre-approved Internet
sites.
Provide a Safe Internet Experience
In addition to the content provided by the TwoDogNet(TM) environment,
the user can use the portal to visit pre-approved sites available from the
Internet that will be carefully chosen by an advisory board of educators using
criteria that emphasizes educational and age-appropriate content. However, the
system is not limited to these pre-approved sites. It is also designed to allow
authorized users, e.g. parents, to add sites from the Internet-at-large to the
sites available to his or her family, as well as to remove any of the
pre-approved sites currently accessible through the system. Such modifications
will be user-specific, i.e. no other subscriber will be affected by any other
subscriber's customized changes.
Provide a Rich and Dynamic Environment
The Company's strategy for attracting new subscribers and retaining
existing ones is to provide a dynamic environment that continually enhances the
users experience. A key aspect of this strategy will be to deliver rich content
and search capabilities coupled with fast download times. The Company believes
that all users, and children in particular, will stay interested in the content
matter and search results and therefore spend more time in the environment if
download times are perceived as fast and responsive. The time users spend on the
system will directly impact the value of its "real estate", i.e. the areas of
the environment where sponsors and advertisers are presented.
3
<PAGE>
Rich and entertaining content often involves incorporating multi-media
files within Web pages. However, these features typically increase download
times as compared to text pages or simple graphics. To obtain faster download
times, the Company will provide new content to its subscribers on a periodic
basis via CD-ROM. The CD-ROM will interface with the TwoDogNet(TM) Web
environment, enabling users to enjoy an enriched multi-media experience that
includes new original content such as games and instructional content with
audio, video and animation.
Promote Product Awareness
The Company's marketing plan will invest heavily on creating product
awareness in order to build a large user base. In addition to the subscription
revenue generated, the number of users and the growth rate of the user base,
along with the user time spent on the system, are the key elements in
determining the value of the advertising space on the system's Web pages.
Accordingly, the Company plans to pursue an aggressive marketing strategy to
continuously promote awareness of the TwoDogNet(TM) Web environment. See
"BUSINESS" -- "MARKETING AND SALES."
Provide Secure and Dependable Technology Infrastructure
To help insure the dependability of the Company's Web environment to
its users and advertisers, the Company plans to provide a secure hardware
infrastructure with a capacity level to meet the demands of, and accommodate the
growth in, its user base. To accomplish this, the Company intends to install its
system on Digital Equipment Corporation's ("DEC") 8400 clustered system. GST
Telecommunications, Inc. ("GST") will provide the telecommunication connections
to the Internet and Pacific Bell will be available as a backup provider.
Business Development
By offering a high quality Web environment that focuses on children's
safe access to the Internet, TDN initially seeks to generate revenues from three
primary sources. These include annual subscriptions from users, corporate
sponsorships that integrate the sponsor into the user experience on
TwoDogNet(TM), and advertising revenues from the sale of ad placements on
TwoDogNet(TM). In addition, the Company will seek to establish and build its
brand names, and the Company's future plans include the marketing and
merchandising of TwoDogNet(TM) branded products based on its proprietary
characters. In addition, the Company intends to conduct E-commerce on
TwoDogNet(TM) to market and merchandise third party products.
The Company believes that the SafeZone Technology can also be adapted
for use by commercial entities and government agencies concerned about workplace
productivity.
Leveraging Strategic Alliances
The Company has entered into a long term contractual agreement with a
full service advertising agency, Spunky Productions, LLC ("SPL"), which is
working with the Company in providing the creative development of TwoDogNet(TM).
The employees and creative staff of SPL will become employees of the Company in
the 2nd quarter of this year. See, "BUSINESS--MARKETING AND SALES."
4
<PAGE>
THE OFFERING
common stock Offered by the Company................. 2,000,000 shares (maximum)
common stock Outstanding Prior to the Offering................14,866,919 shares
Use of Proceeds................................. Proceeds from the sale of the
shares will be used to
purchase capital equipment,
increase staffing for
operation and administration,
implement the Company's
marketing plan, expand its
product development efforts
and provide general operating
capital. See "USE OF PROCEEDS."
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data for the years ended December 31, 1996 and
1997 have been derived from the audited Financial Statements of the Company. The
summary financial data for the nine month periods ended September 30, 1997 and
1998 have been derived from unaudited interim financial statements of the
Company contained elsewhere herein and reflect, in management's opinion, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for these periods. Results of
operations for any interim period are not necessarily indicative of results to
be expected for the full fiscal year. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes to the
financial statements, each appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended Year Ended Nine months Ended
December 31, December 31, September 30,
------------ ------------ -------------
(unaudited)
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Statements of Income Data:
Revenue $ 0 $ 50,406 $ 28,310 $ 139,110
Cost of Revenue 42,977 254,010 202,925 175,906
--------- --------- --------- ---------
Gross profit (loss) (42,977) (203,604) (174,615) (36,796)
Operating Expenses 498,375 707,142 338,313 445,190
--------- --------- --------- ---------
Operating Income (loss) (541,352) (910,746) (512,928) 481,986)
Other Income (Expenses) 5,357 14,904 12,572 29,649
--------- --------- --------- ---------
Net income (loss) $(535,995) $(895,842) $(500,356) $(452,337)
========= ========= ========= =========
Loss per share $ (.31) $ (.06) (.04) (.03)
========= ========= ========= =========
December 31, 1997 September 30, 1998
----------------- ------------------
Balance Sheet Data: (Unaudited)
Working Capital $ 340,889 $ 677,374
Total Assets 855,143 988,217
Stockholders' Equity 644,189 927,664
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in the shares being offered by this Prospectus involves a
high degree of risk and should only be made by persons who can afford to risk
their entire investment. Prospective investors should consider carefully the
following risk factors, in addition to other information concerning the Company
and its business contained in this Prospectus, before purchasing shares.
Extremely Limited Operating History
The Company began operations as an Internet Service Provider ("ISP") in
1997. Since 1996, the Company has also been developing software and related
system technology to develop and market server and integrated applications to
allow access to the Internet within a safe environment for its subscribers.
Management believes the ISP segment of the Company's business will have a
relatively negligible impact on the Company's future operations and financial
results. Accordingly, the Company has no operating history upon which to
evaluate its future potential. Specifically, the Company's limited operating
history as an ISP does not provide a basis to evaluate its sources of future
revenues from Web-based advertising, user subscriptions and corporate
sponsorships, or its future expenses and capital requirements.
The Company's success is subject to the risks, expenses and
uncertainties frequently encountered by companies in the new and rapidly
changing markets for Internet products and services, including Web-based
advertising. These risks include, but are not limited to, the failure to
complete the initial development of or to extend the TwoDogNet(TM) brands, the
failure to integrate the software and hardware components comprising the overall
system, the failure to develop new revenue generating media properties, the
inability of the company to attract subscribers or to increase levels of user
traffic on the TwoDog.Net properties, the development or acquisition of equal or
superior services or products by competitors, the failure of the market to adopt
the Internet as an advertising medium, the failure to sell a sufficient volume
of Web-based advertising due to an inability to effectively staff and manage an
internal or outsourced sales force, potential reductions in Web-based
advertising due to increased competition from other advertising sources, a
restructuring of the Web-based advertising market, the failure of the Company to
generate sufficient revenues from corporate sponsorships within the
TwoDogNet(TM) properties, the failure of the Company to successfully develop and
offer personalized Web-based services to consumers without errors or
interruptions in service, the inability to expand its internal financial,
administrative and product development systems to accommodate the Company's
potential growth, and the inability to attract, retain and motivate qualified
personnel. There can be no assurance that the Company will be successful in
addressing such risks.
Accumulated Deficit
As of September 30, 1998, the Company had an accumulated deficit of
$2,991,217. The limited operating history of the Company and the uncertain
nature of the markets addressed by the Company make the prediction of future
results of operations difficult or impossible. The Company currently expects to
significantly increase its operating expenses related to expanding its sales and
marketing operations, to continue to develop and extend the TwoDogNet(TM) brand,
to fund greater levels of product development and to develop and commercialize
additional media properties. As a result of these factors, there is no assurance
that the Company will not incur significant losses on a quarterly and annual
basis in the future. Since January 1996 through September 30, 1998, the Company
has funded its operations through a private placement of its common stock, which
has raised approximately $4.4 million. The private placement shall continue
until the filing date of this Prospectus. Recent sales of the Company's stock
through the private placement have been at a price of $3.25 per share. The
Company's independent certified public accountants have included an explanatory
paragraph in their report stating these factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1 to the Financial
Statements. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," the Financial Statements, the related Notes to the
financial statments and other financial information appearing elsewhere in this
Prospectus.
7
<PAGE>
Fluctuations in Quarterly Operating Results; Anticipated Losses
As a result of the Company's limited operating history, the Company
does not have any historical financial data upon which to project future levels
of expenses accurately. The Company expects to derive its revenues from
subscriptions, sponsorships, the sale of advertisements and commissions from the
sale of third party products, which are difficult to forecast accurately.
Accordingly, future quarterly results may differ significantly from management's
projections. The Company's planned expense levels will be based in part on its
expectations concerning future revenue and, to a large extent, depend upon the
success of the Company's marketing efforts to attract subscribers. The Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. In such a case, any significant revenue shortfall
in relation to the Company's expectations would have a material adverse effect
on the Company's business, operating results, and financial condition. In
addition, the Company plans to continue to significantly increase its operating
expenses related to expanding its sales and marketing operations, to continue to
develop and extend the TwoDogNet(TM) brand, to fund greater levels of product
development, and to develop and commercialize additional media properties. To
the extent such expenses precede or are not subsequently followed by increased
revenues, the Company's business, operating results, and financial condition
will be materially and adversely affected. In view of the rapidly evolving
nature of the Company's business and its lack of operating history, the Company
believes that its past operating results are not meaningful and should not be
relied upon as an indication of future performance. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
The Company's operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside the
Company's control. These factors include the level of usage of the Internet,
demand for Internet advertising, the addition or loss of advertisers, the level
of user traffic on TwoDogNet(TM), the advertising budgeting cycles of individual
advertisers, the amount and timing of capital expenditures and other costs
relating to the expansion of the Company's operations, the introduction of new
products or services by the Company or its competitors, pricing changes for
Web-based advertising, the timing of initial set-up, engineering or development
fees that may be paid in connection with larger advertising and distribution
arrangements, technical difficulties with respect to the development or
operation of TwoDogNet(TM), incurrence of costs relating to future acquisitions,
general economic conditions and economic conditions specific to the Internet and
online media. As a strategic response to changes in the competitive environment,
the Company may from time to time make certain pricing, service or marketing
decisions, or business combinations that could have a material adverse effect on
the Company's business, operating results and financial condition. The Company
expects to experience seasonality in its business. Seasonality may affect the
amount of customer advertising dollars placed with the Company in the first and
third calendar quarters as advertisers historically spend less during these
quarters.
Dependence on Continued Growth in the Use of the Internet; Technological Change
The Company's future success is substantially dependent upon continued
growth in the use of the Internet and the Web in order to support the sale of
advertising on the Company's online media properties. There can be no assurance
that communication or commerce over the Internet will become more widespread or
that extensive content will continue to be provided over the Internet. The
Internet may not prove to be a viable commercial marketplace for a number of
reasons, including lack of acceptable security technologies, potentially
inadequate development of the necessary infrastructure, such as a reliable
network backbone, or timely development and commercialization of performance
improvements, including high speed modems. In addition, to the extent that the
Internet continues to experience significant growth in the number of users and
level of use, there can be no assurance that the Internet infrastructure will
continue to be able to support the demands placed upon it by such potential
growth or that the performance or reliability of the Web will not be adversely
affected by this continued growth. If use of the Internet does not continue to
grow, or if the Internet infrastructure does not effectively support growth that
may occur, the Company's business, operating results, and financial condition
would be materially and adversely affected. The market for Internet products and
services is characterized by rapid technological developments, evolving industry
standards and customer demands, and frequent new product introductions and
enhancements. These market characteristics are exacerbated by the emerging
nature of this market and the fact that many companies are expected to introduce
new Internet products and services in the near future. Failure of the Company to
effectively adapt to technological developments could have a material
8
<PAGE>
adverse affect the Company's business, operating results, and financial
condition.
Risk of Capacity Constraints and Systems Failures
The Company will be dependent on its ability to effectively serve a
high volume of use of its online media properties. Accordingly, the performance
of the Company's online media properties is critical to the Company's
reputation, its ability to attract advertisers to the Company's Web sites, and
to achieve market acceptance of these products and media properties. Any system
failure that causes an interruption or an increase in response time of the
Company's products and media properties could result in less traffic to the
Company's Web sites and, if sustained or repeated, could reduce the
attractiveness of the Company's products and media properties to advertisers and
subscribers. An increase in the volume of queries conducted through the
Company's products and media properties could strain the capacity of the
software or hardware deployed by the Company, which could lead to slower
response time or system failures, and adversely affect the online exposure
expected by advertisers and thus the Company's advertising revenues. In
addition, as the number of Web pages and users increase, there can be no
assurance that the Company's products and media properties and infrastructure
will be able to scale accordingly. The Company also face technical challenges
associated with higher levels of personalization and localization of content
delivered to users of its services, which adds strain to the Company's
development and operational resources. The Company is also dependent upon Web
browsers and Internet and online service providers for access to its products
and media properties. In particular, private third party providers such as GST
Telecom provide the Company's principal Internet connection. Any disruption in
the Internet access provided by third-party providers or any failure of
third-party providers to handle higher volumes of user traffic could have a
material adverse effect on the Company's business, operating results, and
financial condition. Furthermore, the Company is dependent on hardware suppliers
for prompt delivery, installation, and service of servers and other equipment
used to deliver the Company's products and services. Failure on the part of
these third party providers to timely deliver, install or integrate the
Company's hardware could have a material, adverse effect on the Company's
business, operating results and financial condition.
The Company's operations are susceptible to outages due to fire,
floods, power loss, telecommunications failures, break-ins, and similar events.
In addition, substantially all of the Company's network infrastructure is
located in Northern California, an area susceptible to earthquakes, which also
could cause system outages or failures. The Company does not presently have
multiple site capacity in the event of any such occurrence. Despite the planned
implementation of network security measures by the Company, its servers may be
vulnerable to computer viruses, break-ins, and similar disruptions from
unauthorized tampering with the Company's computer systems. The occurrence of
any of these events could result in interruptions, delays, or cessations in
service to its users, which could have a material adverse effect on the
Company's business, operating results, and financial condition.
Year 2000 Compliance
There are issues associated with the programming code in existing
computer systems as the year 2000 approaches. The "Year 2000 problem" is
pervasive and complex, as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to 00. The issue is whether
computer systems will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Company believes
that its internal ISP software and hardware systems will function properly with
respect to dates in the year 2000, however there can be no assurance in this
regard until such systems are operational in the year 2000 and thereafter. The
Company plans to purchase a significant amount of equipment for its planned Web
environment and management information systems and its policy will require that
all equipment and software to be purchased be Year 2000 compliant.
The Company is in the process of contacting all of its significant
suppliers to determine the extent to which the Company's interface with these
suppliers make it vulnerable to any third party failure to make their own
systems Year 2000 compliant. At this time, the Company can not estimate the
effect, if any, that non-compliant systems at these entities will have on the
Company's business, operating results and financial condition. In the event of a
failure of such non-compliant systems, the Company could incur unanticipated
expenses to remedy any problems, which could have
9
<PAGE>
a material adverse effect on the Company's business, operating results and
financial condition. Current users of the Internet with computers that are not
year 2000 compliant, may experience system failures and therefore be unable to
gain access to the Internet in the Year 2000. As a result, the decreased
Internet usage could have a material adverse effect on the Company's advertising
revenues and consequently its business, operating results and financial
condition. In addition, the Company will rely heavily on revenues from
advertisers and sponsors. The purchasing patterns of potential advertisers and
sponsors may be affected by Year 2000 issues as companies expend significant
resources to correct their current systems for Year 2000 compliance. These
expenditures may result in reduced funds available for Internet advertising,
which could have a material adverse effect on the Company's business, operating
results and financial condition. The Company has not made any assessment of the
Year 2000 risks associated with its third party suppliers or potential
advertisers and has not made any contingency plans to address such risks.
Dependence on Key Personnel; Need For Additional Staff
The Company's performance is substantially dependent on the performance
of its senior management and key technical personnel, including Nasser Hamedani,
Sholeh Hamedani, Larry Wheeler and Tyler Wheeler. In particular, the Company's
success depends substantially on the continued efforts of its senior management
team. The Company does not carry key person life insurance on any of its senior
management personnel. The loss of the services of any of its executive officers
or other key employees could have a material adverse effect on the business,
operating results, and financial condition of the Company.
The Company currently has nine employees, and currently utilizes the
services of SPN, whose staff of six will become employees of the Company in the
2nd quarter of this year. Prior to forming TDN, Nasser Hamedani and Sholeh
Hamedani had not run an Internet-based business. Their experience is in sales,
marketing and production. The Company's success will also depend heavily upon
the Internet, marketing and content development experience of SPN's staff. As a
result, the Company's future success will depend heavily on its ability to
immediately attract additional employees to sufficiently staff key functional
areas supporting the business, including but not limited to the areas of
technology and development, customer support, finance and administration and
operations. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in achieving a staffing plan in
all of the key functional areas of the Company within a time frame that is
consistent with its overall business plan. In addition, there is no assurance
that the Company will be able to retain its key managerial and technical
employees or that it will be able to attract and retain additional highly
qualified technical and managerial personnel in the future. The inability to
attract and retain the necessary technical and managerial personnel could have a
material and adverse effect upon the Company's business, operating results, and
financial condition.
Ability to Manage Growth
The Company anticipates that significant expansion of its operations
will continue to be required in order to address potential market opportunities.
The Company expects to increase its personnel significantly in the near future.
The Company's anticipated growth may place a significant strain on its
managerial, operational and financial resources and systems. To manage its
growth, the Company must implement, improve and effectively utilize its
operational, management, marketing and financial systems and train and manage
its employees. Many of the Company's senior management will be new to the
Company. These individuals may have not previously worked together and will have
to transition into integrating as a management team. There can be no assurance
that the Company will be able to manage effectively the expansion of its
operations or that the Company's current or future personnel, systems,
procedures and controls will be adequate to support the Company's operations.
Any failure of management to effectively manage the Company's growth could have
a material adverse effect on the Company's business, results of operations and
financial condition. See "DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL
STAFF."
10
<PAGE>
Security Risks
Despite the implementation of security measures, the Company's networks
may be vulnerable to unauthorized access, computer viruses and other disruptive
problems. A party who is able to circumvent security measures could
misappropriate proprietary information or cause interruptions in the Company's
Internet operations. ISPs and Operating System Providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. The Company may be required to expend significant
capital or other resources to protect against the threat of security breaches or
to alleviate problems caused by such breaches. Although the Company intends to
continue to implement industry-standard security measures, there can be no
assurance that measures implemented by the Company will not be circumvented in
the future. Eliminating computer viruses and alleviating other security problems
may require interruptions, delays or cessation of service to users accessing the
Company's Websites, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
Competition
The market for Internet products and services is highly competitive and
competition is expected to continue to increase significantly. There are no
substantial barriers to entry in these markets, and the Company expects that
competition will continue to intensify. Although the Company currently believes
that the diverse segments of the Internet market will provide opportunities for
more than one supplier of products and services similar to those of the Company,
it is possible that a single supplier may dominate one or more market segments.
The Company will compete with many other providers of security
software, information and community services. Many companies offer competitive
products or services addressing filtering of Web content, including, among
others, Net Nanny (Net Nanny Software, Inc.), Cyber Patrol (The Learning
Company), Cyber Snoop (Pearl Software, Inc.), Cyber Sentinel (Security Software
Systems, Inc.), Cybersitter 97 (Solid Oak Software, Inc.), SurfWatch (SurfWatch
Software, Inc.), WebChaperone (WebCo International, Inc.) EdView Channel Lock
and EdViewsmart Zone (EdView, Inc.) and X-Stop (Log-On Data, Inc.). In addition,
the Company will compete with online services such as Yahooligans! (Yahoo!), a
Web navigator designed for children in grades K-12, America Online ("AOL"),
which offers parental control options for Web access and Disney's Blast Online,
which also offers child-oriented Web navigation. These companies already have an
established market presence, and, because the Company has not introduced its
product, are ahead of the Company in gaining market share.
Also, entities that sponsor or maintain high-traffic Web sites or that
provide an initial point of entry for Internet users, such as the Regional Bell
Operating Companies or Commercial Online Services such as AOL, currently offer
and could further develop, acquire or license Internet search and navigation
functions that could compete with those offered by the Company.
In the event that the Company extends its business internationally, the
Company may also face intense competition in international markets, including
competition from U.S.-based competitors as well as media and online companies
that are already well established in those foreign markets. Many of the
Company's existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical, marketing and
distribution resources. In addition, providers of Internet tools and services
may be acquired by, receive investments from, or enter into other commercial
relationships with larger, well-established and well-financed companies, such as
Microsoft or AOL. Greater competition resulting from such relationships could
have a material adverse effect on the Company's business, operating results and
financial condition. See, "BUSINESS -- INTERNET SECURITY."
The Company will also compete with online services, other Web site
operators and advertising networks, as well as traditional offline media such as
television, radio and print for a share of advertisers' total advertising
budgets. The Company believes that the number of companies selling Web-based
advertising and the available inventory of advertising space have increased
substantially during recent periods. Accordingly, the Company may face increased
pricing pressure for the sale of advertisements and reductions in the Company's
advertising revenues.
The Company believes that the principal competitive factors in its
anticipated markets are brand recognition,
11
<PAGE>
ease of use, comprehensiveness of available content, customization by the
consumer, quality and responsiveness of search results, the availability of
high-quality, focused value added services, required technology to offer access
to end users with fewer interruptions, and, with respect to advertisers and
sponsors, the number of users, duration and frequency of visits and user
demographics. Competition among current and future suppliers of Internet
navigational and informational services, high-traffic Websites and ISPs, as well
as competition with other media for advertising placements, could result in
significant price competition and reductions in advertising revenues. There can
be no assurance that the Company will be able to compete successfully or that
the competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, operating results, and financial condition.
Developing Market; Lack of Proven Acceptance of the Company's Products and Media
Properties
The markets for the Company's products and media properties have only
recently begun to develop, are rapidly evolving, and are characterized by an
increasing number of market entrants who have introduced or developed content
filtering products and child-oriented services for use on the Internet and the
Web. As is typical in the case of a new and rapidly evolving industry, demand
and market acceptance for recently introduced products and services are subject
to a high level of uncertainty and risk. Because the market for the Company's
products and media properties is new and evolving, it is difficult to predict
the future growth rate, if any, and size of this market. There can be no
assurance either that the market for the Company's products and media properties
will continue to develop or that demand for the Company's products or media
properties will be sustainable. If the market develops more slowly than expected
or becomes saturated with competitors, or if the Company's products and media
properties do not sustain market acceptance, the Company's business, operating
results and financial condition will be materially and adversely affected.
Risks Associated With Brand Development
The Company believes that establishing and maintaining the
TwoDogNet(TM) brand is a critical aspect of its efforts to attract and expand
its audience and that the importance of brand recognition will increase due to
the growing number of Internet sites and the relatively low barriers to entry.
Promotion and enhancement of the TwoDogNet(TM) brand will depend largely on the
Company's success in providing high-quality products and services, which success
cannot be assured. In order to attract and retain Internet users and to promote
and maintain the TwoDogNet(TM) brand in response to competitive pressures, the
Company may find it necessary to increase substantially its financial commitment
to creating and maintaining a distinct brand loyalty among consumers. In
addition, the increased availability of greater bandwidth through sources such
as cable systems may negatively impact the advantages offered by the InterROM
CD. If the Company is unable to provide high-quality products and services or
otherwise fails to promote and maintain its brand, or if the Company incurs
excessive expenses in an attempt to improve its products and services or promote
and maintain its brand, the Company's business, operating results, and financial
condition will be materially and adversely affected.
Reliance on Advertising Revenues and Uncertain Adoption of the Web as an
Advertising Medium
The Company will derive the majority of its revenues from the sale of
sponsorships and other forms of advertising on its Web pages. Given the
relatively short time period the Internet has been an accepted advertising
medium, most of the Company's potential advertising customers will have only
limited experience with the Web as an advertising medium, have not devoted a
significant portion of their advertising expenditures to Web-based advertising
and may not find such advertising to be effective for promoting their products
and services relative to traditional print and broadcast media. The Company's
ability to generate significant advertising revenues will depend upon, among
other things, advertisers' acceptance of the Web as an effective and sustainable
advertising medium, the development of a large base of users of the Company's
services possessing demographic characteristics attractive to advertisers, and
the ability of the Company to continue to develop and update effective
advertising delivery and measurement systems. No standards have yet been widely
accepted for the measurement of the effectiveness of Web-based advertising, and
there
12
<PAGE>
can be no assurance that such standards will develop sufficiently to support
Web-based advertising as a significant advertising medium. In addition, there
can be no assurance that the advertisers will determine that corporate
sponsorships and relationship advertising are effective advertising tools, and
there can be no assurance that the Company will effectively transition to any
other forms of Web-based advertising, should they develop. In addition, there
can be no assurance that the Company's pricing for advertising space and
sponsorships will gain acceptance amongst advertisers.
Certain advertising filter software programs are available that limit
or remove advertising from an Internet user's desktop. Such software, if
generally adopted by users, may have a materially adverse effect upon the
viability of advertising on the Internet.
The Company will track usage on various levels in order to develop and
update its pricing model. The valuations will track the Company's expectations
of the value of sponsorship advertising space on the Website. There also can be
no assurance that the Company's online advertisers will accept the internal and
third-party valuations of its online properties on TwoDogNet(TM). The Company
will rely primarily on the efforts of SPL to sell sponsorships and advertising.
As a result of these factors, there can be no assurance that the Company will
achieve sufficient advertising sales levels or whether the Company will sustain
or increase such advertising sales levels once achieved. Failure to do so will
have a material adverse effect on the Company's business, operating results, and
financial position. See "MARKETING."
Dependence on Continued Personal Computer Sales
The success of the Company is dependent upon the continuing use of PCs, and
especially multimedia PCs, in the consumer and school market. A general decrease
in unit sales of PCs or shift to an alternative means of delivery could
adversely affect the Company's future results of operations.
Trademarks and Proprietary Rights
The Company regards its copyrights, trademarks, trade dress, trade
secrets, and similar intellectual property as critical to its success, and the
Company relies upon trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights. The Company pursues the
registration of its trademarks in the United States and internationally, and has
applied for the registration for certain of its trademarks, including
"TwoDogNet(TM)," "SafeZone," "SafeZone Technology," and "The Children's
Internet." The Company has registered the Internet domain names for the various
Web Sites related to its services. Effective trademark, copyright, and trade
secret protection may not be available in every country in which the Company's
products and media properties are distributed or made available through the
Internet. The Company may license elements of its distinctive trademarks, trade
dress, and similar proprietary rights to third parties, including in connection
with branded mirror sites of TwoDogNet(TM), and other media properties and
merchandise that may be controlled operationally by third parties. While the
Company attempts to ensure that the quality of its brand is maintained by such
licensees, no assurances can be given that such licensees will not take actions
that could materially and adversely affect the value of the Company's
proprietary rights or the reputation of its products and media properties,
either of which could have a material adverse effect on the Company's business.
There can be no assurance that the distinctive elements of TwoDogNet(TM) will be
protectible under copyright law or other intellectual property law. Also, there
can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, trade dress, and similar
proprietary rights. In addition, there can be no assurance that other parties
will not assert infringement claims against the Company.
Many parties are actively developing search, indexing, and related Web
technologies at the present time. The Company believes that such parties have
taken and will continue to take steps to protect these technologies, including
seeking patent protection. As a result, the Company believes that disputes
regarding the ownership of such technologies are likely to arise in the future.
13
<PAGE>
Government Regulation & Legal Uncertainties
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain as to
how existing laws will be applied by the judiciary to the Internet. The adoption
of new laws or the application of existing laws may decrease the growth in the
use of the Internet, which could in turn decrease the demand for the Company's
services, increase the Company's cost of doing business or otherwise have a
material adverse effect on the Company's business, results of operations and
financial condition. Prohibition and restriction of Internet content could
dampen the growth of Internet use, decrease the acceptance of the Internet asa
communications and commercial medium, expose the Company to liability, and/or
require substantial modification of TwoDogNet(TM), and thereby have a material
adverse effect on the Company's business, results of operations and financial
condition. Internet user privacy has become an issue both in the United States
and abroad. Recently, the Children's Online Privacy Protection Act was signed
into law, which authorizes the Federal Trade Commission (the "FTC") to develop
regulations for the collection of data from children by commercial Web site
operators. The Company is currently undertaking a review of its
information-collection practices. However, the Company cannot predict the exact
form of the regulations that the FTC may adopt. There can be no assurance that
the United States or foreign nations will not adopt additional legislation
purporting to protect such privacy. Any such action could affect the way in
which the Company is allowed to conduct its business, especially those aspects
that involve the collection or use of personal information, and could have a
material adverse effect on the Company's business, results of operations and
financial condition. The tax treatment of the Internet and e-commerce is
currently unsettled. A number of proposals have been made at the federal, state
and local level and by certain foreign governments that could impose taxes on
the sale of goods and services and certain other Internet activities. Recently,
the Internet Tax Information Act was signed into law, placing a three-year
moratorium on new state and local taxes on Internet commerce. However, there can
be no assurance that future laws imposing taxes or other regulations on commerce
over the Internet would not substantially impair the growth of e-commerce and as
a result have a material adverse effect on the Company's business, results of
operations and financial condition. Certain local telephone carriers have
asserted that the growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure, and that many areas with high
Internet use have begun to experience interruptions in telephone service. These
carriers have petitioned the Federal Communications Commission (the "FCC") to
impose access fees on ISPs and OSPs. If such access fees are imposed, the costs
of communicating on the Internet could increase substantially, potentially
slowing the growth in use of the Internet, which could in turn decrease demand
for the Company's services or increase the Company's cost of doing business, and
thus have a material adverse effect on the Company's business, results of
operations and financial condition. Although the Company's server is located in
the State of California, the governments of other states and foreign countries
might attempt to take action against the Company for violations of their laws.
There can be no assurance that violations of such laws will not be alleged or
charged by state or foreign governments and that such laws will not be modified,
or new laws enacted, in the future. Any of the foregoing could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Online content restrictions cover many areas, including but not limited
to, indecent or obscene content and gambling. Several federal and state statutes
prohibit the transmission of certain types of indecent, obscene, or offensive
information and content, including sexually explicit information and content,
over the Internet to certain persons. The constitutionality and the
enforceability of some of these statues is not clear at this time. For example,
in 1997 the Supreme Court of the United States held that selected parts of the
federal Communications Decency Act of 1996 (the "CDA") governing "indecent" and
"patently offensive" content were unconstitutional. Many other provisions of the
CDA, including those relating to "obscenity," however, remain in effect. Prior
to the Supreme Court's decision, a federal district court in New York held that
certain provisions of the New York penal law modeled on the CDA violated the
Constitution. A companion provision of that law, however, was subsequently
upheld. Since the Supreme Court's decision, a federal district court in New
Mexico held that a recently adopted provision of the New Mexico penal law
purporting to make it unlawful to disseminate over the Internet information that
is "harmful to minors" also violated the Constitution. Recently, the Child
Online Protection Act ("COPA")was signed into law, and became effective on
November 20,1998. COPA requires Web sites engaged in the business of the
commercial distribution of material that
14
<PAGE>
is deemed to be harmful to minors to restrict their access to such material.
However, COPA exempts from liability telecommunications carriers, ISPs and
companies involved in the transmission, storage, retrieval, hosting, formatting
or translation of third-party communications where such companies do not select
or alter the third-party material. The constitutionality of COPA is currently
being challenged in a federal district court, and the Company cannot predict the
outcome or the effect of such challenges or the effect that COPA may have on the
Company's business. The passage of constitutional "decency" laws, which may
prohibit or limit the distribution of inappropriate material on the Internet,
could adversely affect the necessity for the Company's products and services.
Furthermore, the manner in which existing domestic and foreign laws
(including Directive 95/46/EC of the European Parliament and of the European
Council on the protection of individuals with regard to the processing of
personal data and on the free movement of such data, to become effective in the
individual member states by October 24, 1998), will or may be applied to online
service and Internet access providers is uncertain, as is the effect on the
Company's business given different possible applications.
Liability For Information Services and Commerce-Related Activities
Because materials may be downloaded by the online or Internet services
operated or facilitated by the Company and may be subsequently distributed to
others, there is a potential that claims will be made against the Company for
defamation, negligence, copyright or trademark infringement, personal injury or
other theories based on the nature and content of such materials. Such claims
have been brought, sometimes successfully, against online service providers in
the past. In addition, the Company could be exposed to liability with respect to
the selection of listings that may be accessible through the Company's
TwoDogNet(TM)-branded products and media properties. Such claims might include,
among others, that by providing hypertext links to Web sites operated by third
parties, the Company is liable for copyright or trademark infringement or other
wrongful actions by such third parties through such Web sites. It is also
possible that if any information provided through the Company's services, such
as TwoDogNet(TM), contain errors, third parties could make claims against the
Company for losses incurred in reliance on such information. Even to the extent
such claims do not result in liability to the Company, the Company expects to
incur significant costs in investigating and defending such claims.
Concentration of Stock Ownership
Immediately prior to this offering, present directors, executive
officers, greater than 5% shareholders and their respective affiliates
beneficially owned approximately 82.5% of the outstanding common stock of the
Company. As a result of their ownership, the directors, executive officers,
greater than 5% shareholders and their respective affiliates collectively are
able to control all matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions. Even
in the event that all the shares offered are sold, present directors, executive
officers, greater than 5% shareholders and their respective affiliates will
beneficially own approximately 72.7% of the outstanding common stock of the
Company. Such concentration of ownership may also have the effect of delaying or
preventing a change in control of the Company.
No Prior Public Market; Possible Volatility of Stock Price
The trading price of the common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors such as actual
or anticipated variations in quarterly operating results, announcements of
technological innovations, new sales formats or new products or services by the
Company or its competitors, changes in financial estimates by securities
analysts, general economic conditions, conditions or trends in the Internet and
online commerce industries, changes in the market valuations of other Internet,
online service or retail companies, announcements by the Company of significant
acquisitions, strategic partnerships, joint ventures or capital commitments,
additions or departures of key personnel, sales of common stock and other events
or factors, many of which are beyond the Company's ability to control. Because
there is no established market for the Company's securities, investors may have
difficulty selling their shares. Although the Company intends to apply for
listing on the Nasdaq National Market System ("Nasdaq NMS"), the Company may not
qualify for listing if only the minimum offering amount is raised. Failure to
obtain a Nasdaq NMS listing will cause investors to experience limited
liquidity.
15
<PAGE>
In addition, the stock market in general, and the Nasdaq NMS and the market for
Internet-related and technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of such companies. The trading prices of many
technology companies' stocks are at or near historical highs and reflect
multiples of earnings and revenues substantially above historical levels. There
can be no assurance that these trading prices and multiples will be sustained.
These broad market and industry factors may materially and adversely affect the
market price of the Common Stock, regardless of the Company's operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class-action litigation has often been
instituted against such company. Such litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
"Penny" Stock Regulation of Broker-Dealer Sales of Company Securities
The Company intends to list its common stock on the Nasdaq NMS upon
meeting the requirements for a Nasdaq NMS listing, if ever. However, upon
completion of the minimum offering, the Company may not meet the requirements
for a Nasdaq NMS listing. Until the Company obtains a listing on Nasdaq NMS, if
ever, the Company's securities may be covered by a Rule 15g-9 under the
Securities Exchange Act of 1934 that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and institutional accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse).
For transactions covered by the rule, the broker-dealer must furnish to
all investors in penny stocks, a risk disclosure document required by Rule 15g-9
of the Securities Exchange Act of 1934, make a special suitability determination
of the purchaser and have received the purchaser's written agreement to the
transaction prior to the sale. In order to approve a person's account for
transactions in penny stock, the broker or dealer must (i) obtain information
concerning the person's financial situation, investment experience and
investment objectives; (ii) reasonably determine, based on the information
required by paragraph (i) that transactions in penny stock are suitable for the
person and that the person has sufficient knowledge and experience in financial
matters that the person reasonably may be expected to be capable of evaluating
the rights of transactions in penny stock; and (iii) deliver to the person a
written statement setting forth the basis on which the broker or dealer made the
determination required by paragraph (ii) in this section, stating in a
highlighted format that it is unlawful for the broker or dealer to effect a
transaction in a designated security subject to the provisions of paragraph (ii)
of this section unless the broker or dealer has received, prior to the
transaction, a written agreement to the transaction from the person; and stating
in a highlighted format immediately preceding the customer signature line that
the broker or dealer is required to provide the person with the written
statement and the person should not sign and return the written statement to the
broker or dealer if it does not accurately reflect the person's financial
situation, investment experience and investment objectives and obtain from the
person a manually signed and dated copy of the written statement.
A penny stock means any equity security other than a security (i)
registered, or approved for registration upon notice of issuance on a national
securities exchange that makes transaction reports available pursuant to 17 CFR
11Aa3-1 (ii) authorized or approved for authorization upon notice of issuance,
for quotation on the Nasdaq NMS; (iii) that has a price of five dollars or more
or . . . . (iv) whose issuer has net tangible assets in excess of $2,000,000
demonstrated by financial statements dated less than fifteen months previously
that the broker or dealer has reviewed and has a reasonable basis to believe are
true and complete in relation to the date of the transaction with the person.
Consequently, the rule may affect the ability of broker-dealers to sell the
Company's securities and also may affect the ability of purchasers in this
Offering to sell their shares in the secondary market. See "NO PRIOR PUBLIC
MARKET; POSSIBLE VOLATILITY OF STOCK PRICE."
Shares Eligible For Future Sale
Sales of substantial amounts of the Company's common stock in the
public market after this offering could adversely affect prevailing market
prices for the common stock. The 2,000,000 shares of common stock offered
16
<PAGE>
hereby will be freely tradeable without restriction in the public market. A
significant number of shares will be freely tradeable when restrictions on
resale under Rule 144 expire. Taking into account restrictions imposed by the
Securities Act of 1933, as amended (the "Securities Act"), rules promulgated by
the Securities and Exchange Commission (the "Commission") thereunder, could
adversely affect prevailing market prices for the common stock or the future
ability of the Company to raise capital through an offering of equity
securities.
In addition, the Company intends to file a registration statement on
Form S-8 under the Securities Act after the effective date of this Prospectus to
register an undetermined number of shares of common stock reserved for issuance
to employees. See "SHARES ELIGIBLE FOR FUTURE SALE."
Dilution
Investors participating in this Offering will incur immediate and
substantial dilution. See "DILUTION."
Arbitrary Offering Price
The price of the common stock has not been determined by any
independent financial evaluation, market mechanism or by the Company's
accountants, Marc Lumer & Company and is therefore, to a large extent,
arbitrary. Marc Lumer & Company has not reviewed management's valuation, and
therefore expresses no opinion as to the fairness of the offering price as
determined by the Company. As a result, the value of the common stock, as
determined by management, may not reflect the value perceived by the market.
There can be no assurance that the shares offered hereby are worth the price for
which they are offered or that they have any market value whatsoever.
Need for Additional Financing; Uncertainty of Additional Financing
The Company currently anticipates that the net proceeds of the
offering, if the maximum amount is raised, will be sufficient to meet its
anticipated needs for working capital and capital expenditures for at least the
next 12 months. If only the minimum amount is raised, the Company may need to
raise additional capital to further fund its marketing efforts, product
development and to provide additional working capital. In the event the net
proceeds from this Offering are significantly less than the maximum proceeds of
$20,000,000 less expenses associated with this Offering, the Company will have
to lower its planned expenditures, e.g. the Company will purchase a server that
will accommodate a lower volume of Internet users, and the timing of such
expenditures which will have a materially adverse effect on its business,
operating results and financial condition. Additionally, the Company may need to
raise additional funds in the future in order to fund more aggressive brand
promotions and more rapid expansion, to develop newer or enhanced services, to
respond to competitive pressures or to acquire complementary technologies or
services. The inability to raise more than the minimum offering amount could
adversely affect the Company's ability to achieve its business plan. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of the stockholders of the Company will be
reduced, stockholders may experience additional dilution and such securities may
have rights, preferences or privileges senior to those of the rights of the
Company's common stock. There can be no assurance that additional financing will
be available on terms favorable to the Company, or at all. If adequate funds are
not available or not available on acceptable terms, the Company may not be able
to fund its expansion, promote its brand names as the Company desires, develop
or enhance services or respond to competitive pressures. Any such inability
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Dividend Policy
The Company has never paid cash dividends on its common stock. The
Company currently anticipates that it will retain all of its future earnings for
use in the expansion and operation of its business and does not anticipate
paying any cash dividends in the foreseeable future.
17
<PAGE>
USE OF PROCEEDS
The net proceeds available to the Company from the sale of the shares
in this Offering are estimated to be approximately $7,000,000 if the minimum is
sold, and $20,000,000 if the maximum is sold, before deducting other offering
expenses (estimated to be $186,000). The Company expects to use the net proceeds
for the purposes outlined below. If the Company raises less than the maximum
amount of this Offering, it intends to prioritize expenditures as necessary to
achieve its stated business objectives. For example, if only the minimum
offering amount is raised, the Company will acquire a server from Digital
Equipment Corporation at a cost of approximately $2,000,000, that will
accommodate a lower volume of Internet users.
<TABLE>
<CAPTION>
Minumum Maximum
------- -------
<S> <C> <C> <C> <C>
1. Acquisition of server and peripheral hardware $ 2,000,000 28.6% $ 3,000,000 15.0%
2. Marketing and advertising 3,500,000 50.0% 8,540,000 42.7%
3. Software and product development 0 0.0% 2,800,000 14.0%
4. Working capital and general corporate purposes 1,500,000 21.4% 5,660,000 28.3%
----------- ----- ---------- ------
$ 7,000,000 100.0% $20,000,000 100.0%
=========== ===== =========== ======
</TABLE>
Management does not anticipate changes in the proposed allocation of
estimated net proceeds of this Offering, but reserves the right to make changes
if management believes those changes are in the best interests of the Company.
Management does not foresee reallocating any significant portion of the proceeds
to working capital and general corporate purposes.
CAPITALIZATION
<TABLE>
The following table sets forth the actual capitalization of the Company
on September 30, 1998, and as adjusted on the basis of the receipt of the
minimum and maximum offering amounts.
<CAPTION>
Actual Minimum Maximum
------ ------- -------
(700,000) (2,000,000)
<S> <C> <C> <C>
Stockholders' equity: Common stock,
$.01 par value, 200,000,000 shares
authorized; 14,719,173 at 9/30/98 shares
outstanding
14,719 14,719 14,719
Additional paid-in capital 4,138,393 11,138,393 24,138,393
Note receivable from officer (234,231) (234,231) (234,231)
Accumulated deficit (2,991,217) (2,991,217) (2,991,217)
---------- ---------- -----------
Stockholders' equity 927,664 7,927,664 20,927,664
---------- ---------- -----------
Total capitalization $ 927,664 $ 7,741,664 $ 20,741,664
========== ========== ==========
</TABLE>
18
<PAGE>
DILUTION
On September 30, 1998, the Company had a net tangible book value of
$913,170, or $.06 per share. The net tangible book value per share is equal to
the Company's total tangible assets, less its total liabilities divided by its
total number of shares of common stock outstanding. After giving effect to the
sale of 700,000 shares, in the case of the minimum offering, and the sale of
2,000,000 shares in the case of the maximum offering, at the public offering
price of $10.00 per share, after deducting the costs associated with the
offering, the pro forma net tangible book value of the Company as of September
30, 1998, would have been $7,727,170 or $.28 per share in the case of the
minimum offering, and $20,727,170 or $1.13 per share in the case of the maximum
offering. This represents an immediate increase in net tangible book value of
$.23 per share if the minimum is sold or an increase of $1.08 per share if the
maximum is sold, to existing shareholders and an immediate dilution of $9.72, if
the minimum is sold, and $8.87 per share, if the maximum is sold, to new
investors purchasing shares in this Offering. The following table illustrates
the per share dilution in net tangible book value to new investors:
<TABLE>
<CAPTION>
Minimum Maximum
---------------- ------------------
(700,000 shares) (2,000,000 shares)
<S> <C> <C> <C> <C>
Public offering price per share $10.00 $10.00
Net tangible book value per share
on September 30, 1998 $ .06 $ .06
Increase in net tangible book value per share
attributed to new investors $ .50 $1.08
----- -----
Pro forma net tangible book value per share
As of September 30, 1998, after this Offering $ .50 $1.24
------ -----
Net tangible book value dilution per share
to new investors $ 9.50 $8.76
====== =====
</TABLE>
<TABLE>
The following table sets forth on a pro forma basis as of September 30,
1998, the difference between existing shareholders and new investors purchasing
shares in this Offering, with respect to the number of shares purchased, the
total consideration paid and the average price paid per share: Minimum Offering:
Shares Purchased Total Consideration Average Price Number Percent Amount Percent
Per Share
<CAPTION>
Minimum Offering:
Shares Purchased Total Consideration Average Price
------------------------ ------------------------ -------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 14,719,173 95.5% $ 4,153,112 37.2% $ .28
New Investors 700,000 4.5% 7,000,000 62.7% 10.00
---------- ------ ---------- ------
Total 15,419,173 100.00% $11,153,112 100.00%
========== ====== ========== ======
Maximum Offering:
Shares Purchased Total Consideration Average Price
------------------------- -------------------------- -------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing Shareholders 14,719,173 88.0% $ 4,153,112 17.2% $ .28
New Investors 2,000,000 12.0% 20,000,000 82.8% 10.00
---------- ------ ---------- ------
Total 16,719,173 100% $24,157,112 100%
========== ====== ========== ======
</TABLE>
19
<PAGE>
BUSINESS
The following Business section contains forward-looking statements
which involve risks and uncertainties. When used in this section, the words
"anticipate", "believe", "estimate", "plans", "expects" and similar expressions
as they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors".
Company Overview
Two Dog Net, Inc. ("TDN" or the "Company") was incorporated under the
name Vi-Com, Inc. on July 14, 1983 under the laws of the State of Utah, changed
its name to Quick Stop Photo International, Inc. on October 29, 1984 and to
Asian-American International, Inc. ("AAII") on May 9, 1988. The Company was
inactive from 1990 to July 1995, at which time the Company's current President
obtained majority ownership and changed the Company's name to International
Marketing Dynamics, Inc. The Company changed its name to Two Dog Net, Inc. on
December 30, 1998 to better reflect its business and services. Current
management has no relationship to operations conducted prior the acquisition of
AAII in 1995.
Since 1996, TDN has been developing its Web service technology to
provide site content and navigation tools designed especially for children and
their families. TDN's service is designed to allow children to access the
Internet in a safe environment that emphasizes educating children and developing
their Internet navigation skills. As part of its system development process, the
Company has operated as a local Internet Service Provider ("ISP") since 1997
under the name "The Socket." This has enabled TDN to develop and test the user
interface for the two primary aspects of the system: the Web service's content
areas that allows users to search a wide range of topics while teaching Web
navigation skills and the search engine ("SafeZone Technology"), that allows
users to perform direct searches only to pre-approved sites on the Internet. TDN
intends to have The SafeZone Technology provide users with tools for customizing
the scope of Internet access for each family member.
The Company's initial primary market will be families with children
ranging from 3 years to 14 years of age. The Web environment will provide
specific content areas to target different age groups within the target age
range. The search engine will also be designed to allow access to pre-approved
sites that apply to each group.
Management believes the Web service and its related technologies will
be the focus of its future operations and provide the primary source of future
revenues and the ISP segment will have a minor impact on future financial
results.
Industry Background
The Internet
The Internet is a global Web of inter-connected computer networks,
which enables commercial organizations, educational institutions, government
agencies and individuals to communicate freely, access and share information,
and conduct business remotely. The emergence of the World Wide Web allows
commercial organizations a new medium in which to publish multi-media documents
and other information for public access and to advertise or provide products and
services to users. Many such commercial enterprises have established Web sites
to enhance these new market opportunities. Customer service, electronic
commerce, advertising and market data generation is all being conducted across
the World Wide Web.
The very openness of the Internet means that transmitted information
and data stored in connected hosts are exposed to other users who are able, in
the absence of effective security measures, to gain access to inappropriate
data. This fundamental weakness mandates that organizations and individual weigh
security, productivity and censorship concerns against the perceived commercial
opportunities presented by millions of Internet users. The Company believes that
growth in online commerce will be better served if security issues and ease of
use by children and their families are improved.
20
<PAGE>
The Internet is experiencing significant growth. Current projections
forecast that between 30 million to 60 million households in the United States
will have Internet access by the year 2000. This represents a 67% to 233%
increase over the corresponding 1996 level of 18 million households.
Households With Online Access
Comparitive Projections
1995-2000
[ GRAPHIC OMITTED ]
The Internet can be accessed by joining one of several service
providers. Users access the Internet either by Commercial On-line Service (COS)
such as AOL or through Internet Service Providers (ISPs).
The COS offers proprietary interfaces, which make it easier for users
to initially install and explore the Internet. ISPs require the user to install
a browser (Netscape or Microsoft Internet Explorer) as the link to the Internet.
Regardless of which form of service is chosen, the Internet user will have
access to electronic mail (e-mail), chat rooms, and the ability to search the
World Wide Web. A recent survey by CTI indicates that more Americans are
choosing ISP's rather than on-line services (such as AOL).
A June 1998 Nielsen Media Research study found that over 70 million
Americans are now online, nearly 35% of the US population. A 1998 Baruch
College-Harris Poll, that surveyed over 3000 individuals in the United States
found that the Internet population is now 46% female, up from 23% in September
1995. Young American "Net" users outnumber older Americans, but the gap is
closing. Forty nine percent of all Americans between the
21
<PAGE>
ages of 18 and 24 are Internet users. For those between 25 and 29 years old,
thirty seven percent are online while over 20% of Americans over 50 use the
Internet. According to Find/SVP, in their report "Children on the Internet",
children under 18 are one of the fastest growing sections of Internet users. The
Find/SVP report projects that 45 million children will be online by the year
2002.
The Internet population is also still skewed toward the affluent: 42%
of Internet and Web users have household incomes of more than $50,000 a year,
while only 18% take in $25,000 or less. But since the lower-income category
probably includes many students, it may overstate Net participation by the
country's poorest households. The race gap in Internet use, one primarily
dominated by whites, has closed to a large extent. In 1998, the percentage of
black and Hispanic Internet users was only 3% lower than that of whites. The use
of the Internet as an e-commerce vehicle continues to grow dramatically.
IntelliQuest's market research indicates that 63% of online users have made a
purchase over the net. The Nielsen study found that on-line purchases are
increasing at an annual rate of over 100%.
Internet Security for Children
Issues surrounding safety on the Internet, which includes children's
access to offensive material, have received considerable exposure over the last
several years and have generated considerable debate in the public-at-large, and
in particular, amongst those that access sites on the Internet. Safe Internet
access for children has garnered support from family oriented groups, government
agencies and educators.
The Internet provides easy access to a vast array of information
resources and services in addition to enabling communication between people and
organizations around the world. Unfortunately, the Internet's strength also
proves to be its drawback when it comes to children. Left unprotected, children
can access sites that are not appropriate for them and which can, in fact, be
harmful and dangerous. Most parents have serious concerns about their young
children accessing sites that contain pornography, profanity, violence, extreme
political views, racism and information on subjects such as manufacturing
explosives or drugs. Parents are also concerned that their children may enter
unsupervised chat rooms where children can be exposed to objectionable language
or ideas. Such chat rooms are havens for sinister individuals who prey on the
innocence of children and represent a real threat to the safety of the children
to which they are exposed. To protect their children, many parents have chosen
to restrict their children from accessing the Internet at all while others have
attempted to find a solution to safeguarding their children's Internet access by
utilizing security software.
Security software for children is designed to keep them from accessing
undesirable Web sites. Software that is currently available uses either a rating
system or a filter (or a combination of both) to block access to "undesirable"
Web sites. However, these methods are far from foolproof. The rating systems are
not standardized and are only "voluntary," meaning that simply choosing to
conduct searches with the software switched off easily defeats them. The rating
systems include RSACI and Safesurf.
The number of domains on the Internet has increased since 1995 at an
annual compounded growth rate of approximately 84.8%. Each domain represents at
least one Web site, but typically represents multiple web sites. Currently, most
security programs focus on the elimination or filter-out of Web sites. Some of
the larger commercial on-line services provide proprietary software that acts to
guide children in exploring the commercial on-line service's domain, but do not
provide protection when children explore the Internet. Media companies such as
Yahoo! and Disney have created child-oriented Web sites, where information on
topics of interest to children from kindergarten through high school is made
available through search engines that are designed to search for "safe"
information. However, these sites, which utilize some form of filtering/blocking
software, do not provide security from access to other sites on the Internet.
Commercial On-line Services, such as America On-Line, offer parental
control features. These control features are limited and have the same serious
shortcomings as described above. Parents also have the option of purchasing
parental control software. Since the majority of new Internet users are joining
ISPs rather than Commercial On-line Service providers, the security software
market has experienced rapid growth.
The preponderance of security software packages utilize filtering
techniques. Filtering software packages have three major flaws: 1) a poor
security interface, 2) problematic content recognition and 3) a static nature to
their system design.
22
<PAGE>
First, the security interface is fairly simple to bypass allowing the
user to "leave" the program at will. For instance, some filtering programs can
be bypassed simply by typing in the URL address of any site on the Internet. In
fact, each of the top packages can be by-passed in some fashion by varying
degrees of effort. Furthermore, there are Web sites that teach users how to
defeat filtering programs.
Second, these programs are not capable of evaluating sites for
appropriate content. Educational sites are sometimes blocked because of a
misinterpretation of content by the software's logic program. For example, a
search for information on Sussex (England) or Middlesex, would routinely be
filtered out since the term "sex" is within the word and hence blocked by the
filtering software.
Third, these programs are incapable of matching the dynamics of the
Internet. Each of these software packages relies on a static database of key
search terms that are stored on the user's system. As Web sites are added to the
Internet or are changed, these databases must be updated. The present rate of
update is only once per month for many programs, which limits their ability to
block new Web sites. Also, these products are incapable of evaluating
photographic content.
Another security flaw is that most files are stored on the user's
computer, which allows the possibility for tampering or removal of files in an
effort to bypass the security program. Such tampering can cause the system to
malfunction. The user can also modify activity logs, thus eliminating evidence
of sites visited.
Finally, each of the filtering software competitors requires parental
supervision or interaction to counter the problems with their products. Since
most consumers have demonstrated considerable interest in products which allow
children to search the Internet unattended, these programs do not provide the
level of security which most parents desire.
The primary companies offering filtering or blocking products are Cyber
Patrol, Surf Watch, Net Nanny, Smart Filter, Webco International (Web Chaperone)
and Guardian Agent.
The software for security programs can catch many undesirable Web
sites, but a perfect filter/block has not yet been designed. Furthermore, the
task of designing increasingly effective software is made more difficult since
WebPages are being specifically designed to slip through the security/filter
blocks. As a result, currently available security software is only 80%-90%
effective in screening undesirable content.
In spite of the significant limitations of currently available security
software products as outlined above, the market demand is extremely strong. The
Company estimates the total number of units sold in 1997 exceeded 14 million.
Two Dog Net, Inc.
Today's children have the most to gain from using the Internet.
Unfortunately, they also have the most to lose. The increasing amount of content
devoted to harmful and unwholesome subjects can keep children from taking
advantage of this exciting, resource filled technology. Two Dog Net offers the
first system that gives children a rich and dynamic Web environment that is safe
and secure, yet provides unrestricted access to millions of useful, informative
and entertaining Web pages. Two Dog Net has developed a comprehensive online
community, The Children's Internet(TM), and a proprietary gateway and search
engine, TwoDogNet(TM), specifically focused on, and designed for, children and
their families to access the Internet with ease in a protected environment --
The Web Without a Worry. The Company's initial market will be families with
children ranging from 3 to 14 years of age. Two Dog Net has recognized the vast
opportunity in providing a revolutionary on-line service for this otherwise
neglected, but lucrative market.
The Company's objective is to become the premier online service that
addresses the needs of children for content, community, and commerce. To
accomplish this, the Company's strategy is to offer a unique and engaging
on-line experience through its portal and search engine TwoDogNet(TM), and its
Web service, The Children's Internet(TM). The Company has developed extensive
original content which is designed to provide a dynamic environment focused on
educating children by providing entertaining activities, creating a platform for
developing effective Internet navigation skills and supplying the gateway to
millions of pre-approved Internet pages.
23
<PAGE>
Provide a Rich and Dynamic Environment
The Company's strategy for attracting new subscribers and retaining
existing ones is to provide a dynamic environment that continually enhances the
users' experience. A key aspect of this strategy will be to deliver rich content
and search capabilities coupled with fast download times. The Company believes
that all users, and children in particular, will stay interested in the content
matter and search results and therefore spend more time in the Web environment
if download times are fast and responsive. The time users spend on the system
will directly impact the value of its "real estate", i.e. the areas of the
environment where sponsors and advertisers are presented.
Rich and entertaining content often involves incorporating multi-media
files within Web pages. However, these features typically increase download
times as compared to text pages or simple graphics. To obtain fast download
times, the Company will provide new content to its subscribers on a periodic
basis via CD-ROM. The CD-Rom will interface with the TwoDogNet(TM) Web site to
create a multimedia and interactive Web environment, enabling users to enjoy an
enriched multi-media experience that includes new original content such as games
and instructional content with audio, video, and animation. The system that
enables this is the Company's patent pending technology of InterRom(TM).
Provide a Safe Internet Experience
In addition to the content provided by the TwoDogNet(TM) environment,
the user can use the portal to visit pre-approved sites available from the
Internet that will be carefully chosen by an advisory board of educators using
criteria that emphasizes educational and age-appropriate content. However, the
system is not limited to these pre-approved sites. It is also designed to allow
authorized users, e.g. parents, to add sites from the Internet-at-large to the
sites available to his or her family, as well as to remove any of the
pre-approved sites currently accessible through the system. Such modifications
will be user-specific, i.e. no other subscriber will be affected by any other
subscriber's customized changes.
Promote Product Awareness
The Company's marketing plan will invest heavily in mass media and
public relations to create product awareness in order to build a large user
base. In addition to the subscription revenue generated, the number of users and
the growth rate of the user base, along with the user time spent on the system,
are the key elements in determining the value of the advertising space on the
system's Web pages. Accordingly, the Company plans to pursue an aggressive
marketing strategy to continuously promote awareness of the TwoDogNet(TM) Web
environment.
Provide Secure and Dependable Technology Infrastructure
To help insure the dependability of the Company's Web environment to
its users and advertisers, the Company plans to provide a secure hardware
infrastructure with a capacity level to meet the demands of, and accommodate the
growth in, its user base. To accomplish this, the Company intends to install its
system of Digital Equipment Corporation's ("DEC") 8400 clustered system. GST
Telecommunications, Inc. ("GST"), a worldwide provider of data and
communications services, will provide the telecommunication connections to the
Internet and Pacific Bell will be available as a backup provider.
Business Development
By offering a high quality Web environment that focuses on children's
safe access to the Internet, the Company initially seeks to generate revenues
from four primary sources. These include selling annual subscriptions to its
Internet service, corporate sponsorships that integrate the sponsor into the
user experience on
24
<PAGE>
TwoDogNet(TM), advertising revenues from the sale of ad placements on
TwoDogNet(TM) and commissions from E-Commerce; the sale of third party products
including books, toys, videos, sporting goods, clothing, computer games and
educational videos, products and services.
Build High Brand Equity
The Company is dedicated to establishing and building its brand names,
and the Company's future plans include the marketing and merchandising of
TwoDogNet(TM) branded products based on its proprietary characters. The Company
believes that high brand recognition will be an effective springboard for new
products, services, and acquisitions. With increased high brand recognition the
Company intends to conduct E-commerce on TwoDogNet(TM) to market and merchandise
products.
In addition to the TwoDogNet(TM) and The Children's Internet(TM), the
Company believes that the SafeZone Technology(TM) can be adapted for use by, and
licensed to, commercial entities and government agencies that wish to limit
employee Internet access to only those Internet sites which are necessary to
enhance or improve workplace productivity.
Products and Services
TwoDogNet(TM) was developed to meet the needs of parents who desire
that their children take advantage of the vast educational resources of the
Internet in a safe and friendly environment. TwoDogNet(TM) has been designed to
provide a safe and dynamic environment focused on children and their families.
TwoDogNet(TM) has original Web content that will educate and entertain users,
teach children Internet navigation skills and provide the world's easiest to use
Web browser designed specifically for children.
The Web pages are designed to offer unique and different visual content
specifically for the following age groups: 3 to 5 years, 6 to 8 years, 9 to 11
years, and 12 to 14 years. Appearing throughout the TwoDogNet(TM) environment
will be the Company's proprietary cartoon characters that the Company believes
will enhance the user's experience by providing a familiar companion to the
child throughout the environment as the child explores areas of interest. In
addition, TwoDogNet(TM) characters are designed to "grow" with the user as he or
she progresses to the next age group within the TwoDogNet(TM) Web environment.
The Company intends to establish and build its brand name into a strong consumer
franchise. The Company's future plans include marketing and merchandising
branded products based on the Company's proprietary characters.
The Company will launch the TwoDogNet(TM) software for Netscape and
Microsoft Internet browsers on the Windows 95, 98 and NT platforms. The Company
will consider developing software to run on Windows 3.1, OS/2, and Macintosh
operating systems.
The Company will offer a number of products and services aimed at the
Company's target audience; children ages 3 to 14 and their families. The
Company's initial product will be the TwoDogNet(TM) Web site and portal to The
Children's Internet(TM). This site will offer exciting, entertaining and
educational original children's content, a secure and safe Web environment and
an easy to navigate children's search engine, made possible by the Company's
proprietary SafeZone Technology(TM). Other exciting features will include secure
children's e-mail, secure chat rooms, educational content and information
resources for parents, children's product offerings and a children's Web
magazine. The TwoDogNet(TM) Web site and secure children's search engine have a
number of unique and compelling features which will appeal to a wide spectrum of
customers. The key features include:
Personalized and Age Specific
TwoDogNet(TM) and The Children's Internet(TM) are the first children's
Internet services to provide original content that is both personalized and age
specific. The Company has clustered its content and graphical interfaces into
four different age groups, 3-5 year olds, 6-8 year olds, 9-11 year olds and
12-14 year olds. Each age group
25
<PAGE>
offers fun and innovative themes from which to choose. And the personalization
features allow kids to design The Children's Internet(TM) to fit their
individual personalities. In accordance with FTC guidance and the Company's own
privacy policy, the Company guarantees that no individual information about
children will ever be revealed to outsiders.
Development of Entertaining, Fun, Educational Content
In addition to the original content that already exists within the
TwoDogNet(TM) environment, the Company will produce its own original content for
TwoDogNet(TM) Web sites, Websites that will be free to everyone on the Internet.
The Company will draw upon the experience of its creative team in producing
educational and entertaining content that children love. The Company will apply
its educational and entertainment development standards to all aspects of the
content development process. The Company employs a variety of methods to create
its original content: 1) the TwoDogNet(TM) in-house development team will create
original content, 2) the Company will hire outside children's "writer-producers"
to develop content under the TwoDogNet(TM) brand name, and 3) the Company will
obtain licenses for existing children's content to be repackaged under the
TwoDogNet(TM) label. The Company will continually update and add new content to
keep the site exciting and stimulating for its customers. New content, games and
educational programs will be sent to subscribers on CD-ROM on a periodic basis.
The ever changing and expanding content will also offer continually expanding
opportunities for sponsorships, merchandising programs, joint marketing
ventures, and advertising revenues.
Easy to Use, Easy to Navigate the Internet
One of the reasons management believes TwoDogNet(TM) and The Children's
Internet(TM) will become an industry standard for children's Internet services
is that the search engine is designed to make Internet navigation focused, easy
to use, and fun for kids. The Company utilized its interactive team's years of
experience in developing Internet sites for children, along with guidance from
advisors in the education field, to make the search engine intuitive and simple
to navigate for children. In addition, the search engine has the added benefit
of significantly reducing the difficulty and search time for desired information
retrieval over the Internet -- Access without the frustration of wading through
thousands of pages of irrelevant and inappropriate material.
SafeZone and InterRom Technology
The Company's SafeZone Technology(TM) is employed to create a
"protective bubble" around The Children's Internet(TM). When children use the
TwoDogNet(TM) search engine, or just surf the net, the SafeZone Technology(TM)
ensures that they cannot venture beyond the "protective bubble" of The
Children's Internet(TM). The Company's InterRom(TM) technology minimizes
download times for children because many of the graphics, sound and video on The
Children's Internet(TM) are uploaded from a CD-ROM provided by Two Dog Net.
Children load the CD-ROM into their computer, and then surf the net with
lightening speed!
Multilingual
The TwoDogNet(TM) search engine, original content and graphical
interfaces will be translated into several languages, including Spanish,
Portuguese and French. The Children's InternetTM will be a place where children
can learn other languages and experience cultures by visiting the thousands of
age specific, safe Internet sites.
Technology
The Company has developed a number of proprietary technologies that
insures that TwoDogNet(TM) will be safe, secure and reliable.
26
<PAGE>
SafeZone Technology(TM)
The Technology behind the TwoDogNet(TM) security system is called "Safe
Zone Technology(TM)." It's a revolutionary new way to provide Internet access
and organize information. Developed and solely owned by Two Dog Net, Inc.,
SafeZone Technology(TM) provides controlled access that excludes literally all
objectionable material while maintaining the quality and diversity of the
information on the Internet. It allows children to explore the arts, research
ancient civilizations, understand other cultures and discover new worlds without
parents worrying that their children are being influenced by offensive material.
This patent pending technology allows unencumbered access to
pre-determined Web sites as specified by a defined policy and user customized
profiles while, in real-time, parsing away offensive material that does not
conform to The Children's Internet(TM)'s criteria. SafeZone Technology(TM)
conforms to existing rating systems and guidelines as established by national
organizations such as the National PTA (Parent and Teacher's Association), RSACi
(Recreational Software Advisory Council on the Internet), and American Library
Association. The technology also independently evaluates the large number of
sites not as yet rated by these organizations for appropriate content. Unlike
"filtering software", SafeZone Technology(TM) does not prevent access to adults
for serious research on sensitive issues. For example, if information on drug or
gang prevention is needed, filtering programs are so unsophisticated that they
would block access to this data.
Unlike "security programs", SafeZone Technology(TM) does not use static
filtering or blocking techniques because those approaches are easily broached.
SafeZone Technology(TM) is an active, dynamic system, with technology that's
perfectly suited to manage the complexity of the Internet. No technology is
infallible, but rigorous testing has proven that the SafeZone Technology(TM) can
not be bypassed, fooled or thwarted by even the most sophisticated computer user
attempting to bypass the system. Because TwoDogNet(TM) is a service, not just
software, it provides round the clock monitoring and ensures that newly launched
sites are reviewed and comply with TwoDogNet(TM)'s criteria before being added
to the pre-determined site list.
The SafeZone Technology(TM) is made up of three components.
* SafeSock(R) - This browser plugin module will control Web sites that can
be accessed. Access is granted via "positive" authorization, which is
determined by querying lists of "pre-approved" Web sites. If an individual
site is not pre-approved by SafeSock personnel, it is not accessible. The
SafeSock "positive" approach differs from competing systems. These
competing systems use a "negative" authorization that lists "BAD" sites --
sites that are not considered to be appropriate. Any sites that are not on
the reviewed "BAD" list are assumed to be accessible. This "BAD" site
scenario does not account for inappropriate new sites that come up on a
regular basis on the Internet. These new sites are viewable, and remain as
such until the authorizing authority is able to review the site, and make a
BAD determination. If SafeSock pre-approves a Web site, then the user of
the program/service is assured that it has been reviewed and meets the
SafeSock published standards. With non-SafeSock products, the user of the
related program only knows that the Web browser won't go to KNOWN bad
sites. Any new sites are accessible, and will be accessible until the
competing product is able to review the site and determine its
appropriateness.
* The user may modify (from the client side) the list of SockSafe(R)
authorized Web sites. A user will be able to indicate that a site SafeSock
says is "pre-approved," is not "pre-approved" for them. The user will also
be able to add additional sites that are deemed appropriate for their own
purposes. This process involves the client-side browser software interface
to communicate directly with the server-site SockSurf software, allowing
the program user to store his or her authorized Web site authorizations, on
the server. These modifications will be reflected back to the Web browser
when it is used in "Secure" mode, causing the Web sites that are "visited"
to be checked against the personal modifications.
* The SafeSock plug-ins will initially support Netscape and Microsoft
browsers on the Windows 95 Windows 98 and Windows NT platforms. Support for
Windows 3.11, OS/2 and Macintosh is under consideration.
27
<PAGE>
* SockWatch(R) - When "Secure" mode is enabled, SockWatch runs unobserved on
a client computer, and "watches" the sites that are being browsed, other
general Internet activity, and logs what it sees to a disk file. Persons
with appropriate authority can view the logged information at a later time.
Logged information will be able to provide authorized persons the ability
to "recreate" Web-browsing sessions that occurred while "security" was
enabled in the browser. This module will have moderate complexity in that
it needs to be aware of low level operating system functions, and has to
have some sophisticated built-in methodologies to determine if there is any
hacking going on. The SafeSock module by itself does not prevent a hacker
from installing some "other" Web browser on a given machine and using it to
traverse the Internet at will. However, SockWatch will report this in its
log files, alerting the software administrator appropriately. SockWatch has
to be "hack proof" so that the purchasers of the SafeSock program/service
know that any "fooling around" will be observable, and herein lies its
complexity.
The SockWatch plug-in will initially allow users to maintain activity logs
on their home computer. The Company is also developing a system to provide
users with the option of maintaining a log at the Company's server.
* SockSurf(R) - This module is a low-level TCP/IP socket interface to
programs that have been written to run on the SafeSock Internet server. It
mainly involves the User Interface programs (on the browser client-side)
and the related Internet communications protocol that will convey user
entered information to the SockSafe server. It also involves the
communications between the client and server that allows the browser to
verify Web sites that are appropriate for an individual user of the
SafeSock service. The interface between the server-resident SockSurf
programs and the client-side browser plugin will be written to utilize the
TCP/IP socket protocol for communications.
Upon accessing the Internet through the users' ISP (Internet Service
Provider), the SafeZone Technology(TM) will automatically deliver subscribers to
the TwoDogNet(TM) Web site. This mechanism enables The Children's InternetTM to
"lock in" a captive audience. Once inside the TwoDogNet(TM) Web Site, children
can only visit other Web sites which have been pre-approved as part of The
Children's Internet(TM). Here the child has the ability to access the extensive
fun, entertaining and educational original content of the The TwoDogNet(TM) or
link to or search other pre-approved Web sites. Parents can exit the
TwoDogNet(TM) Web Site to enter the Internet at large but children remain within
the TwoDogNet(TM) "protective bubble." In addition to providing for children's
security, "locking in" the child user enables the Company to take advantage of
the extended time that users spend on the site to attract sponsor advertising
which will be incorporated directly into the content of the site.
Every time a user logs onto the system, the server will track the
movements of the user. The Company will take advantage of the information in the
user profile coupled with the data that is gathered on users' activity to
provide advertiser-focused demographics and audiences.
28
<PAGE>
THe InterRom(TM) CD
A key aspect of the TwoDogNet(TM) Web environment is its ability to
deliver rich content and search capabilities coupled with fast downloads times.
The Company believes that users, and children in particular, will stay
interested in the content and search results and will, therefore, spend more
time on line if downloads are perceived to be fast and responsive. The time
users spend on the system will directly impact the value of the Company's "real
estate," i.e. the areas of the environment where sponsors and advertisers are
presented.
Two Dog Net's patent pending InterRom(TM) CD technology provides a
method for graphics and audio to be stored on a CD, while simultaneously being
coordinated with the real time interactivity of an Internet site. The advantage
of this technology is that it significantly reduces the download time for highly
visual and interactive sites compared to normal Internet sites. Anyone who has
waited for the graphics to download from an Internet site is familiar with this
problem, particularly significant when it comes to the attention span of
children. The InterRom(TM) CD Technology will be an integral part of the
TwoDogNet(TM) service, providing exciting content with rapid uploads speeds. New
CD's will be sent to subscribers on a periodic basis with new content, games and
promotional information.
When a new user subscribes to TwoDogNet(TM) , an installer CD-ROM will
be sent to that subscriber to install the service onto their home, school or
organization computer. This installer CD is customizable by each user and is
designed for optimal "plug and play" setup. Each new customer obtains a unique
user ID that is established when the user first downloads the software and fills
in the user profile. The user profile data is returned to the TwoDogNet(TM)
server and stored in its database.
Hardware and Infrastructure
The key criteria for the system hardware are; 1) "seamless"
expandability; i.e. the ability to upgrade the system without having to take the
system offline for any period of time, 2) a high degree of security to guard
against unauthorized entry and 3) the ability of the hardware to accommodate the
unique requirements of the SafeZone Technology(TM) , i.e. the need to restrict
or "lock down" the interface between the user and the Internet.
Digital Equipment Corp. (DEC) has been a technology provider to the
Company's ISP operation and the Company believes that the Digital AlphaServer
8400 meets its criteria for the hardware component of the TwoDogNet(TM)
environment. In particular, DEC's clustered system design and multiple servers
will enable the Company to upgrade the systems memory, storage and
communications capacity without having to take the system offline. The Digital
AlphaServer 8400 is one of the most advanced computer systems used in the
Internet industry. Both Netscape and Lycos use the 64-bit Alpha computer system.
The AlphaServer 8400 supports up to 28 gigabits of memory, 39 terabits of disk
storage and I/O bandwidth of 1.2 gigabits per second. Of course, the technology
is scaleable and Two Dog Net intends to purchase the AlphaServer 8400 in the
following configuration: two 400 MHz processors with 2 gigabits of memory. With
this configuration, the system can handle approximately 30 million transactions
per day.
The Company's Internet connections will also be capable of expanding to
meet the growth in the user base. GST Telecommunications provides the Company's
communication service and will be able to respond to upgrade requests within 24
hours. The Company intends to have an initial capacity level for Internet
traffic of 10 million bits per second ("mbps") and GST has the ability to
upgrade that to a maximum of 645 mbps. The GST fiber network is also designed
with multiple network access points to provide continuous service to its clients
even when segments of its network fail. To further insure a continuous
telecommunications link, the Company will secure backup service from Pacific
Bell.
29
<PAGE>
TwoDogNet(TM)
The Chikldren's Internet(TM)
[ GRAPHIC OMITTED ]
30
<PAGE>
Marketing and Sales
By offering a high quality Web environment that focuses on children's
safe access to the Internet, the Company initially seeks to generate revenues
from four primary sources. These include selling annual subscriptions to its
Internet service, corporate sponsorships that integrate the sponsor into the
user experience on TwoDogNet(TM), advertising revenues from the sale of ad
placements on TwoDogNet(TM) and commissions from the sale of third party
products.
The Company is dedicated to establishing and building its brand names,
and the Company's future plans include the marketing and merchandising of
TwoDogNet(TM) branded products based on its proprietary characters. The Company
believes that high brand recognition will be an effective springboard for new
products, services, and acquisitions. With increased high brand recognition the
Company intends to conduct E-commerce on TwoDogNet(TM) to market and merchandise
products.
Consumer Marketing and Sales
To reach the 20 million US children's households, the Company will
primarily invest heavily in television supported by radio and print advertising
as well as public relations activities to generate a high level of product
awareness and trial.
The Company's user base will be comprised of children, parents, schools
and other organizations that have a need to provide safe access to the Internet
for children. The population of children (under 14) is projected to grow from 38
million in 1997, to 41 million by 2001 (Find/SVP Research, "The Kids Market,"
March 1997). With an average of two children per household, the Company has a
target market of approximately 20 million households. The education market is
also growing. From 1985 to 1995, the K-12 school population has grown by 6
million students. Kindergarten attendance is up an amazing 22% over the same
period of time. Furthermore, the increase in students requires that school
districts add more facilities and teachers. Public school funding has grown from
$165 billion in 1980 to $425 billion in 1993.
Children are the single fastest growing segment of Internet users
today. Children Internet users grew 444% from 1995 to 1997 ("Children on the
Internet," Find/SVP Research, October 1997). The number of children online is
expected to grow from 4 million in 1996 to 45 million in 2002 ("Children on the
Internet," Find/SVP Research, October 1997). Today, AOL Kids reaches 2.1 million
households, and over 50% of those households employ parental control mechanisms.
The Company's experience has shown that adding multiple forms of media
to an advertising campaign raises total response. A combination of different
media increases results because different people respond to different stimuli,
and because this "synergistic marketing" reinforces the advertisers' messages.
Synergistic marketing, the Company's unique, knowledge-based marketing
philosophy, has proven to be a successful and cost effective strategy.
In the 1980s, Nasser Hamedani, the Company's Chairman and founder,
embarked on a revolutionary marketing venture, SyberVision, which came to be the
national leader in Expert Learning Technology. Today, by building on and
perfecting Nasser's proven marketing techniques, Two Dog Net has the ability,
leadership and experience to obtain outstanding results from its multi-tier
synergistic marketing strategy.
The Company's sales plan will be based upon the layout of
TwoDogNet(TM). The online areas for TwoDogNet(TM) will be divided into
subscription-only areas and free areas. The subscription-only areas will contain
all the age-specific interfaces, the personalization area and the secure search
engine. The free areas will contain original content sites that focus on either
the educational or kids' entertainment market. All free areas will contain a
link to a Web page where users can sign up for a trial subscription to the
product. This strategy will increase the number of Web site "hits" which will,
in turn, grow advertising revenue while encouraging trial of the Company's
subscription service. All of the Company's marketing efforts, regardless of the
medium, will integrate references to the TwoDogNet(TM) Web site. Integration of
the Web site in all marketing will encourage prospective users to test the
product, and eventually to order the product online.
The Company will begin the marketing campaign with a vigorous public
relations blitz and a marketing effort directed at parents for home use as well
as towards school districts, educators, and libraries with the intent of
installing
31
<PAGE>
TwoDogNet(TM) as those organizations' Internet security solution.
Currently, thirty nine percent of US primary and secondary schools providing
access to the Internet use security software. One of the primary reasons cited
for not using security software was a lack of satisfaction in the software
currently on the market (according to a study conducted by the market research
company Quality Education Data). Use of TwoDogNet(TM) at school will increase
children's trial of the product and encourage them to "lobby" for purchase of
this familiar and fun product for home use. This will result in millions of
TwoDogNet(TM) page views and will accentuate the other marketing strategies. The
campaign will continue with other forms of media, to include a 30-minute
"edutainment" TV program, TV commercials, inter-commercials, (Internet + TV
commercial), online marketing, print media, radio, direct mail and trade shows.
Potential users may call to subscribe to the service, or they may visit the
TwoDogNet(TM) Web site to test and order online.
The Company will integrate a School Fund-Raising Sales Program into the
marketing plan. Schools and youth organizations will sell subscriptions to
TwoDogNet(TM), and receive payment in the form of a commission. This program
will both build the brand equity and popularity of TwoDogNet(TM), as well as
serve as a tool that provides for quick distribution of TwoDogNet(TM)
subscriptions to thousands of households.
In the 1980s with SyberVision, Nasser Hamedani established himself as the
"father of the billion dollar infomercial industry." Today, Nasser has assembled
a marketing team with experience in creating both TV programs and commercials
that cross-promote products with related Internet sites. The Company will
leverage this collective experience to obtain the optimal marketing mix to
generate sales and brand loyalty for TwoDogNet(TM) and The Children's
Internet(TM).
The Company forecasts that this combination of marketing methods, or
"synergistic marketing," will result in a return rate of 1% on the 20 million US
households in the market, resulting in 200,000 subscribers in the first year.
The Company forecasts that The Children's Internet(TM) will have 2 million
subscribers within three years. Thereafter, the Company projects that the number
of subscribers will grow at the same rate as the growth rate of Internet use.
Corporate Marketing and Sales
A major portion of the Company's revenues will be derived through corporate
relationships. Early on, the Company will generate revenues from sponsorships
and advertising fees and commissions from third party product sales. In
addition, the Company believes that significant revenue generating opportunities
exist though joint venture relationships which may include children's television
programming, branded product offerings, educational programs and Internet-mass
media cross marketing ventures.
Sponsorship Sales
The Company's ability to generate revenues from advertising is enhanced by
the rapid growth of online advertising. Online advertising spending more than
doubled from 1997 to 1998 to $2 billion. Online advertising spending is
projected to explode to over $16 billion by 2002 according to the Veronis,
Suhler & Associates 12th Annual Communications Industry Forecast. The Company
believes that "sponsorships" are the best vehicle to take advantage of this
expanding revenue opportunity. The general sponsor sales methodology is to align
sponsor's specific target markets with groups of TwoDogNet(TM) users attracted
to specific content. Sponsors will be able to target both children and their
parents because the Company will provide attractive and useful product offerings
for both of these user groups. The Company will present sponsorship
opportunities to large consumer driven companies with branding interests that
focus on the specific demographic markets of children and/or their families.
Sponsor specific content will be incorporated into users' primary age-specific
Web pages or on other high traffic areas of TwoDogNet(TM). The Company will
provide each sponsor with a targeted audience, and value-added marketing tools
to increase both sales and brand equity.
The Company will identify a base of companies who are spending a
significant portion of their advertising budget on online advertising. Of these
companies, the Company will identify specific companies that are currently
targeting children and parents. The Company will also focus on companies that
have an interest in targeting children and parents but are not currently
spending money on online marketing.
32
<PAGE>
As advertisers turn to the Internet to build brand equity, content
sponsorship has become an important part of the online marketing mix.
Sponsorships account for over one-third of total online advertising revenue, and
that figure is growing (Coopers & Lybrand /IAB Report, April 1998).
TwoDogNet(TM) sponsors get the benefits of the TwoDogNet(TM) large and loyal
user base within the sponsors' target market. This can eliminate the need for
sponsor companies to develop content site for their brands. Sponsorship programs
offer advertisers several benefits over traditional on-line banner campaigns:
o A more integrated brand presence
o Greater impact than a standard banner campaign
o Increased interaction with site users
o "Ownership" of site content or functionality
With Two Dog Net's InterRom(TM) technology, premier sponsors on
TwoDogNet(TM) have unique benefits over traditional sponsorships. Sponsors will
be able run multimedia, TV-like "intermercials" (Internet + commercial) between
topic areas. Further, the quick loading times from the CD-ROM will allow ad
placements embedded in the page to integrate music and much more animation. One
survey found that consumers exposed to a single intermercial are 64 percent more
likely to recall an ad for a specific brand, compared to an average 30 percent
increase seen in traditional banner advertising. (Berkeley Systems Study on
Interstitial Use, July 21-31, 1997). Thus, the InterRom(TM) technology allows
Premier Sponsors to multiply the emotional effect of their ads.
The sales team will develop numerous model sponsorship ideas to integrate
site content and the sponsors' names and logos. For example, the Company might
produce The Recording Studio for an online music retailer, or the Extreme Sports
Arena for a sporting goods retailer.
The Premier Sponsorship programs will provide great relationship marketing
opportunities for sponsors. In many large, consumer driven companies,
relationships with consumers are often the companies' greatest assets. The
sponsorship programs on TwoDogNet(TM) provide for greater interaction between
the sponsor and the individual, as opposed to the sponsor and the general
market. This allows the sponsor to build consumer value with the user over a
long period of information exchange between the user and the sponsor. Examples
of relationship-building interaction are the Email Newsletters that sponsors
distribute and users help "publish," votes, by users, for the Top Ten Lists of
the best toys, music and movies, and user Book Reviews.
The Company's model for assessing user traffic is different than most
Internet Company models. The Company will employ a user hour model, calculating
the exact number of minutes children spend on the Company's system, and how
children allocate their time within the system. Advertisers will pay to sponsor
different sections of the site according to the user hours of these specific
sections, which is in contrast to the common "cost per thousand page views"
model ("CPM model").
The Company will offer incentives to users and other mechanisms to keep
children online longer, resulting in increased value to sponsors. The integrated
content that the Company provides to our sponsors also increases the value of
our sponsorships compared to the competition. Furthermore, sponsors get the
benefits of any national advertising that the Company conducts. These unique
aspects of the Company's system and sponsorship model will enable the Company to
price sponsorships in the $500,000 to $1,000,000 range. The projected user base
of 2 million within three years will enable the Company to exploit numerous
revenue generating opportunities including sponsorships, advertising, product
sales, mechanizing, and joint ventures.
33
<PAGE>
Advertising Banner Sales
While the Company's primary sales effort will be to develop sponsorship
relationships, the Company will not ignore the significant revenue opportunity
from traditional Internet site ad banner advertising. The Company will offer ad
banner space companies that wish to take advantage of the millions of "hits"
that the TwoDogNet(TM) site will generate each year. Because of the unique
nature of the TwoDogNet(TM) service in which children are automatically directed
to and locked into the "protective bubble," advertisers are guaranteed higher
traffic volume of their target audience than other potential advertising sites.
The Company believes that this will result in considerable competition for
TwoDogNet(TM) banner space and therefore generate premium banner revenues.
Product Sales
In the past year, the Internet has become a generally accepted medium for
the sale of products and services. Products and services ranging from books and
CD's to airline and event tickets are commonly sold over the net. According to
research undertaken by IntelliQuest, eighty one percent of Internet users intend
to shop online in 1999. This widespread acceptance of the Internet as a shopping
venue for the public at large opens great opportunities for Two Dog Net. The
Company will search out companies that wish to establish a presence on the
Internet for the sale of their products to our target audience or wish to expand
their presence by taking advantage of TwoDogNet(TM)'s large and very focused
user base. Two Dog Net has the advantage of being able to design content sites
targeted at the specific user for specific categories of product sales. For
example, the Company may design a Music Store in which kids can listen to new
CD's and purchase the CD on-line. Or the Company may create a toy store in which
kids view new toys, try them out and drag icons of specific toys they want to
their own holiday wish list. Parents will be able to view this list and purchase
on-line the exact toys their child has requested. Categories of products which
the Company anticipates selling on TwoDogNet(TM) includes toys, music CD's,
books, clothing, games, computer equipment, educational products and services,
consumer electronics, and sporting equipment. The Company has already
established affiliate relationships with major product suppliers that will
enable the Company to offer products for sale on a commission basis. It is not
the Company's intent to warehouse, distribute or sell products directly. The
Company will take orders and pass the orders to the affiliate for product
fulfillment.
Joint Ventures
Joint venture opportunities represent a longer term revenue opportunity but
one which offers tremendous potential for the Company. The Company is currently
exploring relationships that could yield joint ventures for the production of
children's television programming utilizing TwoDogNet(TM) characters and
concepts. The Company is also in discussions regarding the production and
marketing of branded products based on TwoDogNet(TM) characters. The Company
believes that many other joint venture opportunities will be available as a
result of the Company's strong branding and Internet leadership position.
Research and Development
The Company's current development efforts have been focused on the
completion of its Web environment products. The Company believes that the
development of the InterROM CD, the search engine utilizing TwoDogNet(TM) is
substantially completed. To date, the Company has been using its ISP operation's
hardware to develop and test the various software components of the overall Web
environment and the InterROM CD technology. The remaining development of these
products and the ability to test the system integration is dependent upon the
acquisition of the system hardware. The TwoDogNet(TM) content pages have been
under development since July 1998, and the initial Web environment's pages have
been completed. The Company will continue to expand and upgrade the content to
maintain consumer interest. Future product development efforts will focus on
product enhancements and adapting existing products to additional operating
systems.
Product development expenses were $260,601 and $160,960 for the years ended
December 31, 1996 and 1997, and $79,480 and $49,467, for the nine months ended
September 30, 1997 and 1998, respectively. To date, all software development
costs have been expensed as incurred. The Company believes that additional
investment in product
34
<PAGE>
development is required to complete its system and ongoing investment is
required to remain competitive. Accordingly, the Company intends to increase the
amount of its product development in the future. See "USE OF PROCEEDS".
Competition
The market for Internet products and services is highly competitive and
competition is expected to continue to increase significantly. There are no
substantial barriers to entry in these markets, and the Company expects that
competition will continue to intensify. Although the Company currently believes
that the diverse segments of the Internet market will provide opportunities for
more than one supplier of products and services similar to those of the Company,
it is possible that a single supplier may dominate one or more market segments.
The Company believes that the principal competitive factors in its
anticipated markets are brand recognition, ease of use, comprehensiveness of
available content, customization by the consumer, quality and responsiveness of
search results, the availability of high-quality, focused value added services,
required technology to offer access to end users with fewer interruptions, and
with respect to advertisers and sponsors, the number of users, duration and
frequency of visits and user demographics. Competition among current and future
suppliers of Internet navigational and informational services, high-traffic
Websites and ISPs, as well as competition with other media for advertising
placements, could result in significant price competition and reductions in
advertising revenues. There can be no assurance that the Company will be able to
compete successfully or that the competitive pressures faced by the Company will
not have a material adverse effect on the Company's business, operating results,
and financial condition.
The Company will also compete with online services, other Web site
operators and advertising networks, as well as traditional offline media such as
television, radio and print for a share of advertisers' total advertising
budgets. The Company believes that the number of companies selling Web-based
advertising and the availability of advertising space have increased
substantially during recent periods. Accordingly, the Company may face increased
pricing pressure for the sale of advertisements and reductions in the Company's
advertising revenues.
The Company will compete with many other providers of security software,
information and community services. Many companies offer competitive products or
services addressing filtering of Web content, including, among others, Net Nanny
(Net Nanny Software, Inc.), Cyber Patrol (The Learning Company), Cyber Snoop
(Pearl Software, Inc.), Cyber Sentinel (Security Software Systems, Inc.),
Cybersitter 97 (Solid Oak Software, Inc.), SurfWatch (SurfWatch Software, Inc.),
WebChaperone (WebCo International, Inc.) EdView Channel Lock and EdViewsmart
Zone (EdView, Inc.) and X-Stop (Log-On Data, Inc.). In addition, the Company
will compete with online services such as Yahooligans! (Yahoo!), a Web navigator
designed for children in grades K-12, America Online (America Online, Inc.),
which offers parental control options for Web access and Disney's Blast Online,
which also offers child-oriented Web navigation. These companies already have
an established market presence, and, because the Company has not introduced its
product, are ahead of the Company in gaining market share. Also, entities that
sponsor or maintain high-traffic Websites or that provide an initial point of
entry for Internet users, such as the Regional Bell Operating Companies or
Commercial Online Services such as MSN and AOL, currently offer and could
further develop, acquire or license Internet search and navigation functions
that could compete with those offered by the Company.
Many of the Company's existing competitors, as well as a number of
potential new competitors, have significantly greater financial, technical,
marketing and distribution resources. In addition, providers of Internet tools
and services may be acquired by, receive investments from, or enter into other
commercial relationships with larger, well-established and well-financed
companies, such as Microsoft or AOL. Greater competition resulting from such
relationships could have a material adverse effect on the Company's business,
operating results and financial condition. In the event that the Company extends
its business internationally, the Company may also face intense competition in
international markets, including competition from U.S.-based competitors as well
as media and online companies that are already well established in those foreign
markets. See, "BUSINESS -- INTERNET SECURITY."
Employees
The Company currently employs eight individuals. As of September 30, 1998,
the Company's user interface development and ISP operations were managed by
Integrative Systems, LLC ("Integrative"). The management and staff of
35
<PAGE>
Interactive were hired by the Company in February, 1999. Two of Integrative's
former employees are now officers of the Company. The employees and creative
staff of SPL will become employees of the Company in the 2nd quarter of this
year.
Patents, Trademarks, Licenses & Royalties
The Company's success is dependent in part on its proprietary technology.
TDN relies on a combination of patent, trade secret, copyright and trademark
laws, non-disclosure agreements and contractual provisions to establish and
protect its proprietary rights. The Company has received no patents to date and
has one pending domestic patent application on its InterROM and SafeZone
Technology. The Company has not selected any particular foreign countries in
which to file patent applications. The Company uses a printed "shrink-wrap"
license for users of its products in order to protect certain of its copyrights
and trade secrets. The Company attempts to protect its trade secrets and other
proprietary information through agreements with suppliers and non-disclosure
agreements with employees and consultants and other security measures.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, such piracy can be expected to be a persistent problem, particularly in
international markets and as a result of the growing use of the Internet. Some
courts have held that shrink-wrap licenses, because they are not signed by the
licensee, are not enforceable. In addition, there can be no assurance that
patent applications filed by the Company will result in patents being issued or
that its existing patent, and any patents that may be issued to it in the
future, will afford protection against competitors with similar technology; nor
can there be any assurance that patents issued to the Company will not be
infringed upon or designed around by others or that others will not obtain
patents that the Company would need to license or design around. For additional
information see "RISK FACTORS -- TRADEMARKS AND PROPRIETARY RIGHTS."
Litigation
The Company is not engaged in any legal proceedings and is not aware of any
pending or threatened litigation that could have a material adverse effect on
the Company's business, financial condition or results of operations.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following section contains forward-looking statements which involve
risks and uncertainties. When used in this section, the words "anticipate,"
"believe," "estimate," "plans," "expects" and similar expressions as they relate
to the Company or its management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors". This section should be read in
conjunction with the financial statements and notes to the financial statements,
each appearing elsewhere in this Prospectus.
Overview
Two Dog Net, Inc. has been developing its Web service technology to provide
site content and navigation tools designed especially for children and families
to access the Internet in a safe environment that emphasizes educating children
and developing their Internet navigation skills. As part of its system
development process, the Company has operated as a local Internet Service
Provider ("ISP") under the name "The Socket." This has enabled it to develop and
test the user interface for the two primary aspects of the system: the Web
service's content areas that allows users to search a wide range of topics while
teaching Web navigation skills, and the search engine ("SafeZone Technology"),
that allows users to perform direct searches only to the pre-approved sites on
the Internet.
Management believes the Web service and its related technologies will be
the focus of its future operations and provide the primary source of future
revenues and the ISP segment will have a negligible impact on future financial
results.
The Company's objective is to become the premier gateway or portal to The
Children's Internet environment. To accomplish this, the Company's strategy is
to offer a unique and engaging on-line experience through its Web service, named
TwoDogNet(TM). Following the completion of its Web environment, TDN initially
seeks to generate revenues from three primary sources. These include annual
subscriptions from users, corporate sponsorships that integrate the sponsor into
the user experience on TwoDogNet(TM), commissions from the sale of third party
products and advertising revenues from the sale of ad placements on
TwoDogNet(TM). A majority of the Company's stock was purchased in July 1995 by
its current President. The Company had no revenues and incurred an immaterial
amount of expense during the period July through December 1995. The Company has
generated no revenues from its Web environment and limited revenues from its ISP
operations. Accordingly, the Company has no operating history as a Web
environment company and extremely limited operating history as an ISP.
The lack of an operating history regarding the Company's future business
plan provides no basis for evaluating the Company's prospects. The Company's
prospects must be considered in light of the Company's plans regarding the
TwoDogNet(TM) Web environment, and the risks, expenses and obstacles frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets and environments such as the
Internet. To address these risks, the Company must, among other things, respond
to competitive developments, attract, retain and motivate qualified persons and
continue to upgrade its technologies and commercialize products and services
incorporating such technologies. There can be no assurance that the Company will
be successful in addressing such risks.
The Company's revenues to date have been primarily Internet service
provider fees, which are earned ratably over the period of service. The
Company's future success is substantially dependent upon continued growth in the
use of the Internet in order to support the sale of advertising and the adoption
of the Company's services by subscribers on the Company's Web environment. There
can be no assurance that communication or commerce over the Internet will
continue to grow or that advertisers will continue to perceive the Internet as
an effective and sustainable advertising medium. If the Internet does not
continue to expand its commercial potential or if companies do not continue to
view the Internet as a viable advertising medium or if the Company's Web
environment does not attain market acceptance amongst users and advertisers, the
Company's business, operating results and financial condition will be materially
adversely affected.
The Company currently has limited infrastructure, resources and personnel
in the areas of operations, product and system development, marketing and sales,
customer service, finance and administration. The Company expects to increase
its expenses significantly in these areas out of the proceeds of this Offering.
Due the lack of historical financial data on which to base planned operating
expenses, the planned expense levels are based primarily on expectations as to
future
37
<PAGE>
revenues, and to a large extent, will be fixed. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results and financial condition will be materially adversely
affected. In addition, there can be no assurance that the Company will raise
sufficient funding as the result of this Offering to enable it to acquire the
resources and personnel that the Company believes is needed to achieve its
plans. Even if the Company does raise a sufficient level of funds, there can be
no assurance that the Company will be able to develop the infrastructure, hire a
sufficient number of qualified persons and integrate the Company's
infrastructure and personnel in a timely and effective manner. Failure to do so
would have a material adverse effect on the Company's business, operating
results and financial condition.
In June 1996, the Company entered into a joint product development and
management agreement with Integrative Systems LLC ("IS LLC") which provides IS
LLC with the exclusive right to develop and manage the Company's ISP and
Internet-related products in exchange for specified payments by the Company for
services rendered, royalties to be paid to the Company on related product sales
and 250,000 shares of the Company's common stock. The Company will receive all
rights of ownership for products developed under this agreement. Product
development costs of $260,601 and $160,960 for the years ended December 31, 1996
and 1997, respectively, were paid to IS LLC including $125,000 related to the
issuance of the above noted common shares in 1996. Product development costs
paid to IS LLC in the nine months ended September 30, 1997 and 1998 were $76,500
and $128,947, respectively. Amounts paid to IS LLC that are included in cost of
revenue for the year ended December 31, 1997 and the nine months ended September
30, 1997 and 1998 were $168,096, $156,778 and $109,785, respectively. The
operations of IS LLC have been integrated into the operations of the Company,
and its employees have become employees of the Company effective February 1,
1999.
To date, the Company has expensed all of its software development costs and
amortized purchased intangibles (certain video masters) over their estimated
useful life of five years on a straight line basis.
The Company has incurred net losses since inception and expects to continue
to operate at a loss for the foreseeable future. Given the risks discussed in
this section as well as in the "Risk Factors" that are associated with the
Company's plans, there can be no assurance that the Company will achieve or
sustain profitability. As of September 30, 1998, the Company had an accumulated
deficit of $2,991,217.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Revenue. Revenue consists of Internet service fees charged to users of the
Company's ISP, which began operations in January 1997. Revenue increased
$110,800, or 391% to $139,110 in the nine months ended September 30, 1998 from
$28,310 in the same period in 1997. The increase was due primarily to an
increase in ISP subscribers from approximately 200 as of September 30, 1997 to
approximately 800 as of September 30, 1998. The Company's monthly service fees
remained unchanged over both nine month periods.
Cost of Revenue. Cost of revenue consists primarily of depreciation and
amortization, telecommunication services provided by companies such as Pacific
Bell and direct labor charged by IS LLC for technical support, Web page
production and maintenance and ISP software installation services, which are
offered to businesses and individuals on an as-needed basis. Cost of revenue
decreased $27,019, or 13% to $175,906 in the nine months ended September 30,
1998 from $202,925 in the same period in 1997. The decrease in cost of revenue
was due primarily to a $28,000 decrease in direct labor expense resulting from a
reduction in IS LLC's ISP staff in 1998. This was the result of the ISP
operation requiring less staff than what was needed during the start-up phase in
1997. The decrease was partially offset by an increase in telecommunications
expense due to the installation of additional phone lines to cover a wider
service area and an increase in depreciation. As a percentage of revenue, cost
of revenue decreased to 126% in the nine months ended September 30, 1998 from
717%, in the same period in 1997. This percentage decrease is due primarily to
the impact of lower cost of sales and increasing sales. The Company expects that
cost of revenue will increase significantly in the future as the result of the
distribution of its Web environment software and Inter-ROM CD.
Product Development Expense. Product development expense consists of consulting
fees charged by IS LLC for software development of the ISP's client browser
interface and TwoDog.Net and related software modules. This relationship has
ceased with the integration of IS LLC in to the Company. Product development
expense increased $52,447, or 69%, to $128,947 in the nine months ended
September 30, 1998 from $76,500 in the same period in 1997. The decrease was due
38
<PAGE>
primarily to a decrease in IS LLC's staffing of software development projects in
the 1998 period as compared to those worked on in 1997. To date, the Company has
expensed all of its software development costs. The Company believes that
significant investments in product development are required to remain
competitive. Accordingly, the Company intends to increase the absolute amount of
its product development expenditures in the future.
Selling, general and administrative. Selling, general and administrative
expenses consist primarily of advertising and promotional expenses, financial
and marketing consultants, investor relations, legal and accounting, facilities
and office expense. Selling, general and administrative expenses increased
$54,430, or 21%, to $316,243 in the nine months ended September 30, 1998 from
$261,813 in the same period in 1997. As the result of the launch of the ISP
operation in January 1997, advertising and promotion, travel and telemarketing
expenses were approximately $74,500 higher in the nine months ended September
30, 1997 as compared to the same period in 1998 and an increase in salaries in
the nine months ended September 30, 1998 due to the hiring of a sales manager in
July 1997, an increase in consulting fees, facilities and office expense. The
Company intends to increase expenditures in the areas of sales, operations and
administration.
Income Taxes. As of September 30, 1998, the Company had federal and state net
operating loss carry forwards of approximately $1,500,000 and $1,300,000,
respectively. The majority of such carry forwards expire from 2001 through 2012.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenue. The Company had no Internet service fee revenue in 1996. The Company
began its ISP operation in January 1997. For the year ended December 31, 1997,
the Company generated revenue of $50,406 from Internet service fees. There were
approximately 550 users as of December 31, 1997. The Company's monthly service
fees remained unchanged during the year.
Cost of Revenue. Cost of revenue increased $211,033, or 491% to $254,010 in the
year ended December 31, 1997 from $42,977 in 1996. The increase in cost of
revenue was due primarily to direct labor of $61,007 paid to IS LLC and
telecommunication charges of $107,089 relating to ISP operations. The Company
did not incur any of these charges in 1996. The remaining increase was a result
of additional depreciation of $42,787 from assets purchased late in 1996 and
throughout 1997. The Company expects that cost of revenue will increase
significantly in the future as the result of the distribution of its Web
environment software and Inter-ROM CD.
Product Development Expense. Product development expense decreased $99,641, or
38%, to $160,960 in the year ended December 31, 1997 from $260,601 in 1996. In
June 1996, the Company entered into a joint product development and management
agreement with IS LLC which provides IS LLC with the exclusive right to develop
and manage the Company's ISP and Internet related products in exchange for
specified payments by the Company for services rendered, royalties paid to IS
LLC on related product sales and 250,000 shares of the Company's common stock.
Included in product development costs was $125,000 related to the issuance of
the above noted common shares in 1996. The decrease was partially offset by an
increase in additional IS LLC's staffing for software development projects in
1997 as compared to those worked on in 1996. To date, the Company has expensed
all of its software development costs. The Company believes that significant
investments in product development are required to remain competitive.
Accordingly, the Company intends to increase the absolute amount of its product
development expenditures in the future.
Selling, general and administrative. Selling, general and administrative
expenses increased $308,408, or 130%, to $546,182 in the year ended December 31,
1997 from $234,774 in 1996. This increase was primarily due to the increase in
advertising and promotions, salaries, travel and marketing consultants relating
to the launch of the ISP operation in January 1997. The increase in these
expenses contributed approximately $278,000 to the overall increase in selling,
general and administrative expenses and included $50,000 in stock issued to
consultants. The remainder of the increase was due to increased fees for
professional services, consultants (which included warrants valued at $13,262
that are issuable at December 31, 1997), investor development and facilities.
The Company intends to increase expenditures in the areas of revenue, operations
and administration.
39
<PAGE>
Other Income. Other income increased $9,547, or 178%, to $14,904 in the year
ended December 31, 1997 from $5,357 in 1996. The increase is due primarily to
higher interest earning cash balances and a higher average loan balance during
1997, offset by sub-lease income earned in 1996.
Income Taxes. As of December 31, 1997, the Company had federal and state net
operating loss carry forwards of approximately $1,200,000 and $1,000,000,
respectively. The majority of such carry forwards expire from 2001 through 2012.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
Liquidity and Capital Resources
The Company has financed its operations primarily through private sales of
equity securities. For the nine months ended September 30, 1998, the Company
raised $635,154 in cash from a private placement of its common stock and issued
an additional $8,500 in common stock in exchange for services rendered to the
Company and $50,000 in common stock in payment of a liability for services
previously rendered to the Company. For the year ended December 31, 1997 and
1996, the Company raised $1,317,233 and $749,008, respectively, in cash from
private placements of its common stock. The Company also made available for
issue warrants valued at $13,262 for consulting services rendered to the Company
in the year ended December 31, 1997, and issued $235,523 in common stock in
exchange for property contributed and services rendered to the Company in the
year ended December 31, 1996.
At September 30, 1998, the Company's principal source of liquidity was
approximately $677,000 in cash and cash equivalents. The Company currently does
not have a credit facility which it can use to satisfy short or long term
borrowing requirements. At September 30, 1998 the Company had no long term debt
or material long term commitments.
In the nine months ended September 30, 1998, cash used by operations was
$448,670, due primarily to a net loss for the period and a decrease in accounts
payable. The Company had an accumulated deficit of $2,991,217 at September 30,
1998 and expects to operate at a loss for the foreseeable future. The Company's
independent certified public accountants have included an explanatory paragraph
in their audit report stating that the Company's financial statements have been
prepared assuming that the Company will continue as a going concern, however the
Company's cumulative net loss since inception and its planned operating expenses
raise substantial doubt as to the Company's ability to continue as a going
concern. The Company is dependent upon the proceeds of the Offering or other
financing in order to continue as a going concern.
The Company currently has limited infrastructure, resources and personnel
in the areas of operations, product and system development, marketing and sales,
customer service, finance and administration. The Company expects to increase
its expenses significantly in these areas out of the proceeds of this Offering.
In addition, the Company plans to significantly increase its capital equipment
purchases in the next year primarily to increase the capacity of the Company's
client server hardware as well as to significantly upgrade its communications,
computer and management information systems. The Company believes that the net
proceeds from the sale of the maximum number of shares in this Offering will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. There can be no assurance that
the Company will be able to sell the maximum number of shares in this Offering.
In the event the net proceeds from this Offering are significantly less than the
maximum proceeds of $20,000,000 less expenses associated with this Offering, the
Company will have to lower its planned expenditures and the timing of such
expenditures which will have a materially adverse effect on its business,
operating results and financial condition. Additionally, the Company will need
to raise additional capital to satisfy its working capital and capital
expenditure requirements. If additional funds are raised through the issuance of
equity or convertible debt securities, the percentage ownership of the
stockholders of the Company will be reduced, stockholders may experience
additional dilution and such securities may have rights, preferences or
privileges senior to those of the rights of the Company's common stock. There
can be no assurance that additional financing will be available at terms
favorable to the Company, or at all. If adequate funds are not available or not
available on acceptable terms, the Company will not be able to adequately fund
its planned operations and expansion, which will have a material adverse effect
on the Company's business, operating results and financial condition.
40
<PAGE>
Impact of the Year 2000 Issue
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits, e.g. 97 for 1997. On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize a date using 00 as 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruption of operations, including among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company believes that its internal ISP software and hardware systems
will function properly with respect to dates in the year 2000, however there can
be no assurance in this regard until such systems are operational in the year
2000 and thereafter. The Company plans to purchase a significant amount of
equipment for its planned Web environment and management information systems and
its policy will require that all equipment and software to be purchased be Year
2000 compliant.
The Company is in the process of contacting all of its significant
suppliers to determine the extent to which the Company's interface with these
suppliers make it vulnerable to any third party failure to make their own
systems Year 2000 compliant. At this time, the Company can not estimate the
effect, if any, that non-compliant systems at these entities will have on the
Company's business, operating results and financial condition. In the event of a
failure of such non-compliant systems, the Company could incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, operating results and financial condition. Current users
of the Internet with computers that are not year 2000 compliant, may experience
system failures and therefore be unable to gain access to he Internet in the
Year 2000. As a result, the decreased Internet usage could have a material
adverse effect on the Company's advertising revenues and consequently its
business, operating results and financial condition. In addition, the Company
will rely heavily on revenues from advertisers and sponsors. The purchasing
patterns of potential advertisers and sponsors may be affected by Year 2000
issues as companies expend significant resources to correct their current
systems for Year 2000 compliance. These expenditures may result in reduced funds
available for Internet advertising, which could have a material adverse effect
on the Company's business, operating results and financial condition. The
Company has not made any assessment of the Year 2000 risks associated with its
third party suppliers or potential advertisers and has not made any contingency
plans to address such risks.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires an enterprise to report, by
major components and as a single total, the change in net assets during the
period from nonowner sources. Adoption of this statement will not impact the
Company's financial position, results of operations or cash flows. This
statement is effective for fiscal years beginning after December 15, 1997, with
earlier application permitted.
41
<PAGE>
MANAGEMENT
Name Age Position
---- --- --------
Nasser Hamedani 60 Director; Chief Executive Officer
Sholeh Hamedani 30 Director, Treasurer and President
Larry Wheeler 55 Chief Technology Officer
Tim Turner 51 Chief Financial Officer
Roger Campos 52 Director
Jamshid Ghosseiri 59 Director
Tyler Wheeler 27 Vice President, Technology
Nasser Hamedani , 60, is a Director, Chairman of the Board and Chief
Executive Officer of the Company. Mr. Hamedani founded SyberVision of San
Francisco, California in 1978. SyberVision was purchased by CML Group, Inc.
(NYSE Symbol: CML) in 1985, and is now a privately-owned company. When
SyberVision became a subsidiary of CML, Mr. Hamedani joined CML, and served as
Chairman of SyberVision until 1989. Prior to acquiring Asian-American
International, Inc. in 1995, Mr. Hamedani pursued personal interests. He
received a BA degree from California College of Arts & Crafts in 1967 and a
Master's Degree in Fine Arts/Advertising and Marketing from University of Tehran
in 1971.
Sholeh Hamedani, 30, is a Director, Treasurer and President of the Company.
From 1991 to 1994, Ms. Hamedani served as an advisor to Global Vision. From 1989
to 1991, she was President of NutraEra, Inc., a company she founded, which
developed proprietary nutritional supplements and educational products. In 1991,
NutraEra, Inc. was acquired by Global Vision, a national network marketing
company. From 1985 to 1989, Ms. Hamedani was an employee with SyberVision
Systems in the Production and TV Media Department.
Larry Wheeler, 55, is Chief Technology Officer. Since 1993, Mr. Wheeler has
served as President of Integrated Systems, LLC. Mr. Wheeler has spent most of
his professional career in the computer industry. From 1966 to 1972, he was a
Manufacturing Specialist for IBM, and from 1972 to 1979 served as a consultant
to IBM in software development and application installation.
During that time he was on the development team for the first floppy disk
(IBM warm boot diskette for the 370), and the development team for the IBM
System 38/AS400. During his tenure at IBM he was awarded 7 Symposiums (IBM's
Honor Society) and was once voted IBM Systems Engineer of the Year. He received
a BS degree from the California State University San Jose in 1972 and spent two
years in the IBM advance studies education system.
Tim Turner, 51, is Chief Financial Officer. Prior to joining Two Dog Net,
Inc. in 1998, Mr. Turner held the position of CFO for California Orchards, a
specialty retail chain, from 1996 to 1998. Mr. Turner was hired to lead the
turnaround of California Orchards and developed the strategy that took the
company into and successfully out of Chapter 11 in less than one year. In 1991,
Mr. Turner co-founded Spatialight Inc., a world leader in high-resolution small
format active matrix liquid crystal displays. Mr. Turner was a Director of the
company and held the position of CFO until the founders sold the company in
1995. Mr. Turner continued as a Director of Spatialight until 1997. Mr. Turner
has also held the positions of CFO for Almaden Vineyards, ISC Wines, and Gold
Disk, a consumer software publisher and controller for Heublein Wines, the
nations second largest wine producer and marketer. Mr. Turner holds a BS degree
in Engineering from San Jose State University, 1973.
Tyler Wheeler, 27, is Vice-President, Technology. From 1989 to 1994, Mr.
Wheeler was a Vice-President of Micro Tech Systems, a computer consulting
company based in Fresno, California. Since 1993, he has also served as a
Vice-President of Integrative Systems, Inc., a network design company. Mr.
Wheeler completed a BA in Finance and Business Law at California State
University in Fresno in 1995.
Roger Campos, 52, is a Director of the Company. Since 1998, Mr. Campos has
been Vice President of Governmental Relations for over 200 colleges and
universities represented by the Hispanic Association of Colleges and
Universities in Washington, D.C. Prior thereto, Mr. Campos served as CEO of a
governmental relations and business
42
<PAGE>
consulting firm located in Washington, D.C., working with Fortune 500 firms,
medium and small businesses throughout the country. He has 20 years experience
in legal and high level management positions with five federal U.S. agencies
including the White House's Office of Management and Budget during the Nixon,
Ford, and Reagan administrations. Mr. Campos is a graduate of the University of
California Santa Barbara and earned his law degree at the United States
International University school of Law (California Western Campus) of San Diego,
California.
Dr. Jamshid Ghosseiri, 59, is a Director of the Company. He is currently
the Chief of the Microbiology Department at Mt. Diablo Medical Center and has
over 28 years of experience in the field of clinical microbiology and research
in infectious diseases at both San Jose State University and Stanford
University.
Additional Management
Karl Kronenberger, 30, will become Vice President of Sales & Marketing. Mr.
Kronenberger brings both interactive media and general legal counsel experience
to the Two Dog Net. Mr. Kronenberger has structured multiparty agreements for
several multimedia and Internet projects. He co-founded Spunky Productions in
1998, which specializes in producing and marketing original content Internet
sites, and in developing and marketing children's television programming that
cross-promotes with Internet sites. Mr. Kronenberger also has a strong legal
background, having counseled clients in numerous areas of the law, to include
intellectual property and Internet law. He will direct business development
efforts and develop strategic partnerships to bring content, as well as revenue,
to Two Dog Net. Mr. Kronenberger received his Bachelor of Arts degree from the
University of Notre Dame in 1990, and his law degree from the University of
Cincinnati College of Law in 1993. He is licensed to practice law in Ohio, in
Georgia and in federal court in Washington.
Craig Kronenberger, 27, will become Vice of President Creative and Content
Development. Mr. Kronenberger has produced and designed numerous interactive
media programs, including structural package designs, as well as Internet and
multimedia applications. Starting in 1994 as Manager of Interactive Media for
Pollak, Levitt & Nel Advertising (PLN), in Atlanta, Georgia, Mr. Kronenberger
was instrumental in building the second largest advertising agency interactive
group in the Southeast. His accounts include Kimberly-Clark Professional
Healthcare, MacGregor Golf, Alcoa, National Vision, SAP Software, Target One,
Service Merchandise, GSM Alliance, Hill ROM, First USA Bank, Georgia Power and
Prudential Securities. He also developed in Claus.Com in 1994, which grew to be
the largest Santa Claus Website, receiving 80 million hits and 14 million page
views in December 1997, and almost double that figure in 1998. While at PLN,
Craig's Division won two Gold Amy Awards (American Marketing Association's
Online Awards) for their work on Claus.com (1996, 1997). Mr. Kronenberger also
co-founded Spunky Productions in 1998, which specializes in producing original
content Internet sites and in developing children's television programming that
cross-promote with Internet sites. He is responsible for day-to-day operations
and production in the Creative Division. Mr. Kronenberger provides the daily
creative leadership for all the artists, designers and writers in his division.
Mr. Kronenberger received his Bachelor of Fine Arts in Electronic Media from the
University of Cincinnati in 1993. He also completed an independent study in the
evolution of communication delivery, storage and playback systems, including
cable and satellite distribution in 1993. Mr. Kronenberger has taught
college-level classes on developing interactive media projects and online
marketing in 1995 and 1996.
Advisory Board
Dr. Marilyn Lane, Ph.D.: Ms. Lane is the spokesperson on all educational
matters from kindergarten to post graduate for Two Dog Net. She coordinates all
educational programs and brings the necessary resources for our educational
offerings. Ms. Lane has the skills to develop curriculum, provide staff
development, as well as be a presenter. She is an internationally known educator
and expert on self-esteem. She has worked in Russia and Trinidad-Tobago with the
educators to change their educational systems. Her specific educational areas of
expertise are Gifted and Talented Education, Early Childhood Education, and
parent education and involvement. She is the President of the California Center
for Self-Esteem and is Vice President of the National Association for
Self-Esteem.
Dr. Bradley Winch, Ph.D., JD: Dr. Winch is a noted International Scholar,
Scientist, Lawyer, Lecturer, Educator and Publisher. Academically, he has been
affiliated with Wayne State University of Karlsruhe (Germany), the University of
Moscow (through the Soviet Academy of Sciences) and Pepperdine University. His
business experience includes; Director of New Ventures for General Mills, Inc.,
Director of Educational Products for Mattel, Inc., and he is a licensed
attorney. In 1971, Dr. Winch formed B.L. Winch & Assoc., a company that has been
a leader in developing, publishing, and distributing educational curriculum and
materials for K-12, and to the books in the areas of Positive Self-Esteem,
Stress Management
43
<PAGE>
and Whole Brain Learning for the general public. Dr. Winch is dedicated to
empowering children (and adults) worldwide to develop their maximum potential.
Mr. Howard Moore: Mr. Moore has over 50 years experience in marketing,
licensing, merchandising and packaging in the toy industry. After starting his
career in a family toy business, Mr. Moore founded Toy Barn Stores in 1957. Mr.
Moore sold Toy Barn Stores in 1966 and founded Toy Town, USA where he was
President and CEO. Mr. Moore sold the company to Lionel Corporation in 1978
where he remained as Senior Vice President of Purchasing until he joined Toys
"R" Us in 1980. At Toys "R" Us, Mr. Moore progressed from Senior Vice President
of Purchasing to Executive Vice President, General Merchandising Manager, to
Member of the Executive Committee to a Director of the Company. Mr. Moore
retired from Toys "R" Us in 1990 but continues as a member of the company's
Board of Directors. After retiring from Toys "R" Us, Mr. Moore founded Howard
Moore Associates, a consulting group to the toy industry in the areas of
marketing, product development, licensing, merchandising and packaging. Howard
Moore Associates has provided consulting services to a number of start-up
companies, product developers, toy inventors and has recently brokered the sale
of four toy companies. Mr. Moore brings a wealth of business experience in
development and marketing of products for children.
EXECUTIVE COMPENSATION
Effective upon completion of the minimum offering, the Company anticipates
that it will, pursuant to employment agreements, pay the following estimated
annual salaries to it's executive staff. The Company believes the persons named
below will be its most highly compensated executive officers.
Annual Summary Compensation Table (Estimated):
- ----------------------------------------------
Name and Position Salary
- ----------------- ------
Nasser V. Hamedani 200,000
Chairman of the Board of Directors
Chief Executive Officer
Sholeh A. Hamedani 135,000
President
Larry Wheeler 135,000
Chief Technical Officer
Tim Turner 125,000
Chief Financial Officer
Tyler Wheeler 125,000
Vice President,
Technical Development
Since inception, Mr. Hamedani has received no compensation from the
Company. The Company has committed to loan Mr. Hamedani up to $500,000. In the
event of the completion of a public offering, the commitment will be terminated
and no additional amounts will be loaned to the Company's chairman. As of
September 30, 1998, amounts outstanding under this loan commitment was $241,404
(which includes $9,841 of accrued interest). See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
44
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
<TABLE>
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock immediately prior to this
offering, as adjusted to reflect the sale of common stock offered hereby for (i)
each person or entity who is known by the Company to beneficially own more than
5% of the outstanding common stock of the Company, (ii) each of the Company's
directors, and (iii) all directors and executive officers of the Company as a
group. The Company believes that the beneficial owners of the Common Stock
listed below, based upon information furnished by them, have sole investment and
voting power with respect to their shares, subject to community property laws
where applicable.
<CAPTION>
Directors, Officers Shares Beneficially Percentage of Common
Shares and 5% Stockholders Owned(1) Outstanding
- -------------------------- ------------------- --------------------
Before Offering Minimum Maximum
--------------- ------- -------
<S> <C> <C> <C> <C>
(14,866,919) (15,266,919) (16,866,919)
Nasser Hamedani(2) 950,000 6.4% 6.2% 5.6%
Sholeh Hamedani(2) 2,047,334 13.8% 13.4% 12.1%
Nasser Hamedani & Andrea
Hamedani(2) 4,000,000 26.9% 26.2% 23.7%
Larry Wheeler 250,000 1.7% 1.6% 1.5%
Jamshid Ghosseiri 10,000 .07% .07% .06%
SANDHRS LTD. PARTNERSHIP(5) 5,000,000 33.6% 32.7% 29.6%
1570 Rancho Del Hambre
Lafayette, CA 04549
All directors and officers 12,267,334 82.5% 80.3% 72.7%
as a group (5 persons)
<FN>
------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment
power with respect to shares. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days after September 30,
1998 are deemed outstanding for computing the percentage ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage of any other person.
(2) The address of Mr. Hamedani, Ms. Hamedani, Larry Wheeler and Mr.
Ghosseiri is: c/o International Marketing Dynamics, 337 Preston Court,
Livermore, CA 94550.
(3) The General Partner of SANDHRS LTD. PARTNERSHIP is Nasser Hamedani.
------------------------
</FN>
</TABLE>
45
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, the Company entered into a variety of agreements with the founder
of the Company, who also currently serves as the Chairman and Chief Executive
Officer (the "Chairman"), related to his founding contribution. In conjunction
with these agreements, 10,000,000 common shares were issued to the Chairman. In
June 1998, these agreements were rescinded and a new agreement was entered into
which stated that the 10,000,000 shares issued to he chairman were issued for
his initial contribution of intellectual property rights to the Company. These
shares have been valued at the founder's historical cost basis in such assets,
which was nil at the date of contribution. In addition, the Company has
committed to loan the Chairman up to $500,000. As of December 31, 1997 and 1996,
amounts outstanding under this loan commitment totaled $241,404 (including
$9,841 of accrued interest currently due) and $113,676, respectively. In the
event of the completion of a public offering this loan will no longer be drawn
against. The unpaid principle bears interest at 8.5% due quarterly commencing
September 1997, and are partially secured by investments owned by the Chairman.
The principal is due on June 21, 2000.
In March 1995, Global Management systems, Inc. ("GMS"), an organization
owned by the President of the Company (who is also related to the Chairman),
obtained a 20 year exclusive license from a non-related party for all rights
related to certain educational video masters in exchange for $20,000 cash and a
$780,000 payable pursuant to a royalty license agreement, with royalties payable
due to the extent sales of the related products are made at a rate of 5% of net
sales. Payments totaling $25,523 were paid by GMS through February 1996 on the
loan payable. In March 1996, GMS transferred all rights to these video masters
to the Company in exchange for the issuance of 2,000,000 shares of the Company's
common stock to the Company's President. GMS and the Company's president
retained the remaining $754,477 liability under the loan payable. These video
masters were recorded at GMS's cost basis as of March 1996 ($65,786) and will be
amortized over a five year period. Remaining license expense totaling $754,477
will be recorded by the Company as sales of the product are made. Through
September 30, 1998, there have been no sales made by the Company of products
subject to the royalty agreement.
During 1997, the Company had one employee. Included in selling, general and
administrative expenses is $14,343 and $7,000 in consulting fees and other
expenses paid to the President and certain other family members for the years
ended December 31, 1997 and 1996, respectively. Corresponding amounts for the
nine months ended September 30, 1997 and 1998 were $7,401 and $9,088,
respectively.
In June 1996, the Company entered into a joint product development and
management agreement with Integrative Systems, LLC ("IS LLC"), which granted IS
LLC the exclusive right to develop and manage the Company's ISP and
Internet-related products in exchange for specified payments by the Company for
services rendered, royalties paid to IS LLC on related product sales and 250,000
shares of the Company's common stock. The Company will receive all rights of
ownership for products developed under this agreement. This relationship has
ceased with the integration of IS LLC into the Company and this agreement has
been terminated. Product development costs of $160,960 and $260,601 in 1997 and
1996, respectively, were paid to IS LLC, including $125,000 related to the
issuance of the above-mentioned common shares in 1996. Product development costs
paid to IS LLC in the nine months ended September 30, 1997 and 1998 were $76,500
and $128,947, respectively. Amounts paid to IS LLC that are included in cost of
revenue for the year ended December 31, 1997 and the nine months ended September
30, 1997 and 1998 were $168,096, $156,778 and $109,785, respectively. Accounts
Payable-Related Party are due to IS LLC. In addition, included in current
Related Party Receivables at December 31, 1997 is $27,310 due from IS LLC
related to its management of the Company's ISP.
DESCRIPTION OF SECURITIES
The Company has authorized 200,000,000 shares of common stock, par value
$.001. Immediately prior to this offering, there were 14,866,919 shares of
Common Stock outstanding and held of record by 543 shareholders. Owners of
Common Stock are entitled to one vote for each share held of record on all
matters to be voted on by shareholders. The owners of common stock are entitled
to receive dividends when, as and if declared by the board of directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the common stock shareholders are entitled to share
ratably in all assets remaining which are available for distribution to them
after payment of
46
<PAGE>
liabilities and after provision has been made for each class of stock, if any,
having preference over the common stock. common stock shareholders, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the common stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered by this
Registration Statement, when issued for the consideration set forth in this
Registration Statement, will be fully paid and non-assessable.
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities
The Utah Revised Business Corporation Act, as amended, authorizes the
Company to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably incurred in
connection with any action, suit or proceedings, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director or officer of the Company if it is determined that such person
acted in accordance with the applicable standard of conduct set forth in such
statutory provisions. The Company's Articles of Incorporation provides for the
indemnification of directors and officers to the full extent permitted by Utah
law.
The Company may also purchase and maintain insurance for the benefit of any
director or officer which may cover claims for which the Company could not
indemnify such person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore unenforceable.
Registration Rights
There are no agreements between current shareholders and the Company with
respect to the registration of such shares under the Securities Act.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
Interwest Transfer Company, Salt Lake City, Utah.
NASDAQ National Market Listing
Application will be made to have the common stock listed for quotation on
the NASDAQ National Market under the symbol "DNET."
SHARES ELIGIBLE FOR FUTURE RESALE
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that a significant public market for the
common stock will be developed or be sustained after this Offering. Sales of
substantial amounts of common stock in the public market after this Offering, or
the possibility of such sales occurring, could adversely affect prevailing
market prices for the common stock or the future ability of the Company to raise
capital through an offering of equity securities.
Upon completion of this Offering, the Company will have 15,266,919 shares
outstanding if the minimum amount is sold, and 16,866,919 shares outstanding if
the maximum amount is sold. The shares sold in this Offering will be freely
tradeable without restriction or further registration under the Securities Act
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act ("Rule 144") described below. Sales of outstanding
shares to residents of certain states or jurisdictions may only be effected
pursuant to a registration in or applicable exemption from the registration
provisions of the securities laws of those states or jurisdictions.
The remaining 14,866,919 shares of common stock outstanding upon completion
of this Offering, which are held of record by shareholders prior to this
Offering are "restricted securities" and may not be sold in a public
distribution except in compliance with the registration requirements of the
Securities Act or an applicable exemption under the Securities Act, including an
exemption pursuant to Rule 144. In general, under Rule 144 as in effect at the
closing of this offering,
47
<PAGE>
beginning 90 days after the date of this Prospectus, a person (or persons whose
shares of the Company are aggregated) who has beneficially owned Restricted
Shares for at least one year (including the holding period of any prior owner
who is not an affiliate of the Company) would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the then outstanding shares of Common Stock (approximately
168,669 shares immediately after this Offering assuming the maximum is sold) or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner who is not an affiliate of the
Company) is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
A substantial number of shares currently restricted from resale under Rule
144 will become freely tradeable upon the effective date of this Prospectus. The
Company is unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for the Common Stock of the
Company, the personal circumstances of the sellers and other factors. Sales of
substantial amounts of shares in the public market could adversely affect
prevailing market prices and could impair the Company's future ability to raise
capital through an Offering of its equity securities.
PLAN OF DISTRIBUTION
The Company proposes to offer and sell the shares directly to members of
the public. Announcements of this Offering, in the form prescribed by Rule 134
of the Securities Act, will be communicated in general publications and on the
Internet. A copy of this Prospectus will be delivered to those who request it,
together with the Subscription Agreement. All shares will be sold at the public
Offering price of $10.00 per share and a minimum purchase of 100 shares is
required. The Company reserves the right to reject any subscription or share
purchase agreement in full or in part.
The Company will effect offers and sales of shares through printed copies
of this Prospectus delivered by mail and electronically. Any voice or other
communications will be conducted in certain states through its executive
officers, and in other states through a designated sales agent, licensed in
those states. Under Rule 3a4-1 of the Exchange Act, none of these employees of
the Company will be deemed a "broker," as defined in the Exchange Act, solely by
reason of participation in this Offering, because (1) none is subject to any of
the statutory disqualifications in Section 3(a)(39) of the Exchange Act, (2) in
connection with the sale of the shares hereby offered, none will receive,
directly or indirectly, any commissions or other remuneration based either
directly or indirectly on transactions in securities, (3) none is an associated
person (partner, officer, director or employee) of a broker or dealer and (4)
each meets all of the following conditions: (A) primarily performs substantial
duties for the issuer otherwise than in connection with transactions in
securities; (b) was not a broker or dealer, or an associated person of a broker
or dealer, within the preceding 12 months; and (C) will not participate in
selling an Offering of securities for any issuer more than once every 12 months.
Until the minimum number of Shares is sold and gross proceeds of no less
than $7,000,000 are received, all funds received for the purchase of Shares will
be held in an escrow with U.S. Bank Trust, N.A. (the "Escrow Agent"). Upon the
receipt of subscriptions for the minimum Offering amount, the Escrow Agent will
release the funds held in escrow to the Company and certificates for the
purchase of Shares will be issued to subscribers. If the minimum number of
Shares is not sold by the scheduled termination date of the Offering or by such
earlier date as the Company determines to terminate this Offering, all funds
held in escrow will be returned to the subscribers. with any interest which
accrue on those funds. In the event that the minimum Offering amount is not
raised, interest will not be returned to investors.
The Company does not intend to use broker-dealers in the sale of securities
in the Offering. However, if the Company subsequently determines that it will
use a broker-dealer for the purpose of selling the securities, the Company will
amend the registration statement by post-effective amendment to identify a
selected broker-dealer at such time as such broker-dealer sells 5% or more of
the Offering. In the view of the Commission's Division of Corporation Finance,
any selected broker-dealer that sells securities in this type of an Offering
would be deemed an underwriter as defined in Section 2(11) of the Securities
Act. Prior to the involvement of any broker-dealer in the Offering, the Company
must obtain a no objection position from the NASD regarding the contemplated
underwriting compensation and arrangements.
48
<PAGE>
DESCRIPTION OF PROPERTY
The Company's headquarters is located in Livermore, California where it
leases 4,166 square feet of office space. All marketing, production, and
accounting functions are performed at this location. The Company also leases
office space in Fresno, California, where it leases 1,917 square feet. Future
sales locations will be leased by the Company from unrelated third parties. The
Company outsources all of the manufacturing and distribution of its CD ROM
products. The Company's capital equipment consists of furniture and computer
equipment.
INTEREST OF NAMED EXPERTS AND COUNSEL
No person named in this Prospectus as an expert or as counsel to the
Company was hired on a contingent basis or was or is a promoter, underwriter,
voting trustee, director, officer or employee of the Company.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for the
Company by Evers & Hendrickson, L.L.P., San Francisco, CA.
CHANGE IN ACCOUNTANTS
In September 1998, the Company appointed Marc Lumer & Company to replace
the former accountants as its principal accountants. There were no disagreements
with the former accountants during their term from April 1, 1997 to September
22, 1998 on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to the former accountants' satisfaction, would have caused them to
make reference to the subject matter of the disagreement in connection with
their reports. The former accountants issued a qualified opinion on the
financial statements as of and for the years ended December 31, 1996 and 1997
due to omission by the Company of inception to date information as required for
development stage enterprises. In addition, their report included an explanatory
paragraph referring to the substantial doubt of the Company's ability to
continue as a going concern. The Company did not consult with Marc Lumer &
Company on any accounting or financial reporting matters in the periods prior to
their appointment. The change in accountants was approved by the Board of
Directors.
EXPERTS
The financial statements of Two Dog Net, Inc. as of December 31, 1996 and
1997, and for the years ended December 31, 1996 and 1997, appearing in this
Prospectus and Registration Statement have been audited by Marc Lumer & Company,
independent auditor, as stated in their report, which expresses a qualified
opinion related to the omission from the financial statements or certain
required development stage company disclosures, and includes an explanation
referring to the substantial doubt of the Companys' ability to continue as a
going concern. Such report appears herein and in the Registration Statement, and
has been included herein in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto, relating
to the shares offered hereby has been filed with the Securities and Exchange
Commission, Office of Small Business Policy, Washington, D.C. This
49
<PAGE>
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the shares
offered hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office located at 450 Fifth Street,
N.W., Washington, D.C. 20549, the Northeast Regional Office located at 7 World
Trade Center, 13th Floor, New York, New York, 10048 and copies of all or any
part thereof may be obtained from the Public Reference Branch of the Commission
upon the payment of certain fees prescribed by the Commission. In addition the
Commission maintains a World Wide Web site on the Internet at http://www.sec.gov
that contains reports, proxy and information statements and other documents
filed electronically with the Commission, including the Registration Statement.
The Company intends to furnish its shareholders with annual reports containing
financial statements audited by its independent public accountants and quarterly
reports containing unaudited financial information for the first three quarters
of each fiscal year.
50
<PAGE>
Appendix A 2,000,000 Shares
Two Dog Net, Inc.
Share Purchase Agreement
To Two Dog Net, Inc.:
Please issue shares of your common stock in the amounts and name(s) shown below.
My signature acknowledges that I have read the Prospectus dated ___________,
1999, and am aware of the risk factors contained therein. I represent that I
have relied solely upon the contents of the Prospectus in making an investment
decision with regard to the shares offered thereby, and I have not relied on any
other statements made by or with regard to the Company in connection with its
anticipated operations or financial performance.
______________________________ ______________________________
(Signature) (Date)
______________________________ ______________________________
(Signature) (Date)
Enclosed is payment for ________ shares at $________;
Total: $________
Register the shares in the following name(s) and amount(s):
(Please Print)
Name(s):_________________________________________________________
Number of share(s): ________________
As (check one) [ ] Individual [ ] Joint Tenancy [ ] Husband & Wife as community
property[ ] Tenants in Common [ ] Corporation [ ] Trust [ ] Other:
For the person(s) who will be registered shareowners:
Mailing Address:_________________________________________________
City, State, Zip:________________________________________________
Telephone:_______________________________________________________
Social Security or Taxpayer ID Number(s):________________________
Note: Please attach any instructions for mailing the certificates or shareowner
communications other than to the registered shareowner at this address.
No Subscription Is Effective Until Acceptance.
Subscription Accepted by Two Dog Net, Inc.:
__________________________
Sholeh Hamedani, President
Date _____________________
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
For the Years Ended December 31, 1996, 1997
and the Nine Months Ended September 30,
1997 (Unaudited), 1998 (Unaudited)
Two Dog Net, Inc.
Index to Financial Statements
Report of Independent Auditors...............................................F-2
Balance Sheets...............................................................F-3
Statements of Operations.....................................................F-4
Statements of Shareholders' Equity.....................................F-5; F-14
Statements of Cash Flows.....................................................F-6
Notes to Financial Statements................................................F-8
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
International Marketing Dynamics, Inc.
I have audited the accompanying balance sheets of International Marketing
Dynamics, Inc. (the "Company") (a development stage company) as of December 31,
1997 and 1996, and the related statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audits provide a reasonable basis for my opinion.
The financial statements do not include disclosures of cumulative activity from
inception of the Company as required by generally accepted accounting principles
for development stage companies.
In my opinion, except for the omission from the financial statements of the
disclosures described in the preceding paragraph, such financial statements
present fairly, in all material respects, the financial position of the Company
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to such
financial statements, there are matters that raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans concerning
these matters are also described in Note A. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
San Francisco, California
October 21, 1998
F-2
<PAGE>
<TABLE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
BALANCE SHEETS
<CAPTION>
December 31, September 30,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 67,691 $506,203 $676,968
Related party receivables -- 33,310 25,559
Prepaid expenses and other 11,330 12,270 35,400
----------- ----------- -----------
TOTAL CURRENT ASSETS 79,021 551,783 737,927
PROPERTY AND EQUIPMENT - Net 265,806 243,064 189,863
VIDEO MASTERS 58,958 45,802 45,933
PATENT COSTS - Net 5,924 14,494 14,494
----------- ----------- -----------
TOTAL ASSETS $409,709 $855,143 $988,217
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 24,701 $ 54,994 $ 23,051
Accounts payable - related party 25,205 45,841 --
Deferred revenue -- 9,127 10,590
Other current liabilities -- 89,953 14,291
Loans payable, related party - current portion 12,000 11,039 12,621
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 61,906 210,954 60,553
Loans payable, related party - non current portion 10,539 -- --
----------- ----------- -----------
TOTAL LIABILITIES 72,445 210,954 60,553
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
common stock, par value $.001 per share; authorized
200,000,000 shares, issued and outstanding 3,428,536
shares at December 31, 1996, 14,304,667 shares at
December 31, 1997 and 14,719,173 share
at September 30, 1998 (unaudited) 3,429 14,305 14,719
Additional paid-in capital 2,090,549 3,410,168 4,138,393
Note receivable from officer (113,676) (241,404) (234,231)
Deficit accumulated during the development stage (1,643,038) (2,538,880) (2,991,217)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 337,264 644,189 927,664
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 409,709 $ 855,143 $ 988,217
=========== =========== ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
STATEMENTS OF OPERATIONS
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------------- ---------------------------------
1996 1997 1997 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ -- $ 50,406 $ 28,310 $ 139,110
COST OF REVENUES 42,977 254,010 202,925 175,906
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) (42,977) (203,604) (174,615) (36,796)
------------ ------------ ------------ ------------
OPERATING EXPENSES
Product development 260,601 160,960 76,500 128,947
Selling, general and administrative 237,774 546,182 261,813 316,243
------------ ------------ ------------ ------------
TOTAL OPERATING
EXPENSES 498,375 707,142 338,313 445,190
------------ ------------ ------------ ------------
OPERATING LOSS (541,352) (910,746) (512,928) (481,986)
OTHER INCOME 5,357 14,904 12,572 29,649
------------ ------------ ------------ ------------
NET LOSS ($ 535,995) ($ 895,842) ($ 500,356) ($ 452,337)
============ ============ ============ ============
LOSS PER SHARE ($ .31) ($ .06) ($ .04) ($ .03)
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING $ 1,735,000 $ 13,785,000 $ 13,700,000 $ 14,439,000
============ ============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
F-4
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (a Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1996, 1997 AND SEPTEMBER 30, 1998 (Unaudited)
(SEE LAST PAGE of f/s)
F-5
<PAGE>
<TABLE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30
------------------------ -----------------------
1996 1997 1997 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $ (535,995) $ (895,842) $ (500,356) $ (452,337)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 42,977 85,764 56,014 66,121
Interest earned on related party note -- (9,841) (10,129) --
Warrants issued for services -- 13,262 -- --
Common stock issued for services 190,000 -- -- 43,485
Effect of changes in:
Accounts receivable - related parties -- (27,310) (21,544) 17,592
Prepaid expenses and other (11,330) 4,460 505 (23,130)
Accounts payable 49,956 50,929 (49,906) (77,784)
Deferred revenue -- 9,127 1,501 1,463
Other current liabilities -- 89,953 1,878 (24,080)
----------- ----------- ----------- -----------
NET CASH USED BY
OPERATING ACTIVITIES (264,392) (679,498) (522,037) (448,670)
----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property and equipment (300,058) (49,866) (52,945) (3,052)
Development of Video Masters (20,263) -- -- (9,999)
Loaned to related parties (113,676) (123,887) (84,725) (2,668)
Loaned to other -- (5,400) -- --
Patent costs (5,924) (8,570) (4,670) --
----------- ----------- ----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (439,921) (187,723) (142,340) (15,719)
----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance of
common stock - net 749,008 1,317,233 816,557 635,154
Borrowings on long-term
loans payable 28,838 -- -- --
Repayments on long-term
loans payable (6,300) (11,500) (8,578) --
----------- ----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 771,546 1,305,733 807,979 635,154
----------- ----------- ----------- -----------
</TABLE>
F-6
<PAGE>
<TABLE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30
----------------------- -------------------
1996 1997 1997 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET INCREASE IN CASH AND
CASH EQUIVALENTS 67,233 438,512 143,602 170,765
CASH AND CASH EQUIVALENTS
Beginning of period 458 67,691 67,691 506,203
-------- -------- --------- --------
CASH AND CASH EQUIVALENTS
End of period $ 67,691 $506,203 $ 211,293 $676,968
======== ======== ========= ========
SUPPLEMENTAL DISCLOSURE
Cash payment of interest $ 2,453 $ 1,242 $ -- $ --
======== ======== ========= ========
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES
Common stock issued
for Video Master $ 45,523 $ -- $ -- $ --
======== ======== ========= ========
WARRANTS ISSUED
FOR SERVICES $ -- $ 13,262 $ -- $ --
======== ======== ========= ========
COMMON STOCK ISSUED
FOR SERVICES $190,000 $ -- $ -- $ 43,485
======== ======== ========= ========
<FN>
See accompanying notes.
</FN>
</TABLE>
F-7
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(INFORMATION AT SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS
Organization
International Marketing Dynamics, Inc. (A Development Stage Company) (the
"Company") was incorporated under the name ViCom, Inc. on July 14, 1983 under
the laws of the State of Utah, changed its name to Quick Stop Photo
International, Inc. on October 29, 1984 and to Asian-American International,
Inc. on May 9, 1988. The Company was inactive from 1990 to July 1995, at which
time the Company's current President obtained majority ownership and changed the
Company's name to International Marketing Dynamics. The Company is in the
development stage and its current business strategy is to develop and market
server and integrated application software to allow the execution of secure
transactions through the internet within "safe zones". These safe zones are to
be content specific areas provided by the Company or custom designed by the
user. In addition, the Company is an internet service provider ("ISP") in the
Fresno, California area (see Note F).
Going Concern Accounting Basis
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and settlement of liabilities
and commitments in the normal course of business. The Company incurred a net
loss of $895,842 and $535,995 and used cash in operating activities of $679,498
and $264,392 in the years ended December 31, 1997 and 1996, respectively. The
Company expects that it will continue to incur substantial expenses related to
its research and development efforts and sales and marketing activities and that
as a result will incur losses for the foreseeable future. These factors, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classifications of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Management's plans include several alternatives for securing funds, including
private placements (See Note G) and an initial public offering of equity which
would raise funds to continue the Company's developmental and marketing efforts.
However, no assurances can be given that the Company will be successful in
raising additional capital. Further, there can be no assurance, assuming the
Company successfully raises additional funds, that the Company will achieve
profitability or positive cash flow.
F-8
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(INFORMATION AT SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
NOTE B SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers cash investments with maturity of three months or less at
the time of purchase to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed on a
straight-line basis over estimated useful lives of five years to seven years.
Software Development Costs
Costs for the development of new software products and substantial enhancements
to existing software products are expensed as incurred until technological
feasibility has been established, at which time any additional costs to complete
the products or enhancements would be capitalized. Because the Company believes
its current process for developing software is essentially completed
concurrently with the establishment of technological feasibility, no costs have
been capitalized to date.
Video Masters
Video Masters are stated at cost (predecessor cost for masters contributed by
the president - See Note C) and amortized upon completion over their estimated
useful life of five years under the straight-line method. Accumulated
amortization totaled $6,828, $19,985 and $29,852 (unaudited) at December 31,
1996 and 1997 and September 30, 1998, respectively.
Patent
Costs represent capitalized legal fees related to one patent application which
the Company currently has on file. Such costs will be amortized over the shorter
of the estimated life of technology or the remaining life of the patent when
granted.
F-9
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(INFORMATION AT SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
NOTE B (Continued)
Revenue Recognition
Revenues currently earned as an ISP are recognized ratably over the period of
service.
Income Taxes
The Company accounts for income taxes under an asset and liability approach to
financial accounting and reporting for income taxes. A valuation allowance is
provided when necessary to reduce deferred tax assets to the amount expected to
be realized.
Interim Financial Information (Unaudited)
The accompanying unaudited financial statements as of September 30, 1998 and for
the nine months ended September 30, 1997 and 1998 have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (consisting only of
normal, recurring adjustments) necessary for a fair presentation have been
included. Results for the interim periods are not necessarily indicative of the
results to be expected for a full year.
Concentration of Credit Risk and Significant Risks and Uncertainties
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of related party receivables and receivables in
conjunction with the Company's ISP operations. Credit risk is affected by the
individual creditworthiness of the Company's related parties (See Notes C and F)
and, in conjunction with Company's ISP operations, conditions, or occurrences
with the local economy and the high technology industry.
The Company participates in a dynamic high technology industry and believes that
changes in any of the following areas could have a material adverse effect on
the Company's future financial position or results of operations: advances and
trends in new technologies and industry standards; competitive pressures in the
form of new products or price reductions on current products; changes in certain
strategic partnerships or customer relationships; risk associated with changes
in domestic and international economic and/or political conditions or
regulations; availability of necessary components; risks associated with Year
2000 compliance; and the Company's ability to attract and retain employees
necessary to support its growth.
F-10
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(INFORMATION AT SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
Recently Issued Accounting Standard
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires an enterprise to report, by
major components and as a single total, the change in net assets during the
period from nonowner sources. Adoption of this statement will not impact the
Company's financial position, results of operations or cash flows. This
statement is effective for fiscal years beginning after December 15, 1997, with
earlier application permitted.
NOTE C RELATED PARTY TRANSACTIONS
In 1997, the Company entered into a variety of agreements with the founder of
the Company, who also currently serves as the Chairman and Chief Executive
Officer (the "Chairman"), related to his founding contribution. In conjunction
with these agreements 10,000,000 common shares were issued to the Chairman. In
June 1998, these agreements were rescinded and a new agreement was entered into
which stated that the 10,000,000 shares issued to the chairman were issued for
his initial contribution of intellectual property rights to the Company. These
shares have been valued at the founder's historical cost basis in such assets
which was nil at the date of contribution. In addition, the Company has
committed to loan the Chairman up to $500,000. As of December 31, 1996 and 1997,
amounts outstanding under this loan commitment totaled $113,676 and $241,404
(including $9,841 of accrued interest currently due), respectively. As of
September 30, 1998 (unaudited), amounts outstanding under this loan commitment
totaled $234,231. These receivables bear interest at 8.5% due quarterly
commencing September 1997 and are partially secured by investments owned by the
Chairman. The principal is due on June 21, 2000.
In March 1995, Global Management Systems, Inc. (GMS), a company owned by the
President of the Company who is also related to the Chairman, obtained a 20 year
exclusive license for all rights related to certain educational video masters in
exchange for $20,000 cash and $780,000 non-interest bearing license payable due
to the extent sales of the related products are made at a rate of 5% of net
sales. Payments totaling $25,523 were paid by GMS through February 1996 on the
license payable. In March 1996, GMS transferred all rights to these video
masters to the Company in exchange for the issuance of 2,000,000 shares of
common stock to the Company's President. GMS and the Company's president
retained the remaining $754,477 liability under the license payable. These video
masters were recorded at GMS's cost basis as of March 1996 ($65,786) will be
amortized over a five year period. Remaining license expense totaling $754,477
will be recorded by the Company as sales of the product are made.
F-11
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(INFORMATION AT SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
NOTE C RELATED PARTY TRANSACTIONS (Continued)
Long-term loans payable-related party are due to the secretary of the Company.
These loans are unsecured, bear interest at a weighted average rate of 8.6% and
are due in principle and interest payments of $1,000 a month.
During 1997, the Company had one employee. Included in selling, general and
administrative is $7,000, $14,343, $7,401 (unaudited) and $9,088 (unaudited) in
consulting fees and other expenses paid to the President and certain other
family members for the years ended December 31, 1996 and 1997 and the nine
months ended September 30, 1997 and 1998, respectively.
See also Note F
NOTE D PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following at:
<CAPTION>
December 31, September 30,
1996 1997 1998
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Computer equipment $ 286,073 $ 335,939 $ 337,518
Furniture and fixtures 13,985 13,985 15,458
------------ ------------ ------------
300,058 349,924 352,976
Less accumulated depreciation (34,252) (106,860) (163,113)
------------ ----------- -------------
TOTAL $ 265,806 $ 243,064 $ 189,863
========== ========== ===========
</TABLE>
NOTE E COMMON STOCK TRANSACTIONS
During 1997, the Company issued 876,131 common shares, including 73,080 common
shares issued as partial payment of offering costs, for total cash proceeds of
$1,623,253 less cash offering costs of $306,020. At December 31, 1997, included
in other current liabilities is $34,985 which relates to amounts received under
a canceled marketing agreement. In addition, at December 31, 1997 included in
other liabilities is $50,000 related to the Company's commitment to issue a
further 25,000 common shares to a third party in settlement of a claim. The
Company has also committed to issue 20,000 common shares to a consultant upon
completion of a project.
F-12
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(INFORMATION AT SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
NOTE E COMMON STOCK TRANSACTIONS (Continued)
During 1996, the Company issued 986,460 common shares, including 194,017 common
shares issued as partial payment of offering costs, for total cash proceeds of
$890,009 less cash offering costs of $141,001. In addition, during 1996, the
Company issued 10,000 common shares each to three of the Company's directors as
annual payment for their services. Included in selling, general and
administrative expenses is $15,000 in compensation expense related to these
issuances.
During 1996, the Company issued 100,000 common shares to a consultant for
financial and public relations services. Included in selling, general and
administrative expenses is $50,000 in compensation expense related to this
issuance.
All common share amounts herein reflect the 1 to 40 reverse stock split of the
Company's common stock effected on March 15, 1996.
See also Notes C, F & G.
common stock Transactions (Unaudited)
During the nine months ended September 30 ,1998, the Company issued 368,762
common shares, including 65,275 common shares issued as partial payment of
offering costs, for total cash proceeds of $677,217 less cash offering costs of
$42,063. During the nine months ended September 30, 1998, the Company issued
25,000 shares to a third party to repay the $50,000 settlement liability
discussed above. During the nine months ended September 30, 1998, the Company
issued 13,994 shares valued at $34,985 under a canceled marketing agreement.
Other current liabilities also include amounts owed to a former consultant for
compensation of $12,924 which the Company plans to convert such liability to
common stock at a price of $2.00.
In addition, during the nine months ended September 30, 1998, the Company issued
5,000 common shares to an employee as payment for services and 1,750 common
shares to an outside consultant as payment for services. Included in selling,
general, and administrative expenses is $8,500 in consulting expense related to
these issuances.
NOTE F PRODUCT DEVELOPMENT COSTS
In June 1996, the Company entered into a joint product development and
management agreement with Integrative Systems, LLC (IS LLC) which provides IS
LLC with the exclusive right to develop and manage the Company's ISP and
internet related products in exchange for specified payments by the Company for
services rendered, royalties paid to IS LLC on related product sales and 250,000
shares of the Company's common stock. The Company will receive all rights of
ownership for products developed under this agreement.
F-13
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(INFORMATION AT SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
NOTE F PRODUCT DEVELOPMENT COSTS (Continued)
Product development costs of $260,601 and $160,960 in 1996 and 1997,
respectively, were paid to IS LLC including $125,000 related to the issuance of
the above noted common shares in 1996. Included in Cost of Revenues is $168,096
paid to IS LLC in 1997 in conjunction with such services. Product development
costs of $76,500 (unaudited) and $128,947 (unaudited) in the nine months ended
September 30, 1997 and 1998, respectively were paid to IS LLC. Included in cost
of revenues is $156,778 (unaudited) and $109,785 (unaudited) in the nine months
ended September 30, 1997 and 1998 respectively, paid to IS LLC in conjunction
with such services. Accounts Payable - Related Party are due to IS LLC. In
addition, included in current Related Party Receivables at December 31, 1997 is
$27,310 due from IS LLC related to its management of the Company's ISP.
NOTE G FINANCING AGREEMENT
In December 1997, the Company entered into an agreement with Merit Capital
Associates, Inc. ("Merit") to provide financial advisory assistance to the
Company for a contemplated private placement of $7 million. Merit will receive a
fee of 5% of the gross amount of any capital raised, whether debt or equity.
Upon the closing of any offering below $1 million, a 10% fee shall be paid as a
partial payment toward the total fee of 5%. The Company is obligated to
reimburse Merit for all out-of-pocket expense incurred under this agreement. In
addition, regardless of completion of the financing, Merit will receive a
warrant, with a term of 5 years, to purchase 15,385 common shares at a price of
$3.25 per share. Included in selling, general and administrative expenses is
$13,262 which represents the estimated fair value of the warrant.
NOTE H LEASES
The Company rents its facilities in Livermore, California from a third party
under an operating lease agreement on a month-to-month basis. Total rent expense
to the third party was $25,200 and $24,000, $12,000 (audited) and $18,000
(unaudited) for the years ended December 31, 1996 and 1997, and the nine months
ended September 30, 1997 and 1998, respectively.
NOTE I INCOME TAXES
No provision or benefit for income taxes has been recognized in the financial
statements.
At December 31, 1997, the Company had federal and state net operating loss
("NOL") carryforwards of approximately $1,200,000 and $1,000,000 respectively.
The majority of such carryforwards expire from 2001 to 2012.
F-14
<PAGE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(INFORMATION AT SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
NOTE I INCOME TAXES (Continued)
Internal Revenue Code Section 382 places a limitation (the "Section 382
Limitation") on the amount of taxable income which can generally be offset by
net operating ("NOL") carryforwards after a change in control (generally greater
than a 50% change in ownership) of a loss corporation. California has similar
rules. Generally, after a control change, a loss corporation cannot deduct NOL
carryforwards in excess of the Section 382 Limitation. Due to these "changes in
ownership" provisions, utilization of the NOL and tax credit carryforwards may
be subject to an annual limitation regarding their utilization against taxable
income in future periods.
Due to this potential limitation and due to the fact that the Company has
sustained cumulative losses, the potential future benefits from these deferred
assets are fully reserved by means of a valuation allowance and will therefore
produce a financial statement benefit if and when utilized.
F-15
<PAGE>
<TABLE>
INTERNATIONAL MARKETING DYNAMICS, INC. (A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Deficit
Accumulated
Additional During the
common stock Paid-In Development
Shares Amount Capital Stage
------ ------ ------- -----
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996 62,076 $ 62 $ 1,109,385 $ (1,107,043)
Common stock issued for cash 986,460 987 748,021 -
Common stock issued for video master 2,000,000 2,000 43,523 -
Common stock issued for services 380,000 380 189,620 -
Net loss - - - (535,995)
Note receivable from officer - - - -
---------- ------------- ------------ --------------
BALANCE, December 31, 1996 3,428,536 3,429 2,090,549 (1,643,038)
Common stock issued for cash 876,131 876 1,316,357 -
Shares issued to founder for initial contribution 10,000,000 10,000 (10,000) -
Warrants issued for services - - 13,262 -
Net loss - - - (895,842)
Note receivable from officer - - - -
---------- ------------- ------------ --------------
BALANCE, December 31, 1997 14,304,667 14,305 3,410,168 (2,538,880)
Common stock issued for cash (Unaudited) 368,762 368 634,786 -
Common stock issued for services (Unaudited) 6,750 7 8,493 -
Common stock issued for payment of liability (Unaudited) 38,994 39 84,946 -
Net loss (Unaudited) - - - (452,337)
Note receivable from officer - - - -
---------- ------------- ------------ --------------
BALANCE, September 30, 1998 (Unaudited) 14,719,173 $ 14,719 $ 4,138,393 $ (2,991,217)
========== ============= ============ =============
Note Receivable
from
Officer Total
----------- --------------
BALANCE, January 1, 1996 - $ 2,404
Common stock issued for cash - 749,008
Common stock issued for video master - 45,523
Common stock issued for services - 190,000
Net loss - (535,995)
Note receivable from officer (113,676) (113,676)
----------- --------------
BALANCE, December 31, 1996 (113,676) 337,264
Common stock issued for cash - 1,317,233
Shares issued to founder for initial contribution - -
Warrants issued for services - 13,262
Net loss - (895,842)
Note receivable from officer (127,728) (127,728)
----------- --------------
BALANCE, December 31, 1997 (241,404) 644,189
Common stock issued for cash (Unaudited) - 635,154
Common stock issued for services (Unaudited) - 8,500
Common stock issued for payment of liability (Unaudited) - 84,985
Net loss (Unaudited) - (452,337)
Note receivable from officer 7,173 7,173
----------- --------------
BALANCE, September 30, 1998 (Unaudited) $ (234,231) $ 927,664
=========== ============
<FN>
See accompanying notes.
</FN>
</TABLE>
F-16
<PAGE>
Part II. Information Not Required In Prospectus
INDEMNIFICATION OF OFFICERS AND DIRECTORS
ITEM 24. The Utah Revised Business Corporation Act ("URBCA") provides that a
corporation may indemnify any of its directors and officers against liability in
connection with a proceeding if (i) the director or officer acted in good faith;
(ii) the director or officer reasonably believed that his conduct was in, or not
opposed to, the corporation's best interest; and (iii) in connection with any
criminal proceeding, the director or officer had no reasonable cause to believe
his conduct was unlawful. However, the URBCA provides that no indemnification
may be made if the director or officer was (i) was adjudged liable to the
corporation or (ii)found liable on the basis that personal benefit was
improperly derived by him, whether or not the benefit involved an action taken
in the person's official capacity. No indemnification may be made in respect of
any proceeding in which the director or officer was found liable for negligent
misconduct on the performance of his duty to the corporation. In cases where the
director or officer is successful, on the merits or otherwise, in the defense of
any proceeding instigated because of his status as an officer or director of a
corporation, the URBCA mandates that the corporation indemnify the director or
officer against reasonable expenses (including attorney's fees) incurred by him
in the proceeding. Notwithstanding the foregoing, the URBCA provides that a
court of competent jurisdiction, upon application, may order that an officer or
director be indemnified for reasonable expenses actually incurred, if, in
consideration of all relevant circumstances, the court determines that (a) such
person is entitled to mandatory indemnification or (b) such individual is fairly
and reasonably entitled to indemnification, notwithstanding the fact that (i) he
was adjudged liable to the corporation or (ii) he was adjudged liable on the
basis that personal benefit was improperly received by him.
The Company's Articles of Incorporation provide that to the fullest extent
permitted by Utah law, no director shall be personally liable to the Company or
its shareholders for monetary damages for acts or omissions that occur in the
directors' capacity as directors, except for acts or omissions for (i) a breach
of the duty of loyalty to the Company or its shareholders; (ii) a bad faith
breach of a director's duty to the Company, intentional misconduct, or a knowing
violation of the law; or (iii) transactions from which a director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office. Under the URBCA this provision on the
Articles of Incorporation relieves the Company's directors from personal
liability to the Company or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability arising from a judgment or
other final adjudication establishing (i) any breach of the directors duty of
loyalty; (ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or (iii) transactions in which the
director received an improper benefit. In addition, subject to the same
provisions set forth above, the Company's Bylaws provide that persons employed
by or agents of the Company may be indemnified to the same extent as directors
of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore unenforceable.
II-1
<PAGE>
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
ITEM 25. Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered are estimated as follows,
assuming the Maximum Offering amount is sold:
Securities and Exchange Commission filing fee $ 6,000
Blue Sky filing fees 0
Accountant's fees and expenses 50,000
Legal fees and expenses 60,000
Printing 15,000
Marketing expenses 10,000
Postage 25,000
Transfer Agent's fees 5,000
Miscellaneous 15,000
--------
Total $186,000
========
The Registrant will bear all expenses shown above.
<TABLE>
RECENT SALES OF UNREGISTERED SECURITIES
<CAPTION>
ITEM 26. The following table sets forth all of the unregistered sales of
securities by the Company since the Company's inception in July 1995.
- ----------------------------------------------------------------------------------------------------
Date Purchaser Securities Purchased Consideration
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
03/06/96 Abram, Leon common stock $ 25,000.00
11/03/97 Afanador, Gina common stock $ 5,000.00
08/18/97 Al, Ang common stock $ 1,000.00
11/03/97 Ang, Domingo & Christine common stock $ 5,000.00
10/01/97 Ang, Norma & Richmond common stock $ 5,000.00
12/23/97 Arnott, Winfield common stock $ 2,000.00
10/07/96 Aronson, Joel common stock $ 3,000.00
11/09/98 Aronson, Joel common stock $ 5,000.00
12/07/98 Aronson, Joel common stock $ 6,000.00
05/11/98 Auslender, Leland common stock $ 30,000.00
06/23/98 Auslender, Leland common stock $ 25,000.00
08/06/98 Auslender, Leland common stock $ 45,000.00
09/17/98 Auslender, Leland common stock $ 50,000.00
01/04/99 Auslender, Leland common stock $ 20,000.00
01/12/99 Auslender, Leland common stock $ 20,000.00
09/25/97 Baber, Kimberly common stock $ 2,000.00
07/24/97 Bailey, Martin & Maureen common stock $ 3,000.00
II-2
<PAGE>
01/14/99 Baldessaro, Lisa common stock $ 20,003.75
01/14/99 Ball, Barbara common stock $ 5,200.00
11/03/97 Barretto, Delia & Victoria common stock $ 5,000.00
03/19/96 Barton, Kenneth common stock $ 15,000.00
05/09/96 Barton, Kenneth common stock $ 12,500.00
07/29/97 Basford, Charlie common stock $ 5,000.00
10/24/96 Bates, Richard common stock $ 3,000.00
11/17/98 Bates, Richard common stock $ 9,750.00
10/15/96 Beatty, Patricia common stock $ 950.00
07/18/97 Beatty, Tom common stock $ 2,200.00
12/28/98 Beauchamp, James Kevin common stock $ 6,500.00
02/01/98 Belnap, Conrad S. common stock $ 15,000.00
12/18/98 Bendetti, Jack common stock $ 3,250.00
01/04/99 Berezak, Michael common stock $ 6,500.00
05/21/96 Berman, Jack common stock $ 10,500.00
08/18/97 Bernabe, Allan common stock $ 1,000.00
06/04/97 Blakley, Della common stock $ 2,000.00
09/04/96 Blase, Larry common stock $ 5,000.00
12/18/98 Bobal, Michael common stock $ 3,250.00
02/01/99 Bobal, Michael common stock $ 3,250.00
01/06/98 Bobo Jr., Wilton C. common stock $ 400.00
02/03/99 Boito, James & Rose Mary common stock $ 3,250.00
08/29/96 Boyer, Wilbur common stock $ 7,500.00
07/24/97 Brandon, Stephen common stock $ 5,000.00
01/04/99 Brown, David common stock $ 13,000.00
11/25/98 Brown, Luke common stock $ 812.50
01/26/99 Burnette, Dennis common stock $ 3,250.00
01/28/99 Bush, Wynde common stock $ 6,500.00
12/08/98 C&C Farms common stock $ 6,500.00
07/10/97 Cabisudo, Rosario common stock $ 5,000.00
01/13/99 Calandra, Gregory common stock $150,000.00
01/14/99 Calandra, Gregory common stock $ 3,250.00
02/02/99 Calandra, Gregory common stock $180,000.00
01/22/97 Campos, Salvator common stock $ 1,000.00
08/22/96 Carlson, Rick common stock $ 7,500.00
II-3
<PAGE>
01/14/99 Carney, Andrew common stock $ 3,250.00
01/24/97 Case, Daryl common stock $ 12,000.00
08/18/97 Chan, Janet Ong common stock $ 1,000.00
02/05/98 Chandler, Scot common stock $ 5,000.00
07/12/96 Charron, Richard common stock $ 25,000.00
10/03/96 Charron, Richard common stock $ 10,000.00
03/03/97 Charron, Richard common stock $ 10,000.00
05/15/97 Charron, Richard common stock $ 10,000.00
10/28/97 Charron, Richard common stock $ 8,000.00
11/14/97 Charron, Richard common stock $ 10,000.00
05/08/98 Charron, Richard common stock $ 17,000.00
07/10/97 Chua, Gloria & Tseng common stock $ 5,000.00
08/18/97 Chua, Victorino common stock $ 10,000.00
11/15/96 Chyr, Wolodymyr common stock $ 5,000.00
08/18/97 Co, Elena common stock $125,000.00
08/18/97 Co, Rosario common stock $ 5,000.00
01/07/97 Colbert, Evaleta common stock $ 10,000.00
09/25/97 Colbert, Evaleta common stock $ 10,000.00
10/24/97 Colbert, Gary common stock $ 4,000.00
12/11/98 Cordova, Kelly A. common stock $ 3,250.00
12/08/97 Corey, Daniel common stock $ 3,000.00
11/12/98 Costa, Andrew common stock $ 5,000.00
01/04/99 Costa, George common stock $ 4,500.00
01/04/99 Costa, George common stock $ 2,000.00
11/17/98 Costa, Patrick common stock $ 32,500.00
11/17/98 Cotta, James common stock $ 3,250.00
11/19/96 Coulson, Dana Danford common stock $ 5,000.00
07/11/97 Cuoto, Aurora common stock $ 5,000.00
05/19/98 Curtis, Stephen common stock $ 3,250.00
12/01/97 De Fries, Damian common stock $ 1,000.00
02/01/99 De Leo, Blase & Leslie common stock $ 3,250.00
10/04/96 Defries, Daniel common stock $ 8,000.00
10/03/96 DeFries, D'Ann common stock $ 5,000.00
02/14/97 Denenberg, Todd common stock $ 10,000.00
11/25/98 Denenberg, Todd common stock $ 12,500.00
II-4
<PAGE>
08/04/98 Denesuk, Walt common stock $ 25,000.00
01/11/99 Denesuk, Walt common stock $ 25,000.00
12/07/98 Denesuk, Walt common stock $ 25,000.00
11/09/98 Denesuk, Walt common stock $ 25,000.00
11/21/97 Derner, Stacy common stock $ 500.00
06/20/96 Devken common stock $ 50,000.00
07/08/96 Devken common stock $ 20,000.00
10/15/96 Devken common stock $ 5,549.00
07/18/97 Devken common stock $ 23,645.00
05/20/98 Devken common stock $ 20,500.00
11/14/97 Dickens, Janis L. common stock $ 10,000.00
02/18/97 Dinnerstein, Jamie common stock $ 5,000.00
04/11/97 Dobson, Douglas common stock $ 3,550.00
04/11/97 Dobson, Nancy common stock $ 4,400.00
01/27/99 Domurad, William common stock $ 3,250.00
02/01/99 Doran, Roger common stock $ 3,250.00
09/23/98 Drew, Lois common stock $ 12,500.00
12/11/98 Drew, Lois common stock $ 12,500.00
02/09/99 Drew, Lois common stock $ 10,000.00
11/19/96 Drummond, Jack common stock $ 5,000.00
12/01/97 Durant, Roger common stock $ 500.00
02/27/97 Elias, Bassam common stock $ 3,000.00
05/06/97 Ellies, Donna common stock $ 10,000.00
03/24/98 Ellies, Donna common stock $ 2,000.00
12/01/97 Elliott, Joyce/Stewart N. common stock $ 500.00
12/23/97 Ezzell, Jack common stock $ 2,000.00
01/04/99 Ferrera, Augustine & Carol common stock $ 9,750.00
02/04/99 Ferrera, Augustine & Carol common stock $ 6,500.00
01/27/99 Ferrera, Michele common stock $ 9,750.00
12/08/98 Firchow, R. common stock $ 1,625.00
01/20/99 Firchow, R. common stock $ 1,625.00
05/20/98 Fit Net Int'l Corp. common stock $ 50,000.00
07/08/96 Five Star Financial common stock $ 25,000.00
10/15/96 Five Star Financial common stock $ 13,000.00
07/18/97 Five Star Financial common stock $ 35,865.00
II-5
<PAGE>
01/16/98 Five Star Financial common stock $ 82,050.00
05/20/98 Five Star Financial common stock $ 26,000.00
01/13/99 Five Star Financial common stock $ 19,500.00
07/10/97 Fleshman, Bradley common stock $ 5,000.00
10/01/97 Fonte,Samuel & Glorietta common stock $ 5,000.00
01/04/99 Frank, Bryant & Mary common stock $ 6,500.00
04/09/97 Friedman, Francine common stock $ 5,000.00
03/04/97 Friedman, Steve common stock $ 20,000.00
10/15/96 Fyfee, Stacey common stock $ 2,250.00
07/11/97 Galito, Jude common stock $ 5,000.00
07/11/97 Galito, Maria Teresa common stock $ 5,000.00
07/11/97 Galito, Omar common stock $ 5,000.00
07/11/97 Galito, Reynaldo common stock $ 5,000.00
11/22/96 Garloch, lawrence common stock $ 5,000.00
01/14/99 Gingrich, Gary G common stock $ 1,625.00
01/14/99 Gingrich, Warren common stock $ 1,625.00
09/24/97 Gonte, Gary common stock $ 20,000.00
05/13/96 Gonte, Henry common stock $ 25,000.00
12/18/96 Gonte, Henry common stock $ 10,500.00
01/17/97 Gonte, Henry common stock $ 30,000.00
05/02/97 Gonte, Henry common stock $ 5,000.00
12/18/96 Gonte, Sheldon common stock $ 7,500.00
02/10/97 Gonte, Sheldon common stock $ 10,000.00
09/24/97 Gonte, Sheldon common stock $ 20,000.00
02/15/96 Gonte, William common stock $ 25,000.00
02/28/96 Gonte, William common stock $ 8,000.00
03/01/96 Gonte, William common stock $ 9,500.00
03/04/96 Gonte, William common stock $ 8,566.00
03/25/96 Gonte, William common stock $ 20,000.00
04/18/96 Gonte, William common stock $ 7,854.37
04/23/96 Gonte, William common stock $ 4,171.53
05/15/96 Gonte, William common stock $ 25,000.00
10/04/96 Gonte, William common stock $ 25,000.00
12/18/96 Gonte, William common stock $ 4,500.00
02/14/97 Gonte, William common stock $ 5,000.00
II-6
<PAGE>
11/24/97 Gonte, William common stock $ 150.00
01/06/99 Gonte, William common stock $ 5,000.00
02/01/99 Gonte, William common stock $ 40,000.00
12/15/97 Gonzales, J. Tim common stock $ 1,500.00
05/19/98 Gonzales, Tim common stock $ 5,200.00
09/09/98 Goode, Thomas common stock $ 1,000.00
12/19/97 Gray Jr., William F. common stock $ 2,000.00
05/09/97 Green, Harold common stock $ 10,000.00
12/08/97 Greig, Margaret common stock $ 35,000.00
01/27/98 Greig, Margaret common stock $ 65,000.00
04/20/98 Greig, Margaret common stock $ 8,000.00
05/11/98 Greig, Margaret common stock $ 3,000.00
01/08/99 Griffin, John common stock $ 8,125.00
02/24/97 Grosinger, Emery common stock $ 6,000.00
09/03/96 Halverson, Theodore common stock $ 3,000.00
03/31/97 Hart, Rosie common stock $ 4,000.00
02/05/97 Haubenreich, Garrett common stock $ 25,000.00
11/12/98 Hester, Patricia common stock $ 2,500.00
07/09/96 Hidrogo, Eduardo common stock $ 6,000.00
07/10/97 Ho, Dennis & Georgiana common stock $ 6,000.00
11/06/98 Jacobs, Brent common stock $ 1,625.00
11/04/96 Jano, Maha common stock $ 5,000.00
02/11/97 Jano, Maha common stock $ 5,000.00
08/18/97 Jaucian, Jonathan common stock $ 1,000.00
06/11/97 Jensen, Scott common stock $ 10,000.00
05/30/97 Jimenez, Jose common stock $ 6,000.00
03/19/97 Jordan, Ronald common stock $ 10,000.00
06/30/97 Jordan, Ronald common stock $ 20,000.00
01/14/99 Kearns, J Casey & Mary T common stock $ 3,250.00
01/14/99 Kearns, John & Grace common stock $ 9,000.00
11/01/95 Kickliter, George common stock $ 30,000.00
01/19/96 Kickliter, George common stock $ 10,000.00
12/17/97 Kickliter, George common stock $ 66,000.00
04/29/98 Kickliter, George common stock $ 20,000.00
05/19/97 Knopick, David common stock $ 5,900.00
II-7
<PAGE>
10/02/98 Kohls, Dr. common stock $ 12,500.00
07/24/97 Korellis, John S. common stock $ 5,000.00
02/14/97 Kostecki, Janet common stock $ 10,000.00
05/05/97 Kostecki, Janet common stock $ 10,000.00
05/19/98 Lamb, Michael Sr. common stock $ 3,250.00
06/03/98 Lamb, Michael Sr. common stock $ 3,250.00
12/04/98 Lampel, David common stock $ 16,250.00
12/22/98 Lampel, David common stock $ 8,125.00
12/23/98 Lampel, Irwin common stock $ 3,250.00
12/10/98 Lampel, Irwin common stock $ 13,000.00
02/27/97 Lange, Mark common stock $ 11,000.00
03/19/97 Lange, Mark common stock $ 15,000.00
01/14/99 Laskey, William T. & Terry common stock $ 3,250.00
10/17/96 Layman, Brenda common stock $ 20,000.00
11/16/98 Lee, Brian common stock $ 3,250.00
11/16/98 Lee, Jennie common stock $ 3,250.00
01/04/99 Lee, Ronald common stock $ 32,500.00
11/13/96 Lee, Young-Soo common stock $ 5,000.00
08/21/96 Levin, Nancy common stock $ 5,000.00
10/23/96 Levin, Nancy common stock $ 4,000.00
12/23/97 Lewis, Henry common stock $ 2,000.00
01/04/99 Linden, Irwin common stock $ 15,000.00
01/19/99 Lupinetti, Anthony J. common stock $ 13,000.00
06/11/97 Maisano, Paul common stock $ 5,000.00
01/05/99 Marcolin, Maurizio common stock $ 32,500.00
08/12/97 Mattice, Darrin common stock $ 4,500.00
08/26/96 McCabe, Margaret common stock $ 3,000.00
12/07/98 McClellan, Kelly common stock $ 3,250.00
08/23/96 Menicou, Panayiotis common stock $ 3,000.00
01/27/99 Miller, Alvin L. common stock $ 3,250.00
12/23/97 Miller, Brian S. common stock $ 5,000.00
01/22/97 Monson, Mitchell common stock $ 2,000.00
02/10/97 Monson, Mitchell common stock $ 2,000.00
07/25/97 Monson, Mitchell common stock $ 4,000.00
10/07/98 Moore, Wayne common stock $ 5,005.00
II-8
<PAGE>
06/16/97 Morimoto, Rick common stock $ 5,000.00
07/08/96 Morra, Linda common stock $ 4,700.00
01/06/98 Morrel, William R. common stock $ 2,000.00
01/14/99 Moyer, David common stock $ 3,250.00
01/14/99 Myers, Warrem common stock $ 3,250.00
09/10/96 Nash, Buford common stock $ 3,000.00
10/08/98 Nash, Buford common stock $ 9,750.00
11/18/98 Nash, Buford common stock $ 43,875.00
09/03/98 Nash, Dennis common stock $ 1,950.00
12/10/98 Nash, Dennis common stock $ 6,500.00
12/15/98 Nash, Dennis common stock $ 13,000.00
08/27/96 Nash, Tim common stock $ 10,500.00
09/10/96 Nash, Tim common stock $ 10,000.00
08/10/98 Nash, Tim common stock $ 32,500.00
08/10/98 Nash, Tim common stock $ 6,500.00
10/27/98 Nash, Tim common stock $ 13,000.00
12/10/98 Nash, Tim common stock $ 6,500.00
01/04/99 Nash, Tim common stock $ 4,875.00
08/10/98 Nash, Tim common stock $ 1,625.00
09/03/98 Nash, Tim and Dennis common stock $ 32,500.00
10/08/98 Nash, Tim and Dennis common stock $ 32,500.00
11/18/98 Nash, Tim and Dennis common stock $ 26,000.00
05/23/97 Neubauer, Daniel common stock $ 23,000.00
05/02/97 Neubauer, David common stock $ 10,000.00
01/05/99 Newsome, Eric common stock $ 10,000.00
07/24/97 Nolta, Lisa common stock $ 1,000.00
01/04/99 Nora, John common stock $ 8,125.00
07/24/97 Ochipinti, Bob common stock $ 2,000.00
01/12/99 Olah, Susan common stock $ 3,250.00
12/11/98 O'Neil, Kevin common stock $ 3,250.00
01/04/99 Oszust, Dennis common stock $ 8,125.00
01/14/99 Pacifico, Anthony common stock $ 10,000.00
06/11/97 Palen, Barbara & Randolph common stock $ 5,000.00
02/18/97 Parker, Jeffrey common stock $ 4,000.00
05/27/97 Parker, Jeffrey common stock $ 36,000.00
II-9
<PAGE>
01/05/99 Peltier, Mark common stock $ 32,500.00
08/18/97 Penaflor, John common stock $ 1,000.00
01/22/97 Perez, Paul common stock $ 1,650.00
03/19/97 Peterson, Mark common stock $ 25,000.00
07/03/96 Pickens, Patricia common stock $ 15,000.00
09/25/97 Poblete, Jose common stock $ 5,000.00
04/22/97 Poynera, Cort common stock $ 1,000.00
07/18/97 Poynera, Cort common stock $ 8,700.00
05/20/98 Poynera, Cort common stock $ 2,000.00
07/13/98 Provisor, Marc R. common stock $ 7,500.00
01/22/99 Puckette, William T. common stock $ 6,500.00
01/04/99 Puscas, James common stock $ 6,500.00
12/08/98 Reed, Jo Ann common stock $ 1,625.00
01/20/99 Reed, Jo Ann common stock $ 1,625.00
03/19/97 Rochlin, Morris common stock $ 20,000.00
10/05/96 Rohner, Gerry common stock $ 8,000.00
02/05/98 Rumney, Jeff common stock $ 3,500.00
05/06/97 Rymal, Christopher common stock $ 10,000.00
06/11/97 Rymal, Christopher common stock $ 5,000.00
02/04/99 Sbragia, Eugene common stock $ 16,250.00
01/08/99 Schocchi, Melinda common stock $ 3,250.00
10/16/96 Scholz, Kevin common stock $ 3,000.00
01/22/97 Scholz, Kevin common stock $ 1,600.00
12/17/98 Sciaulino, Mary common stock $ 3,250.00
03/27/96 Shafran, Igor common stock $ 20,000.00
03/25/96 Shapiro, Jonathan common stock $ 15,000.00
05/03/96 Shapiro, Jonathan common stock $ 12,067.50
05/15/96 Shapiro, Jonathan common stock $ 23,000.00
09/05/96 Shapiro, Jonathan common stock $ 10,000.00
09/16/96 Shapiro, Jonathan common stock $ 10,000.00
07/29/97 Shumate, Norman common stock $ 5,000.00
11/03/97 Shumate, Norman common stock $ 5,000.00
06/05/98 Shumate, Norman common stock $ 5,000.00
07/15/96 Slawson, Eric common stock $ 5,000.00
01/22/99 Sowieja, Gary D. & Joan E. common stock $ 5,000.00
II-10
<PAGE>
05/10/96 Sowieja, Steve common stock $ 25,000.00
05/28/96 Sowieja, Steve common stock $ 40,000.00
07/29/96 Sowieja, Steve common stock $ 75,000.00
10/01/96 Sowieja, Steve common stock $ 50,000.00
11/15/96 Sowieja, Steve common stock $ 60,000.00
02/05/97 Sowieja, Steve common stock $ 49,999.50
06/26/97 Sowieja, Steve common stock $ 60,000.00
10/31/97 Sowieja, Steve common stock $ 44,000.00
09/29/98 Sowieja, Steve common stock $337,500.00
01/25/99 Sowieja, Steve common stock $136,500.75
12/01/97 Storm, Tiffany common stock $ 4,000.00
06/29/98 Storm, Tyler B. common stock $ 650.00
09/18/97 Su, Jim C. common stock $ 5,000.00
08/20/96 Sutton, James common stock $ 37,500.00
12/23/98 Suverkrubee, Michael common stock $ 6,500.00
08/25/97 Sy, Maxima L. common stock $ 10,000.00
10/31/96 Thomas, Terri common stock $ 8,000.00
03/11/97 Thor, Carolyn & Rolph, R. common stock $ 21,000.00
12/03/96 Trautvetter, George common stock $ 2,600.00
11/13/97 Tsai, Henry L. common stock $ 34,985.00
11/06/98 Tsamisis, Chris common stock $ 1,625.00
10/24/97 Tugmon, Bernice F common stock $ 2,000.00
08/23/96 Valentine, Andrea common stock $ 5,000.00
12/08/98 Van Dyke, Steven common stock $ 1,000.00
06/11/97 Wade, Barbara & Elizabeth common stock $ 20,000.00
07/15/96 Ward, James common stock $ 1,050.00
12/23/97 Washington, Darwin common stock $ 500.00
01/04/99 Watt, David common stock $ 6,500.00
01/08/99 Watt, David common stock $ 8,125.00
12/21/98 Weakland, F.C. common stock $ 4,875.00
12/21/98 Weakland, Joseph T. common stock $ 3,250.00
04/29/97 Wedgle, Craig common stock $ 20,000.00
10/09/98 Weiler, Richard common stock $ 12,025.00
04/11/97 Weinberg, Constance common stock $ 5,000.00
02/18/97 Weinberg, Maxine, Herbert common stock $ 10,000.00
II-11
<PAGE>
12/21/98 Weinstein, Kenneth B. common stock $ 16,900.00
06/11/97 Weisberg, Robert common stock $ 10,000.00
06/20/96 Wheeler, Larry common stock $125,000.00
09/25/97 Wheeler, Lee & Karen common stock $ 6,000.00
01/14/99 Wiggins, Spencer common stock $ 3,250.00
02/05/96 Williams, Gerald common stock $ 15,000.00
09/03/96 Williams, Gerald common stock $ 15,000.00
02/10/97 Williams, Gerald common stock $ 45,000.00
12/17/97 Williams, Gerald common stock $ 20,000.00
12/23/97 Williams, James K. common stock $ 2,000.00
12/01/97 Williams, Marc V. common stock $100,000.00
12/05/97 Williams, Marc V. common stock $142,000.00
12/19/97 Williams, Marc V. common stock $ 58,000.00
12/01/97 Williams, Ric common stock $ 15,000.00
04/14/98 Williams, Ric common stock $ 8,956.26
01/04/99 Williams, Robert common stock $ 9,750.00
01/20/99 Wilson, Cynthia common stock $ 3,250.00
01/05/99 Wysong, Ronald Jr. common stock $ 3,250.00
05/11/98 Yukawa, Patricia common stock $ 700.00
01/13/99 Zack, Cynthia common stock $ 3,250.00
08/21/96 Zanetti, Charles common stock $ 5,000.00
06/29/98 Zimmerman, Leroy common stock $ 500.00
</TABLE>
These shares were issued to investors in connection with private placements.
The Company believes that the issuances of securities pursuant to the foregoing
transactions were exempt from registration under the Securities Act of 1933, as
amended, by virtue of Rule 506 of Regulation D, and Section 4(2) thereof as
transactions not involving public Offerings. All securities referenced in the
preceding table were sold for cash. No underwriters were engaged in connection
with the foregoing issuances of securities, and no underwriting commissions or
discounts were paid.
II-12
<PAGE>
EXHIBITS
ITEM 27. DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation, July 14, 1983
3.2 Amendment to Articles of Incorporation filed October 29, 1984
3.2.1 Amendment to Articles of Incorporation filed May 9, 1988
3.2.2 Amendment to Articles of Incorporation filed July 18, 1995
3.3 By-laws
3.4.1 Certification of Articles of Amendment Enacting Name Change-Utah
3.4.2 Name Change-Certificate of Qualification-California
4.1 Share Specimen
5.1 Opinion of Evers & Hendrickson, LLP with respect to the legality
of the shares being registered
10.1 Management Services Agreement with Spunky Productions, LLC
10.2 Lease of registrant's facilities
16.1* Letter Regarding Change in Accountants
23.1 Consent of Marc Lumer & Company
23.2 Consent of Evers & Hendrickson, LLP (included in Exhibit 5.1)
99.1* Escrow Agreement
- -------------
*To be filed by Amendment
II-13
<PAGE>
UNDERTAKINGS
a) The Registrant hereby undertakes that it will:
1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the Offering of the securities at that time to
be the bona fide Offering.
3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
e) Insofar as indemnification for liabilities arising under the securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Signatures
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California, on March 11,
1999.
Two Dog Net, Inc.
By /s/ Sholeh Hasmedani
---------------------
Sholeh Hamedani, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Sholeh Hamedani President, March 11, 1999
- ---------------------
Sholeh Hamedani Director
/s/ Nassar Hamedani Chief Executive Officer, March 11, 1999
- ---------------------
Nassar Hamedani Director
/s/ Jamshid Ghosseiri Director March 11, 1999
- ---------------------
Jamshid Ghosseiri
/s/ Roger Campos Director March 11, 1999
- ---------------------
Roger Campos
II-14
<PAGE>
POWER OF ATTORNEY
I, Nassar Hamedani, whose signature appears below, constitute and appoint
Sholeh Hamedani, my true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution in her, for him and in his name, place and
stead, and in any and all capacities, to sign the Registration Statement on Form
SB-2, and any required amendments or supplements thereto, (and any other
registration statement for the same Offering that is to be effective upon filing
pursuant to Rule 415 under the Securities Act of 1933, as amended) and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in or about the premises, for to all
intents and purposes as she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or her substitute or
substitutes lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be
executed as of this 11th day of March, 1999.
/S/ Nassar Hamedani
-------------------
POWER OF ATTORNEY
I, Jamshid Ghosseiri, whose signature appears below, constitute and appoint
Sholeh Hamedani, my true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution in her, for him and in his name, place and
stead, and in any and all capacities, to sign the Registration Statement on Form
SB-2, and any required amendments or supplements thereto, (and any other
registration statement for the same Offering that is to be effective upon filing
pursuant to Rule 415 under the Securities Act of 1933, as amended) and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in or about the premises, for to all
intents and purposes as she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or her substitute or
substitutes lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be
executed as of this 11th day of March, 1999.
/S/ Jamshid Ghosseiri
---------------------
II-15
<PAGE>
POWER OF ATTORNEY
I, Roger Campos, whose signature appears below, constitute and appoint
Sholeh Hamedani, my true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution in her, for him and in his name, place and
stead, and in any and all capacities, to sign the Registration Statement on Form
SB-2, and any required amendments or supplements thereto, (and any other
registration statement for the same Offering that is to be effective upon filing
pursuant to Rule 415 under the Securities Act of 1933, as amended) and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in or about the premises, for to all
intents and purposes as she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or her substitute or
substitutes lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be
executed as of this 11th day of March, 1999.
/S/ Roger Campos
---------------------
II-16
<PAGE>
================================================================================
No dealer, salesperson or other
individual has been authorized to give
any information or to make any
representations not contained in this 2,000,000 Shares
Prospectus in connection with the common stock
Offering covered by this Prospectus. If
given or made, such information or
representation must not be relied upon [OMMIT GRAPHIC]
as having been authorized by the
Company. This Prospectus does not
constitute an offer to sell, or a
solicitation of an offer to buy, the TWO DOG NET, INC.
common stock in any jurisdiction where,
or to any person to whom, it is unlawful
to make such offer or solicitation.
Neither delivery of this Prospectus nor
any sale made hereunder shall, under any
circumstances, create an implication
that there has not been any change in
the facts set forth in this Prospectus
or in the affairs of the Company since
the date hereof.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 3
SUMMARY FINANCIAL DATA 6
RISK FACTORS 7
USE OF PROCEEDS 18
CAPITALIZATION 18
DILUTION 19 --------------------
BUSINESS 20
MANAGEMENT'S DISCUSSION AND ANALYSIS 37 PROSPECTUS
MANAGEMENT 45
EXECUTIVE COMPENSATION 47 --------------------
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 48
CERTAIN RELATIONSHIPS AND RELATED __________________,1999
TRANSACTIONS 49
DESCRIPTION OF SECURITIES 49
SHARES ELIGIBLE FOR FUTURE SALE 50
PLAN OF DISTRIBUTION 51
DESCRIPTION OF PROPERTY 52
INTEREST OF NAMED EXPERTS AND COUNSEL 52
LEGAL MATTERS 52
EXPERTS 52
ADDITIONAL INFORMATION 52
CONSOLIDATED FINANCIAL STATEMENTS F-1
SHARE PURCHASE AGREEMENT APPENDIX A
================================================================================
FILED in the office of the Lieutenant Governor 104709
of the State of Utah on the 14th RECEIVED
day of July AD 1983 1983 JUL 14 PM 4:57
DAVID S MONSON LT. GOV/SEC. OF STATE
Lieutenant Governor
Filing Clerk BS Fees 50.00
ARTICLES OF INCORPORATION
OF
VI-COM, INC.
We, the undersigned natural persons acting as incorporators of the
corporation under the Utah Business Corporations Act adopt the following
Articles of Incorporation for such corporation.
ARTICLE I
Name. The name of the corporation (hereinafter called "Corporation") is
VI-COM, INC.
ARTICLE II
Period of Duration. The period of duration of the Corporation is
perpetual.
ARTICLE III
Purposes and Powers. The purpose for which this Corporation is
organized is to engage in the business of investments in all forms of real and
personal property through direct investment, joint venturing, and acquisition
and to engage in any and all other lawful business.
ARTICLE IV
Capitalization. The Corporation shall have the authority to issue
50,000,000 shares of stock having a par value of one mil ($.001). All stock of
the Corporation shall be of the same class and shall have the same rights and
preferences. Fully paid stock of this Corporation shall not be liable for
further call or assessment. The authorized trading shares shall be issued at the
discretion of the Directors.
<PAGE>
ARTICLE V
Commencement of Business. The Corporation shall not commence business
until at least One Thousand Dollars ($1,000) has been received by the
Corporation as consideration for the issuance of its shares.
ARTICLE VI
Initial Registered Office and Initial Registered Agent.
The address of the initial registered office of the Corporation is 5795 South
4015 West, Kearns, Utah 84118, Utah and the initial registered agent of the
Corporation at such address is V. Don Snow.
ARTICLE VII
Directors. The Corporation shall be governed by a Board of Directors consisting
of no less than three (3) and no more than nine (9) directors. Directors need
not be stockholders in the Corporation but shall be elected by the stockholders
of the Corporation. The number of Directors constituting the initial Board of
directors is three (3) and the name and post office address of the persons who
shall serve as Directors until their successors are elected and qualified are:
Mark H. Roberts
8706 Acorn Lane
Sandy, Utah 84092
Ralph E. Barker
401 East 7670 So.
Midvale, Utah 84047
V. Don Snow
5795 S. 4015 W.
Kearns, Utah 84118
<PAGE>
ARTICLE VIII
Incorporators. The name and post office address of eac incorporator is:
Mark H. Roberts
8706 Acorn Lane
Sandy, Utah 84092
Ralph E. Barker
401 East 7670 So.
Midvale, Utah 84047
V. Don Snow
5795 S. 4015 W.
Kearns, Utah 84118
ARTICLE IX
Preemptive Rights. There shall be no preemptive right to acquire
unissued and/or treasury shares of the stock of the Corporation.
ARTICLE X
Voting of Shares. Each outstanding share of common stock of the Corporation
shall be entitled to one vote on each matter submitted to a vote at the meeting
of the stockholders. Each stockholder shall be entitled to vote his or its
shares in person or by proxy, executed in writing by such stockholder, or by his
duly authorized attorney-in-fact. At each election of Directors, every
stockholder entitled to vote in such election shall have the right to vote in
person or by proxy the number of shares owned by him or it for as many persons
as there are directors to be elected and for whose election he or it has the
riqht to vote, but the shareholder shall have no right to accumulate his or its
votes with reqard to such election.
/s/ Mark H. Roberts
- ------------------------------
<PAGE>
/s/ Ralph E. Barker
- ------------------------------
/s/ V. Don Snow
- ------------------------------
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On the 13th day of July 1983, personally appeared before me Mark H. Roberts,
Ralph E. Barker, and V. Don Snow and duly acknowledged to me that they are the
persons who signed the foregoing instrument as incorporators and that they have
read the foregoing instrument and know the contents thereof and that the same is
true of their own knowledge except as to those matters upon which they operate
on information and belief and as to those matters believe them to be true.
/s/ Kathryan Court
- -------------------------
NOTARY PUBLIC
Residing in Salt Lake City, UT.
My Commission Expires
9/84
- -------------------------
APPROVED by the Division of Corporations 104709
and Commercial Code of the Utah State RECEIVED
Department of Business Regulation 1984 OCT 29 PM 3:38
on the 29th day of OCT A.D. 1984 LT. GOV/SEC. OF STATE
Corporate Documents Examiner MC
Fees paid $25.00
104709
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
VI-COM, INC.
Pursuant to the provisions of the Utah Business Corporations Act, the
undersigned corporation adopts the following Article of Amendment to its
Articles of Incorporation:
I
The name of the corporation is VI-COM, INC.
II
1. Article I of the Articles of Incorporation as now filed is stricken
in its entirety, and the following Article I is substituted therefor as if it
had been a part of the original Articles of Incorporation:
ARTICLE I
The name of the corporation shall be QUICK STOP PHOTO INTERNATIONAL,
INC.
III
The number of shares of the corporation outstanding at the time of the
adoption of the amendment aforesaid was 1,300,000 shares. The number of shares
entitled to vote thereon was 1,300,000.
IV
The designation and number of outstanding shares of each class entitled
to vote thereon as a class were as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common 1,300,000
V
<PAGE>
The number of shares voted for such amendment was 837,604; the number
of shares voted against such amendment was 3,000.
VI
The number of shares of each class entitled to vote thereon as a class
voted for and against such amendment was:
NUMBER OF NUMBER OF
CLASS SHARES FOR SHARES AGAINST
----- ---------- --------------
Common 837,604 3,000
Dated this 10th day of August, 1984
VI-COM, INC.
By: /s/ Mark H. Roberts
----------------------------------
President
By: /s/ V. Don Snow
----------------------------------
Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the 25th day of September 1984, personally appeared before me Mark
H. Roberts and V. Don Snow, who, being first duly sworn, declared that they are
the duly elected and constituted President and Secretary, respectively, of
Vi-Com, Inc., a Utah corporation; that they signed the foregoing document as
President and Secretary, respectively, of the corporation; and that the
statements therein contained are true.
/s/ Kellie Humes
-------------------------
NOTARY PUBLIC
Residing at Salt Lake County
My Commission Expires:
7-26-87
- ----------------------------
<PAGE>
RECEIVED
1984 OCT 29 PM 3:38
LT. GOV/SEC. OF STATE
October 29, 1984
TO WHOM IT MAY CONCERN:
Quick Stop Photo, Inc., grants its permission to VI-COM, Inc., to use
the name "Quick Stop Photo International, Inc." for business purposes.
Any further inquiries regarding this matter may be directed to the
undersigned.
QUICK STOP PHOTO, INC.
/s/ Jerry A. Mossbarger
--------------------------------
Jerry A. Mossbarger, President
APPROVED by the Division of Corporations RECEIVED
and Commercial Code of the Utah State 1988 MAY-9 PM 3:33
Department of Business Regulation LT. GOV./SEC. OF STATE
on the 9th day of May A.D. 1988
Corporate Documents Examiner MC
Fees Paid $35.00
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION OF
QUICK STOP PHOTO INTERNATIONAL, INC.
Pursuant to the provisions of Section 16-10-57 of the Utah Business
Corporation Act, the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the Corporation is Quick Stop Photo International,
Inc.
SECOND: The following amendment to the articles of incorporation was
duly adopted by unanimous consent of the shareholders of the Corporation on
April 4, 1987, in accordance with Section 16-10-138 of the Utah Business
Corporation Act:
Article I of the articles of incorporation pertaining to the name of
Quick Stop Photo International, Inc. is hereby amended by striking the existing
Article I and inserting in lieu thereof a new Article I, set forth in its
entirety as follows:
ARTICLE I
The name of the Corporation is Asian-American International, Inc.
THIRD: The designation and number of outstanding shares of each class
entitled to vote thereon as a class are as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common 17,624,459
FOURTH; The number of shares voted for the amendment to Article I was
11,775,301 with 2,000 opposing and 0 abstaining.
Article III of the articles of incorporation pertaining to the purpose
of the Corporation is hereby amended by striking the existing Article III and
inserting in lieu thereof a new Article III, set forth in its entirety as
follows:
ARTICLE III
The purpose of the Corporation is as follows:
(i) engineering, research, development, manufacturing and marketing of
automotive and other products in both domestic and foreign commerce.
<PAGE>
(ii) to consult, sell, manage, invest, and engage in any other lawful
business as from time to time determined by the Board of Directors and
as allowed by the Utah Business Corporation Act as presently enacted
and hereafter amended.
(iii) to acquire by purchase, exchange, gift, bequest, subscription or
otherwise, and to hold, own, mortgage, pledge, hypothecate, sell,
assign, transfer, exchange, or otherwise dispose of or deal in or with
its own corporate securities or stock or other securities, including
without limitations, any shares of stock, bonds, debentures, or other
instruments representing rights or interests therein or any property or
assets created or issued by any person, firm, association, or
corporation, or any government or subdivisions, agencies or
instrumentalities thereof; to make payment thereof in any lawful manner
or to issue in exchange therefor its own securities or to use its
unrestricted and unreserved earned surplus for the purchase of its own
shares, and to exercise as owner or holder of any securities, any and
all rights, powers, and privileges in respect thereof.
(iv) to do each and everything necessary, suitable or proper for the
accomplishment of any of the purposes or the attainment of any one or
more of the subjects herein enumerated, or which may at any time appear
conducive to or expedient for protection or benefits of this
corporation, and to do said acts as fully and to the same extent as a
natural person might, or could do, in any part of the world as
principals, agents, partners, trustees or otherwise, either alone or in
conjunction with any other person, association or corporation.
(v) the foregoing clauses shall be construed both as purposes and
powers and shall not be held to limit or restrict in any manner the
general powers of the corporation, and the enjoyment and exercise
thereof, as conferred by the laws of the State of Utah; and it is the
intention that the purposes and powers specified in this articles shall
be regarded as independent purposes and powers.
FIFTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class are as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common 17,624,459
SIXTH: The number of shares voted for the amendment to Article III was
11,777,301 with 0 opposing and 0 abstaining.
<PAGE>
IN WITNESS WHEREOF, the foregoing Articles of Amendment to the
Articles of Incorporation of Quick Stop Photo International, Inc. have been
executed this 29th day of February, 1988.
ATTEST: Quick Stop Photo International, Inc.
/s/ Gloria C. Taylor /s/ Lawrence C. Taylor
- --------------------------- ------------------------------
Gloria C. Taylor Lawrence C. Taylor
Secretary President
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On February 29th, 1988, before me, the undersigned, a notary public in and for
the county and state, personally appeared Lawrence C. Taylor and Gloria C.
Taylor, who, being by me duly sworn, did state, each for himself, that he,
Lawrence C. Taylor, is the president, and that she, Gloria C. Taylor, is the
secretary, of Quick Stop Photo International, Inc., a Utah corporation, and that
the foregoing Articles of Amendment to the Articles of Incorporation of Quick
Stop Photo International, Inc. were signed on behalf of such corporation by
authority of a resolution of its board of directors and that the statements
contained therein are true.
WITNESS my hand and official seal.
Notary Public
/s/ Linda Egelund
- -----------------------------
Residing in
Salt Lake County
- -----------------------------
My Commission Expires:
8-11-90
- -----------------------------
<PAGE>
STATE OF UTAH
BUSINESS [SEAL] REGULATION
The Department of Business Regulation, Division of Corporations and
Commercial Code, certifies that the attached is a full, true and correct copy of
the Articles of Incorporation of
QUICK STOP PHOTO INTERNATIONAL, INC., a Utah corporation filed
- --------------------------------------------------------------------------------
with this office on July 14, 1983. Also attached are all subsequent amendments
thereto.
File #104709
AS APPEARS OF RECORD IN THE DIVISION OFFICE
Dated this 11th day of
----------------------
February A.D. 19 87
------------------------ --------
[SEAL] /s/
---------------------------------------
Director, Division of Corporations and
Commercial Code
C0104709
RECEIVED
JUL 18 1995
Utah Div. of Corp.
& Comm. Code
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
ASIAN-AMERICAN INTERNATIONAL, INC.
Pursuant to the provisions of Section 16-l0a-1006 of the Utah Revised
Business Corporation Act, ASIAN-AMERICAN INTERNATIONAL, INC., a Utah
corporation, hereinafter referred to as the "Corporation," hereby adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the Corporation is ASIAN-AMERICAN INTERNATIONAL, INC.
SECOND: Article I shall read as follows:
Article I
The name of the corporation is INTERNATIONAL MARKETING DYNAMICS, INC.
THIRD: By executing these Articles of Amendment to the Articles of
Incorporation, the president and secretary of the Corporation do hereby certify
that on July 18, 1995, the foregoing amendment to the Articles of Incorporation
of ASIAN-AMERICAN INTERNATIONAL, INC., was authorized and approved pursuant to
section 16-10a-1003 of the Utah Revised Business Corporation Act by the consent
of the majority of the Corporation's shareholders. The number of issued and
outstanding shares entitled to vote on the foregoing amendment to the Articles
of Incorporation was 2,461,308 of which 2,001,793 shares voted for and -0-
shares voted against the foregoing amendment to the Articles of Incorporation.
No other class of shares was entitled to vote thereon as a class.
DATED this 18th day of July, 1995.
/s/ Bartley F. Taylor
-------------------------------
Bartley F. Taylor, President
/s/ Cordell B. Taylor
-------------------------------
Cordell B. Taylor, Secretary
STATE OF UTAH )
:
COUNTY OF SALT LAKE )
On this 18th day of July, 1995, personally appeared before me, the
undersigned, a notary public, Bartley F. Taylor and Cordell B. Taylor, who being
by me first duly sworn, declare that they are the president and secretary, of
the above-named corporation, that they signed the foregoing Articles of
Amendment to the Articles of Incorporation, and that the statements contained
therein are true.
WITNESS MY HAND AND OFFICIAL SEAL.
/s/ JAIMI A. MOORE
---------------------------
Notary Public
- -----------------------------------
Notary Public
JAIMI A. MOORE
350 South 400 East Ste. G-6
[SEAL] Salt Lake City, Utah 84111
My Commission Expires
August 10, 1998
State of Utah
- -----------------------------------
<PAGE>
[SEAL] State of Utah 104709
DEPARTMENT OF COMMERCE --------------------
Division of Corporations & Commercial Code Division File Number
RECEIVED
JUN 26, 1995
Utah Div. of Corp.
& Comm. Code
State of Utah
Department of Commerce
Division of Corporations and Commercial Code
Must be typewritten
Hereby certify that the foregoing has been filed
and approved on the 26th day of June 1995
by the office of this Division and hereby issue
this Certification thereof.
Examiner (Initials) Date 6/26/95
---------- -------
[SEAL] /s/ Korla T. Woods
------------------
KORLA T. WOODS
Division Director
Application for
Reinstatement of:
Check Appropriate Box Fee
[X] Profit Corporation* $60.00
[ ] Non-profit Corporation $30.00
[ ] Limited Partnership $50.00
[ ] Limited Liability Company $50.00
ASIAN-AMERICAN INTERNATIONAL, INC.
----------------------------------
Business Entity Name
I, Cordell B. Taylor hereby declare and affirm that:
I am an Officer of ASIAN-AMERICAN INTERNATIONAL, INC.
---------------------------------- ----------------------------------
Officer, General Partner or Member Business Name
which was involuntarily dissolved or canceled on the 1st day of October, 1993,
under provisions of Utah law.
I hereby remedy all prior defaults and file herewith a current annual report
together with the required annual report and statutory reinstatement fee.
I hereby make application for reinstatement and request the Division of
Corporations and Commercial Code of the State of Utah to issue a Certificate of
Reinstatement and, under penalties of perjury, I declare that the foregoing
statement is, to the best of my knowledge and belief, true and correct.
*If the above mentioned corporation name is not available for use at the time of
reinstatement, the following corporation name shall be used:
----------------------------------
New Corporation Name
By: /s/ Cordell B. Taylor Title: Secretary
------------------------------- --------------------------
Phone Number: (801) 539-1340
--------------
Submit the following items with this application:
----
-------------------------------
o An Annual Report showing the new registered State of Utah
agent's signature Division of Corporations
o A tax letter of Good Standing from the Utah and Commercial Code
Tax Commission (if applicable) 160 East 300 South/Box 45801
o Your filing fee payable to the State of Utah. Salt Lake City, Utah 84145-0801
(801) 530-4849
-------------------------------
<PAGE>
RECEIVED
Jun 26 1995
Utah Div. of Corp.
& Comm. Code
- --------------------------------------------------------------------------------
[SEAL] Utah State Tax Commission TC-784
Letter of Good Standing Rev. 2/94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporation Representative's Name and Address Issue Date
May 22, 1995
-------------------
ELLIOTT N TAYLOR Account Number
ASIAN AMERICAN INTERNATIONAL INC 87-O417235
350 SO 400 E SUITE G-6 -------------------
SALT LAKE CITY UTAH 84111 Tax Type
CORPORATION
-------------------
Utah Charter Number
104709
- --------------------------------------------------------------------------------
The Utah State Tax Commission Certifies that:
ASIAN AMERICAN INTERNATIONAL INC
has filed all income or franchise tax returns required and paid all taxes
thereon to be due. The status of the account is current as of the date of this
letter.
The account is subject to audit, and if a liability exists, it may be assessed
at any time. The issuance of this letter does not fix, abate, modify, or cancel
any liability for payment of money due or an obligation to the State of Utah.
This letter does not fulfill the requirements for dissolving or withdrawing a
corporation from the State of Utah. Please contact the Department of Commerce,
Division of Corporations for information regarding corporate dissolution or
withdrawal.
/s/ Carey Harrison
- ------------------------------------------------
Carey Harrison Tax Payer Resolution Agent
Correspondence Section
Customer Service Division
Inquiries regarding this letter should be directed to: Correspondence Section,
Utah State Tax Commission 210 North 1950 West, Salt Lake City, UT, 84134 or call
(801) 297-7573.
<PAGE>
APPROVED by the Division of Corporations Aug 12 AM 7:50
and the Commercial Code of the Utah State
Department of Business Regulation
on the 12th day of Aug A.D. 1988
Corporate Documents Examiner
Fees Paid 35.00
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION
OF ASIAN-AMERICAN INTERNATIONAL, INC.
Pursuant to section 16-10-57 of the Utah Business Corporation Act,
Asian-American International, Inc., a Utah corporation, hereinafter referred to
as the "Corporation," hereby adopts the following Articles of Amendment to its
Articles of Incorporation.
FIRST: The amendments to the Articles of Incorporation were duly
adopted by a vote of the majority of the shareholders of the Corporation on July
11, 1988, in accordance with Section 16-10-138 of the Utah Business Corporation
Act:
SECOND: Article IV of the Articles of Incorporation pertaining to the
authorized capitalization of the Corporation is hereby amended by striking the
existing Article IV and inserting in lieu thereof a new Article IV, set forth in
its entirety as follows:
ARTICLE IV
Capitalization. The corporation shall have the authority to issue
200,000,000 shares of common stock having a par value of one mil ($0.00l). All
stock of the Corporation shall be of the same class and shall have the same
rights and preferences. Fully paid stock of this Corporation shall not be liable
for further call or assessment. The authorized trading shares shall be issued at
the discretion of the Directors.
THIRD: The designation and number of outstanding shares of each class
entitled to vote thereon as a class are as follows:
CLASS Number of Shares
----- ----------------
Common 17,624,459
FOURTH: The number of shares voted for the amendment to Article IV were
10,555,753 with 266,673 against and 0 abstaining.
FIFTH: The Articles of Incorporation are hereby amended by adding
Article XI, set forth in its entirety as follows:
ARTICLE XI
Limitation on Liability. A director of the Corporation shall have no
personal liability to the Corporation or its shareholders for monetary damages
for breach of fiduciary duty, except (i) for any breach of a director's duty of
loyalty to the Corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
<PAGE>
knowing violation of law, (iii) for liability arising from any action under
section 16-10-44 of the Utah Business Corporation Act as it may from time to
time be amended or any successor provision thereto, or (iv) for any transaction
from which a director derived an improper personal benefit.
SIXTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class are as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common 17,624,459
SEVENTH: The number of shares voted for the amendment to Article IV was
10,822,426 with 0 against and 0 abstaining.
IN WITNESS WHEREOF, the foregoing Articles of Amendment to the Articles
of Incorporation of Asian-American International, Inc. have been executed this
10th day of August, 1988.
ATTEST: ASIAN-AMERICAN INTERNATIONAL, INC.
/s/ Gloria C. Taylor By /s/ Lawrence C. Taylor
- --------------------------- -------------------------------
Gloria C. Taylor, Secretary Lawrence C. Taylor, President
STATE OF UTAH )
):ss
COUNTY OF SALT LAKE)
On August 10 1988, before me, the undersigned, a notary public in and
for the county and state, personally appeared Lawrence C. Taylor and Gloria C.
Taylor, who, being by me duly sworn, did state, each for themselves, that he,
Lawrence C. Taylor, is the president, and that she, Gloria C. Taylor, is the
secretary, of Asian-American International, Inc., a Utah corporation, and that
the foregoing Articles of Amendment to the Articles of Incorporation of
Asian-American International, Inc. were signed on behalf of such corporation by
authority of a resolution of its board of directors and that the statements
contained therein are true.
WITNESS my hand and official seal.
NOTARY PUBLIC
/s/ PAULA CHAPMAN
-----------------------------------
Residing in: SALT LAKE COUNTY
----------------
My Commission Expires: 2/6/89
-------------
-2-
INTERNATIONAL MARKETING DYNAMICS, INC.
(A Utah Corporation)
CORPORATE INFORMATION STATEMENT
Bylaws
<PAGE>
RESTATED
BYLAWS
OF
TWO DOG NET, INC.
ARTICLE I
OFFICES
Section 1.01 Location of Offices. The corporation may maintain such
offices within or without the state of Utah as the board of directors may from
time to time designate or require.
Section 1.02 Principal Office. The address of the principal office of
the corporation shall be at the address of the Registered office of the
corporation as so designated in the office of the Lieutenant Governor/Secretary
of State of the state of incorporation, or at such other address as the board of
directors shall from time to time determine.
ARTICLE II
SHAREHOLDERS
Section 2.01 Annual Meeting. The annual meeting of the stockholders
shall be held on the second Tuesday of the third month following the anniversary
of incorporation or at such other time designated by the board of directors and
as is provided for in the notice of the meeting; provided, that whenever such
date falls on a legal holiday, the meeting shall be held on the next succeeding
business day, beginning with the year following the filing of the articles of
incorporation, for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the election of directors
shall not be held on the day designated herein for the annual meeting of the
stockholders, or at any adjournment thereof, the board of directors shall cause
the election to be held at a special meeting of the stockholders as soon
thereafter as may be convenient.
Section 2.02 Special Meetings. Special meetings of the stockholders may
be called at any time by the chairman of the board, the president, or by the
board of directors, or in their absence or disability, by any vice president,
and shall be immediately called by the president or, in his absence or
disability, by a vice president or by the secretary on the written request of
the holders of not less than one-tenth of all the shares entitled to vote at the
meeting, such written request to state the purpose or purposes of the meeting
and to be delivered to the president, each vice-president, or secretary. In case
of failure to call such meeting within 20 days after such request, such
shareholder or shareholders may call the same.
Section 2.03 Place of Meetings. The board of directors may designate any
place, either within or without the state of incorporation, as the place of
meeting for any annual meeting or for any special meeting called by the board of
directors. A waiver of notice signed by all stockholders entitled to vote at a
meeting may designate any place, either within or without the state of
incorporation, as the place for the holding of such meeting. If no designation
is made, or if a special meeting be otherwise called, the place of meeting shall
be at the principal office of the corporation.
Section 2.04 Notice of Meetings. The secretary or assistant secretary,
if any, shall cause notice of the time, place, and purpose or purposes of all
meetings of the shareholders (whether annual or special), to be mailed at least
ten days, but not more than 50 days, prior to the meeting, to each shareholder
of record entitled to vote.
Section 2.05 Waiver of Notice. Any stockholder may waive notice of any
meeting of shareholders (however called or noticed, whether or not called or
noticed and whether before, during, or after the meeting), by signing a written
waiver of notice or a consent to the holding of such meeting, or an approval of
the minutes thereof. Attendance at a meeting, in person or by proxy, shall
constitute waiver of all defects of call or notice regardless of
1
<PAGE>
whether waiver, consent, or approval is signed or any objections are made. All
such waivers, consents, or approvals shall be made a part of the minutes of the
meeting.
Section 2.06 Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any annual meeting of
shareholders or any adjournment thereof, or shareholder entitled to receive
payment of any dividend or in order to make a determination of shareholders for
any other proper purpose, the board of directors of the corporation may provide
that the share transfer books shall be closed, for the purpose of determining
shareholders entitled to notice of or to vote at such meeting, but not for a
period exceeding fifty (50) days. If the share transfer books are closed for the
purpose of determining shareholders entitled to notice of or to vote at such
meeting, such books shall be closed for at least ten (10) days immediately
preceding such meeting.
In lieu of closing the share transfer books, the board of directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty (50) and, in case
of a meeting of shareholders, not less than ten (10) days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If the share transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting or to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the board of directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof. Failure
to comply with this section shall not affect the validity of any action taken at
a meeting of shareholders.
Section 2.07 Voting Lists. The officer or agent of the corporation
having charge of the share transfer books for shares of the corporation shall
make, at least ten (10) days before each meeting of shareholders, a complete
list of the shareholders entitled to vote at such meeting or any adjournment
thereof, arranged in alphabetical order, with the address of, and the number of
shares held by each, which list, for a period of ten (10) days prior to such
meeting, shall be kept on file at the registered office of the corporation and
shall be subject to inspection by any shareholder during the whole time of the
meeting. The original share transfer book shall be prima facia evidence as to
the shareholders who are entitled to examine such list or transfer books, or to
vote at any meeting of shareholders.
Section 2.08 Quorum. One-half of the total voting power of the
outstanding shares of the corporation entitled to vote, represent in person or
by proxy, shall constitute a quorum at a meeting of the shareholders. If a
quorum is present, the affirmative vote of the majority of the voting power
represented by shares at the meeting and entitled to vote on the subject shall
constitute action by the shareholders, unless the vote of a greater number or
voting by classes is required by the laws of the state of incorporation of the
corporation or the articles of incorporation. If less than one-half of the
outstanding voting power is represented at a meeting, a majority of the voting
power represented by shares so present may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.
Section 2.09 Voting of Shares. Each outstanding share of the corporation
entitled to vote shall be entitled to one vote on each matter submitted to vote
at a meeting of shareholders, except to the extent that the voting rights of the
shares of any class or series of stock are determined and specified as greater
or lesser than one vote per share in the manner provided by the articles of
incorporation.
Section 2.10 Proxies. At each meeting of the shareholders, each
shareholder entitled to vote shall be entitled to vote in person or by proxy;
provided, however, that the right to vote by proxy shall exist only in case the
instrument authorizing such proxy to act shall have been executed in writing by
the registered holder or holders of such shares, as the case may be, as shown on
the share transfer of the corporation or by his attorney thereunto duly
authorized in writing. Such instrument authorizing a proxy to act shall be
delivered at the beginning of such meeting to the secretary of the corporation
or to such other officer or person who may, in the absence of the secretary, be
2
<PAGE>
acting as secretary of the meeting. In the event that any such instrument shall
designate two or more persons to act as proxies, a majority of such persons
present at the meeting, or if only one be present, that one shall (unless the
instrument shall otherwise provide) have all of the powers conferred by the
instrument on all persons so designated. Persons holding stock in a fiduciary
capacity shall be entitled to vote the shares so held and the persons whose
shares are pledged shall be entitled to vote, unless in the transfer by the
pledge or on the books of the corporation he shall have expressly empowered the
pledgee to vote thereon, in which case the pledgee, or his proxy, may represent
such shares and vote thereon.
Section 2.11 Written Consent to Action by Stockholders. Any action
required to be taken at a meeting of the shareholders, or any other action which
may be taken at a meeting of the shareholders, may be taken without a meeting,
if a consent in writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof.
ARTICLE III
DIRECTORS
Section 3.01 General Powers. The property, affairs, and business of the
corporation shall be managed by its board of directors. The board of directors
may exercise all the powers of the corporation whether derived from law or the
articles of incorporation, except such powers as are by statute, by the articles
of incorporation or by these Bylaws, vested solely in the shareholders of the
corporation.
Section 3.02 Number, Term, and Qualifications. The board of directors
shall consist of three to nine persons. Increases or decreases to said number
may be made, within the numbers authorized by the articles of incorporation, as
the board of directors shall from time to time determine by amendment to these
Bylaws. An increase or a decrease in the number of the board of directors may
also be had upon amendment to these Bylaws by a majority vote of all of the
shareholders, and the number of directors to be so increased or decreased shall
be fixed upon a majority vote of all of the shareholders of the corporation.
Each director shall hold office until the next annual meeting of shareholders of
the corporation and until his successor shall have been elected and shall have
qualified. Directors need not be residents of the state of incorporation or
shareholders of the corporation.
Section 3.03 Classification of Directors. In lieu of electing the entire
number of directors annually, the board of directors may provide that the
directors be divided into either two or three classes, each class to be as
nearly equal in number as possible, the term of office of the directors of the
first class to expire at the first annual meeting of shareholders after their
election, that of the second class to expire at the second annual meeting after
their election, and that of the third class, if any, to expire at the third
annual meeting after their election. At each annual meeting after such
classification the number of directors equal to the number of the class whose
term expires at the time of such meeting shall be elected to hold office until
the second succeeding annual meeting, if there be two classes, or until the
third succeeding annual meeting if there be three classes.
Section 3.04 Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately
following, and at the same place as, the annual meeting of shareholders. The
board of directors may provide by resolution the time and place, either within
or without the state of incorporation, for the holding of additional regular
meetings without other notice than such resolution.
Section 3.05 Special Meetings. Special meetings of the board of
directors may be called by or at the request of the president, vice president,
or any to directors. The person or persons authorized to call special meetings
of the board of directors may fix any place, either within or without the state
of incorporation, as the place for holding any special meeting of the board of
directors called by them.
Section 3.06 Meetings by Telephone Conference Call. Members of the board
of directors may participate in a meeting of the board of directors or a
committee of the board of directors by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear
3
<PAGE>
each other, and participation in a meeting pursuant to this section shall
constitute presence in person at such meeting.
Section 3.07 Notice. Notice of any special meeting shall be given at
least ten (10) days prior thereto by written notice delivered personally or
mailed to each director at his regular business address or residence, or by
telegram. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. Any director may waive notice of
any meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting solely for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
Section 3.08 Quorum. A majority of the number of directors shall
constitute a quorum for the transaction of business at any meeting of the board
of directors, but if less than a majority is present at a meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice.
Section 3.09 Manner of Acting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, and the individual directors shall have no power as such.
Section 3.10 Vacancies and Newly created Directorship. If any vacancies
shall occur in the board of directors by reason of death, resignation or
otherwise, or if the number of directors shall be increased, the directors then
in office shall continue to act and such vacancies or newly created
directorships shall be filled by a vote of the directors then in office, though
less than a quorum, in any way approved by the meeting. Any directorship to be
filled by reason of removal of one or more directors by the shareholders may be
filled by election by the shareholders at the meeting at which the director or
directors are removed.
Section 3.11 Compensation. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors, and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 3.12 Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting, unless he shall file
his written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof, or shall forward such dissent by
registered or certified mail to the secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 3.13 Resignations. A director may resign at any time by
delivering a written resignation to either the president, a vice president, the
secretary, or assistant secretary, if any. The resignation shall become
effective on its acceptance by the board of directors; provided, that if the
board has not acted thereon within ten days from the date presented, the
resignation shall be deemed accepted.
Section 3.14 Written Consent to Action by Directors. Any action required
to be taken at a meeting of the directors of the corporation or any other action
which may be taken at a meeting of the directors or of a committee, may be taken
without a meeting, if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors, or all of the members of the committee,
as the case may be. Such consent shall have the same legal effect as a unanimous
vote of all the directors or members of the committee.
Section 3.15 Removal. At a meeting expressly called for that purpose,
one or more directors may be removed by a vote of a majority of the shares of
outstanding stock of the corporation entitled to vote at an election of
directors.
4
<PAGE>
ARTICLE IV
OFFICERS
Section 4.01 Number. The officers of the corporation shall be a
president, one or more vice-presidents, as shall be determined by resolution of
the board of directors, a secretary, a treasurer, and such other officers as may
be appointed by the board of directors. The board of directors may elect, but
shall not be required to elect, a chairman of the board and the board of
directors may appoint a general manager.
Section 4.02 Election, Term of Office, and Qualifications. The officers
shall be chosen by the board of directors annually at its annual meeting. In the
event of failure to choose officers at an annual meeting of the board of
directors, officers may be chosen at any regular or special meeting of the board
of directors. Each such officer (whether chosen at an annual meeting of the
board of directors to fill a vacancy or otherwise) shall hold his office until
the next ensuing annual meeting of the board of directors and until his
successor shall have been chosen and qualified, or until his death, or until his
resignation or removal in the manner provided in these Bylaws. Any one person
may hold any two or more of such offices, except that the president shall not
also be the secretary. No person holding two or more offices shall act in or
execute any instrument in the capacity of more than one office. The chairman of
the board, if any, shall be and remain director of the corporation during the
term of his office. No other officer need be a director.
Section 4.03 Subordinate Officers, Etc. The board of directors from time
to time may appoint such other officers or agents as it may deem advisable, each
of whom shall have such title, hold office for such period, have such authority,
and perform such duties as the board of directors from time to time may
determine. The board of directors from time to time may delegate to any officer
or agent the power to appoint any such subordinate officer or agents and to
prescribe their respective titles, terms of office, authorities, and duties.
Subordinate officers need not be shareholders or directors.
Section 4.04 Resignations. Any officer may resign at any time by
delivering a written resignation to the board of directors, the president, or
the secretary. Unless otherwise specified therein, such resignation shall take
effect on delivery.
Section 4.05 Removal. Any officer may be removed from office at any
special meeting of the board of directors called for that purpose or at a
regular meeting, by vote of a majority of the directors, with or without cause.
Any officer or agent appointed in accordance with the provisions of section 4.03
hereof may also be removed, either with or without cause, by any officer on whom
such power of removal shall have been conferred by the board of directors.
Section 4.06 Vacancies and Newly Created Offices. If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification,
or any other cause, or if a new office shall be created, then such vacancies or
new created offices may be filled by the board of directors at any regular or
special meeting.
Section 4.07 The Chairman of the Board. The chairman of the board, if
there be such an officer, shall have the following powers and duties.
(a) He shall preside at all shareholders' meetings;
(b) He shall preside at all meetings of the board of directors;
and
(c) He shall be a member of the executive committee, if any.
Section 4.08 The President. The president shall have the following
powers and duties:
(a) If no general manager has been appointed, he shall be the
chief executive officer of the
5
<PAGE>
corporation, and, subject to the direction of the board of directors,
shall have general charge of the business, affairs, and property of the
corporation and general supervision over its officers, employees, and
agents;
(b) If no chairman of the board has been chosen, or is such
officer is absent or disabled, he shall preside at meetings of the
stockholders and board of directors;
(c) He shall be a member of the executive committee, if any;
(d) He shall be empowered to sign certificates representing
shares of the corporation, the issuance of which shall have been
authorized by the board of directors; and
(e) He shall have all power and shall perform all duties
normally incident to the office of a president of a corporation, and
shall exercise such other powers and perform such other duties as from
time to time may be assigned to him by the board of directors.
Section 4.09 The Vice Presidents. The board of directors may, from time
to time, designate and elect one or more vice presidents, one of whom may be
designated to serve as executive vice president. Each vice president shall have
such powers and perform such duties as from time to time may be assigned to him
by the board of directors or the president. At the request or in the absence or
disability of the president, the executive vice president or, in the absence or
disability of the executive vice president, the vice president designated by the
board of directors or (in the absence of such designation by the board of
directors) by the president, the senior vice president, may perform all the
duties of the president, and when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the president.
Section 4.10 The Secretary. The secretary shall have the following
powers and duties:
(a) He shall keep or cause to be kept a record of all of the
proceedings of the meetings of the shareholders and of the board or
directors in books provided for that purpose;
(b) He shall cause all notices to be duly given in accordance
with the provisions of these Bylaws and as required by statute;
(c) He shall be the custodian of the records and of the seal of
the corporation, and shall cause such seal (or a facsimile thereof) to
be affixed to all certificates representing shares of the corporation
prior to the issuance thereof and to all instruments, the execution of
which on behalf of the corporation under its seal shall have been duly
authorized in accordance with these Bylaws, and when so affixed, he may
attest the same;
(d) He shall assume that the books, reports, statements,
certificates, and other documents and records required by statute are
properly kept and filed;
(e) He shall have charge of the share books of the corporation
and cause the share transfer books to be kept in such manner as to show
at any time the amount of the shares of the corporation of each class
issued and outstanding, the manner in which and the time when such stock
was paid for, the names alphabetically arranged and the addresses of the
holders of record thereof, the number of shares held by each holder and
time when each became such holder or record, and he shall exhibit at all
reasonable times to any director, upon application, the original or
duplicate share register. He shall cause the share book referred to in
section 6.04 hereof to be kept and exhibited at the principal office of
the corporation, or at such other place as the board of directors shall
determine, in the manner and for the purposes provided in such section;
6
<PAGE>
(f) He shall be empowered to sign certificates representing
shares of the corporation, the issuance of which shall have been
authorized by the board of directors; and
(g) He shall perform in general all duties incident to the
office of secretary and such other duties as are given to him by these
Bylaws or as from time to time may be assigned to him by the board of
directors or the president.
Section 4.11 The Treasurer. The treasurer shall have the following
powers and duties:
(a) He shall have charge and supervision over and be responsible
for the monies, securities, receipts, and disbursements of the
corporation;
(b) He shall cause the monies and other valuable effects of the
corporation to be deposited in the name and to the credit of the
corporation in such banks or trust companies or with such banks or other
depositories as shall be selected in accordance with section 5.03
hereof;
(c) He shall cause the monies of the corporation to be disbursed
by checks or drafts (signed as provided in section 5.04 hereof) drawn on
the authorized depositories of the corporation, and cause to be taken
and preserved property vouchers for all monies disbursed;
(d) He shall render to the board of directors or the president,
whenever requested, a statement of the financial condition of the
corporation and of all of this transactions as treasurer, and render a
full financial report at the annual meeting of the stockholders, if
called upon to do so;
(e) He shall cause to be kept correct books of account of all
the business and transactions of the corporation and exhibit such books
to any director on request during business hours;
(f) He shall be empowered from time to time to require from all
officers or agents of the corporation reports or statements given such
information as he may desire with respect to any and all financial
transactions of the corporation; and
(g) He shall perform in general all duties incident to the
office of treasurer and such other duties as are given to him by these
Bylaws or as from time to time may be assigned to him by the board of
directors or the president.
Section 4.12 General Manager. The board of directors may employ and
appoint a general manager who may, or may not, be one of the officers or
directors of the corporation. The general manager, if any shall have the
following powers and duties:
(a) He shall be the chief executive officer of the corporation
and, subject to the directions of the board of directors, shall have
general charge of the business affairs and property of the corporation
and general supervision over its officers, employees, and agents;
(b) He shall be charged with the exclusive management of the
business of the corporation and of all of its dealings, but at all times
subject to the control of the board of directors;
(c) Subject to the approval of the board of directors or the
executive committee, if any, he shall employ all employees of the
corporation, or delegate such employment to subordinate officers, and
shall have authority to discharge any person so employed; and
(d) He shall make a report to the president and directors as
often as required, setting forth the results of the operations under his
charge, together with suggestions looking toward improvement and
7
<PAGE>
betterment of the condition of the corporation, and shall perform such
other duties as the board of directors may require.
Section 4.13 Salaries. The salaries and other compensation of the
officers of the corporation shall be fixed from time to time by the board of
directors, except that the board of directors may delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
section 4.03 hereof. No officer shall be prevented from receiving any such
salary or compensation by reason of the fact that he is also a director of the
corporation.
Section 4.14 Surety Bonds. In case the board of directors shall so
require, any officer or agent of the corporation shall execute to the
corporation a bond in such sums and with such surety or sureties as the board of
directors may direct, conditioned upon the faithful performance of his duties to
the corporation, including responsibility for negligence and for the accounting
of all property, monies, or securities of the corporation which may come into
his hands.
IV
EXECUTION OF INSTRUMENTS, BORROWING OF MONEY,
AND DEPOSIT OF CORPORATE FUNDS
Section 5.01 Execution of Instruments. Subject to any limitation
contained in the articles of incorporation or these Bylaws, the president or any
vice president or the general manager, if any, may, in the name and on behalf of
the corporation, execute and deliver any contract or other instrument authorized
in writing by the board of directors. The board of directors may, subject to any
limitation contained in the articles of incorporation or in these Bylaws,
authorize in writing any officer or agent to execute and delivery any contract
or other instrument in the name and on behalf of the corporation, any such
authorization may be general or confined to specific instances.
Section 5.02 Loans. No loans or advances shall be contracted on behalf
of the corporation, no negotiable paper or other evidence of its obligation
under any loan or advance shall be issued in its name, and no property of the
corporation shall be mortgaged, pledged, hypothecated, transferred, or conveyed
as security for the payment of any loan, advance, indebtedness, or liability of
the corporation, unless and except as authorized by the board of directors. Any
such authorization may be general or confined to specific instances.
Section 5.03 Deposits. All monies of the corporation not otherwise
employed shall be deposited from time to time to its credit in such banks and or
trust companies or with such bankers or other depositories as the board of
directors may select, or as from time to time may be selected by any officer or
agent authorized to do so by the board of directors.
Section 5.04 Checks, Drafts, Etc. All notes, drafts, acceptances,
checks, endorsements, and, subject to the provisions of these Bylaws, evidences
of indebtedness of the corporation, shall be signed by such officer or officers
or such agent or agents of the corporation and in such manner as the board of
directors from time to time may determine. Endorsements for deposit to the
credit of the corporation in any of its duly authorized depositories shall be in
such manner as the board of directors from time to time may determine.
Section 5.05 Bonds and Debentures. Every bond or debenture issued by the
corporation shall be evidenced by an appropriate instrument which shall be
signed by the president or a vice president and by the secretary and sealed with
the seal of the corporation. The seal may be a facsimile, engraved or printed.
Where such bond or debenture is authenticated with the manual signature of an
authorized officer of the corporation or other trustee designated by the
indenture of trust or other agreement under which such security is issued, the
signature of any of the corporation's officers named thereon may be a facsimile.
In case any officer who signed, or whose facsimile signature has been used on
any such bond or debenture, should cease to be an officer of the corporation for
any reason before the same has been delivered by the corporation, such bond or
debenture may nevertheless be
8
<PAGE>
adopted by the corporation and issued and delivered as through the person who
signed it or whose facsimile signature has been used thereon had not ceased to
be such officer.
Section 5.06 Sale, Transfer, Etc. of Securities. Sales, transfers,
endorsements, and assignments of stocks, bonds, and other securities owned by or
standing in the name of the corporation, and the execution and delivery on
behalf of the corporation of any and all instruments in writing incident to any
such sale, transfer, endorsement, or assignment, shall be effected by the
president, or by any vice president, together with the secretary, or by any
officer or agent thereunto authorized by the board of directors.
Section 5.07 Proxies. Proxies to vote with respect to shares of other
corporations owned by or standing in the name of the corporation shall be
executed and delivered on behalf of the corporation by the president or any vice
president and the secretary or assistant secretary of the corporation, or by any
officer or agent thereunder authorized by the board of directors.
ARTICLE VI
CAPITAL SHARES
Section 6.01 Share Certificates. Every holder of shares in the
corporation shall be entitled to have a certificate, signed by the president or
any vice president and the secretary or assistant secretary, and sealed with the
seal (which may be a facsimile, engraved or printed) of the corporation,
certifying the number and kind, class or series of shares owned by him in the
corporation provided, however, that where such a certificate is countersigned by
(a) a transfer agent or an assistant transfer agent, or (b) registered by a
registrar, the signature of any such president, vice president, secretary, or
assistant secretary may be a facsimile. In case any officer who shall have
signed, or whose facsimile signature or signatures shall have been used on any
such certificate, shall cease to be such officer of the corporation, for any
reason, before the delivery of such certificate by the corporation, such
certificate may nevertheless be adopted by the corporation and be issued and
delivered as though the person who signed it, or whose facsimile signature or
signatures shall have been used thereon, has not ceased to be such officer.
Certificates representing shares of the corporation shall be in such form as
provided by the statutes of the state of incorporation. There shall be entered
on the share books of the corporation at the time of issuance of each share, the
number of the certificate issued, the name and address of the person owning the
shares represented thereby, the number and kind, class or series of such shares,
and the date of issuance thereof. Every certificate exchanged or returned to the
corporation shall be marked "Canceled" with the date of cancellation.
Section 6.02 Transfer of Shares. Transfers of shares of the corporation
shall be made on the books of the corporation by the holder of record thereof,
or by his attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the Secretary of the corporation or any of
its transfer agents, and on surrender of the certificate or certificates,
properly endorsed or accompanied by proper instruments of transfer, representing
such shares. Except as provided by law, the corporation and transfer agents and
registrars, if any, shall be entitled to treat the holder of record of any stock
as the absolute owner thereof for all purposes, and accordingly shall not be
bound to recognize any legal, equitable, or other claim to or interest in such
shares on the part of any other person whether or not it or they shall have
express or other notice thereof.
Section 6.03 Regulations. Subject to the provisions of this section VI
and of the articles of incorporation, the board of directors may make such rules
and regulations as they may deem expedient concerning the issuance, transfer,
redemption, and registration of certificates for shares of the corporation.
Section 6.04 Maintenance of Stock Ledger at Principal Place of Business.
A share book (or books where more than one kind, class, or series of stock is
outstanding) shall be kept at the principal place of business of the
corporation, or at such other place as the board of directors shall determine,
containing the names, alphabetically arranged, of original shareholders of the
corporation, their addresses, their interest, the amount paid on their shares,
and all transfers thereof and the number and class of shares held by each. Such
share books shall
9
<PAGE>
at all reasonable hours be subject to inspection by persons entitled by law to
inspect the same.
Section 6.05 Transfer Agents and Registrars. The board of directors may
appoint one or more transfer agents and one or more registrars with respect to
the certificates representing shares of the corporation, and may require all
such certificates to bear the signature of either or both. The board of
directors may from time to time define the respective duties of such transfer
agents and registrars. No certificate for shares shall be valid until
countersigned by a transfer agent, if at the date appearing thereon the
corporation had a transfer agent for such shares, and until registered by a
registrar, if at such date the corporation had a registrar for such shares.
Section 6.06 Closing of Transfer Books and Fixing of Record Date.
(a) The board of directors shall have power to close the share
books of the corporation for a period of not to exceed 50 days preceding
the date of any meeting of shareholders, or the date for payment of any
dividend, or the date for the allotment of rights, or capital shares
shall go into effect, or a date in connection with obtaining the consent
of shareholders for any purpose.
(b) In lieu of closing the share transfer books as aforesaid,
the board of directors may fix in advance a date, not exceeding 50 days
preceding the date of any meeting of shareholders, or the date for the
payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital shares shall
go into effect, or a date in connection with obtaining any such consent,
as a record date for the determination of the shareholders entitled to a
notice of, and to vote at, any such meeting and any adjournment thereof,
or entitled to receive payment of any such dividend, or to any such
allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such
consent.
(c) If the share transfer books shall be closed or a record date
set for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for, or
such record date shall be, at least ten (10) days immediately preceding
such meeting.
Section 6.07 Lost or Destroyed Certificates. The corporation may issue a
new certificate for shares of the corporation in place of any certificate
theretofore issued by it, alleged to have been lost or destroyed, and the board
of directors may, in its discretion, require the owner of the lost or destroyed
certificate or his legal representatives, to give the corporation a bond in such
form and amount as the board of directors may direct, and with such surety or
sureties as may be satisfactory to the board, to indemnify the corporation and
its transfer agents and registrars, if any, against any claims that may be made
against it or any such transfer agent or registrar on account of the issuance of
such new certificate. A new certificate may be issued without requiring any
bond when, in the judgment of the board of directors, it is proper to do so.
Section 6.08 No Limitation on Voting Rights; Limitation on Dissenter's
Rights. To the extent permissible under the applicable law of any jurisdiction
to which the corporation may become subject by reason of the conduct of
business, the ownership of assets, the residence of shareholders, the location
of offices or facilities, or any other item, the corporation elects not to be
governed by the provisions of any statute that (i) limits, restricts, modified,
suspends, terminates, or otherwise affects the rights of any shareholder to cast
one vote for each share of common stock registered in the name of such
shareholder on the books of the corporation, without regard to whether such
shares were acquired directly from the corporation or from any other person and
without regard to whether such shareholder has the power to exercise or direct
the exercise of voting power over any specific fraction of the shares of common
stock of the corporation issued and outstanding or (ii) grants to any
shareholder the right to have his stock redeemed or purchased by the corporation
or any other shareholder on the acquisition by any person or group of persons of
shares of the corporation. In particular, to the extent permitted under the laws
of the state of incorporation, the corporation elects not to be governed by any
such provision, including the provisions of the Utah Control Share Acquisition
Act, section 61-6-1 et seq., of the Utah Code Annotated, as amended, or any
statute of similar effect or tenor.
10
<PAGE>
ARTICLE VII
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 7.01 How Constituted. The board of directors may designate an
executive committee and such other committees as the board of directors may deem
appropriate, each of which committees shall consist of two or more directors.
Members of the executive committee and of any such other committees shall be
designated annually at the annual meeting of the board of directors; provided,
however, that at any time the board of directors may abolish or reconstitute the
executive committee or any other committee. Each member of the executive
committee and of any other committee shall hold office until his successor shall
have been designated or until his resignation or removal in the manner provided
in these Bylaws.
Section 7.02 Powers. During the intervals between meetings of the board
of directors, the executive committee shall have and may exercise all powers of
the board of directors in the management of the business and affairs of the
corporation, except for the power to fill vacancies in the board of directors or
to amend these Bylaws, and except for such powers as by law may not be delegated
by the board of directors to an executive committee.
Section 7.03 Proceedings. The executive committee, and such other
committees as may be designated hereunder by the board of directors, may fix its
own presiding and recording officer or officers, and may meet at such place or
places, at such time or times and on such notice (or without notice) as it shall
determine from time to time. It will keep a record of its proceedings and shall
report such proceedings to the board of directors at the meeting of the board of
directors next following.
Section 7.04 Quorum and Manner of Acting. At all meetings of the
executive committee, and of such other committees as may be designated hereunder
by the board of directors, the presence of members constituting a majority of
the total authorized membership of the committee shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the act
of a majority of the members present at any meeting at which a quorum is present
shall be the act of such committee. The members of the executive committee, and
of such other committees as may be designated hereunder by the board of
directors, shall act only as a committee and the individual members thereof
shall have no powers as such.
Section 7.05 Resignations. Any member of the executive committee, and of
such other committees as may be designated hereunder by the board of directors,
may resign at any time by delivering a written resignation to either the
president, the secretary, or assistant secretary, or to the presiding officer of
the committee of which he is a member, if any shall have been appointed and
shall be in office. Unless otherwise specified herein, such resignation shall
take effect on delivery.
Section 7.06 Removal. The board of directors may at any time remove any
member of the executive committee or of any other committee designated by it
hereunder either for or without cause.
Section 7.07 Vacancies. If any vacancies shall occur in the executive
committee or of any other committee designated by the board of directors
hereunder, by reason of disqualification, death, resignation, removal, or
otherwise, the remaining members shall, until the filling of such vacancy,
constitute the then total authorized membership of the committee and, provided
that two or more members are remaining, continue to act. Such vacancy may be
filled at any meeting of the board of directors.
Section 7.08 Compensation. The board of directors may allow a fixed sum
and expenses of attendance to any member of the executive committee, or of any
other committee designated by it hereunder, who is not an active salaried
employee of the corporation for attendance at each meeting of said committee.
11
<PAGE>
ARTICLE VIII
INDEMNIFICATION, INSURANCE, AND
OFFICER AND DIRECTOR CONTRACTS
Section 8.01 Indemnification: Third Party Actions. The corporation shall
have the power to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees) judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with any such action, suit or proceeding, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
Section 8.02 Indemnification: Corporate Actions. The corporation shall
have the power to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such a person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation, unless and only to the extent that the court in which the action or
suit was brought shall determine on application that, despite the adjudication
of liability but in view of all circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such expenses as the court deems
proper.
Section 8.03 Determination. To the extent that a director, officer,
employee, or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in section
8.01 and 8.02 hereof, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. Any other indemnification
under section 8.01 and 8.02 hereof, shall be made by the corporation upon a
determination that indemnification of the officer, director, employee, or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in sections 8.01 and 8.02 hereof. Such determination shall be
made either (i) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit, or
proceeding; or (ii) by independent legal counsel on a written opinion; or (iii)
by the shareholders by a majority vote of a quorum of shareholders at any
meeting duly called for such purpose.
Section 8.04 General Indemnification. The indemnification provided by
this section shall not be deemed exclusive of any other indemnification granted
under any provision of any statute, in the corporation's articles of
incorporation, these Bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent, and shall
inure to the benefit of the heirs and legal representatives of such a person.
Section 8.05 Advances. Expenses incurred in defending a civil or
criminal action, suit, or proceeding
12
<PAGE>
as contemplated in this section may be paid by the corporation in advance of the
final disposition of such action, suit, or proceeding upon a majority vote of a
quorum of the board of directors and upon receipt of an undertaking by or on
behalf of the director, officers, employee, or agent to repay such amount or
amounts unless it is ultimately determined that he is to be indemnified by the
corporation as authorized by this section.
Section 8.06 Scope of Indemnification. The indemnification authorized by
this section shall apply to all present and future directors, officers,
employees, and agents of the corporation and shall continue as to such persons
who cease to be directors, officers, employees, or agents of the corporation,
and shall inure to the benefit of the heirs, executors, and administrators of
all such persons and shall be in addition to all other indemnification permitted
by law.
Section 8.07 Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, employee, or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against any
such liability and under the laws of the state of incorporation, as the same may
hereafter be amended or modified.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
ARTICLE X
DIVIDENDS
The board of directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and on
the terms and conditions provided by the articles of incorporation and these
Bylaws.
ARTICLE XI
AMENDMENTS
All Bylaws of the corporation, whether adopted by the board of directors
or the shareholders, shall be subject to amendment, alteration, or repeal, and
new Bylaws may be made, except that:
(a) No Bylaws adopted or amended by the shareholders shall be
altered or repealed by the board of directors.
(b) No Bylaws shall be adopted by the board of directors which
shall require more than a majority of the voting shares for a quorum at
a meeting of shareholders, or more than a majority of the votes cast to
constitute action by the shareholders, except where higher percentages
are required by law; provided, however that (i) if any Bylaw regulating
an impending election of directors is adopted or amended or repealed by
the board of directors, there shall be set forth in the notice of the
next meeting of shareholders for the election of directors, the Bylaws
so adopted or amended or repealed, together with a concise statement of
the changes made; and (ii) no amendment, alteration or repeal of this
section XI shall be made except by the shareholders.
13
STATE OF UTAH
Department [ SEAL] of Commerce
CERTIFICATION OF ARTICLES OF AMENDMENT
ENACTING CHANGE OF NAME
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL CODE
HEREBY CERTIFIES THAT THE ATTACHED is a true, correct and
complete copy of the Articles of Amendment submitted by
INTERNATIONAL MARKETING DYNAMICS, INC.
for approval and filing by this office on DECEMBER 30,
1998, and that the corporation name is changed thereby to
TWO DOG NET, INC.
AS APPEARS OF RECORD IN THE OFFICES OF THE DIVISION.
File Number: CO 104709
Dated this 5th day
of January, 1999.
[SEAL] /s/ Lorena P. Riffo
--------------------------------
Lorena P. Riffo
Division Director of
Corporations and Commercial Code
State of California
[SEAL]
SECRETARY OF STATE
NAME CHANGE
CERTIFICATE OF QUALIFICATION
2014534
I, BILL JONES, Secretary of State of the State of California, hereby certify:
That on the 26TH day of JANUARY, 1999, there was filed in this office an Amended
Statement and Designation by Foreign Corporation whereby the corporate name of
INTERNATIONAL MARKETING DYNAMICS, INC., a corporation organized and existing
under the laws of UTAH, was changed to TWO DOG NET, INC. This corporation
complied with the requirements of California law in effect on that date for the
purpose of qualifying to transact intrastate business in the State of California
and as of said date has been and is qualified and authorized to transact
intrastate business in the State of California, subject however, to any
licensing requirements otherwise imposed by the laws of this State, and that the
corporation shall transact all intrastate business within this state under the
above fictitious name elected by it.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal
of the State of California this day
of January 28, 1999.
/s/ BILL JONES
[SEAL] --------------------
BILL JONES
Secretary of State
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
NAME CHANGE TO
TWO DOG NET, INC.
-----------------
CUSIP 901865 10 5
-----------------
NUMBER SHARES
- -------------- ---------------
3528
- -------------- ---------------
International Marketing Dynamics, Inc.
SPECIMEN
AUTHORIZED COMMON SHARES 200,000,000
PAR VALUE $.00
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of common stock of International Marketing Dynamics, Inc.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Sholeh Hamedani /s/ Shokoo Ghosseiri
- ------------------------- --------------------------
PRESIDENT SECRETARY
INTERNATIONAL MARKETING DYNAMICS, INC.
CORPORATE
Seal
UTAH
INTERWEST TRANSFER CO. INC. COUNTERSIGNED & REGISTERED
P.O. BOX 17136/SALT LAKE CITY,
UTAH 84117
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a registered
national stock exchange, or by a bank (other than a saving bank), or a
trust company. The following abbreviations, when used in the inscription
on the face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants in common Act ........................
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _____ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------------------------
--------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SPECIMEN
Evers & William D. Evers
Hendrickson, LLP Jay P. Hendrickson
Lawyers and Counselors At Law Frederick K. Koenen
- ------------------------------------ Paul E. Manasian
Philip J. Nicholsen, PC
----------
February 25, 1999 Rafael Aguirre-Sacasa
Kenneth A. Brunetti
Antoine M. Devine
Darcy M. Pertcheck
---------
Of Counsel
Michael G. Schinner
Phone (415) 772-8102
Fax (415) 772-8101
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Two Dog Net, Inc., Legality of Shares
Dear Madam/Sirs:
We have made reasonable inquiry and are of the opinion that the
securities being offered, will, when sold, be legally issued, fully paid and
non-assessable.
We are not opining as to any other statements contained in the Form
SB-2 registration statement, nor as to matters that occur after the date
thereof.
Very truly yours,
EVERS & HENDRICKSON, LLP
/s/ William D. Evers
-----------------------------
By: William D. Evers, Partner
cc: Sholeh Hamedani
155 Montgomery Street, 12th Floor San Francisco California 94104 415 772 8100
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is entered into by and
between International Marketing Dynamics, Inc., a Utah corporation with its
offices in California ("IMD"), and Spunky Productions LLC, a Georgia limited
liability company ("Spunky"), as of the date the last party executes this
Agreement (the "Effective Date"). In consideration of the mutual covenants and
agreements in this Agreement, IMD and Spunky agree as follows:
1. Management Services. Spunky will be exclusively responsible for managing and
performing all creative, business development, and sales and marketing services
on IMD's project entitled TwoDog.Net (the "Services"). The Services are
described in detail in a Statement of Work attached hereto as Exhibit A
("Statement of Work"), hereby incorporated into this Agreement. The parties may
agree upon additional Services to be performed by Spunky pursuant to the terms
of this Agreement. Such additional Services shall be described in additional
Statements of Work, executed by the parties and thereby incorporated into and
made a part of this Agreement.
2. Location. The Services will be performed in Atlanta, Georgia, unless
otherwise agreed to by IMD and Spunky. Spunky shall operate from its offices in
Atlanta, Georgia for a minimum time period of six (6) months after the Effective
Date.
3. Acceptance. When in Spunky's opinion it has completed the Services or a
milestone described in a Statement of Work, Spunky shall provide written
notification of such event to IMD. IMD shall have an acceptance period of thirty
(30) days, unless otherwise specified in the Statement of Work, from the date of
Spunky's notice ("Acceptance Period"), in which to perform reviews to determine
if the Services or milestone has been completed in accordance with the Statement
of Work. On or prior to the expiration of such Acceptance Period, IMD shall have
the right to give written notice of unsatisfactory performance and rejection of
same, pursuant to the Warranty described in Section 6, and Exclusive Remedy in
Section 8, hereof. Failure of IMD to provide such notice of Acceptance or
non-Acceptance within the time frame set forth above shall constitute
Acceptance.
4. Works Made for Hire; Ownership of Equipment.
(a) All works created as a result of the performance of the Services are
specifically intended to be "works made for hire" by Spunky for IMD, as
defined by U.S. copyright law, or, if such works are not eligible for such
designation under U.S. copyright law, Spunky hereby assigns all rights,
title and interest in and to the works to IMD. In the event a determination
is made that Spunky has an ownership interest in the works, Spunky shall
upon IMD's request assign in a separate writing all right, title and
interest in and to the works to IMD. Spunky agrees to execute all materials
and provide assistance to IMD to record IMD's ownership interests. The
foregoing notwithstanding, Spunky may retain and show copies of works
produced by Spunky under this Agreement solely to demonstrate its creative
work.
(b) All equipment purchased by Spunky and reimbursed by IMD, or purchased by
IMD for Spunky, shall be owned by IMD.
5. Nonexclusive License to Previously Developed Materials. If the work product
created hereunder contains materials Spunky or others previously developed,
patented or copyrighted and not developed hereunder, Spunky hereby grants IMD an
irrevocable, perpetual, world-wide, royalty-free nonexclusive license to use,
copy, modify, license, make derivative works of, distribute, publicly display,
publicly perform, import, manufacture, have made, sell, offer to sell, exploit
and sublicense such materials to the extent necessary for IMD to exercise its
rights, title and interest in the work product.
1
<PAGE>
6. Representation and Warranty; Limitation on Claims. Spunky represents to IMD
that its employees have sufficient expertise, training and experience to
satisfactorily accomplish the Services. Spunky warrants that the Services will
be performed in a professional and workmanlike manner (the "Warranty"). No
action under the foregoing Warranty may be claimed or brought after the term of
this Agreement.
7. Disclaimer of Additional Warranties. EXCEPT AS PROVIDED IN THE PREVIOUS
SECTION, SPUNKY MAKES NO WARRANTIES WITH RESPECT TO THE SERVICES OR DELIVERABLES
OR OTHER GOODS, TRAINING OR SERVICES PROVIDED BY SPUNKY, EXPRESS OR IMPLIED,
ORAL OR WRITTEN, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY, AGAINST INFRINGEMENT, AND OF FITNESS FOR A PARTICULAR PURPOSE.
8. Exclusive Remedy; Limitation on Liability. IMD's exclusive remedy under the
foregoing warranty shall be limited to Spunky repeating the performance of the
Services not performed in accordance with said warranty, in the exercise of
Spunky's best efforts to perform such Services in accordance with said warranty.
In no event shall Spunky be liable for consequential, incidental, special, or
indirect damages, or loss of profits or revenue, regardless of any knowledge or
notification of the likelihood of such damages occurring.
9. Damages Cap. In no event shall Spunky be liable for any damages hereunder in
an amount in excess of the aggregate Management Fees paid to Spunky by IMD
during the Term.
10. IMD Cooperation and Assistance. IMD shall cooperate with Spunky with regard
to the performance of the Services hereunder, including but not limited to
providing to Spunky such information, data, access to premises, management
decisions, approvals, and acceptances as may be reasonable to permit Spunky to
provide the Services.
11. Fees. IMD agrees to pay Spunky the Start-up Fees, the Management Fees, the
Fixed Budget Fees, and the Expense Budget Fees (collectively, the "Fees").
(a) The Start-up Fees shall be a reasonable amount required for, and shall be
used by Spunky to make, initial equipment and furniture purchases, initial
rent payments, and other related start-up expenditures. The Start-up Fees
shall be due and payable upon invoice by Spunky.
(b) The Management Fees shall be $12,291 in November, and $17,501 per month
thereafter for the term of this Agreement, and shall be due and payable
upon invoice by Spunky.
(c) The Fixed Budget Fees shall be used to reimburse Spunky for the reasonable
cost of studio rent, high speed Internet connection, telephone line and
hardware, furniture leases, employee expenses other than for Karl, Craig,
and Paul Kronenberger, independent contractor costs, and all other fixed
costs incurred by Spunky in performing the Services. Spunky shall invoice
IMD for the Fixed Budget Fees monthly, and the Fixed Budget Fees shall be
due and payable upon invoice receipt.
(d) The Expense Budget Fees shall be used to reimburse Spunky for authorized
monthly variable expenses, which shall include reasonable expenses for
printing, color copies, postage, cellular telephone service, long distance
telephone, travel, trade publications and books, accounting and legal fees,
art supplies, and all other variable costs incurred by Spunky in performing
the Services. Spunky shall invoice IMD for the Expense Budget Fees monthly,
and the Expense Budget Fees shall be due and payable upon invoice receipt.
(e) IMD shall pay interest on Fees unpaid within forty-five (45) days of the
date such Fees were due and payable, at the lower of eighteen percent (18%)
per annum, or the maximum rate permissible under applicable law.
2
<PAGE>
12. Merchandising Rights.
(a) IMD will pay to Spunky, on every March 1 for the year ending on the
previous December 31, one percent (1%) of quarterly gross revenues from
merchandising and licensing of (a) content created by Spunky hereunder, and
(b) all derivative works created from such content, including but not
limited to works or derivative works sold or licensed for use on Internet
sites other than TwoDog.Net, television programs, films, apparel, toys,
food packaging, and any medium that comes into existence in the future
("Merchandising Rights"). These rights shall survive the termination of
this Agreement and/or the employment of Spunky personnel by IMD.
(b) IMD shall maintain accurate and complete records of all amounts payable to
Spunky hereunder following generally recognized commercial accounting
practices. IMD shall retain such records for three (3) years from the date
of final payment for Merchandising Rights covered by this Agreement.
(c) Spunky, and its authorized agents or representatives, may audit IMD's
records described in the preceding subsection during normal business hours
and upon reasonable prior notice. Audits shall not unreasonably disrupt
IMD's business operations. Spunky may inspect, photocopy and retain copies
of such records, if Spunky in its sole discretion deems such retention
necessary. If such an audit reveals a payment discrepancy greater than ten
percent (10%) of a quarterly payment, IMD shall bear the cost of such
audit.
13. Stock Options for Spunky Members.
(a) Concurrent with the execution and delivery of this Agreement by IMD, Karl
Kronenberger, Craig Kronenberger, and Paul Kronenberger (the "Brothers")
shall each receive an option to purchase, subject to vesting, three hundred
thirty-three thousand (333,333) shares of the common stock of IMD ("Option
Shares"), upon identical terms.
(b) The Option Share exercise price shall be equal to the actual price paid by
investors in the proposed 2,250,000 share public offering, discounted by
fifteen percent (15%). If any vesting occurs before the filing of an SB-2
form with the SEC for such offering, the exercise price for that vesting
period shall be $4 per share.
(c) The date of issuance of the options shall be the Effective Date.
(d) No Option Shares shall be vested initially. So long as Spunky continues to
provide services to IMD, or so long as any of the Brothers are employed by
IMD, upon each anniversary of the date of issuance of the options, 66,667
additional Option Shares for each Brother shall become vested and
purchasable under each option, for a total of 200,001 additional vested
Option Shares each year, over a 5-Year period.
(e) In the event of a Transaction, all Option Shares shall immediately be
vested effective two days prior to the closing of such Transaction.
"Transaction" means any: (a) dissolution or liquidation of IMD; (b) merger,
consolidation, share exchange, combination, reorganization, or like
transaction in which IMD is not the survivor or the parent of the resulting
entity; (c) sale or transfer (other than as security for IMD's obligations)
of all or substantially all of the assets of IMD; or, (d) sale or transfer
of fifty percent (50%) or more of the issued and outstanding IMD stock by
the IMD stockholders in a single transaction or in a series of related
transactions.
(f) If IMD terminates this Agreement in any manner not in accordance with
Section 15, or if Spunky terminates in accordance with Section 15(a)(1), or
if IMD terminates the employment of one of the Brothers without Cause or if
any of the Brothers terminates such employment for Good Reason (as defined
consistently with Employment Agreements with the Brothers), all Option
Shares owned by the subject Brother(s) shall immediately be vested. If IMD
terminates this Agreement in accordance with Section 15(a)(1), all stock
options that have not vested will be forfeited by Spunky and the Brothers.
If IMD terminates the employment of any of the Brothers for Cause (as
defined
3
<PAGE>
consistently with Employment Agreements with the Brothers), all stock
options that have not vested for the Brother(s) terminated will be
forfeited by the Brother(s).
(g) The terms of this stock option provision shall not change if the
Brothers become employees of IMD.
14. Relocation and/or Conversion to Employee Status. In the event of a move by
Spunky, or the members of Spunky, to California, in connection with this
Agreement, IMD will:
(a) Increase the Management Fees as mutually agreed by the parties;
(b) Come to a mutual agreement with Spunky on where to locate a studio and
offices in the Northern California area, to attract and be in close
proximity to the quality artists and writers that are necessary to the
TwoDog.Net project; and,
(c) Pay a Company Relocation Fee as mutually agreed by the parties.
15. Termination.
(a) This Agreement shall terminate on December 31, 1999. The foregoing not
withstanding, this Agreement may be terminated under the following
circumstances:
1. If either party materially defaults in its performance under this
Agreement, and fails to either substantially cure such default within thirty
(30) days after receiving written notice specifying the default or, for those
defaults that cannot reasonably be cured within thirty days, promptly commence
curing such default and thereafter proceed with all due diligence to
substantially cure the same, then the party not in default may terminate this
Agreement by giving the defaulting party at least thirty (30) days prior written
notice thereof, as of a date specified in such notice.
2. The Agreement shall terminate if, upon re-negotiation and agreement of
lMD and all members of Spunky, the members of Spunky become employees of IMD.
(b) Upon termination of this Agreement, each party shall, upon the request of
the other: (i) return all papers, materials and properties of the other held by
such party, (ii) provide reasonable assistance in the termination of this
Agreement, as may be necessary for the orderly, nondisrupted business
continuation of each party.
16. Interface. Spunky shall interface directly with Nasser Hamedani and Sholeh
Hamedani during the term of this Agreement (the "Term").
17. Confidentiallty.
(a) Each party ("Recipient") acknowledges it will have access to and
acquire Proprietary Information of the other party ("Owner"). Each party
acknowledges that the misappropriation, unauthorized use or disclosure of the
Proprietary Information would cause irreparable harm to Owner. Recipient will
hold in a fiduciary capacity for the benefit of Owner, and shall not directly or
indirectly use, copy, reproduce, distribute, manufacture, duplicate, reveal,
report, publish, disclose or cause to be disclosed, or otherwise transfer any
Proprietary Information to any third party, or utilize such information for any
purpose, except as expressly contemplated by this Agreement or authorized in
writing by Owner.
(b) As used in this Agreement, "Proprietary Information" means Confidential
Information and Trade Secrets. "Confidential Information" means confidential or
proprietary information of Owner, other than Trade Secrets, of value to Owner,
including without limitation future business plans, strategies, information
regarding executives and employees, and the terms and conditions of this
Agreement, as well as any data or information defined herein as a Trade Secret,
but which is determined by a court of competent jurisdiction not to rise to the
level of a trade secret under applicable law. "Trade Secrets" means information
of Owner, without regard to form, including, but not limited to, technical or
nontechnical data, formulas, patterns, compilations, programs, devices, methods,
techniques, drawings, processes, discoveries, developments, designs, financial
data, financial plans, product plans, technical documentation and
specifications, or lists of actual or potential clients or suppliers which: (a)
derives economic value, actual or potential, from not being generally known to,
and not being readily ascertainable
4
<PAGE>
by proper means by, other persons who can obtain economic value from its
disclosure or use; and (b) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.
(c) Notwithstanding the other provisions of this Agreement, nothing
received by Recipient from Owner will be considered to be Owner's Information
if: (i) it has been published or is otherwise available or becomes available to
the public other than by a breach of this Agreement; (ii) it has been rightfully
and lawfully received by Recipient from a third party without confidentiality
limitations; (iii) it has been independently developed by Recipient without the
use of the Proprietary Information; (iv) it was known by Recipient prior to its
first receipt from Owner; (v) it is hereafter disclosed by Owner without
restriction on further disclosure; or (vi) it is required to be disclosed to any
governmental agency, court of competent jurisdiction pursuant to a written
order, subpoena or by operation of law, provided Recipient has given prior
notice to Owner in order that Owner may attempt to obtain a protective order
limiting disclosure and use of the information disclosed.
18. Reasonableness; Remedies. Each party acknowledges and agrees that the other
party will or would suffer irreparable injury if a party were to violate any of
the provisions of the previous "Confidentiality" provision, and that in the
event of a breach by a party of that provision, the other party shall be
entitled to an injunction restraining such party from such breach.
19. Survival. The parties hereto acknowledge and agree that, in addition to any
other provisions that expressly provide for such survival, Sections 5, 7-9,
12,17-18, and 20 hereof shall survive termination or expiration of this
Agreement.
20. Miscellaneous.
(a) Spunky and IMD are independent principals in all relationships and actions
under and contemplated by this Agreement. This Agreement shall not be
construed to create any employment relationship, partnership, franchise,
joint venture, or agency relationship between the parties or to authorize
Spunky to enter into any commitment or agreement binding on IMD. IMD
contracts facilitated by Spunky pursuant to this Agreement will be
delivered to IMD in California for execution by IMD.
(b) Neither party shall assign, transfer or subcontract this Agreement without
the prior consent of the other party, which consent shall not be
unreasonably withheld. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
permitted assigns.
(c) Any invalid provisions shall be severed from this Agreement and the
remaining provisions shall be enforced to the extent necessary to protect
the interests of the aggrieved party.
(d) Except with respect to payment obligations of IMD hereunder, neither party
shall be responsible for any delay or failure in performing any part of
this Agreement when it is caused by fire, flood, explosion, war, strike,
embargo, government requirement, civil or military authority, act of God,
act or omission of carriers or other similar causes beyond its control
(hereinafter collectively called "Condition"). If any such Condition
occurs, the party delayed or unable to perform shall give immediate notice
to the other party and the party affected by the other's delay or
inability to perform may elect to terminate the affected Statement of Work,
or delay performance of such Statement of Work until the Condition ceases.
(e) Any notice or other communication required hereunder shall be made in
writing, and either delivered by hand to or by certified mail of Federal
Express or other recognized overnight carrier addressed to IMD or Spunky at
the addresses written below. Notices shall be deemed to be given upon
actual receipt if hand delivered or upon the third (3rd) business day
following the mailing thereof.
5
<PAGE>
- ----------------------------------------------------------------------
If to Spunky, to: If to IMD, to:
Spunky Productions, LLC International Marketing Dynamics, Inc.
Studio M-101 Livermore, CA 94550
Box 47 Attn.: Nasser Hamedani,
887 W. Marietta St. Chief Executive Officer
Atlanta, GA 30318
Attn.: Karl Kronenberger
- ----------------------------------------------------------------------
With a copy to: With a copy to:
Red Hot Law Group of Ashley LLC Evers & Hendrickson, LLP
2970 Clairmont Road 155 Montgomery Street, 12th Floor
Suite 950 San Francisco, CA 94104
Atlanta, GA 30329 Attn.: Frederick K. Koenen
Attn.: John A. Gibby
- ----------------------------------------------------------------------
(f) This Agreement is entered into in, and shall be governed by and construed
under the laws of the State of California, without regard to that state's
conflict of laws principles. The parties hereto agree to venue in the state
court located in Alameda County, California.
(g) No waiver of any breach of any provision of this Agreement shall constitute
a waiver of any prior, concurrent or subsequent breach of the same or any
other provisions hereof or thereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving
party.
(h) This Agreement, together with its Statements of Work executed by the
parties hereto, constitutes the entire agreement between IMD and Spunky
with respect to the subject matter of this Agreement and supersedes any
prior agreements or understandings with respect to the subject matter
hereof. No amendment or waiver of this Agreement or any provision hereof
shall be effective unless in a writing signed by both of the parties.
IN WITNESS WHEREOF, Spunky and IMD have executed and delivered this
Agreement as of the Effective Date.
International Marketing Dynamics, Inc.: Spunky Productions LLC:
By: /s/ Nasser Hamedani By:/s/ Karl Kronenberger
----------------------------------- ---------------------------
Nasser Hamedani, Chief Executive Officer Karl Kronenberger
Date: 1/20/99 Title: PRINCIPAL
-------------------------------- ---------------------------
Date: 12/21/98
---------------------------
6
<PAGE>
EXHIBIT A
Statement of Work #1
Management Services Agreement
between
International Marketing Dynamics, Inc.
and
Spunky Productions LLC
Services:
Creative Services. Stage 1: November 15, 1998-February 1, 1999
Spunky will be responsible for the following general creative tasks for
TwoDog.Net: developing the creative vision; art directing; writing copy; graphic
design; illustration; animation; coding; front-end database creation; and,
integrating audio files into the site. The specific creative goals are as
follows:
Theme Animation
Adding animation and sound to the search engine themes.
My Stuff/Keep Out Expansion
This includes the following ideas for execution: Name or nickname; Self Esteem
Comment; Create your own calendar; Factoid of the day; Incentive Program to
reward kids for visiting and completing tasks in the site; Survey of the Day
Board of Directors
This is a place where kids can control the content, design and structure of
TwoDog.net. Kids will have a chance to give feedback through a discussion list
that is monitored. Seven kids will be elected by other kids to the board. The
board will control the issues at hand and what the outcome will be for those
issues. The kids elected to the board will receive a diploma and stock for being
elected.
Creative Services, Stage 2: February 1-December 31, 1999
Spunky will maintain the content created as of February 1, as well as work on
other creative ideas, to include the following:
Personalized E-mail
After School Lounge
History Calendar
Learn your ABC's and 123's
Story-time
Researcher for Kids
Games
Business Development Concepts (for Sponsors)
Weather Site
The Human Body
Student Atlas
The Stage 2 Creative Services may not be fully implemented by December 31, 1999.
1
<PAGE>
Business Development Services
Spunky will work to negotiate and create customized, multi-party legal and
revenue sharing agreements with prospective sponsors and content providers.
Spunky will then monitor the efficiency of the revenue models and interactive
tools for sponsors, and recommend appropriate adjustments.
Spunky will also develop the privacy policy to give to sponsors, as well as
monitor its application. The privacy policy will be based upon guidance from the
FCC, as well as a model policy for children's privacy created by the Better
Business Bureau.
Sales Services
Spunky will develop a database of prospective sponsors, broken down by target
market and level of online marketing spending; develop a sales kit with these
target sponsors in mind; make a large mailing upon the consumer-launch of
TwoDog.Net; work with the PR team to develop the materials for the
investor-sponsorship program; and, implement the sales plan.
After a sponsorship sale, Spunky will continue to monitor the relationship with
the sponsor. This includes providing periodic reports on user hours (stream
analysis), modifying the site to maximize the sponsors relationship marketing
opportunities, and monitoring all multi-party agreements to ensure compliance
Marketing / Public Relations Services
Spunky will work with others in the IMD team to make certain that television
infomercials, parenting magazine advertising / advertorials, etc., all integrate
well with the overall marketing and public relations message. Spunky will manage
the following marketing campaigns and activities: Online Marketing Campaign;
Public Relations Campaign; Attending Conferences and Trade Shows; Fund-Raising
Sales Program; and, Relationship Marketing.
International Marketing Dynamics, Inc.: Spunky Productions LLC:
By: /S/ Nasser Hamedani By:/s/ Karl Kronenberger
----------------------------------- ---------------------------
Nasser Hamedani, Chief Executive Officer Karl Kronenberger
Date: 1/20/99 Title: PRINCIPAL
-------------------------------- ---------------------------
Date: 12/21/98
---------------------------
STANDARD INDUSTRIAL LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. Parties. This Lease, dated, for reference purposes only, May 18, 1993, is
made by and between ALLAN FROST (herein called "Lessor") and GLOBAL VISION
UNLIMITED INC., a Utah Corporation (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Alameda State of California,
commonly known as 337 Preston Court, Livermore and described as approximately
4,166 square feet of industrial space (See attached Exhibit "A" for outline of
Premises). Said real property including the land and all improvements therein,
is herein called the "Premises".
3. Term.
3.1 Term. The term of this Lease shall be for six (6) months commencing on
June 1, 1993 and ending on November 30, 1993 unless sooner terminated pursuant
to any provision hereof.
3.2 Delay in Possession. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder:
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3. Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $2,000.00, in advance, on the first day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof $2,000.00 as rent for June 1,
1993 through June 30, 1993. Rent for any period during the term hereof which is
for less than one month shall be a pro rata portion of the monthly installment.
Rent shall be payable in lawful money of the United States to Lessor at the
address stated herein or to such other persons or at such other places as Lessor
may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof,
$1,000.00 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment to any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Lessee's failure
to do so shall be a material breach of this Lease. If the monthly rent shall,
from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof, Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, with payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit. Lessee
shall pay security deposit to Lessor no later than July 15, 1993.
6. Use.
6.1 Use. The Premises shall be used and occupied only for general
administrative offices, sales, and storage of educational materials or any other
use which is reasonably comparable and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specifically the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs and Alterations.
7.1 Lessor's Obligations. Subject to the provisions of Paragraph 6, 7.2,
and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good
order, condition and repair the foundations, exterior walls and the exterior
roof of the Premises. Lessor shall not, however, be obligated to paint such
exterior, nor shall Lessor be required to maintain the interior surface of
exterior walls, windows, doors or plate glass. Lessor shall have no obligation
to make repairs under this Paragraph 7.1 until a reasonable time after receipt
of written notice of the need for such repairs. Lessee expressly waives the
benefits of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 Lessee's Obligations.
(a) Subject to the provisions of Paragraph 6, 7.1, and 9, Lessee, at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning, (Lessee shall procure and
Initials: NH/AF
-------
<PAGE>
maintain at Lessee's expense, an air conditioning system maintenance contract)
ventilating, electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surface of exterior walls,
ceilings, windows, doors, plate glass, and skylights, located within the
Premises, and all landscaping, driveways, parking lots, fences and signs located
in the Premises and all sidewalks and parkways adjacent to the Premises.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's
option enter upon the Premises after 10 days' prior written notice to Lessee
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional rent
to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Lessee shall repair
any damage to the Premises occasioned by the installation or removal of its
trade fixtures, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the premises in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibilty in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph
7.2(c).
8. Insurance; Indemnity.
8.1 Liability Insurance -- Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and all other areas appurtenant thereto. Such insurance shall be in an
amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance -- Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, but not Lessee's fixtures, equipment or tenant improvements in
an amount not to exceed the full replacement value thereof, as the same may
exist from time to time, providing protection against all perils included within
the classification of fire, extended coverage, vandalism, malicious mischief,
flood (in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
8.4 Payment of Premium Increase.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, the amount of any increase in premiums for the insurance required
under Paragraph 8.2 and 8.3 over and above such premiums paid during the Base
Period, as hereinafter defined, whether such premium increase shall be the
result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, or general rate increases. In the event
that the Premises have been occupied previously, the words "Base Period" shall
mean the last twelve months of the prior occupancy. In the event that the
Premises have never been previously occupied, the premiums during the "Base
Period" shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parties may insert a dollar amount at the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period: $1,993. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
amount was computed. If the term of this Lease shall not expire concurrently
with the expiration of the period covered by such insurance, Lessee's liability
for premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall
not be responsible for paying any increase in the property insurance premium
caused by the acts or omissions of any other tenant of the building of which
the Premises are a part.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, set forth
in the most current issue of "Best's Insurance Guide". Lessee shall deliver to
Lessor copies of policies of liability insurance required under Paragraph 8.1 or
certificates evidencing the existence and amounts of such insurance. No such
policy shall be cancellable or subject to reduction of coverage or other
modification except after thirty (30) days' prior written notice to Lessor.
Lessee shall, at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee upon demand. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred in Paragraph 8.3.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim. Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
Initials: NH/AF
-------
-2-
<PAGE>
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is less than 50% of the fair market value of such building as
a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 Partial Damage -- Insured Loss. Subject to the provisions of paragraph
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is an insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 Partial Damage -- Uninsured Loss. Subject to the provisions of
Paragraph 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such notice
of Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease there
is damage, whether or not an insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) If at any time during the last six months of the term of this Lease
there is damage, whether or not an insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercised such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraph 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, If any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 Termination -- Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an adequate adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
therefore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 1993-1994. Such payment shall be made by Lessee within thirty (30)
days after receipt of Lessor's written statement setting forth the amount of
such increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof, Lessee
shall pay upon demand therefor the entirety of any increase in real property tax
if assessed solely by reason of additional improvements placed upon the Premises
by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefore, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon, if any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment of subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof. Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
-3-
<PAGE>
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder as and when due, where such failure
shall continue for a period of three days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to
Pay Rent or Quit shall also constitute the notice required by this subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment for
the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C.
ss. 101 or any successor statute thereto (unless, in the case of a petition
filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor by
Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of
them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach;
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which such case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof the amount by which the unpaid rent for the
balance of the term after the time such award exceeds the amount of such rental
loss for the same period that Lessee proves could be reasonably avoided; that
portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have abandoned the Premises. In
such event Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or thereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. Condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than 10% of the floor area
of the building on the Premises, or more than 25% of the land area of the
Premises which is not occupied by any building, is taken by condemnation, Lessee
may, at Lessee's option, to be exercised in writing only within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within then (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in the proportion that the floor area of the building taken bears to the
total floor area of the building situated on the Premises. No reduction of rent
shall occur if the only area taken is that which does not have a building
located thereon. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award shall
be made as compensation for dilution in value of the leasehold or for the taking
of the fee, or as severance damages; provided, however, that Lessee shall be
entitled to any award for loss of or damage to Lessee's trade fixtures and
removable personal property. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Lee & Associates Commercial Real Estate Services, Licensed real estate
broker(s), a fee as set forth in a separate agreement between Lessor and said
broker(s), or in the event there is no separate agreement between Lessor and
said broker(s), the sum of $ PER AGREEMENT for brokerage services
rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15.
16. Estoppel Certificate.
(a) Lessee shall at the time upon not less than then (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
Initials: NH/AF
-------
-4-
<PAGE>
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. Incorporation or Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any Notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision, Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceeding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other, execute
acknowledge and deliver to the other a "short form" memorandum of this Lease for
recording purposes.
26. Holding over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage deed of trust or ground lease, as the case may be, Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and Lessee's name, place and stead, to execute such documents
in accordance with this paragraph 30(b).
31. Attorney's Fees. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
or reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party, such consent shall not be
unreasonably withheld.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. Options.
39.1 Definition. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right to first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any
Initials: NH/AF
-------
-5-
GROSS
<PAGE>
Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein
granted to Lessee are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. Easements. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as voluntary payment, and there shall survive the right on the part of
said party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said party to pay such sum or
any part thereof, said party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Addendum. Attached hereto are Addendum 1 and 2 containing paragraphs 47
through 50 which constitutes a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO; THE PARTIES SHALL REPLY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at:
------------------------- -------------------------------------
on May 20, 1993 By /s/ Allan Frost
----------------------------------- ----------------------------------
Allen Frost
Address 1480 Lundy Avenue By
----------------------------- ----------------------------------
San Jose, CA 95131
- -------------------------------------- "LESSOR" (Corporate seal)
GLOBAL VISION UNLIMITED INC.
Executed at A Utah Corporation
-------------------------- ----------------------------------
on By /s/ Nasser Hamedani
----------------------------------- ----------------------------------
Nasser Hamedani
Address By
----------------------------- ----------------------------------
- -------------------------------------- "LESSEE" (Corporate seal)
<PAGE>
ADDENDUM TO LEASE NO. I
-----------------------
ADDENDUM TO LEASE DATED MAY 18, 1993 BY AND BETWEEN ALLAN FROST ("LESSOR") AND
GLOBAL VISION UNLIMITED INC., A UTAH CORPORATION ("LESSEE") FOR THE 4,166+-
SQUARE FOOT PREMISES LOCATED AT 337 PRESTON COURT, LIVERMORE, CALIFORNIA.
47. Rent Schedule:
--------------
Months 01 - 06 $2,000/month Industrial Gross
48. Tenant Improvements:
--------------------
Lessee, at Lessee's sole cost and expense, shall clean carpets and paint
office space.
49. Option to Extend Lease:
-----------------------
Provided Lessee is not in default at the end of the initial term of the
Lease, Lessor shall grant one (1) six (6) month option to extend the Lease
under the then existing terms and conditions (see below for rental rate
during option period). Lessee to provide Lessor with sixty (60) day written
notice prior to expiration of Lease term of Lessee's intent to exercise
option to extend Lease.
50. Option Period Rental Rate:
--------------------------
The rental rate during the option period shall be as follows:
Months 06 - 12 $2,100/month Industrial Gross
A.F. N.H.
- --------------- ---------------
Initials Initials
<PAGE>
ADDENDUM TO LEASE NO. 2
-----------------------
ADDENDUM TO LEASE DATED MAY 18, 1993 BY AND BETWEEN ALLAN FROST ("LESSOR") AND
GLOBAL VISION UNLIMITED INC., A UTAH CORPORATION ("LESSEE") FOR THE 4,166+-
SQUARE FOOT PREMISES LOCATED AT 337 PRESTON COURT, LIVERMORE, CALIFORNIA.
By signing below Lessee (Nasser Hamedani) agrees to personally guarantee said
Lease as an individual.
/s/ Nasser Hamedani
-------------------
Nasser Hamedani
<PAGE>
ADDENDUM TO LEASE NO. 3
-----------------------
ADDENDUM TO LEASE DATED MAY 18, 1993 BY AND BETWEEN ALLAN
FROST ("LESSOR") AND NASSER HAMEDANI/GLOBAL VISION UNLIMITED, A
UTAH CORPORATION ("LESSEE") FOR THE 4,166 SQUARE FOOT PREMISES
LOCATED AT 337 PRESTON COURT, LIVERMORE, CALIFORNIA.
BY SIGNING BELOW LESSEE (NASSER HAMEDANI) AGREES TO REASSIGN
HIS LEASE FOR THE ABOVE SAID PREMISES TO INTERNATIONAL
MARKETING DYNAMICS INC. INTERNATIONAL MARKETING DYNAMICS
WILL DIRECTLY PAY TO THE LESSOR, MR. ALLAN FROST, THE TOTAL SUM
OF TWO THOUSAND ($2,000) DOLLARS EVERY MONTH.
/s/ Nasser Hamedani Date: 7//27/95
- --------------------------- -----------
NASSER HAMEDANI
GLOBAL VISION UNLIMITED
/s/ Sholeh Hamedani Date: 7/27/95
- --------------------------- -----------
SHOLEH HAMADANI
INTERNATIONAL MARKETING DYNAMICS
November 24, 1998
Ms. Sholeh Hamedani, President
International Marketing Dynamics, Inc.
337 Preston Court
Livermore CA 94550
Dear Mr. Hamedani:
Please accept this letter as our consent to include in your disclosure document
on Form U-7 our reports on International Marketing Dynamics, Inc.'s Balance
Sheet dated December 31, 1996, 1997 and September 30, 1998 (Unaudited) and the
Financial Statements for the years ended December 31, 1996, 1997 and nine months
ended September 30, 1997 and September 30, 1998 (Unaudited).
Sincerely,
MARC LUMER & COMPANY
Marc Lumer, Principal
