<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
3DSHOPPING.COM
(Exact Name of Registrant in its Charter)
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<S> <C> <C>
CALIFORNIA 45411 95-4594029
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
Incorporation or Organization) No.)
</TABLE>
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517 BOCCACCIO AVENUE
VENICE, CA 90291
TELEPHONE (310) 301-6733
(Address and telephone number of principal executive offices and principal place
of business)
------------------------------
ROBERT J. GRANT
517 BOCCACCIO AVENUE
VENICE, CA 90291
TELEPHONE (310) 301-6733
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
JOHN J. HALLE, ESQ. DEBRA K. WEINER, ESQ.
JASON M. BRAUSER, ESQ. GROVER T. WICKERSHAM, P.C.
STOEL RIVES LLP 430 CAMBRIDGE AVENUE, SUITE 100
900 SW FIFTH AVENUE PALO ALTO, CA 94306
PORTLAND, OR 97204
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE(1)
<S> <C> <C> <C>
Units,(2) each consisting of:............................. 2,012,500 $15.00 $30,187,500
(i) one share of Common Stock; and...................... 2,012,500 -- --
(ii) one Warrant to purchase one share of Common
Stock................................................. 2,012,500 -- --
Units issuable upon exercise of the Representative's
Warrants(3), each consisting of:........................ 175,000 18.00 3,150,000
(i) one share of Common Stock; and...................... 175,000 -- --
(ii) one Warrant to purchase one share of Common
Stock................................................. 175,000 -- --
Shares of Common Stock issuable upon exercise of Warrants,
including Warrants underlying Representative's
Warrants(4)............................................. 2,187,500 22.50 49,218,750
Totals.................................................... 4,375,000 $82,556,250
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Units,(2) each consisting of:............................. $ 8,392.13
(i) one share of Common Stock; and...................... --
(ii) one Warrant to purchase one share of Common
Stock................................................. --
Units issuable upon exercise of the Representative's
Warrants(3), each consisting of:........................ 875.70
(i) one share of Common Stock; and...................... --
(ii) one Warrant to purchase one share of Common
Stock................................................. --
Shares of Common Stock issuable upon exercise of Warrants,
including Warrants underlying Representative's
Warrants(4)............................................. 13,682.82
Totals.................................................... $22,950.65
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as
amended.
(2) Includes 262,500 Units that Paulson Investment Company, Inc., the
representative of the several underwriters (the "Representative") has the
option to purchase to cover over-allotments, if any (the "Over-allotment
Option").
(3) In connection with the sale of the Units, the Registrant is granting to the
Representative warrants to purchase 175,000 Units (the "Representative's
Warrants").
(4) Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may be issuable pursuant to the anti-dilution provisions
of the Warrants and the Representative's Warrants.
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.
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- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
DATED MARCH 22, 1999
1,750,000 UNITS
3DSHOPPING.COM
We are offering units consisting of a share of common stock and a warrant to
purchase an additional share of common stock. The common stock and warrants will
trade as separate securities immediately after this offering. Each warrant will
entitle its owner to purchase one share of common stock for $ per share.
You may exercise your warrants at any time for five years after the date of this
prospectus unless we have redeemed the outstanding warrants. We may redeem some
or all of the outstanding warrants by giving 30 days' prior written notice and
paying $0.25 per unexercised warrant. We may not redeem any warrants unless the
closing bid price of the common stock has been at least 200% of the initial
public offering price of the units for ten consecutive trading days before the
date we give notice of redemption.
Our common stock is listed on the NASD OTC Bulletin Board under the symbol
"PGRX". On March 18, 1999, the closing bid price of the common stock was $15.25
per share. We have applied to list our common stock and warrants under the
symbols "DDDS" and "DDDSW", respectively, on the Nasdaq National Market after
this offering.
INVESTING IN THE UNITS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
PER UNIT TOTAL
--------------- -----
<S> <C> <C>
Initial public offering price....................................................................
Underwriting discounts and commissions...........................................................
Proceeds to 3Dshopping.com.......................................................................
</TABLE>
We expect total cash expenses to be approximately $825,000, which will
include a nonaccountable expense allowance of 2% of the gross proceeds of this
offering that will be paid to Paulson Investment Company, Inc., the managing
underwriter of this offering. We have granted to the underwriters a 45-day
option to purchase up to 262,500 additional units to cover over-allotments and
will grant to the underwriters a five-year warrant to purchase up to 175,000
additional units.
Delivery of the units will be made on or about , 1999 against payment
in immediately available funds.
PAULSON INVESTMENT COMPANY, INC.
, 1999
<PAGE>
TABLE OF CONTENTS
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PAGE
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Prospectus Summary........................................................................................ 3
Risk Factors.............................................................................................. 7
Use of Proceeds........................................................................................... 14
Price Range of the Common Stock........................................................................... 15
Dividend Policy........................................................................................... 15
Capitalization............................................................................................ 16
Dilution.................................................................................................. 17
Selected Financial Data................................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 20
Business.................................................................................................. 23
Management................................................................................................ 29
Principal Shareholders.................................................................................... 32
Description of Securities................................................................................. 33
Shares Eligible for Future Sale........................................................................... 36
Underwriting.............................................................................................. 38
Legal Matters............................................................................................. 40
Experts................................................................................................... 40
Additional Information.................................................................................... 40
Index to Financial Statements............................................................................. F-1
</TABLE>
Information contained at any of the Web sites maintained by 3Dshopping.com
does not constitute a part of this prospectus.
3Dshopping.com is a trademark we have applied to register with the United
States Patent and Trademark Office. This prospectus also contains trademarks and
tradenames of other companies.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY AND THE MORE DETAILED INFORMATION
ABOUT US AND THE UNITS AND OUR FINANCIAL STATEMENTS AND NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT WHERE WE HAVE SPECIFICALLY INCLUDED OTHER
INFORMATION, THE INFORMATION IN THIS PROSPECTUS ABOUT SHARES OF COMMON STOCK
OUTSTANDING, NET OFFERING PROCEEDS AND CAPITAL RESOURCES ASSUMES THAT NONE OF
THE WARRANTS OR OPTIONS DESCRIBED IN THIS PROSPECTUS HAS BEEN EXERCISED.
3DSHOPPING.COM
OUR COMPANY
We have developed and are beginning to implement and market to e-commerce
retailers a Web-based marketing and display system that incorporates
sophisticated graphics and other visual features. We believe that this system is
attractive to retailers of products that require a compelling visual
presentation to be effectively sold on the Internet. A limited range of products
is currently being successfully sold via e-commerce. These include items such as
books, CD's and DVD's, where the customer usually knows what he or she is
looking for before searching for it on a vendor's Web site, or items such as
computers or automobiles, where the customer can make a final decision by
choosing from a list of objectively definable options. E-commerce sales of
products that require a more subjective decision process, such as clothing, have
so far presented a challenge to retailers and have achieved percentages of total
e-commerce sales that are substantially less than their percentages of sales
through more traditional channels, such as in-store sales and mail order
catalogs.
We believe that e-commerce sales of products where the decision process has
a substantial subjective and/or emotional content cannot be effectively
supported by the kind of Web sites used to sell more objectively definable
products. We have therefore developed the technological and other resources that
support our system with a view to presenting the e-commerce shopper with an
experience closer to what he or she would experience by visiting a store.
Instead of presenting a text-based presentation that might include still
pictures of an article of clothing, we are able to provide an animated,
graphical presentation in which a model is seen from a series of positions
throughout a full 360 degree spectrum. We also provide viewer interactivity that
permits the viewer to stop the motion at any view. A viewer can also select from
a menu of available colors and change the image to reflect the selected color,
or zoom in on selected features. We have acquired and are developing additional
presentation materials that will allow us to incorporate a "cyber-salesperson",
an animated character preselected by the retailer or selected by the viewer from
a menu of choices, that will make an audiovisual presentation of the key
features of the selected garment. For viewers with access to the Internet
through high-volume data delivery services, we are developing the technology to
support a complete virtual shopping experience, including audiovisual features
that will permit the viewer to enter a store in which the various items for sale
will be presented. This "virtual store" will not be limited to the shelves,
racks and walls found in traditional retail outlets, but instead will permit the
retailer to display these items in their most favorable marketing context. For
example, beachwear could be presented by models posing on a beach. The shopper
will be able to view the various items offered, make inquiries of virtual sales
persons and select and purchase merchandise all at a level of virtual reality
equivalent to that used in sophisticated computer games and other animated
presentations. We believe that these features will enable the viewer to make a
more informed choice and therefore will attract shoppers for products
traditionally sold only through stores or mail order catalogs.
3
<PAGE>
OUR SYSTEM
We offer our system to clothing and other retailers who want to engage in
e-commerce through a Web site that we design and maintain. We offer a complete
package of services in support of this activity, including
- Web site design,
- model selection and photography,
- preparation and maintenance of specific customer offerings on their or our
Web sites,
- data services with respect to Web site activity and
- electronic order processing.
While we maintain all of the Web sites we design, these sites are accessible
either directly through our "home" page at www.3Dshopping.com, from electronic
"shopping malls" that we and others maintain to attract shoppers to our
customer-specific Web sites or from other Web sites maintained by the customer.
We charge fees for designing, setting up and maintaining our customers' Web
sites and for the number of visitors to those Web sites if our customers choose
not to use our order processing services. We also receive a percentage of the
total value of product orders we process for our customers.
We provide an Internet-based marketing and display system to retailers who
wish to engage in e-commerce and who believe that they require sophisticated
presentation technology to do so. We do not intend to sell retail products for
our own account, nor do we currently intend to offer "banner" advertising or
other promotional space to advertisers, other than our retailer customers, on
any of our Web sites.
OUR MARKETS AND CUSTOMERS
We believe that our principal market consists of branded and non-branded
retailers of apparel and accessories. Currently Nordstrom is our only branded
customer. In addition, we design and operate Intranets used by companies like
Boeing and Shell to allow their employees to select products under award
programs. We also have customers in other markets, including flowers, antiques
and jewelry and expect to examine other market areas as opportunities arise.
OUR STRATEGY
Our goal is to be the leading provider of Web-based marketing and display
services to e-commerce retailers that require a high level of technical
sophistication and presentation quality to attract and serve the needs of their
customers. We believe that e-commerce is becoming more widely accepted as a
retail channel by both sellers and consumers. As the volume and range of
products sold in e-commerce increases, the channel will require ever increasing
levels of sophistication to support consumer demand over a variety of product
categories. We believe that we are well positioned, from both a technological
and a marketing point of view, to offer state-of-the-art Web site design and
maintenance services to customers across a broad spectrum of product categories.
We believe that, for the foreseeable future, our core market will be in the area
of apparel and accessories, where we believe the market potential is great
enough to support substantial growth.
In order to compete as a relatively small participant in the emerging and
highly competitive market enabled by the Internet, we have positioned ourselves
as a service provider to larger and more recognized entities in their respective
market areas. We intend to enable our customers to capitalize on their own
market presence and brand recognition in a new sales channel or to support
intracompany communication at a high level of sophistication. While we believe
that we may ultimately become a
4
<PAGE>
recognized name in e-commerce, we expect for the immediate future to depend on
the name recognition of our customers to attract viewers to our Web sites.
In order to more fully integrate the range of services we offer, we have
agreed in principle to acquire the assets of Design Base Los Angeles, Inc., a
designer and producer of print advertising, direct mail catalogs, brochures and
advertising collateral materials. We expect to complete the acquisition before
the completion of this offering.
We were incorporated in California under the name Pi Graphix, Inc. and
commenced business in August 1996. The mailing address and telephone number of
our principal executive offices are 517 Boccaccio Avenue, Venice, California
90291 and (310) 301-6733.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 1,750,000 units. Each unit consists of one share of
common stock and one warrant to purchase one additional
share of common stock. The common stock and warrants
will trade separately immediately after the offering.
For more information, see "Description of Securities"
beginning on page 33.
Warrants.......................... The warrants will be exercisable at an exercise price of
$ at any time until they expire on the fifth
anniversary of the date of this prospectus. If the
closing bid price of our common stock on each of the 10
consecutive trading days preceding our notice of
redemption is greater than or equal to $ , we may
redeem some or all of the outstanding warrants if we
provide the holders with 30 days' prior written notice.
The redemption price will be $0.25 per warrant. Please
refer to "Description of Securities-- Warrants"
beginning on page 33 for more information.
Common Stock Outstanding.......... 3,645,746 shares of common stock were outstanding on
February 24, 1999. After the offering, there will be
5,395,746 shares outstanding. Both of these numbers
exclude up to 562,333 shares of common stock issuable on
exercise of outstanding options and warrants.
Risk Factors...................... An investment in the units involves a high degree of
risk. You should not consider this offer if you cannot
afford to lose your entire investment. Please refer to
"Risk Factors" beginning on page 7 for factors you
should consider.
Use of Proceeds................... The net proceeds from the offering, estimated to be
approximately $23,521,875, will be used to repay debt,
fund expansion of sales and marketing activities,
continue research and development efforts, acquire
capital equipment and Internet infrastructure and
acquire content and technology and for working capital
and general corporate purposes. For more information,
please refer to "Use of Proceeds" beginning on page 14.
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
Amounts for the eleven months ended June 30, 1997 reflect eleven months of
operations from August 13, 1996 (inception) to June 30, 1997.
The line item "Weighted average shares used in computing net loss per share"
is based on the weighted average shares of common stock outstanding for the
eleven months ended June 30, 1997, the year ended June 30, 1998 and the six
months ended December 31, 1998. It excludes 0, 32,609 and 32,609 shares,
respectively, of common stock issuable upon exercise of outstanding options,
warrants and convertible debt. Note 1 of Notes to Financial Statements includes
an explanation of the determination of the number of shares used in computing
net loss per share.
The amounts in the "As Adjusted" column of the Balance Sheet Data have been
adjusted to give effect to the sale of the 1,750,000 units offered by this
prospectus, assuming an initial public offering price of $15.00, after deducting
the underwriting discount and estimated offering expenses, and the receipt of
the net proceeds from the offering.
<TABLE>
<CAPTION>
ELEVEN MONTHS YEAR ENDED SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30, DECEMBER 31,
-------------- ------------ ------------------------
1997 1998 1997 1998
-------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ -- $ 18,404 $ 521 $ 27,539
Operating expenses:
Sales and marketing................................... 973,283 473,665 148,092 822,338
Research and development.............................. 294,360 170,259 107,748 281,675
General and administrative............................ 647,868 457,345 178,091 1,650,310
-------------- ------------ ---------- ------------
Total expenses........................................ 1,915,511 1,101,269 433,931 2,754,323
Operating loss.......................................... 1,915,511 1,082,865 433,410 2,726,784
Interest expense........................................ 3,089 10,373 2,450 17,163
Other income............................................ 10,000 13,500 13,500 --
-------------- ------------ ---------- ------------
Net loss................................................ $ 1,908,600 $ 1,079,738 $ 422,360 $ 2,743,947
-------------- ------------ ---------- ------------
Net loss per share...................................... $ .59 $ .28 $ .11 $ .68
Weighted average shares used in computing net loss per
share................................................. 3,210,651 3,823,228 3,686,644 4,015,416
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 112,062 $ 23,633,887
Working capital (deficit)........................................................... (236,790) 23,285,035
Total assets........................................................................ 251,985 23,773,810
Accumulated deficit................................................................. (5,732,285) (5,732,285)
Shareholders equity (deficit)....................................................... (143,252) 23,378,573
</TABLE>
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER THE FOLLOWING DISCUSSION OF RISKS IN ADDITION TO THE OTHER INFORMATION
IN THIS PROSPECTUS BEFORE PURCHASING ANY OF THE UNITS. IN ADDITION TO HISTORICAL
INFORMATION, THE INFORMATION IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING"
STATEMENTS ABOUT OUR FUTURE BUSINESS AND PERFORMANCE. OUR ACTUAL OPERATING
RESULTS AND FINANCIAL PERFORMANCE MAY BE VERY DIFFERENT FROM WHAT WE EXPECT AS
OF THE DATE OF THIS PROSPECTUS. THE RISKS BELOW ADDRESS SOME OF THE FACTORS THAT
MAY AFFECT OUR FUTURE OPERATING RESULTS AND FINANCIAL PERFORMANCE.
OUR SYSTEM DEPENDS ON RAPID DATA TRANSMISSION TO ACHIEVE ITS FULL POTENTIAL;
RAPID DATA TRANSMISSION IS NOT WIDELY AVAILABLE AND MAY NEVER BECOME WIDELY
AVAILABLE
Our system has the ability to display products in a moving format, to
incorporate audio tracks and to support substantial interactivity between the
shopper and the display. While we believe that these features distinguish us
from traditional creators of static Web site displays, the volume of electronic
data required to support this process is substantially greater than for a
traditional static display. Shoppers accessing our Web sites using a
conventional modem hooked up to a conventional telephone line will be limited to
viewing options that do not make full use of our display potential or will be
required to accept long download times. Even customers using a high-speed data
delivery system, such as ISDN, cable or DSL systems may be subject to delays
generated within the Internet itself. In order to make full use of our
technology without experiencing frustrating download times, shoppers will have
to access our Web sites through high speed connections, such as cable modems and
we will be required to feed data directly from broadband communications
providers, such as MediaOne Express, rather than through conventional Internet
channels. Cable modems, although increasingly available, are currently in use by
only a small percentage of Internet users. Direct feeds from broadband
communications providers are currently under development but are not in current
commercial use. We believe high volume data delivery systems will be
increasingly available both to business and individual Internet users but we
cannot predict with confidence the speed with which such systems will become
widely available nor can we guarantee that these systems will be widely used by
consumers.
MANY OF OUR POTENTIAL CUSTOMERS AND SHOPPERS ARE UNFAMILIAR WITH THE INTERNET
AND E-COMMERCE
Most potential retail customers have only limited experience with e-commerce
and have not spent a significant amount of their time or income purchasing
products offered through e-commerce. Similarly, most sellers of consumer
products do not, or have only recently begun to, sell their products through
e-commerce. We cannot guarantee that consumers will use e-commerce for a
significant portion of their shopping needs or that retailers will use this
method widely to reach consumers. Our ability to generate revenue will depend on
the following variables, among others:
- the continued development of the Internet as an e-commerce medium;
- our continuing ability to provide our customers with the highest quality
of service and support;
- the availability of comparable e-commerce products and services on other
Web sites;
- sales volume on Web sites that we maintain;
- our ability to achieve and demonstrate user demographic characteristics
that are attractive to our customers; and
- the establishment and maintenance of desirable relationships with our
customers.
7
<PAGE>
WE HAVE A NEW AND UNPROVEN BUSINESS MODEL
The manner in which we conduct our business and charge for our services is
new and unproven. The model depends on our ability to generate revenue from
multiple sources through our Web sites. These sources include:
- fees paid for designing and building Web sites showcasing apparel and
accessories;
- fees paid for maintenance of the Web sites;
- revenue sharing with retail customers who use the Web sites to sell
apparel and accessories through e-commerce;
- fees paid by retailers based on the number of shoppers who visit the Web
site when a customer does not use its site to directly sell product; and
- fees for updating the Web site, including product offerings.
For us to be successful, we must convince a large number of retailers to use
our system. Furthermore, we and our customers must convince shoppers to visit
our Web sites regularly. We must persuade retailers and their customers that the
shopping experience provided by our Web sites is compelling, innovative,
informative and easy to use. To date, apparel sales on the Internet have been
minimal compared to sales of other kinds of products such as books and CDs.
Accordingly, we cannot guarantee that we will be able to change the buying
habits of consumers or the perception of retailers as to the usefulness of our
system to them either for advertising or for sale distribution.
OUR BUSINESS IS INTENSELY COMPETITIVE
We will face intense competition in every aspect of our business, including:
- competition for retailers that choose to sell or market products by using
our Internet system; and
- competition for shoppers interested in products featured by our customers.
We compete specifically with Web site designers and generally with suppliers
of other advertising media for business from retailers. Moreover, retailers may
employ people to design and maintain their own Web sites. Additionally, we
believe marketing companies could adopt our system, or one very similar to it,
as another means to promote the products and brands of their clients. Many of
these organizations have greater financial resources than we have. As the
Internet and e-commerce continue to expand, the number of people and companies
providing Web-based services will continue to increase and competition will
increase as well.
In addition to the competitors discussed above, we compete with other
companies for shoppers who visit our Web sites. E-commerce is experiencing
explosive growth fueled by extremely rapid technological development, rapid
changes in consumer habits and preferences, massive infusions of capital and a
large number of new and established companies with aspirations to control
virtually every aspect of e-commerce. A relatively small number of these
companies, including Microsoft, Netscape, America Online and Yahoo!, currently
control primary or secondary access of a significant percentage of all Internet
users. As a result, these companies and the companies they sponsor or assist
have a competitive advantage in marketing to Internet shoppers. Other large and
established companies, such as local and long distance telephone companies,
cable companies, satellite programming providers and others have established
relationships with large customer bases and are rapidly expanding into the
provision of Internet services. Almost all of these companies have financial,
technological, promotional and other resources that are much greater than those
available to us. Many of these companies could use or adapt their current
technology, or could purchase technology, to provide a service directly
8
<PAGE>
competitive with ours. We cannot guarantee that we will be able to compete
effectively in our chosen markets.
WE HAVE A SHORT OPERATING HISTORY
We began to do business in August 1996. For most of our history, we were
developing and testing our system. We first made our Web sites available to our
customers on a test basis in November 1997 and achieved revenue only in the last
three months of calendar 1998. Many of our customers have not yet had an
opportunity to fully evaluate the benefit of using our Web sites. Our ability to
retain our current customers and to attract others will depend on the
performance of our customers using our Web sites, especially over the next few
months.
WE HAVE NOT YET ACHIEVED PROFITABLE OPERATIONS AND EXPECT LOSSES TO INCREASE
We have operated at a loss since the start of our business and expect to
continue to operate at a loss for at least the next twelve months. As of June
30, 1998, we had a cumulative loss from inception and an accumulated deficit of
$2,988,388. We cannot guarantee that we will ever achieve profitable operations.
We expect to increase substantially our levels of expense in almost all
categories of our operations following this offering. As a result of these
increases, we expect our rate of loss will initially increase. In the long run,
these losses will be offset by increasing revenues only if we are successful in
achieving our sales goals by attracting an increasing number of customers and
shoppers to our Web sites.
OUR FUTURE OPERATING RESULTS MAY BE DIFFICULT TO PREDICT
Because of our very limited operating history and early stage of
development, we do not have historical financial data on which we, you or market
analysts can plan or base forecasts of revenues, earnings or capital
requirements with any accuracy. Because e-commerce is new, both we and others
will find it difficult to make predictions about our financial performance based
on the performance of other companies. One result of this unpredictability may
be that we will experience unanticipated capital requirements at a time when the
required capital is not available to us or is only available on terms that will
dilute your investment. Another possible result is that our stock price may
experience rapid and significant fluctuations as our financial performance
exceeds or falls short of market expectations.
OUR BUSINESS WILL DEPEND ON THE PERFORMANCE OF OUR CUSTOMERS AND OTHERS
Our ability to earn revenues from our customers will depend on the success
of these customers in increasing their business through the use of our service,
either by making e-commerce sales or by using our Web sites as an effective
advertising medium supporting sales in other channels. This in turn will depend
on our ability, and the ability of our customers, to present merchandise using
our system in a manner that is substantively informative, visually attractive,
responsive to consumer demand and user-friendly. Our ability to achieve these
goals depends in part on the availability of technology that we and our
customers do not own or control. In particular, we expect to depend on the
speed, quality and demographic coverage of data delivery systems offered by
various Internet service providers. Our success will also depend on the ability
of our customers to select and offer merchandise that is attractive to their
target markets. We cannot guarantee that we or our customers will succeed in
establishing a profitable, e-commerce-based sales channel.
WE WILL REQUIRE SIGNIFICANT ADDITIONS TO OUR MANAGEMENT TEAM
Since we began our business, we have been a small company engaged in
developing a basic marketing concept for e-commerce. As a result, we have not
had to deal with many of the challenges
9
<PAGE>
facing a more mature business, such as the management of a sophisticated sales
organization, performing under a substantial volume of service obligations to
customers or the management of significant financial resources. We expect to
face all of these management challenges in the near future. To do so, we expect
to be required to add additional members to our management team, particularly in
the area of operations and finance. If we acquire Design Base Los Angeles, Inc.,
as described elsewhere in this prospectus, we expect that Brian Smith, Design
Base's president, will become our president and chief operating officer. We also
expect to retain a chief financial officer and may seek management level
additions in other areas. Competition for qualified management level personnel
is intense and we cannot guarantee that we will be successful in hiring
qualified personnel or in integrating them into our company. We also intend to
elect additional independent directors to our board of directors but have not
identified any particular candidate at this time.
WE MAY BE UNABLE TO MANAGE OUR GROWTH
Our business plan requires significant expansion of our operations to
address potential market opportunities. We expect we will need to increase
personnel, including key management personnel, and other resources significantly
in the near future. We expect this growth to place a significant strain on our
managerial, operational and financial resources and systems. To manage our
growth, we must implement, improve and effectively use our operational,
management, marketing and financial systems and train and manage our new and
existing employees. We cannot guarantee we will be able to manage effectively
the expansion of our operations or that our personnel, systems, procedures and
controls will be adequate to meet our anticipated future operations.
WE FACE A RISK OF FAILURE, DELAYS AND OVERLOADS ON OUR WEB SITES
The performance, reliability and availability of our Web sites and network
infrastructure are critical to our reputation and ability to attract and retain
retailers or shoppers. Our network and computer infrastructure is located at a
facility in Marina Del Rey, California. Our systems and operations are
vulnerable to damage or interruption from a variety of causes. We will not have
redundant facilities until April 1999 at the earliest and may be reliant on a
single facility for an indefinite period after that date. We carry only limited
business interruption insurance. Our computer systems are complex and under
rapid development. Undetected errors in new or existing programs or equipment
could cause a range of problems from temporary unavailability of data, to
slowdowns and overloads to complete system failures. A sudden and significant
increase in traffic on one of our Web sites could also strain the capacity of
our software, hardware and telecommunications systems, which could lead to
slower response times or system failures. Any system error or failure that
causes interruption in the availability of content or an increase in response
time could result in a loss of business for our customers and reduce the
popularity of our Web sites with shoppers. Since our ability to earn revenue
depends directly on our ability to attract customers and shoppers, any such
error or failure could have a material temporary or permanent effect on our
revenues.
WE, OUR CUSTOMERS AND SHOPPERS USING OUR WEB SITES FACE SECURITY RISKS
Despite the implementation of security measures, our networks may be
vulnerable to unauthorized access, computer viruses and other problems. A person
who is able to circumvent security measures could misappropriate proprietary
information or cause interruptions in our operations. Various Web sites and
Internet service providers have experienced, and our Web sites may experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. We may be required to
spend significant amounts to protect against the threat of security breaches or
to alleviate problems caused by such breaches. Although we intend to implement
industry-standard security measures, these measures may be circumvented.
Eliminating computer
10
<PAGE>
viruses and alleviating other security problems may require service
interruptions or unanticipated expense.
THE FUTURE OF THE INTERNET AS A COMMERCIAL MEDIUM IS UNCERTAIN
Rapid growth in use of and interest in the Internet is a recent phenomenon.
Neither we nor others can predict with confidence whether acceptance and use of
the Internet will continue to develop or whether a sufficient base of users will
emerge to support our business. The Internet may not be accepted as a viable
commercial medium for any of a number of reasons, including:
- inadequate development of the necessary infrastructure;
- inadequate development of enabling technologies; and
- inadequate consumer support for e-commerce generally or in our targeted
market areas.
If the Internet continues to experience an increase in users, an increase in
frequency of use or an increase in the bandwidth requirements of users, the
Internet infrastructure may be unable to support the demands placed upon it,
specifically the demands of delivering the high volume of data necessary for the
optimum performance of our Web sites. The Internet could lose its viability as a
commercial medium due to delays in the development or adoption of new standards
and protocols required to handle increased levels of Internet activity, or due
to increased government regulation. Changes in or insufficient availability of
telecommunications services to support the Internet also could result in
unacceptable response times and could adversely affect use of the Internet
generally and of our Web sites in particular.
WE MAY NEED, AND MAY BE UNABLE TO OBTAIN, ADDITIONAL FINANCING
We may require additional capital to take full advantage of future growth
opportunities, fund our ongoing research and development efforts and continue to
upgrade our technology and network systems. The amount and timing of our future
capital requirements will depend on many factors, including, among others:
- consumer acceptance of and demand for our Web sites;
- the acceptance by customers and potential customers of our business
concept;
- the need to establish and continually upgrade our technology and computer
systems; and
- the need to establish and maintain an effective sales and marketing
program.
We have not arranged for any funding beyond the proceeds from this offering.
We believe these proceeds will satisfy our capital requirements for at least the
12 months following this offering and for the foreseeable future after that but
we cannot guarantee that additional financing will not be required earlier than
we expect. We also cannot guarantee that additional financing, if required, will
be available on acceptable terms or at all. If additional funds are raised by
issuing equity securities, your investment may be substantially diluted. If we
raise capital by borrowing, the interest charge may substantially increase
operating expense.
WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS
Our success depends, to a significant extent, upon the continued involvement
of Mr. Weisdorn, our President. The loss of his services, or the services of
other key employees, could have a material adverse effect on our business and
prospects. We do not currently maintain "key person" life insurance on the lives
of any of our officers or employees, nor do we have employment agreements with
our key personnel. Our future success also depends on our continuing ability to
attract and retain highly qualified technical personnel and management.
Competition for such personnel is intense and we
11
<PAGE>
cannot guarantee that we will be able to retain our key management and technical
employees or that we will be able to attract or retain additional qualified
technical personnel and management in the future.
WE HAVE ONLY LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND TO AVOID
INFRINGING INTELLECTUAL PROPERTY RIGHTS OF OTHERS
We consider our proprietary technology, trademarks, trade secrets, domain
names and other intellectual property to be critical to our success. We rely on
a combination of copyright and trademark laws, trade secret protection,
confidentiality and non-disclosure agreements and contractual provisions with
our employees and with third parties to establish and protect our proprietary
rights. We cannot guarantee the procedures that we employ or may employ in the
future to protect our intellectual property will provide us with adequate
protection. The defense of intellectual property rights can be expensive and the
outcome of any defense may be uncertain. We use a variety of proprietary
technologies that we have developed ourselves or licensed from others. We cannot
guarantee that any particular aspect of our technology will not be found to
infringe the rights of other companies. Other companies may acquire proprietary
rights to technology useful or necessary to our business or may establish
trademarks, tradenames or domain names that limit our ability to market our
services or our customers' products. We cannot predict how any such intellectual
property, or the need to obtain rights to use it, will affect our business.
OTHERS MAY DEVELOP OR PURCHASE COMPARABLE OR SUPERIOR TECHNOLOGY
We believe our technology reflects the current state of the art for online
merchandise display. However, others could develop, and may have developed,
comparable or superior technology. We cannot guarantee that future innovations
in Internet or computer technology, generally, or in online merchandising
technology, will not eliminate any technological advantage we may currently
enjoy or render our technology obsolete. We expect we will be required to
maintain a continuous program of technological innovation in order to take
advantage of general technological advances and to remain competitive.
GOVERNMENT REGULATION OF THE INTERNET IS NEW AND ITS FUTURE IS UNCERTAIN
Although there are currently few laws and regulations directly applicable to
the Internet, new laws and regulations likely will be adopted in the United
States and elsewhere covering issues such as privacy, pricing, sales taxes and
characteristics and quality of Internet services. The adoption of restrictive
laws or regulations could slow Internet growth or expose us to significant
liabilities associated with the products available on our Web sites. The
application of existing laws and regulations governing Internet issues such as
property ownership, libel and personal privacy is also subject to substantial
uncertainty. We cannot guarantee that the application of new or existing laws
and regulations will not expose us to significant liabilities, significantly
slow Internet growth or otherwise have an adverse effect on our business.
The Communications Decency Act of 1996 (the "CDA") was enacted in 1996.
Although those sections of the CDA that, among other things, proposed to impose
criminal penalties on anyone distributing "indecent" material to minors over the
Internet were held to be unconstitutional by the U.S. Supreme Court, we cannot
guarantee similar laws will not be proposed and adopted. Although we do not
currently distribute the types of materials that the CDA would have prohibited,
similar legislation in the future could limit our ability to market some
products.
12
<PAGE>
OUR STOCK HAS BEEN THINLY TRADED AND MAY EXPERIENCE PRICE VOLATILITY
Before this offering, our stock has been traded on the NASD OTC Bulletin
Board. We achieved a trading market for our stock through a series of small,
unregistered offerings and have not been required to file reports with the SEC
as do most companies whose securities are publicly traded. Historical market
prices for our stock may not be a reliable indication of our value for several
reasons, including the following:
- we have not regularly made available the kind of public information that
supports the markets for securities of more established companies;
- our company has not been covered by regular reports from financial
analysts of established standing;
- the limited amount and distribution of our stock has exacerbated the
effect of relatively small imbalances in supply and demand; and
- the number of stock brokerage firms through whom our stock could be traded
has been limited.
We cannot guarantee that the market for our securities after this offering
will fairly reflect our value or that it will be active enough to provide
liquidity to you. The trading price of our securities could be subject to wide
fluctuations in response to quarterly variations in operating results, changes
in financial estimates by securities analysts, announcements of technological
innovations or new products by us or our competitors or other factors. In
addition, the stock market has experienced extreme price and volume fluctuations
that have particularly affected the market prices for many technology and small
capitalization companies. These broad market fluctuations may affect the market
price of our securities. Market valuations for companies offering Internet
services have recently experienced substantial increases and extreme volatility.
Any significant decrease in the market valuation of such companies generally
could cause a substantial decrease in the price of our securities unrelated to
our operating results.
YOUR WARRANTS CAN BE REDEEMED ON SHORT NOTICE
We could redeem your warrants for $0.25 per warrant on 30 days' written
notice, provided that the closing price of our common stock has been at least $
for the ten consecutive trading days immediately preceding the date of
notice of redemption. If we give notice of redemption, a holder would be forced
to sell or exercise the warrants or accept the redemption price.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO ALLOCATE OFFERING PROCEEDS
We expect to use approximately $573,500 of the net proceeds of this offering
to repay debt and approximately $5,650,000 for the other purposes described
under "Use of Proceeds" later in this prospectus. The remaining net proceeds,
estimated to be approximately $17,298,375, will be used for working capital and
applied to general corporate purposes. Our management will have broad discretion
to allocate the proceeds of this offering, including proceeds currently
specifically allocated as described in this prospectus, and any other cash
resources to such uses as they determine to be in the best interest of
3Dshopping.com. The amounts actually allocated to each expense category, and the
source of the cash so allocated, may vary significantly, depending on a number
of factors, including the amount of future revenue growth, the amount of cash
generated or used by our operations and the progress of our marketing efforts.
13
<PAGE>
USE OF PROCEEDS
The net proceeds that we will receive from the sale of the 1,750,000 units
are estimated to be approximately $23,521,875, assuming an initial public
offering price of $15.00 per unit, after deducting underwriting discounts and
commissions and estimated offering expenses, and assuming no exercise of the
warrants or the underwriters' over-allotment option.
Immediately following this offering, we expect to use approximately $58,500
of the net proceeds to repay indebtedness we owe to our President, Lawrence
Weisdorn, and his father. The principal is payable on demand and bears interest
at a rate of 7% per annum. We also intend to use approximately $515,000 to pay
the outstanding principal and interest on a promissory note issued to an
institutional investor in March 1999. We intend to use the remaining net
proceeds, along with any other financing sources that may become available to
us, to support our anticipated growth over the next two to three years. We
expect to experience negative cash flow from operations for at least the next 12
months. We expect that our cash requirements will exist principally in the
following areas:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT BUDGETED
FOR USE IN THE 12 MONTHS
USE OF CAPITAL FOLLOWING THE OFFERING
- ------------------------------------------------------------------------------------ ----------------------------
<S> <C>
Developing and rapidly expanding sales, marketing and advertising activities,
including the hiring of additional employees and consultants...................... $ 3,000,000
Continuing and expanding our internal research and development program.............. 500,000
Purchasing capital equipment, including computer, video, photographic and other
equipment required to support expanded operations................................. 500,000
Funding an anticipated growth in levels of receivables.............................. 750,000
Expansion of our management team.................................................... 400,000
Other uses not now expressly contemplated, such as the purchase of complementary
technology or businesses, the purchase or lease of real and personal property and
equipment; funding unanticipated negative cash flow from operations; or
repurchases of stock or redemption of warrants.................................... 500,000
</TABLE>
The amount and timing of any of the above expenses will depend on various
factors, including rates of business growth, specific technology, capital
equipment and other requirements imposed by our customers and opportunities
presented to us. While we have prepared internal forecasts to assist management
in planning, we believe that these forecasts, as they apply to periods extending
beyond the next few months, are inherently unreliable and that our actual cash
requirements will differ materially from those we presently forecast.
Our current business plan has identified total capital requirements that are
substantially less than the anticipated offering proceeds. However, we expect
that unanticipated needs and opportunities may cause our capital requirements to
exceed our current estimates. We believe the net proceeds of this offering will
be sufficient to fund our operations for at least the next twelve months and for
the foreseeable future after that.
Pending the use of the proceeds of this offering for operational purposes,
we intend to invest the net proceeds of this offering not used for the immediate
repayment of debt in short-term, investment grade, interest-bearing securities.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
Since June 25, 1997, 3Dshopping.com's common stock has been traded on the
NASD OTC Bulletin Board under the symbol "PGRX". The following table sets forth
the high and low bid prices for the common stock for the quarters indicated.
Prices reflect bids posted by market makers and may not necessarily reflect
actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDED JUNE 30, 1998
First Quarter............................................................................. $ 1.8750 $ 1.1875
Second Quarter............................................................................ 2.2500 1.3750
Third Quarter............................................................................. 1.7656 0.9219
Fourth Quarter............................................................................ 1.8750 0.9531
YEAR ENDING JUNE 30, 1999
First Quarter............................................................................. 5.5000 1.6250
Second Quarter............................................................................ 19.7500 4.0625
Third Quarter (to March 18, 1999)......................................................... 18.8750 13.0000
</TABLE>
On March 18, 1999, the closing bid price of the common stock on the NASD OTC
Bulletin Board was $15.25 per share. As of February 24, 1999, there were 60
holders of record of our common stock. This number does not reflect the number
of beneficial holders of the common stock, which we believe to be between 600
and 800 holders.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. Payment
of any cash dividends will depend on the results of our operations, our
financial condition and our capital expenditure plans, as well as other factors
our board of directors may consider relevant. We presently intend to retain any
earnings for use in our business and, therefore, do not anticipate paying any
cash dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1998 on an
actual basis and as adjusted to give effect to the sale of the 1,750,000 units
at an assumed initial public offering price of $15.00 per unit and the receipt
of the net proceeds. This table should be read in conjunction with the Financial
Statements and related Notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
(UNAUDITED)
<S> <C> <C>
Short term debt..................................................................... $ 295,064 $ 295,064
Long term debt...................................................................... 12,052 12,052
Shareholders' equity (deficit):
Common stock, no par value: 10,000,000 shares authorized; 3,305,746 shares issued
and outstanding; 5,055,746 shares issued and outstanding, as adjusted........... 3,306 5,056
Additional paid-in capital........................................................ 5,534,477 29,054,602
Stock subscriptions in advance--net............................................... 51,250 51,250
Accumulated deficit............................................................... (5,732,285) (5,732,285)
------------- -------------
Total shareholders' equity (deficit)................................................ (143,252) 23,378,623
------------- -------------
Total capitalization................................................................ $ 163,864 $ 23,685,739
------------- -------------
------------- -------------
</TABLE>
16
<PAGE>
DILUTION
The difference between the initial public offering price per share of common
stock and the pro forma net tangible book value per share of common stock after
this offering constitutes the dilution to you. Net tangible book value per share
is determined by dividing our net tangible book value (total tangible assets
minus total liabilities) by the number of shares of common stock outstanding.
At December 31, 1998, our net tangible book deficit was $(151,524), or
$(.05) per share of common stock. After giving effect to the sale of the
1,750,000 units, and the receipt of the estimated net proceeds, assuming an
initial public offering price of $15.00 (after deducting the underwriting
discount and the estimated offering expenses and attributing no portion of the
value of the unit to the warrant), our pro forma net tangible book value as of
December 31, 1998 would have been $23,370,351 or $4.62 per share of common
stock. This represents an immediate increase in the net tangible book value of
$4.67 per share to existing shareholders and an immediate dilution in net
tangible book value of $10.38 per share to the purchasers of the units in the
offering.
The following table illustrates the per share dilution to you:
<TABLE>
<S> <C>
Assumed initial public offering price............................................... $ 15.00
Net tangible book deficit per share............................................... (.05)
Increase attributable to new investors............................................ 4.67
---------
Adjusted net tangible book value after offering..................................... 4.62
---------
Dilution per share to new investors................................................. 10.38
---------
---------
Dilution as a percentage of offering price.......................................... 69.2%
</TABLE>
The following table sets forth on a pro forma basis as of December 31, 1998,
the number of shares of common stock purchased from 3Dshopping.com, the total
consideration paid to 3Dshopping.com and the average price per share (1) paid by
the existing shareholders and (2) paid by the purchasers of the units in this
offering, assuming the sale of 1,750,000 units at an assumed public offering
price of $15.00 per unit, before deduction of underwriting discounts and other
estimated offering expenses payable by us and ascribing no portion of the value
of a unit to the warrant.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------
NUMBER PERCENT AMOUNT PERCENT AVERAGE PRICE PER SHARE
---------- ----------- ------------ ----------- -----------------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders....................... 3,305,746 65% $ 1,608,093 6% $ 0.49
New Investors............................... 1,750,000 35 26,250,000 94 15.00
---------- --- ------------ ---
Total....................................... 5,055,746 100% 27,858,093 100%
---------- --- ------------ ---
---------- --- ------------ ---
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option, outstanding options or warrants, the warrants we are offering through
this prospectus or the representative's warrants. At December 31, 1998, options
and warrants were outstanding to purchase up to a total of 706,333 shares of
common stock at exercise prices ranging from $1.25 to $3.00. To the extent that
these options and warrants are exercised, there will be further dilution to new
investors.
17
<PAGE>
SELECTED FINANCIAL DATA
We derived the following selected statement of operations data for the
eleven months ended June 30, 1997 and the year ended June 30, 1998 and the
selected balance sheet data at June 30, 1998 from financial statements included
elsewhere in this prospectus, which have been audited by Friedman, Minsk, Cole &
Fastovsky, independent auditors. We derived the selected statements of
operations data for the six month periods ended December 31, 1997 and 1998 and
the selected balance sheet data at December 31, 1998 from our unaudited
financial statements included elsewhere in this prospectus. The financial
statements included elsewhere in this prospectus contain all material financial
information about us and we urge you to read them carefully. In the opinion of
our management, the unaudited financial statements have been prepared on a basis
consistent with the audited financial information and include all normal
recurring adjustments necessary for a fair presentation of the results for these
periods and as of such dates. The selected financial data provided below for the
six months ended December 31, 1998 are not necessarily indicative of our future
results of operations or financial performance. The data shown below should be
read in conjunction with the financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information appearing elsewhere in this
prospectus.
Amounts for the eleven months ended June 30, 1997 reflect eleven months of
operations from August 13, 1996 (inception) to June 30, 1997.
The line item "Weighted average shares used in computing net loss per share"
is based on the weighted average shares of common stock outstanding for the
eleven months ended June 30, 1997, the year ended June 30, 1998 and the six
months ended December 31, 1998. It excludes 0, 32,609 and 32,609 shares,
respectively, of common stock issuable upon exercise of outstanding options,
warrants and convertible debt. Additional information about these options is
provided under "Shares Eligible for Future Sale." Note 1 of Notes to Financial
Statements includes an explanation of the determination of the number of shares
used in computing net loss per share.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
-------------------------- --------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................................................. $ -- $ 18,404 $ 521 $ 27,539
Operating expenses:
Sales and marketing.................................... 973,283 473,665 148,092 822,338
Research and development............................... 294,360 170,259 107,748 281,675
General and administrative............................. 647,868 457,345 178,091 1,650,310
Total expenses......................................... 1,915,511 1,101,269 433,931 2,754,323
Operating loss........................................... 1,915,511 1,082,865 433,410 2,726,784
Interest expense......................................... 3,089 10,373 2,450 17,163
Other income............................................. 10,000 13,500 13,500 --
Net loss................................................. $ 1,908,600 $ 1,079,738 $ 422,360 $ 2,743,947
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per share....................................... $ .59 $ .28 $ .11 $ .68
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares used in computing net loss per
share.................................................. 3,210,651 3,823,228 3,686,644 4,015,416
</TABLE>
18
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Cash and cash equivalents....................................................... $ 144,564 $ 112,062
Working capital (deficit)....................................................... (165,096) (236,790)
Total assets.................................................................... 229,529 251,985
Accumulated deficit............................................................. 2,988,338 5,732,285
Shareholders deficit............................................................ 98,626 143,252
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS PROVIDES INFORMATION THAT WE BELIEVE
IS RELEVANT TO AN ASSESSMENT AND UNDERSTANDING OF OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE ELEVEN MONTHS ENDED JUNE 30, 1997, THE FISCAL YEAR
ENDED JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1998.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Since beginning operations in August 1996, we have devoted substantially all
of our resources to designing, implementing and introducing our marketing and
display system. From inception through December 31, 1998 we raised total equity
capital of $1,608,093 and had an accumulated deficit of $5,732,285. We began to
receive revenues from sales of services in April 1998 and are continuing to
operate at a deficit. We expect the operating deficit to continue and to
increase over at least the next twelve months as we incur increasing levels of
expense to support growth.
We believe that our historical operating results are not indicative of
future performance for the following reasons, among others:
- The receipt of the proceeds of this offering and their use to fund our
anticipated growth will materially change expense levels in all major
categories and are expected to support substantial increases in revenue
from operations.
- The acquisition of Design Base, if it occurs, will change substantially
the character and scope of our existing business (see "Business--Proposed
Acquisition of Design Base").
- We have recently emerged from the development stage and anticipate
substantial increases in the number and size of customer orders and
revenue from operations.
Although we expect substantial growth in both revenues and expenses, we
anticipate that increases in expenses will occur more rapidly than corresponding
increases in revenues. Also, while we are committed, at least in the short term,
to substantial increases in expenses, we cannot guarantee that revenues will
increase correspondingly. Like many companies attempting to build an Internet
based business, we expect over at least the next year and for an indeterminate
period of time thereafter to follow a strategy of establishing market share by
making expenditures for marketing and infrastructure development that exceed
current revenues.
3DSHOPPING.COM
RESULTS OF OPERATIONS. For the eleven months ended June 30, 1997, we had no
revenues and incurred total expenses of $1,918,600. Expenses consisted of
$294,360 of research and development expense, $973,283 of sales and marketing
expense and $647,868 of general and administrative expenses. $1,363,180 of the
total expense amount resulted from expense attributable to the issuance to
employees and independent service providers of stock options exercisable at
below fair market value. Other income of $10,000, consisting principally of
payments under an Internet co-marketing agreement, resulted in a net loss for
the period of $1,908,600, or $0.59 per share of common stock.
For the year ended June 30, 1998, expenses declined to $1,111,642 and
consisted of $170,259 of research and development expense, $473,665 of sales and
marketing expense and $457,345 of general and administrative expense. The
decline in expenses was due primarily to decreases in purchases of equipment and
reductions in research and development and the effects in 1997 of a charge for
stock issued at below fair market value. Revenues of $18,404 and other income of
$13,500 resulted in a net loss for the year of $1,079,738, or $0.28 per share of
common stock.
20
<PAGE>
For the six months ended December 31, 1998, expenses increased substantially
from $436,381 for the six months ended December 31, 1997 to $2,771,486 and
consisted of $281,675 of research and development expense, $822,338 of sales and
marketing expense and $1,650,310 of general and administrative expense. The
increase in expenses was due primarily to increases in payroll and compensation
expenses and fees paid to consultants. $2,290,646 of the total expense resulted
from expense attributable to the issuance to employees and independent service
providers of stock and stock options at below fair market value and does not
represent cash or recurring expense. Revenues of $27,539 resulted in a net loss
for the six month period ended December 31, 1998 of $2,743,947 or $0.68 per
share of common stock. Revenues and other income in the six month period ended
December 31, 1997 were $521 and $13,500 resulting in a net loss for the period
of $422,360 or $0.11 per share of common stock.
At December 31, 1998, we had net operating loss carryforwards of
approximately $1,376,000 and research and development tax credits of $34,000 for
federal income tax purposes. State net operating loss carryforwards of
$1,396,000 and research and development tax credits of $13,200 will expire
beginning in 2002 and federal net loss carry-forwards will expire beginning in
2012 if not used. As a result of changes in ownership, including changes
resulting from this offering, as defined in Section 282 of the Internal Revenue
Code of 1986, as amended, the annual deductibility of net operating loss
carryforwards is limited. A valuation allowance has been recorded against total
deferred tax assets of $484,250 because realization is primarily dependent on
generating sufficient taxable income prior to expiration of the net operating
loss carryforwards. The research and development tax credits expire beginning in
2012.
LIQUIDITY AND CAPITAL RESOURCES. We have funded our operations primarily
through the sale of common stock and to a lesser extent, by issuing notes and
other borrowings. From inception through December 31, 1998, we raised net
proceeds of approximately $1,562,788 from sales of common stock for cash. In
some cases, we have issued common stock in return for goods or services. As of
December 31, 1998, we had a total of $295,064 of outstanding notes and other
obligations for money borrowed, cash and cash equivalents of $112,062 and a
working deficit of $236,790. We have described the effect of this offering on
our capital resources and our anticipated uses of those resources under "Use of
Proceeds" on page 14.
On March 18, 1999, we borrowed $500,000 from an institutional lender to fund
expenses associated with this offering and to cover interim operating expenses
pending receipt of the offering proceeds. We issued an unsecured promissory
note, payable in a single payment on or before August 31, 1999 and bearing
interest at the rate of 9% per annum. If the note is not fully paid when due, it
is automatically exchanged for a new note that is convertible and is not
prepayable, provided that, as long as this offering is being actively pursued,
the new note shall remain prepayable and non-convertible until October 31, 1999.
The new note would become due and payable June 30, 2001 unless called earlier by
the lender on 10 days notice at any time after March 31, 2000. We also issued to
the lender common stock purchase warrants exercisable during a three-year period
beginning on the later of the first anniversary of the effective date of this
offering and March 31, 2000. The warrants are exercisable to purchase common
stock having a market value of $2,000,000 at the time of exercise for an
aggregate exercise price of $1,500,000 and are redeemable by us at any time
after July 1, 1999. The redemption price increases between July 1, 1999 and July
1, 2000 from 80% to 100% of the difference between the exercise price and the
market value of the underlying common stock. The notes and the warrants are
restricted from transfer other than transfers to members of a group under common
control or distributions to fund investors, pursuant to a bona fide pledge or
hypothecation or by will or pursuant to the laws of descent and distribution.
The common stock issuable on exercise of the warrants or conversion of the new
note will be "restricted securities" under federal securities laws.
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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. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. We have evaluated our current systems, purchased necessary upgrades and
believe that our current hardware and software is Year 2000 compliant.
Similarly, we believe that the products and services we offer to our customers
are not affected by the Year 2000 problem. We have evaluated the potential
impact on us of a Year 2000 problem on the part of our important third party
vendors and have found none. We plan to continue to evaluate our systems and
those of our important vendors in an effort to minimize the effects of a Year
2000 problem. We do not anticipate that the Year 2000 problem will have a
material impact on our business or operations.
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BUSINESS
MARKET OPPORTUNITY
The Internet and other media facilitating electronic commerce have offered a
unique opportunity to market and sell products of varying kinds directly to the
ultimate consumer. From a single, central source, a vendor can offer product on
a worldwide basis, providing the consumer the opportunity to acquire information
about the product on his or her home or office computer and, ultimately, to
purchase the product entirely by keystroke entry while sitting at the computer.
Traditional retailing methods require distribution of inventory to a large
number of retail outlets that are expensive to build, maintain, stock and staff.
Mail order sales require expensive and widespread distribution of catalogs that
rapidly become obsolete and that are not necessarily available at the time the
buyer wants or needs to make a purchase. In contrast, e-commerce can offer the
consumer the information required to make a purchase decision and the ability to
make the actual purchase through a medium that can be kept constantly current,
that is available to the customer when needed and that does not require the
retailer to maintain expensive and widely distributed sales outlets, each of
which must be separately stocked with inventory.
Despite these obvious advantages, e-commerce has so far achieved significant
growth in only a relatively limited number of areas, including books, CDs, DVDs
and computers, securities, and travel. This is in part a result of consumer lack
of familiarity with the Internet and e-commerce generally but also, in part, a
result of limitations inherent in traditional e-commerce technology to provide
the customer with an experience that the customer perceives as similar to
in-store selection of merchandise or even to high-quality catalog sales. The
areas in which e-commerce has been successful have the common characteristic
that the customer either knew what he or she wanted before visiting the Web
site, as is often the case with book sales, or needed only to make a selection
from a limited number of objectively definable options, as with computers.
Merchandise, such as clothing, whose selection is more dependent on subjective
factors, has not, so far, achieved a high level of penetration into e-commerce.
Online apparel sales for 1997 were $89 million compared with $169.2 billion in
the retail market. Total online shopping revenue for 1997 was $1.14 billion with
online apparel sales representing less than 1% of that amount. Mail order sales
of $169.5 billion in 1997 indicate that consumers do not need actually to touch
the product. They do need, however, to visually comprehend it in a way that does
not apply to the kind of products for which e-commerce has initially been the
most successful.
Many clothing and accessory retailers are eager to expand their sales and
marketing efforts to include e-commerce but believe the electronic sale of
clothing and similar items will require a second generation of e-commerce
technology that is capable of providing the consumer with an experience closer
to the in-store experience. An e-commerce program that is successful in
providing this information can function both as an advertising medium, providing
information to shoppers that will lead them to visit the seller's store or to
call the seller's 800 number to order a product, or as a complete sales outlet
in which the entire decision and purchase occurs electronically.
THE 3DSHOPPING EXPERIENCE
We have developed technology and support Web sites that are capable of
delivering a complete visual package over the Internet or otherwise via
e-commerce. In contrast to traditional static Web sites and retail catalogs, our
Web sites support full motion digital imaging and audio presentations for
viewers able to access the Web sites using a broadband connection or willing to
download data at a slower rate. This allows the shopper to view a model or
product through 360 degrees of rotation. It also allows a detailed examination
of the garment or accessory from several different angles. The technology is
also interactive, allowing the viewer to select a desired angle and freeze the
frame, to zoom in on selected details, such as buttons, stitching or other key
features or to select and change colors from a menu that includes all of the
colors in which the garment is offered. We have also
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acquired and are developing the technology to create a "cyber-salesperson", a
"talking head" that may in the future be used as a salesperson, explaining the
key features of the garment being viewed. This new technology will support a
menu of alternatives, allowing the shopper to choose from a list of computer
generated likenesses of customized and/or well-known product spokespersons.
Our typical Web site opens with a selection of 30 to 40 products displayed
on models that move slowly across the screen. It is possible to include up to 80
images on this Web page. The viewer can click on any model to go to a page that
features the displayed garment. This second page provides access to the various
visual features selected by the retailer and also provides data in traditional
format, such as price, size and other objective information about the garment.
At the retailer's option, the page may allow the shopper to add the item to a
"shopping cart" for later purchase. Once the shopper has completed his or her
selections, the Web site supports electronic product purchases by credit card,
can refer the shopper to a toll-free number from which the shopper can order the
product, or can provide the location of the nearest store.
OUR SYSTEM
We offer the following services to our customers as part of our marketing
and display system:
WEB SITE DESIGN AND SETUP. For a one-time fee, ranging from $3,000 to
$50,000 or more, depending on the size and complexity of the project, we will
design and build a complete Web site for our customer. The site can be accessed
through the customer's home page and/or directly through our home page. The
customer provides direction as to the size, features and other characteristics
of the desired site and furnishes the items of apparel that will be featured and
a detailed description of those items. We then create an inventory database,
provide the models, studio facilities and other requirements to create the
visual images and, using our proprietary technology, incorporate these images
into a Web presentation containing the visual features selected by the customer.
Additional fees are charged as changes are made in the customer's Web site, for
example, to add new items or to change presentation features.
WEB SITE MAINTENANCE. We charge a periodic fee for maintaining the
customer's Web site. In addition to making minor changes in Web site content, we
conduct general site maintenance functions, review the principal Internet search
engines to determine whether our Web sites are appropriately listed in response
to typical inquiries and perform other functions designed to make maximum use of
the Web sites' potential. Fees for this service currently range up to $300 per
month and we expect these fees to increase as Web site volume and traffic
increases.
WEB SITE TRAFFIC CREATION. As an additional service at no extra fee, we
maintain online "shopping malls" at 3Dshopping.com and other Web sites. From
these malls, shoppers have access to most of our customers' Web sites. The
purpose of the malls is to create shopping communities having shared interests.
We believe such online communities will draw more shoppers than individual Web
sites. Our malls have achieved steady growth, attracting 126,379 visitors in
January 1999. We plan to include brand name manufacturers, traditional brand
retailers and Web-only retailers with brand potential in our malls. We believe
shoppers eventually will be able to purchase apparel, jewelry, flowers,
housewares, gifts, antiques, ancient art, children's wear and toys at our malls.
In addition to our malls, we have agreements with malls operated by other
companies under which those malls include links to our Web sites. Links to our
sites are also included on search engines such as Lycos, Excite and HotBot.
ORDER PROCESSING. We offer our customers a complete range of electronic
order processing services. Many order processing service providers simply take
order and credit card information and transmit this data to the retailer by fax
or telephone. These systems have high error rates with respect to the credit
card and other data transmitted, requiring the retailer to sort out the errors
by attempting to contact the shopper. We have developed a fully computerized
order processing service that
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automatically processes and verifies credit card data with the issuing bank and
runs a fraud detection scan while the shopper is still online. If the data is
not entered correctly or if there is some other problem, we can ask the shopper
to re-enter data. Orders and credit data are transmitted directly to the
customer's fulfillment system, resulting in minimal loss of time and reduced
processing errors. Orders can be forwarded to our customers by fax or e-mail or
through a direct link to the customer's computer system, depending on the
customer's preferences and system capabilities. When the orders are filled, our
processing software automatically instructs the credit card company to release
the purchase money into the merchant's account. For customers electing this
service, a fee is charged based
on a percentage of the total value of orders processed. Some customers prefer to
manage order processing themselves by referring their customer to a Web site
managed by them or a toll-free number. For these customers, we charge a fee
based on the number of site visits.
In contrast to many Internet companies, we do not currently offer space for
"banner" advertising. We believe such advertisements detract from the overall
appearance of our Web sites, are distracting to shoppers and are therefore
inconsistent with our primary goal of providing an enhanced electronic
experience to support our customers' product presentation needs.
CUSTOMERS
We market our Web-based marketing and display system to customers with
established brand names and to non-brand name customers. As of March 8, 1999, we
had 25 non-branded customers, consisting primarily of apparel retailers and
manufacturers, but also including sellers of antiques, flowers and nutritional
supplements. These customers generally have annual sales of between $2 million
and $30 million, sell a substantial percentage of their products though mail
order catalogs and have shipping capability in place. Based on our past work
with non-branded customers, which has allowed us to test our Web-based marketing
and display system, we expect to attract additional brand-name customers. We
have recently entered into an agreement with Nordstrom, our first branded
customer. We believe branded customers will attract additional attention to our
3D shopping system, benefiting our large and small customers.
Our customers have the option to use our Web sites for a variety of
purposes. Substantially all of our non-branded customers use our system as a
fully functional sales channel, offering products directly to shoppers over the
Internet. Branded customers may opt for this full service or may use our Web
sites as a marketing medium designed to attract shoppers to other retail
channels that they maintain. For example, Nordstrom has chosen to use our system
to display clothing offered in their stores but does not provide electronic
shopping cart e-commerce capability. Instead, Nordstrom uses its Web site to
provide information on products with a 1-800 number that customers can call to
order products directly from Nordstrom. The 1-800 number is serviced and
maintained by Nordstrom.
We also provide Intranet design, implementation and maintenance services to
companies that participate in the Leavens Awards Program, a supplier and
administrator of employee awards programs. For example we have provided our
technology and services to Shell Oil Company and The Boeing Company for their
internal employee benefits programs. We believe our 3D technology is well suited
for displaying product-awards under these programs such as jewelry, pens and
clothing.
We expect that, for the foreseeable future, our core customer base will
consist of clothing and accessory retailers. We believe that this market segment
has sufficient potential to support significant growth in our business and that,
by concentrating in this area, we can position ourselves as the leading provider
of Web-based marketing and display systems to our target customers. We also
serve customers in other areas and expect to continue to do so as the
opportunity arises.
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TECHNOLOGY
Wherever possible, our products are based on commercially available software
products. Because there are a number of alternative software programs that we
can use to create our 3D technology, we are not reliant on a single source of
software. For example, the rotation of our 3D images is created using Java. The
3D image itself is created using a proprietary digital photography system.
Compression for low speed Internet connections is produced through industry
standard programs. While we have adapted industry standard technology to fit our
own applications, and expect to continue to do so, we do not anticipate that the
service we provide will require the development of substantial, independently
developed computer programs or other technology.
We believe that our use of Java provides an advantage over sites that
require multimedia plug-ins. Plug-ins are awkward and often difficult to
download and use. These difficulties may deter some users from visiting the site
or purchasing any merchandise once there. Java requires no plug-ins and does not
result in the excess waiting time that can occur when a shopper downloads a
file.
RELATIONSHIP WITH MEDIAONE
To view conveniently all of the features we offer and plan to offer,
including full motion digital imaging and virtual reality, a shopper must have
access to the Internet via a broadband connection. Broadband connections include
cable, satellite and a variety of digital subscriber lines, also known as DSL.
Broadband connections are much faster than typical modem connections over a
standard telephone line. For example, a 3.5 megabyte file takes approximately 16
minutes to download using a standard modem operating at 14.4 kbps. The same file
will download in a few seconds over a high-speed cable modem. Although we have
designed our Web sites to accommodate differing connection speeds, we believe
the success of 3D-style e-commerce in the future will be dependent on the
availability of high-speed Internet access.
While download speed depends primarily on the speed of the connection
between the user and the Internet, the practical rate at which data can be
received by a user also depends on a variety of factors within the Internet
itself, including capacity and usage of the host site and the capacity of the
various links in the Internet through which the data passes from the host site
to the user. To deal with the dramatic increase in the volume of data being
transmitted over the Internet, various companies are working on the process of
speeding up data delivery by developing "backbones" or proprietary communication
channels that ensure the rapid processing of data within the Internet itself.
Web sites that have direct access to these backbones will transmit data at very
high volumes, permitting the effective use of the high-speed downloading
capabilities offered by broadband connections.
To take full advantage of high-speed cable Internet access, we have entered
into a co-branding agreement with MediaOne Express, a cable company with a
presence in 22 metropolitan markets nationwide. MediaOne has agreed to feature
the 3Dshopping.com Web site prominently in the shopping section of its home
page. The arrangement with MediaOne Express is non-exclusive and we expect to
pursue similar relationships with other Internet service providers in other
markets.
PROPOSED ACQUISITION OF DESIGN BASE
In order to more fully integrate the range of services we offer, we have
agreed in principle to acquire the assets of Design Base Los Angeles, Inc.
Design Base designs and produces print advertising, direct mail catalogs,
brochures and advertising collateral materials. It operates from a studio on
leased premises located in North Hollywood, California and has a staff of two
management and five other full time employees. Additional staff is used from
time to time for specific purposes like preparing for a photo shoot. Design Base
has traditionally served customers who we view as our potential customers,
designing and producing mail order catalogs for these customers and others.
Since January 1999, we have been producing digital images that support our Web
sites using models selected
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by Design Base and Design Base's studio facilities. The acquisition of Design
Base will give us direct access to studio facilities and trained studio staff
for which we believe our requirements will increase substantially over the next
year to three years.
In addition to continuing to operate Design Base's traditional hard copy
advertising production business, we believe that we can increase our customer
base by offering to Design Base's traditional customers the opportunity to
produce the digital images necessary to support a Web site at little additional
cost. Substantially all of the time, and therefore the cost, of producing an
apparel catalog is taken up by dressing, making up and otherwise preparing the
models for each picture. In a typical 8-hour day, a model can display between 12
and 15 different items of clothing. Once the model is ready for a static photo
session, it takes only a few more minutes to capture the digital imaging content
using our proprietary digital imaging technology. Because the additional time
involved is relatively minor, the incremental cost of producing the additional
images is substantially lower than if the images are produced on a stand-alone
basis. We plan to offer the opportunity to Design Base's customers to order the
additional images so that they will be prepared, either immediately or in the
future, to sell clothing through e-commerce through one of our Web sites. In
this way, we intend to position ourselves as a "one-stop" source for fashion
product marketing using the latest technology to create compelling and visually
unique Web sites, mail order and electronic catalogs and other advertising
materials for the fashion industry.
If our acquisition of Design Base is completed, we expect to appoint Brian
Smith, Design Base's principal shareholder, as President and Chief Operating
Officer of 3Dshopping.com.
COMPETITION
We compete with a broad range of marketing alternatives available to our
customers. We also compete with a broad range of other shopping alternatives to
attract consumers to our Web sites.
Although many of our retail customers use our Web sites as their primary
sales channel, we believe we are seen by larger, name-brand customers and
potential customers primarily as a marketing solution, competing for a share of
the customer's marketing and advertising budget. In that capacity, we compete
against all of the traditional marketing resources, including print and other
media advertising, mail order catalogs, in-store displays, coupon and other
incentive programs and phone-in or computer-based services maintained by the
customer. In a narrower sense, we compete against a large number of providers of
Web site design and related Internet services.
At the consumer level, we and our customers compete for the attention and
budget of consumers for the products that our customers sell. This competition
includes traditional retail stores, mail order catalogs and a growing number of
Internet-based alternatives. While we believe that our system offers significant
marketing advantages over other existing Internet-based systems, many factors
affect competition for Internet consumers, including affiliations with companies
that control or direct access to the Internet or to individual Web sites.
Design Base competes with many other producers of mail order catalogs for
retail customers. Some of these producers are much larger and have greater
financial resources than Design Base. Participants in this industry
differentiate themselves largely based on creative content and customer service.
We cannot guarantee that Design Base will be able maintain its creative
distinctiveness and desirability to customers.
EMPLOYEES
As of March 8, 1999, we had 18 full-time employees, 10 of whom were involved
in Web site design and development, four in sales and marketing and four in
finance, administration and operations. Our future success depends, in part, on
our continuing ability to attract, train and retain highly qualified
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technical, sales and managerial personnel. Competition for such personnel is
intense, and we do not assure you that we will be able to recruit and retain
sufficient numbers of qualified personnel. None of our employees is represented
by a labor union. We have not experienced any work stoppages and consider our
relations with employees to be good.
Design Base had seven full time employees on March 1, 1999. None of these
employees is represented by a labor union.
FACILITIES
We lease approximately 2,000 square feet of office space in two office
buildings located in Venice, California. One of our leases will expire on May
31, 1999, but we anticipate that it will be renewed. We believe our current
facilities will be adequate through calendar year 1999. We are in the process of
locating additional space to meet our expected requirements beyond 1999. Design
Base leases approximately 10,000 square feet of office and photography studio
space from a limited liability company whose members are also the shareholders
of Design Base. We believe these facilities will be adequate through calendar
year 1999.
LITIGATION
We are not engaged in any litigation that, singly or in the aggregate, will
have a material adverse effect on our business, financial condition or results
of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table contains information as of March 1, 1999 with respect to
each person who is an executive officer or director of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Lawrence Weisdorn.......................... 41 President and Director
Robert J. Grant............................ 49 Treasurer and Secretary and Director
Donald R. Westland......................... 39 Vice President of Technical Operations
Donald L. Hejmanowski...................... 39 Director
</TABLE>
LAWRENCE WEISDORN has been President and a director of the company since its
inception in August 1996. From January 1995 to August 1996, Mr. Weisdorn served
as President and Chief Executive Officer of Samuel Hamann Graphix, Inc., a
company he founded that provides legacy software migration solutions and
services. During the eight years before he joined Samuel Hamann Graphix, Mr.
Weisdorn worked as an independent marketing and sales consultant.
ROBERT J. GRANT has been Treasurer and Secretary and a director of the
company since August 1996. From April 1996 to August 1996, Mr. Grant served as
Office Manager of Samuel Hamann Graphix, Inc. From March 1995 to April 1996, he
was a salesperson for two car dealerships. From January 1994 to March 1995, Mr.
Grant was a principal of Grant & Associates, an industrial real estate company.
From January 1993 to January 1994, he worked in corporate sales at Investors
Title, a title insurance company. Mr. Grant was Vice President of Business
Development at Continental Lawyers Land Title, a real estate title company, from
1982 to 1992. Mr. Grant declared personal bankruptcy under Chapter 7 of the
federal Bankruptcy Code in 1995.
DONALD R. WESTLAND has been Vice President of Technical Operations of the
company since August 1997. From August 1996 to August 1997, Mr. Westland served
as a consultant to the company. During the seven years before joining the
company, Mr. Westland was a Senior Project Engineer for Rubbermaid Inc. Mr.
Westland declared personal bankruptcy under Chapter 7 of the federal Bankruptcy
Code in 1997.
DONALD L. HEJMANOWSKI has been a director of the company since August 1996.
Mr. Hejmanowski is President and a director of Genesis Oil & Gas. He has held
that position since April 1998. From 1990 to April 1998, Mr. Hejmanowski worked
as an independent corporate finance consultant, assisting companies with
financing, corporate strategy and financial public relations. From August 1996
to February 1997, Mr. Hejmanowski was employed by the company as investor
relations manager.
BRIAN A. SMITH is the principal shareholder of Design Base Los Angeles, Inc.
Following our anticipated acquisition of Design Base, we expect that Mr. Smith
will become our President and Chief Operating Officer and Mr. Weisdorn will be
named Chief Executive Officer. Mr. Smith has been President and Chief Executive
Officer of Design Base since August 1993. He has managed the company as an
independent business since January 1995. Before 1993, Mr. Smith held several
positions in the print catalog production industry and other retail-related
positions.
All members of the board of directors hold office until the next annual
meeting of shareholders and the election and qualification of their successors,
or until death, resignation, or removal. Officers serve at the discretion of the
board of directors. There are no family relationships among any of our directors
and executive officers.
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BOARD COMMITTEES
Currently, the Board of Directors has not created any committees. We will
create an audit committee and a compensation committee upon completion of this
offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In the last fiscal year, our Board of Directors did not have a compensation
committee. Compensation decisions with respect to executive officers were made
by Lawrence Weisdorn.
EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
Directors are reimbursed for the expenses they actually incur in attending
board meetings. We expect to implement an option program for non-employee
directors. Directors are not paid a fee for their service or attendance at board
meetings.
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth certain information regarding compensation
paid during our fiscal years ended June 30, 1997 and 1998 to our President. No
other executive officer received salary and bonus in excess of $100,000 in those
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- ------------------------------------------------------------------------------------ --------- --------- -------------
<S> <C> <C> <C>
Lawrence Weisdorn, President........................................................ 1998 $ 48,000 $ 0
1997 $ 41,000 $ 0
</TABLE>
STOCK OPTION GRANTS AND EXERCISES
We have adopted a 1999 Stock Option Plan, authorizing the grant of options
to purchase up to 1,000,000 shares of common stock. The plan was adopted to
promote and advance the interests of 3Dshopping.com and its shareholders by:
- enabling us to attract, retain and reward managerial and other key
employees, non-employees and directors; and
- strengthening the mutuality of interests between participants in the plan
and the shareholders in our long-term growth, profitability and financial
success by offering stock options.
We have not granted options to Mr. Weisdorn.
CERTAIN TRANSACTIONS
We sublease approximately 425 square feet of office space from Donald
Westland, an executive officer of the company. The rent on this sublease is $700
per month. We believe this is a competitive lease rate for similar real estate
in the area where the office is located. Mr. Westland also maintains a Web site
at which he includes a link to our Web sites. We pay him a fee of $800 per month
for that link.
Our company was founded by Lawrence Weisdorn in August 1996. At the time of
our inception, Mr. Weisdorn was the principal shareholder of Samuel Hamann
Graphix, Inc., a development stage
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company that had been in existence for about one year at that time. We acquired
property, equipment and other prepaid assets from Samuel Hamann Graphix. In
return for these assets, we assumed some payroll and other liabilities of Samuel
Hamann Graphix and liabilities of Mr. Weisdorn in the amount of $18,500. The
purchase price was allocated to the tangible assets at their original cost. The
balance of $5,306 was attributed to research and development.
From August 1996 to June 30, 1998, Mr. Weisdorn and his father advanced a
total of $178,683 to our company. These advances were made in the form of loans
on which we pay annual interest of 7%. In fiscal 1998, the Weisdorns advanced
$108,860. We have repaid $118,095 of this indebtedness from inception to June
30, 1998 and on that date, we owed the Weisdorns a total of $60,588. We expect
to repay all sums owing to Mr. Weisdorn and his father with the proceeds of this
offering.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information, as of March 1, 1999, and as of
that date as adjusted to reflect the sale of the 1,750,000 units offered hereby,
with respect to the beneficial ownership of the common stock by (1) each
shareholder known by us to be the beneficial owner of more than 5% of our
outstanding common stock; (2) each of our directors; (3) the executive officer
named in the Summary Compensation Table; and (4) all current executive officers
and directors as a group. The address of each person listed below is: c/o
3Dshopping.com, 517 Boccaccio Avenue, Venice, California 90291. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of common stock issuable on exercise of currently
exercisable or convertible securities or securities exercisable or convertible
within 60 days of March 1, 1999 are deemed beneficially owned and outstanding
for computing the percentage owned by the person holding such securities, but
are not considered outstanding for computing the percentage of any other person.
Except as modified by applicable community property laws, each shareholder named
in the table has sole voting and investment power with respect to the shares set
forth opposite that shareholder's name.
<TABLE>
<CAPTION>
SHARES PERCENT OF SHARES OUTSTANDING
BENEFICIALLY ----------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Lawrence Weisdorn.............................................. 700,000 19.2% 13.0%
Donald L. Hejmanowski.......................................... 250,000 6.9 4.6
Robert J. Grant................................................ 117,000 3.2 2.1
All Executive Officers and Directors as a Group (4 persons).... 1,164,000 31.3% 21.3%
</TABLE>
The shares beneficially owned by each of Mr. Grant and another executive
officer include 37,000 shares subject to immediately exercisable options as of
March 1, 1999.
32
<PAGE>
DESCRIPTION OF SECURITIES
As of the date of this prospectus, our authorized capital stock consists of
10,000,000 shares of common stock and 5,000,000 shares of preferred stock.
UNITS
Each unit consists of one share of common stock and one warrant. The common
stock and warrants will become immediately separately transferable following
this offering.
COMMON STOCK
As of March 1, 1999, there were 3,645,746 shares of common stock outstanding
held of record by approximately 60 shareholders. There will be 5,395,746 shares
of common stock outstanding after giving effect to the sale of the 1,750,000
units we are offering.
Holders of shares of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Upon giving proper notice,
shareholders have rights to cumulate their votes in the election of directors
under the California General Corporation Law.
Subject to preferences that may be applicable to the holders of outstanding
shares of preferred stock, the holders of common stock are entitled to receive
such lawful dividends as the board of directors may declare from time to time.
In the event we liquidate, dissolve or wind up, and subject to the rights of the
holders of outstanding shares of preferred stock, the holders of shares of
common stock will be entitled to receive PRO RATA all of our remaining assets
available for distribution to our shareholders. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and shares of common stock to
be issued pursuant to this offering will be, upon issuance, fully paid and
nonassessable.
WARRANTS
Each warrant will entitle the holder to purchase one share of common stock
at an exercise price of $ per share (150% of the initial public
offering price of the units). The warrants will generally be exercisable at any
time for five years after the date of this prospectus, unless earlier redeemed.
The warrants are redeemable by us, at a price of $0.25 per warrant, upon 30
days' prior written notice, if the closing bid price defined in the Warrant
Agreement, which we describe below, per share of the common stock for the 10
consecutive trading days immediately preceding the date of notice of redemption
equals or exceeds $ (200% of the initial public offering price of the
units). If we give notice of our intention to redeem, a holder will have the
choice either to sell or exercise his or her warrants before the date specified
in the redemption notice or to accept the redemption price.
The warrants will be issued in registered form under a warrant agreement
between us and Interwest Transfer Company, as warrant agent. The shares of
common stock underlying the warrants, when issued upon exercise of a warrant,
will be fully paid and nonassessable, and we will pay any transfer tax incurred
as a result of the issuance of common stock to the holder upon its exercise.
The warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price. These adjustments will occur in the event,
among others, of a merger, stock split or reverse stock split, stock dividend or
recapitalization. We are not required to issue fractional shares upon the
exercise of a warrant. The holder of a warrant will not possess any rights as
our shareholder until he or she exercises the warrant.
A warrant may be exercised upon surrender of the warrant certificate on or
before the expiration or redemption date of the warrant at the offices of the
warrant agent, with the form of "Election to Purchase" on the reverse side of
the warrant certificate completed and executed as indicated,
33
<PAGE>
accompanied by payment of the exercise price (by certified or bank check payable
to the order of 3Dshopping.com) for the number of shares with respect to which
the warrant is being exercised.
For a holder to exercise the warrants, there must be a current registration
statement in effect with the Securities and Exchange Commission and
qualification in effect under applicable state securities laws (or applicable
exemptions from state qualification requirements) with respect to the issuance
of common stock or other securities underlying the warrants. We have agreed to
use all commercially reasonable efforts to cause a registration statement with
respect to such securities under the Securities Act to be filed and to become
and remain effective in anticipation of and before the exercise of the warrants
and to take such other actions under the laws of various states as may be
required to cause the sale of common stock or other securities upon exercise of
warrants to be lawful. Under certain circumstances, we may redeem the warrant by
paying to the holder cash equal to the difference between the market price of
the common stock on the exercise date and the exercise price of the warrant. We
will not be required to honor the exercise of warrants if, in the opinion of our
board of directors with the advice of counsel, the sale of securities upon
exercise would be unlawful.
The foregoing discussion of material terms and provisions of the warrants is
qualified in its entirety by reference to the detailed provisions of the warrant
agreement, the form of which has been filed as an exhibit to the Registration
Statement of which this prospectus is a part.
For the life of the warrants, the holders have the opportunity to profit
from a rise in the market price of the common stock without assuming the risk of
ownership of the shares of common stock underlying the warrants. The warrant
holders may be expected to exercise their warrants at a time when we would, in
all likelihood, be able to obtain any needed capital by an offering of common
stock on terms more favorable than those provided for by the warrants.
Furthermore, the terms on which we could obtain additional capital during the
life of the warrants may be adversely affected.
PREFERRED STOCK
No shares of preferred stock are outstanding. As of the date of this
prospectus, our board of directors has the authority, without further action by
the shareholders, to issue shares of preferred stock in one or more series and
to fix the rights, preferences, privileges and restrictions of the preferred
stock, including
- voting rights,
- terms of redemption,
- redemption prices,
- liquidation preferences,
- dividend preferences,
- conversion rights,
- number of shares constituting any series or
- the designation of such series.
Although it presently has no intention to do so, our board of directors, without
shareholder approval, could issue preferred stock with voting and conversion
rights that could adversely affect the voting power of the holders of common
stock. This provision may be deemed to have a potential anti-takeover effect and
the issuance of the preferred stock in accordance with such provision may delay
or prevent a change of control of 3Dshopping.com.
34
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussions set forth certain federal income tax consequences,
under current law, relating to the purchase and ownership of the units and the
underlying common stock and warrants. The discussion is a summary and does not
purport to deal with all aspects of federal taxation that may be applicable to
an investor, nor does it consider specific facts and circumstances that may be
relevant to a particular investor's tax position. Some holders, such as dealers
in securities, insurance companies, tax exempt organizations, foreign persons
and those holding common stock or warrants as part of a straddle or hedge
transaction, may be subject to special rules that are not addressed in this
discussion. This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, and on administrative and judicial
interpretations as of the date hereof, all of which are subject to change. YOU
SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU
OF THIS OFFERING, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
ALLOCATION OF PURCHASE PRICE
Each unit as a whole will have a tax basis equal to the cost of the unit.
The measure of income or loss from some of the transactions described below
depends on the tax basis in each of the warrant and the common stock comprising
the unit. The tax basis for each of the warrant and the common stock will be
determined by allocating the cost of the unit between the securities that
comprise the unit in proportion to the relative fair market values of these
elements at the time of acquisition.
EXERCISE AND SALE OF WARRANTS
No gain or loss will be recognized by a holder of a warrant on the purchase
of shares of common stock for cash on an exercise of a warrant, except that gain
will be recognized to the extent cash is received in lieu of fractional shares.
The tax basis of common stock received upon exercise of a warrant will equal the
sum of the holder's tax basis for the exercised warrant and the exercise price.
The holding period of the common stock acquired will begin on the date the
warrant is exercised and the common stock is purchased. It does not include the
period during which the warrant was held.
Gain or loss from the sale or other disposition of a warrant, or loss in the
event the warrant expires unexercised, other than on a redemption by us, will be
capital gain or loss to its holder if the common stock to which the warrant
relates would have been a capital asset in the hands of such holder. This
capital gain or loss will be long-term capital gain or loss if the holder has
held the warrant for more than one year at the time of the sale, disposition or
lapse. On the redemption of a warrant by us, the holder generally will realize
capital gain or loss.
SALE OF COMMON STOCK
The sale of common stock should generally result in the recognition of gain
or loss to the holder in an amount equal to the difference between the amount
realized and such holder's tax basis in the common stock. If the common stock
constitutes a capital asset in the hands of the holder, gain or loss upon the
sale of the common stock will be characterized as long-term or short-term
capital gain or loss, depending on whether the common stock has been held for
more than one year.
EXPIRATION OF WARRANTS WITHOUT EXERCISE
If a holder of a warrant allows it to expire without exercise, the
expiration will be treated as a sale or exchange of the warrant on the
expiration date. The holder will have a loss equal to the amount of such
holder's tax basis in the lapsed warrant. If the warrant constitutes a capital
asset in the hands of the holder, the loss will be characterized as long-term or
short-term capital loss, depending on whether the warrant was held for more than
one year.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
Interwest Transfer Company will serve as the Transfer Agent and Registrar
for the common stock and warrant agent for the warrants.
35
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, our common stock was thinly traded on the NASD OTC
Bulletin Board under the symbol "PGRX". Future sales of substantial amounts of
common stock in the public market or the prospect of such sales could adversely
effect prevailing market prices.
Upon completion of this offering, 5,395,746 shares of common stock will be
outstanding. Of these shares, the 1,750,000 shares issued as part of the units
will be freely tradable without restriction under the Securities Act, unless
purchased by an "affiliate" of the company, as that term is defined in Rule 144
under the Securities Act. In addition, 2,297,746 shares that were previously
issued under Rule 504 under the Securities Act will be freely tradable without
restriction. The remaining 1,348,000 shares outstanding after completion of this
offering are "restricted securities" or held by "affiliates" as defined in Rule
144. Restricted shares may be sold in the public market only if registered under
the Securities Act or if they qualify for an exemption from registration,
including an exemption under Rule 144.
Our company, our directors, officers and shareholders who beneficially own
more than five percent of our outstanding common stock have agreed that, for one
year following the date of this prospectus, they will not offer, sell, contract
to sell or otherwise dispose of any shares of common stock without the consent
of Paulson Investment Company, Inc. Officers and directors may make intra-family
transfers or transfers to trusts for estate planning purposes. Upon expiration
of these agreements, 1,067,000 of these shares will be eligible for immediate
resale in the public market subject to the limitations of Rule 144.
In general under Rule 144, a person, including an "affiliate" of the
company, who has beneficially owned restricted shares for at least one year is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of common stock
(approximately 53,957 shares immediately following this offering) or the average
weekly trading volume of the common stock during the four calendar weeks
preceding the sale. Sales under Rule 144 are subject to manner of sale
restrictions, notice requirements and the availability of current public
information about us. Rule 144(k) provides that a person who is not an
"affiliate" of the issuer at any time during the three months preceding a sale
and who has beneficially owned shares for at least two years is entitled to sell
those shares at any time without compliance with the public information, volume
limitation, manner of sale and notice provisions of Rule 144.
As of February 28, 1999, immediately exercisable options to purchase 323,000
shares of common stock were outstanding. These options were granted before we
adopted our 1999 Stock Option Plan and under written compensation agreements
with some of our employees and consultants under the exemption provided by Rule
701. To the extent these options are exercised, the underlying common stock will
become freely tradable 90 days after the date of this prospectus subject to the
manner of sale requirements of Rule 144.
We have reserved 1,000,000 shares for issuance upon the exercise of options
under our 1999 Stock Option Plan. We intend to file as soon as practicable
following completion of this offering a registration statement on Form S-8 under
the Securities Act covering these shares of common stock. See "Management--Stock
Option Plan." The registration statement will become effective immediately upon
filing, whereupon, subject to the satisfaction of applicable exercisability
periods, Rule 144 volume limitations applicable to affiliates and, in some
cases, the agreements with the representative of the underwriters referred to
above, shares of common stock to be issued upon exercise of outstanding options
granted pursuant to the Stock Option Plan will be available for immediate resale
in the open market. No options have been granted under the 1999 Stock Option
Plan as of the date of this prospectus.
As of February 28, 1999, immediately exercisable warrants to purchase
239,333 shares of common stock were outstanding. These warrants were issued
under a written compensation agreement with a
36
<PAGE>
consultant under the exemption provided by Rule 701. To the extent these
warrants are exercised, the underlying common stock will become freely tradable
90 days after the date of this prospectus subject to the manner of sale
requirements of Rule 144.
An additional 2,187,500 shares of common stock may become available for
resale upon exercise of the underwriters' over-allotment option, the warrants
and the representative's warrant.
Some holders of our common stock and warrants to purchase our common stock
have registration rights. These people hold 346,000 restricted shares of common
stock and immediately exercisable warrants to purchase restricted common stock.
Under some conditions, these people may request that we register these shares
with the Securities and Exchange Commission. Once these shares are registered,
they will be freely tradable.
37
<PAGE>
UNDERWRITING
The underwriters named below for whom Paulson Investment Company, Inc. is
acting as representative, have severally agreed, under the terms and conditions
of an underwriting agreement with us and the underwriters, to purchase from us,
and we have agreed to sell to them, the number of units set forth in the table
below at the price set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Paulson Investment Company, Inc......................................................................
----------
Total............................................................................................ 1,750,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase the units are subject to conditions. If any units are purchased, the
underwriters are committed to purchase all of the 1,750,000 units offered by
this prospectus, but not the 262,500 units subject to their over-allotment
option.
The representative has advised us that the underwriters propose to offer the
units to the public at the initial public offering price set forth on the cover
page of this prospectus and to selected dealers at that price minus a concession
within the discretion of the representative, and that the underwriters and the
selected dealers may reallow a concession to other dealers, including the
underwriters, within the discretion of the representative. After the initial
public offering of the units, the public offering price, the concessions to
selected dealers and the reallowance to other dealers may be changed by the
representative.
We have granted the underwriters an option, expiring at the close of
business 45 days after the date of this prospectus, to purchase up to 262,500
additional units from us on the same terms as apply to the sale of the units set
forth above. The underwriters may exercise the option only to cover
over-allotments incurred in the sale of the units.
The representative has informed us that it does not expect the underwriters
to confirm sales of units on a discretionary basis.
Until the distribution of the units is completed, rules of the Securities
and Exchange Commission may limit the ability of the underwriters and some
selling group members to bid for and purchase the securities. As an exception to
these rules, the underwriters are permitted to engage in transactions that
stabilize the price of the common stock and/or warrants. These transactions
include bids or purchases for the purpose of pegging, fixing or maintaining the
price of the common stock and/or warrants. If the underwriters create a short
position in the units in connection with this offering, I.E., if they sell more
units than are set forth on the cover page of this prospectus, the
representative may reduce that short position by purchasing common stock and
warrants in the open market. The representative may also elect to reduce any
short position by exercising all or part of the over-allotment option.
38
<PAGE>
The representative may also impose a penalty bid on underwriters and selling
group members. This means that if the representative purchases units in the open
market to reduce the underwriters' short position or to stabilize the price of
the common stock and/or warrants, it may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
securities as part of this offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither we nor the underwriters make any
representation or predictions as to the direction or magnitude of any effect the
transactions described above may have on the price of the common stock and/or
warrants. In addition, neither we nor the underwriters make any representation
that the underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The underwriting agreement provides for indemnification between us and the
underwriters against some liabilities, including liabilities under the
Securities Act of 1933 and for contribution by us and the underwriters to
payments that may be required to be made in respect of those liabilities.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to our directors, officers and controlling persons under the agreement
between us and the underwriters, or otherwise, we have been advised that in the
opinion of the SEC this indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
We have agreed to pay the representative a nonaccountable expense allowance
equal to two percent of the gross proceeds from the sale of units.
We have agreed to issue to the representative warrants that entitle the
holder to purchase up to 175,000 units at an exercise price of $ per unit.
The representative's warrants are not transferable for one year from the date of
issuance, except to individuals who are either a partner or an officer of an
underwriter, by will or by the laws of descent and distribution. The
representative's warrants are not redeemable by us. We have agreed to maintain
an effective registration statement with respect to the issuance of the
securities underlying the representative's warrants, if necessary, to allow
their public resale without restriction, at all times during the period in which
the representative's warrants are exercisable, beginning one year after the date
of this prospectus. Such securities are being registered on the registration
statement of which this prospectus is a part.
We have agreed that, for a period of one year following the completion of
this offering, we generally will not offer, sell, contract to sell, grant any
option for the sale or otherwise dispose of any of our common stock without the
consent of the representative. Our officers, directors and the holders of 5% or
more of our outstanding common stock (aggregating 1,067,000 shares) have agreed
that for a period of one year following this offering, they will not offer,
sell, contract to sell, grant any option for the sale or otherwise dispose of
any of our common stock, other than intra-family transfers or transfers to
trusts for estate planning purposes, without the consent of the representative,
which will not be unreasonably withheld. After the one year period, these
persons will give the representative prior notice of sales under Rule 144 for
five years from the date of this prospectus.
39
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Stoel Rives LLP, Portland, Oregon. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Grover T. Wickersham, P.C.,
Palo Alto, California.
EXPERTS
The balance sheet as of June 30, 1998, and the statements of operations,
stockholders' deficit, and cash flows for the eleven months ended June 30, 1997
and the year ended June 30, 1998, have been audited by Friedman, Minsk, Cole &
Fastovsky, independent certified public accountants, as set forth in their
report appearing elsewhere in this prospectus and in the registration statement,
and are included in reliance upon that report given upon the authority of that
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We are not a reporting company under the Securities Exchange Act of 1934. We
have filed with the Securities and Exchange Commission a registration statement
on Form S-1 under the Securities Act of 1933 with respect to the units, common
stock and warrants. This prospectus omits some information contained in the
registration statement and its exhibits, as permitted by the rules and
regulations of the SEC. For further information with respect to us and our
securities, you should review the registration statement and its exhibits, which
may be inspected, without charge, at the Public Reference Section of the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the SEC located at 7 World Trade Center, Suite 1300,
New York, NY 10048, and the Kluczynski Federal Building, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
SEC, upon payment of prescribed fees. The SEC maintains a World Wide Web site
that contains reports, proxy and information statements and other information
about registrants that file electronically with the SEC, including the
registration statement. The address of the SEC's World Wide Web site is
HTTP://WWW.SEC.GOV.
Statements contained in this prospectus as to the contents of any contract
or other document referred to in this prospectus are not necessarily complete
and, in each instance, reference is made to the copy of that contract or other
document filed as an exhibit to the registration statement, each statement being
qualified in all respects by that reference.
40
<PAGE>
3DSHOPPING.COM
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants....................................................... F-2
Financial Statements:
Balance Sheets as of June 30, 1998 and December 31, 1998 (Unaudited)..................................... F-3
Statements of Operations for the period August 1, 1996 (Inception) through June 30, 1997, for the year
ended June 30, 1998, for the period August 1, 1996 (Inception) through June 30, 1998 and for the six
months ended December 31, 1997 and 1998 (unaudited).................................................... F-4
Statement of Shareholders' Deficit for the period August 1, 1996 (Inception) through December 31, 1998... F-5
Statements of Cash Flows for the period August 1, 1996 (Inception) through June 30, 1997, for the year
ended June 30, 1998, for the period August 1, 1996 (Inception) through June 30, 1998 and for the six
months ended December 31, 1997 and 1998 (unaudited).................................................... F-6
Notes to Financial Statements--June 30, 1997 and 1998.................................................... F-7-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
3DSHOPPING.COM
We have audited the accompanying Balance Sheet of 3Dshopping.com (a
development stage enterprise) as of June 30, 1998 and the related Statements of
Operations, Shareholders' Deficit, and Cash Flows for the period from August 1,
1996 (Inception) to June 30, 1997, the year ended June 30, 1998 and for the
period from August 1, 1996 (Inception) to June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 3Dshopping.com (a
development stage enterprise) as of June 30, 1998 and the results of its
operations and its cash flows for the period from August 1, 1996 (Inception) to
June 30, 1997, the year ended June 30, 1998 and from August 1, 1996 (Inception)
to June 30, 1998 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 2 to the
financial statements, the Company has suffered losses from operations that
raises substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ FRIEDMAN, MINSK, COLE & FASTOVSKY
- --------------------------------------------------
Friedman, Minsk, Cole & Fastovsky
Los Angeles, California
January 15, 1999, except for Notes 9 and 12 as to
which the date is March 9, 1999
F-2
<PAGE>
3DSHOPPING.COM
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER
1998 31, 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 144,564 $ 112,062
Accounts receivable.............................................. 4,999 15,264
Contracts in progress............................................ -- 10,797
Prepaid expenses................................................. 13,496 8,272
---------- ----------
Total current assets........................................... 163,059 146,395
Property and equipment-net....................................... 66,470 105,590
---------- ----------
Total assets................................................... $ 229,529 $ 251,985
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of capital lease obligation................... $ -- $ 5,293
Notes payable--current........................................... 260,588 295,064
Accounts payable................................................. 64,567 68,023
Accrued expenses and other current liabilities................... 3,000 14,805
---------- ----------
Total current liabilities...................................... 328,155 383,185
Capital lease obligation......................................... -- 12,052
Shareholders' deficit:
Common Stock,no par value:10,000,000 shares authorized: 3,191,400
(June) and 3,305,746 (December) shares issued and
outstanding.................................................... 3,191 3,306
Additional paid-in capital....................................... 2,993,921 5,534,477
Stock subscriptions received in advance.......................... -- 53,750
Stock subscriptions receivable................................... (107,400) (2,500)
Accumulated deficit.............................................. (2,988,338) (5,732,285)
---------- ----------
Total shareholders' deficit.................................... (98,626) (143,252)
---------- ----------
Total liabilities and shareholders' deficit.................... $ 229,529 $ 251,985
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
3DSHOPPING.COM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
AUGUST 1, AUGUST 1,
1996 1996 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED (INCEPTION) DECEMBER 31,
TO JUNE 30, JUNE 30, TO ------------------------
1997 1998 JUNE 30, 1998 1997 1998
------------- ------------ ------------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............................. $ -- $ 18,404 $ 18,404 $ 521 $ 27,539
------------- ------------ ------------- ---------- ------------
Costs and expenses:
Sales and marketing.................... 973,283 473,665 1,446,948 148,092 822,338
Research and development............... 294,360 170,259 464,619 107,748 281,675
General and administrative............. 647,868 457,345 1,105,213 178,091 1,650,310
------------- ------------ ------------- ---------- ------------
Total costs and expenses............. 1,915,511 1,101,269 3,016,780 433,931 2,754,323
------------- ------------ ------------- ---------- ------------
Loss from operations................... 1,915,511 1,082,865 2,998,376 433,410 2,726,784
Interest expense....................... 3,089 10,373 13,462 2,450 17,163
Other income........................... 10,000 13,500 23,500 13,500 --
------------- ------------ ------------- ---------- ------------
Net loss............................. $ 1,908,600 $ 1,079,738 $ 2,988,338 $ 422,360 $ 2,743,947
------------- ------------ ------------- ---------- ------------
------------- ------------ ------------- ---------- ------------
Net loss per share....................... $ 0.59 $ 0.28 $ 0.85 $ 0.11 $ 0.68
------------- ------------ ------------- ---------- ------------
------------- ------------ ------------- ---------- ------------
Weighted average number of shares used in
computing net loss per share........... 3,210,651 3,823,228 3,530,256 3,686,644 4,015,416
------------- ------------ ------------- ---------- ------------
------------- ------------ ------------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
3DSHOPPING.COM
STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK STOCK
---------------------- PAID-IN SUBSCRIPTIONS SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE IN ADVANCE DEFICIT TOTAL
--------- ----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales of Common Stock................ 707,333 $ 707 $ 591,043 $ (83,375) $ 508,375
Issuance of Common Stock for
services........................... 1,820,000 1,820 1,363,180 1,365,000
Costs of stock offering.............. (15,931) (15,931)
Stock subscriptions received in
advance............................ $ 39,500 39,500
Net loss............................. -- -- -- -- -- $(1,908,600) (1,908,600)
--------- ----------- ----------- ------------ ------------ ------------ -----------
Balance at June 30, 1997............. 2,527,333 2,527 1,938,292 (83,375) 39,500 (1,908,600) (11,656)
Prior stock subscriptions received... 83,375 83,375
Issuance of Common Stock for
services........................... 35,700 36 59,293 59,329
Sales of Common Stock................ 289,933 290 419,960 (181,775) (39,500) 198,975
Net loss............................. -- -- -- -- -- (422,360) (422,360)
--------- ----------- ----------- ------------ ------------ ------------ -----------
Balance at December 31, 1997
(unaudited)........................ 2,852,966 2,853 2,417,545 (181,775) -- (2,330,960) (92,337)
Issuance of Common Stock for
services........................... 33,000 33 43,851 43,884
Sales of Common Stock................ 305,434 305 343,444 74,375 418,124
Costs of stock offering.............. (29,374) (29,374)
Fair market value of stock options... 218,455 218,455
Net loss............................. -- -- -- -- -- (657,378) (657,378)
--------- ----------- ----------- ------------ ------------ ------------ -----------
Balance at June 30, 1998............. 3,191,400 3,191 2,993,921 (107,400) (2,988,338) (98,626)
Stock subscriptions received......... 107,400 53,750 161,150
Stock options exercised.............. 59,000 59 249,941 (2,500) 247,500
Issuance of Common Stock for
services........................... 25,000 25 306,225 306,250
Exercise of cashless warrants........ 30,346 31 (31) --
Employee stock options............... 1,629,921 1,629,921
Non-employee stock options........... 354,500 354,500
Net loss............................. -- -- -- -- -- (2,743,947) (2,743,947)
--------- ----------- ----------- ------------ ------------ ------------ -----------
Balance at December 31, 1998
(unaudited)........................ 3,305,746 $ 3,306 $ 5,534,477 $ (2,500) $ 53,750 $(5,732,285) $ (143,252)
--------- ----------- ----------- ------------ ------------ ------------ -----------
--------- ----------- ----------- ------------ ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
3DSHOPPING.COM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
AUGUST 1,
1996 SIX MONTHS ENDED DECEMBER
(INCEPTION) AUGUST 1, 1996 31,
TO JUNE 30, YEAR ENDED (INCEPTION) TO --------------------------
1997 JUNE 30, 1998 JUNE 30, 1998 1997 1998
------------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss........................................ $(1,908,600) $ (1,079,738) $ (2,988,338) $ (422,360) $ (2,743,947)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 20,822 40,333 61,155 20,418 23,207
Gain on sale of assets........................ -- (1,049) (1,049) --
Common Stock issued for services.............. 1,365,808 103,213 1,469,021 59,329
Options and warrants issued for services and
compensation................................ -- 218,455 218,455 -- 2,290,646
Changes in assets and liabilities:
Accounts receivable........................... (719) (4,280) (4,999) (1,221) (10,265)
Prepaid expenses.............................. (6,066) (7,430) (13,496) (2,200) 5,224
Contracts in progress......................... -- -- -- -- (10,797)
Accounts payable and other liabilities........ 88,162 (20,595) 67,567 (50,768) 15,261
Organization costs............................ (1,570) -- (1,570) -- --
------------- ------------- --------------- ----------- -------------
Net cash used in operating activities....... (442,163) (751,091) (1,193,254) (396,802) (430,671)
------------- ------------- --------------- ----------- -------------
Cash flows from investing activities:
Acquisition of property and equipment......... (114,270) (13,250) (127,520) (9,827) (62,327)
Proceeds from sale of property................ -- 2,514 2,514 -- --
------------- ------------- --------------- ----------- -------------
Net cash used in investing activities....... (114,270) (10,736) (125,006) (9,827) (62,327)
------------- ------------- --------------- ----------- -------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock........ 547,067 700,474 1,247,541 282,100 408,675
Costs of issuance of Common Stock............. (15,931) (29,374) (45,305) --
Proceeds from issuance of debt................ 22,728 237,860 260,588 124,824 34,476
Capital lease................................. -- -- -- -- 17,345
------------- ------------- --------------- ----------- -------------
Net cash provided by financing activities... 553,864 908,960 1,462,824 406,924 460,496
------------- ------------- --------------- ----------- -------------
Net change in cash and cash equivalents..... (2,569) 147,133 144,564 295 (32,502)
Cash and equivalents at beginning of period..... -- (2,569) -- (2,569) 144,564
------------- ------------- --------------- ----------- -------------
Cash and cash equivalents at end of period...... $ (2,569) $ 144,564 $ 144,564 $ (2,274) $ 112,062
------------- ------------- --------------- ----------- -------------
Cash paid during period for:
Interest...................................... $ 2,980 $ 3,001 $ 5,981 $ 2,381 $ 2,674
Income taxes.................................. -- 1,600 1,600 800 800
Stock and options issued as compensation and for
services...................................... 1,365,808 321,668 1,687,476 59,329 2,290,646
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
3Dshopping.com, formerly Pi Graphix, Inc., (the "Company") commenced
operations effective August 1, 1996. The Company was formed to design and
develop high end internet applications using 3D modeling software and
interactive databases. The company has developed and is beginning to implement
and market to e-commerce retailers a Web-based marketing and merchandising
system that incorporates sophisticated graphics and other audio-visual features.
The Company was in the development stage through June 30, 1998 and its
efforts through that time were principally devoted to organizational activities,
raising capital and research and development efforts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates its
property and equipment using the straight-line method. The principal useful
lives in computing depreciation are as follows:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- ------------------------------------------------------------------------------ --------------
<S> <C>
Machinery and equipment....................................................... 3-5 Years
Furniture and fixtures........................................................ 5-10 Years
Software...................................................................... 1-3 Years
</TABLE>
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and tax basis of
assets and liabilities and operating losses available to offset future taxable
income, using enacted tax rates in effect in the years in which the differences
are expected to reverse.
DEVELOPMENT COSTS
Expenditures during the research and development stage are expensed as
incurred. Development costs, including direct labor, incurred subsequent to
establishing technological feasibility are capitalized. Development costs for
each product are carried on the balance sheet at the lower of unamortized cost
or net realizable value.
ORGANIZATION COSTS
In accordance with the provisions of Statement of Position 98-5, the Company
expensed organization costs in the year ended June 30, 1998. For the year ended
June 30, 1997, the Company amortized organization costs by the straight-line
method over a five year period. The effect of the change in accounting is not
material.
F-7
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
LOSS PER SHARE OF COMMON STOCK
The loss per share of common stock is based on the weighted average number
of common shares outstanding during the period, in conformance with SFAS
Statement 128 issued by the Financial Accounting Standards Board and nominal
issuances of potential common shares as required by the Securities and Exchange
Commission. Loss per common share assuming dilution has not been presented as
the effect would be anti-dilutive.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue for software products is recognized when an arrangement exists, the
fee is determinable, collectibility is probable, and delivery has occurred.
Revenue from maintenance services is recognized when the service has been
performed.
STOCK-BASED COMPENSATION
The Company has adopted SFAS Statement 123 for stock-based compensation
plans. This statement encourages companies to adopt a fair value approach to
valuing stock options that would require compensation cost to be recognized
based on the fair value of stock options granted.
This statement also establishes fair value as the measurement basis for
transactions in which an entity acquires goods or services from non-employees in
exchange for equity instruments.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of December 31, 1998 and for the six months
ended December 31, 1997 and 1998 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for fair presentation of the financial position at such dates and the
results of operations and cash flows for the periods then ended. Operating
results for the six months ended December 31, 1998 are not necessarily
indicative of results that may be expected for the entire year.
F-8
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 2 GOING CONCERN
The Company's continued existence is dependent upon its ability to obtain
additional debt financing and equity capital until the Company's operations
generate positive cash flow. Through June 30, 1998 the Company has incurred a
net loss of $2,988,338 and has used net cash of $1,193,254 in its operating
activities.
Management believes that the collection of stock subscriptions, additional
principal stockholder advances and deposits from customers will enable the
Company to meet its obligations until it generates sufficient cash flow from
sales.
NOTE 3 COMMON STOCK
The Company issued 1,820,000 shares of common stock at a price of $0.001 per
share on August 15, 1996 to its founders and certain key employees. The
difference between the price paid ($0.001) and the estimated value of this stock
($0.75) was reported as compensation expense.
The Company issued 462,333 shares of common stock at $0.75 per share between
August 30, 1996 and November 26, 1996, 245,000 shares of common stock at $1.00
per share between June 24, 1997 and June 27, 1997 for cash, and 36,000 shares at
$1.00 per share in exchange for financial and advisory business services. In
accordance with recommendation 96-18 of the FASB's Emerging Issues Task Force,
the shares issued were recorded over the period of the contract at the then
current fair value when the shares were earned.
The company issued 56,600 shares at $1.25 per share, 233,333 shares at $1.50
per share and 50,000 shares at $1.00 per share for cash, and 32,700 shares for
services at $1.19 to $1.88 per share in the year ended June 30, 1998.
The Company issued 255,434 shares for $1.15 per share from February through
June 30, 1998. These shareholders also received warrants to purchase 127,717
additional common shares at $1.50 per share. The warrants expire one year after
issue.
NOTE 4 STOCK OPTIONS
(a) EMPLOYEE OPTIONS
During the year ended June 30, 1998 the Company granted options to one
employee and recognized compensation expense of $15,378 as the options were
granted.
F-9
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 4 STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's stock options as of June 30, 1998,
and changes during the year then ended is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding at Beginning of Year.................................. -- --
Granted........................................................... 36,000 $ 1.75
Exercised......................................................... -- --
Forfeited......................................................... -- --
--------- -----
Outstanding at End of Year........................................ 36,000 $ 1.75
--------- -----
Options exercisable at year-end................................... --
Weighted-average fair value of options granted during
the year........................................................ $ .43
</TABLE>
The following summarizes information about stock options at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------- --------------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- ----------- ----------- ---------------- ----------------- --------------- ---------------------
<C> <C> <S> <C> <C> <C>
1$.75...... 36,000 18.5 months $ 1.75 -- --
</TABLE>
The fair value of the option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for 1998:
Risk-free interest rate of 5.32 to 5.83%: Dividend yield of 0%: Expected life of
2.0 years: and Volatility of 61.4%.
In July 1997 the directors authorized the adoption of an employee stock
option plan a for total of 230,000 shares. 90,000 shares are designated for six
named officers/directors/employees. The plan was revised in November 1998 and
225,000 options were granted to employees at that time.
(b) NON-EMPLOYEE OPTIONS
During the year ended June 30, 1998 the Company granted options and warrants
to certain non-employees and recognized $203,077 of expense as the options were
granted.
F-10
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 4 STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's stock options and warrants as of
June 30, 1998, and changes during the year then ended is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding at Beginning of Year................................. -- --
Granted.......................................................... 497,717 $ 1.85
Exercised........................................................ -- --
Forfeited........................................................ -- --
--------- -----
Outstanding at End of Year....................................... 497,717 $ 1.85
--------- -----
Options and warrants excisable at year year-end.................. 497,717
Weighted-average fair value of options granted during the year... $ .41
</TABLE>
The following summarizes information about non-employee stock options and
warrants at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------- ------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- ----------- ----------- ---------------- ----------------- ----------- -----------------
<C> <C> <S> <C> <C> <C>
$ 1.25-3.00 497,717 23.4 months $ 1.85 370,000 $ 1.45
</TABLE>
The fair value of the option or warrant grant was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions for 1998: Risk-free interest rate of 5.32 to 5.45%: Dividend yield
of 0%: Expected life of .67 to 2.4 years: and Volatility of 61.4%.
Stock Options and Warrant activity during the six months ended December 31,
1998 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OUTSTANDING EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Balance at June 30, 1998...................................... 533,717 $ 1.84
Granted..................................................... 270,000 2.33
Exercised................................................... (97,384) 3.06
Balance at December 31, 1998.................................. 706,333 1.86
</TABLE>
F-11
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 5 INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
Federal net operating loss..................................................... $ 306,250
State net operating loss....................................................... 123,500
R & D credit carryforward...................................................... 47,250
Property and equipment......................................................... 2,500
Stock Compensation............................................................. 4,500
Other.......................................................................... 250
-------------
484,250
Less valuation allowance....................................................... (484,250)
-------------
Net deferred tax asset......................................................... $ 0
-------------
-------------
</TABLE>
The valuation allowance increased by $185,500, 298,750 and $484,250 in the
period from August 1, 1996 to June 30, 1997,the year ended June 30, 1998, and
the period from August 1, 1996 to June 30, 1998, respectively.
At June 30, 1998 the Company has incurred loss carryforwards for income tax
purposes and earned research and development credits which expire as follows:
<TABLE>
<CAPTION>
FEDERAL STATE
---------- ----------
<S> <C> <C> <C>
NET OPERATING LOSSES
Expiring................................ 2002 $ 531,000
2003 865,000
2012 $ 518,000
2013 858,000
RESEARCH AND DEVELOPMENT CREDITS
2012 17,000 3,800
2013 17,000 9,400
</TABLE>
The principal difference between the loss for financial statement and tax
purposes is that approximately $182,000 and $1,363,000 compensation expense from
the issuance of shares in 1998 and 1997, respectively (see Note 3) is not
recognized as an expense for income tax purposes.
The Internal Revenue Code contains provisions which may limit the loss
carryforwards available if significant changes in stockholder ownership of the
Company occur.
F-12
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 6 NOTES PAYABLE
Notes payable at June 30, 1998 is comprised of:
<TABLE>
<S> <C>
Note dated June 8, 1998 due December 8, 1998 with interest at 10%
per annum. Convertible to common stock at $1.25 per share....... $ 100,000
Note dated November 27, 1997 due May 22, 1998 with interest at 10%
per annum. Convertible to common stock at $1.00 per share....... $ 100,000
---------
$ 200,000
---------
---------
</TABLE>
The notes were not paid when due and continue earning interest at 18% until
paid.
NOTE 7 RELATED PARTY TRANSACTIONS
The Company acquired the property and equipment and certain other prepaid
assets and assumed certain payroll and other liabilities of Samuel Hamann
Graphix, Inc. ("Hamann") from the Company's principal shareholder/president for
$18,500.
The purchase price was allocated to the tangible assets at their original
cost, with the balance ($5,306) attributed to research and development which has
been expensed.
Hamann, a Public Company, was a Development Stage Corporation which had been
in existence for approximately one year. A founder and principal shareholder of
the Company was the principal shareholder of Hamann.
The principal shareholder and a minor shareholder have advanced funds
(including the $18,500 above) to the Company, at 7% per annum interest, which
the Company has partially repaid. A director and minor shareholder has received
consulting fees from the Company.
<TABLE>
<CAPTION>
AUGUST 1, 1996
(INCEPTION) TO
JUNE 30,
YEAR ENDED ---------------------
JUNE 30, 1998 1997 1998
------------- --------- ----------
<S> <C> <C> <C>
Advances by Shareholders................................ $ 108,860 $ 69,823 $ 178,683
Repayment to Shareholders............................... 71,000 47,095 118,095
Interest on Advances.................................... 2,427 2,972 5,399
Consulting Fees Paid.................................... -- 60,540 60,540
</TABLE>
The balance due on the advances was $60,588 at June 30, 1998.
F-13
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 8 PROPERTY AND EQUIPMENT
Property and Equipment is comprised of:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Machinery and Equipment..................................... $ 69,779 $ 118,897
Furniture and Fixtures...................................... 17,057 28,112
Software.................................................... 38,173 40,327
------------- --------
125,009 187,336
Accumulated Depreciation.................................... 58,539 81,746
------------- --------
Net......................................................... $ 66,470 $ 105,590
------------- --------
------------- --------
</TABLE>
NOTE 9 COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases its office facilities under an operating lease, which
expires May 31, 1999. Future minimum annual lease payments, as of June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- ---------------------------------------------------------------
<S> <C>
June 30, 1999.................................................. $ 31,845
---------
Total.......................................................... $ 31,845
---------
---------
</TABLE>
The monthly rent includes a standard charge for utilities. Rent expense for
the period from August 1, 1996 through June 30, 1997, the year ended June 30,
1998, and the period from August 1, 1998 through June 30, 1998 amounted to
$28,870, $35,325 and $64,195, respectively.
Rent expense for the six months ended December 31, 1997 and 1998 amounted to
$12,900 and $14,590, respectively.
INSURANCE
The Company did not have workers compensation insurance from April 9, 1998
to June 30, 1998 and was not covered for risks formerly covered by this policy.
The policy was renewed effective July 1, 1998.
F-14
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 10 LOSS PER SHARE
The loss per common share is determined by dividing the net loss for the
period by the weighted average number of common shares outstanding during the
period.
<TABLE>
<CAPTION>
AUGUST 1, AUGUST 1,
1996 1996
(INCEPTION) (INCEPTION)
TO YEAR ENDED TO
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Common Stock
Outstanding Beginning of Period(1).................................. 0 2,432,666 0
Issued during the period(1)....................................... 2,432,666 687,134 3,119,800
End of the Period (1)............................................. 2,432,666 3,119,800 3,119,800
Nominal Issuances................................................. 1,064,233 1,064,233 1,064,233
Weighted Average number of shares................................... 2,276,022 2,913,554 2,608,647
</TABLE>
- ------------------------
(1) net of stock subscriptions
The Securities and Exchange Commission requires nominal issuances of
potential common shares issued within one year prior to the Initial Public
Offering filing date to be included in earnings per share calculations as if
outstanding for all periods presented. These calculations include all such
shares.
Loss per common share assuming dilution has not been presented as the result
would have been anti-dilutive.
The following securities, which were not included because the result would
have been anti-dilutive, could potentially dilute earnings per share in the
future:
<TABLE>
<CAPTION>
SHARES
---------
<S> <C>
Employee stock options............................................................. 36,000
Non-employee stock options and warrants issued for services........................ 370,000
Stock warrants..................................................................... 127,717
Convertible notes payable.......................................................... 180,000
</TABLE>
Subsequent to June 30, 1998 the following securities were issued which could
potentially dilute earnings per share in the future:
<TABLE>
<S> <C>
Stock issued at par................................................. 25,000
Stock options issued for services................................... 75,000
Employee stock options.............................................. 2,000
</TABLE>
F-15
<PAGE>
3DSHOPPING.COM
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--JUNE 30, 1997 AND 1998 (CONTINUED)
(INFORMATION RELATING TO DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments for which a fair value can be
determined are as follows. Fair value approximates carrying amount because of
the short term maturity of these instruments:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Financial Assets
Cash.................................................................................... $ 144,564 $ 144,564
Other receivable........................................................................ 3,176 3,176
Accounts Receivable..................................................................... 1,823 1,823
Financial Liabilities
Accounts payable and accrued expenses................................................... 67,567 67,567
Shareholder loan........................................................................ 60,588 60,588
Notes payable........................................................................... 200,000 200,000
</TABLE>
NOTE 12 SUBSEQUENT EVENTS
Effective March 10, 1999 the Company amended its Articles of Incorporation
to change the Company's name to 3Dshopping.com, authorize 5,000,000 shares of a
class of Preferred Stock, and to eliminate the par value of its Common Stock.
In addition, effective February 21, 1999, the Company approved the adoption
of a Stock Option Plan and reserved 1,000,000 shares of Common Stock for
issuance under the plan.
In February 1999 the noteholders converted notes payable of $200,000 and
accrued interest of $17,200 into 196,000 shares of Common Stock at $1 and $1.15
per share.
F-16
<PAGE>
1,750,000 UNITS
3DSHOPPING.COM
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT COMPANY, INC.
, 1999
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, UNITS ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE UNITS OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered, excluding the
representative's nonaccountable expense allowance, all of which expenses will be
paid by the Registrant::
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 22,951
NASD filing fees.................................................................. 8,756
Accounting fees and expenses...................................................... 40,000*
Legal fees and expenses........................................................... 125,000*
Printing and related expenses..................................................... 80,000*
Blue sky legal fees and expenses.................................................. 5,000*
Transfer agent and expenses....................................................... 2,000*
Miscellaneous expenses............................................................ 16,293*
---------
Total......................................................................... $ 300,000*
---------
---------
</TABLE>
- ------------------------
* Estimated expenses
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California Corporations Code provides for the indemnification of
directors, officers, employees and agents of the corporation under the
circumstances as set forth in section 317. Section 317 permits a corporation to
indemnify its agents, typically directors and officers, for expenses incurred or
settlements or judgments paid in connection with certain legal proceedings. Only
those legal proceedings arising out of such persons' actions as agents of the
corporation may be grounds for indemnification.
Whether or not indemnification may be paid in a particular case depends on
whether the agent wins, loses or settles the suit and upon whether a third party
or the corporation itself is the plaintiff. The section provides for mandatory
indemnification, no matter who the plaintiff is, when an agent is successful on
the merits of a suit. In all other cases, indemnification is permissive.
If the agent loses or settles a suit brought by a third party, he or she may
be indemnified for expenses incurred and settlements or judgments paid. Such
indemnification may be authorized upon a finding that the agent acted in good
faith and in a manner he or she reasonably believed to be in the best interests
of the corporation.
If the agent loses or settles a suit brought by or on behalf of the
corporation, his or her right to indemnification is more limited. If he or she
is adjudged liable to the corporation, the court in which such proceeding was
held must determine whether it would be fair and reasonable to indemnify him or
her for expenses which such court shall determine. If the agent settles such a
suit with court approval, he or she may be indemnified for expenses incurred
upon a finding that the agent acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the corporation and, in
addition, that he or she acted with the care, including reasonable inquiry, of
an ordinarily prudent person.
The indemnification discussed above may be authorized by a majority vote of
the disinterested directors or shareholders (the person to be indemnified is
excluded from voting his or her shares) or the court in which the proceeding was
brought. The Company's Board of Directors makes all decisions regarding the
indemnification of its officers and directors on a case-by-case basis.
II-1
<PAGE>
Any provision in the corporation's Articles of Incorporation or Bylaws or
contained in a shareholder or director resolution that indemnifies its officers
or directors must be consistent with section 317. Moreover, such a provision may
prohibit permissive, but not mandatory, indemnification as described above.
Last, a corporation has the power to purchase indemnity insurance for its agents
even if it would not have the power to indemnify them.
The Company's articles authorize the board of directors to provide
indemnification of its agents through bylaw provisions or indemnification
agreements, or both, in excess of the indemnification otherwise permitted by
section 317, subject to the limits on such excess indemnification set forth in
section 204 of the California Corporations Code.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three years, the Registrant has issued and sold the
following unregistered securities on the dates and for the consideration
indicated:
In 1996, the Company issued 2,282,233 shares of common stock for cash at
prices ranging from $.01 to $.75 a share, in a total amount of $348,750. These
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1997, the Company issued 570,933 shares of common stock for cash at
prices ranging from $1 to $1.50 a share, in a total amount of $701,750. These
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1998, the Company issued 305,434 shares of common stock for cash at
prices ranging from $1 to $1.50 a share, in a total amount of $343,750. These
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1999, the Company issued 196,000 shares of common stock upon conversion
of two convertible promissory notes of the Company, issued in November 1998 and
June 1998, respectively, each in the principal amount of $100,000. The shares
issued were valued at prices ranging from $1 to $1.50 a share, for a total
amount of $217,200. The notes were issued pursuant to Section 4(2) of the
Securities Act and the underlying shares of common stock were issued in reliance
on the exemption from registration provided by Section 3(a)(9) of the Securities
Act.
In 1997, the Company issued 17,700 shares of common stock at prices ranging
from $1.25 to $1.50 a share in exchange for services, in an aggregate amount of
$22,875. These shares of common stock were issued in reliance on the exemption
from registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1998, the Company issued 15,000 shares of common stock at a price of
$1.50 a share in exchange for services, in an aggregate amount of $21,000. These
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1998, the Company issued 25,000 shares of common stock for cash and
services in an aggregate amount of $306,250. These shares of common stock were
issued in reliance on the exemption for registration provided by Rule 701.
In 1998, the Company issued 89,346 shares of common stock pursuant to the
exercise of options and warrants at an exercise price ranging from $1.25 to
$7.75 a share. The options and underlying
II-2
<PAGE>
shares of common stock were issued in reliance on the exemption from
registration provided by Rule 701.
In 1999, the Company issued 144,000 shares of common stock pursuant to the
exercise of options at an exercise price ranging from $1.25 to $9.00 a share.
The options and underlying shares of common stock were issued in reliance on the
exemption from registration provided by Rule 701.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1(1) Form of Underwriting Agreement
3.1.1(1) Amended and Restated Articles of Incorporation of the Registrant
3.2(1) Amended and Restated Bylaws of the Registrant
4.1(2) Specimen Common Stock Certificate
4.2(1) Form of Warrant Agreement among the Registrant and Interwest Transfer
Company, as Warrant Agent, including the form of Warrant
4.3(1) Form of Representative's Warrants
5.1(2) Opinion of Stoel Rives LLP
10.1(1)(3) Website Design and Promotion Agreement dated April 22, 1998 between
the Registrant and MediaOne, Inc.
10.2(1) Website Design, Build and Maintain Agreement dated September 24, 1998
between the Registrant and Leavens Awards Co., Inc.
10.3(1) Contract for Internet Consulting Services dated February 10, 1999
between the Registrant and Fish Interactive
10.4(1) Letter Agreement dated February 5, 1999 between the Registrant and
Shandrick International, Inc.
10.5(1) Lease Agreement dated April 16, 1996 between the Registrant and
Perloff/Webster
10.6(1) Commercial Sub-Lease Agreement dated December 3, 1998 between the
Registrant and Westland Network
23.1(1) Consent of Friedman, Minsk, Cole & Fastovsky, independent auditors
23.2(2) Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5 of the originally-filed Registration
Statement)
27.1(1) Financial Data Schedule
</TABLE>
- ------------------------
(1) Filed herewith.
(2) To be filed by amendment.
(3) Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed separately with the
Commission.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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
II-3
<PAGE>
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the dollar value of the
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement, and
(iii) Include additional or changed material information on the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(2) That for purposes of 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
initial 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.
(4) That for purposes of determining liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) To provide the underwriters, at the closing specified in the
underwriting agreement certificates representing the units in such denominations
and registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Venice,
California, on March 19, 1999.
3DSHOPPING.COM
BY: /S/ LAWRENCE WEISDORN
-----------------------------------------
LAWRENCE WEISDORN
PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Lawrence Weisdorn and Robert J. Grant, and
each of them, his attorneys-in-fact and agents, each with full power of
substitution, for him/her and in his/her name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement on Form
S-1, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
with this Registration Statement, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that any of
said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<C> <S> <C>
/s/ LAWRENCE WEISDORN President and Director March 19, 1999
- ---------------------------------- (Principal Executive
Lawrence Weisdorn Officer)
/s/ ROBERT J. GRANT Treasurer and Secretary and March 19, 1999
- ---------------------------------- Director
Robert J. Grant (Principal Financial and
Accounting Officer)
/s/ DONALD L. HEJMANOWSKI Director March 19, 1999
- ----------------------------------
Donald L. Hejmanowski
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------
<C> <S>
1.1(1) Form of Underwriting Agreement
3.1.1(1) Amended and Restated Articles of Incorporation of the Registrant
3.2(1) Amended and Restated Bylaws of the Registrant
4.1(2) Specimen Common Stock Certificate
4.2(1) Form of Warrant Agreement among the Registrant and Interwest Transfer
Company, as Warrant Agent, including the form of Warrant
4.3(1) Form of Representative's Warrants
5.1(2) Opinion of Stoel Rives LLP
10.1(1)(3) Website Design and Promotion Agreement dated April 22, 1998 between
the Registrant and MediaOne, Inc.
10.2(1) Website Design, Build and Maintain Agreement dated September 24, 1998
between the Registrant and Leavens Awards Co., Inc.
10.3(1) Contract for Internet Consulting Services dated February 10, 1999
between the Registrant and Fish Interactive
10.4(1) Letter Agreement dated February 5, 1999 between the Registrant and
Shandrick International, Inc.
10.5(1) Lease Agreement dated April 16, 1996 between the Registrant and
Perloff/Webster
10.6(1) Commercial Sub-Lease Agreement dated December 3, 1998 between the
Registrant and Westland Network
23.1(1) Consent of Friedman, Minsk, Cole & Fastovsky, independent auditors
23.2(2) Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5 of the originally-filed Registration
Statement)
27.1(1) Financial Data Schedule
</TABLE>
- ------------------------
(1) Filed herewith.
(2) To be filed by amendment.
(3) Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed separately with the
Commission.
<PAGE>
2,000,000 Units
3Dshopping.com
UNDERWRITING AGREEMENT
__________, 1999
Paulson Investment Company, Inc.
As Representative of the
Several Underwriters
811 SW Naito Parkway, Suite 200
Portland, Oregon 97204
Gentlemen:
3Dshopping.com, a California corporation (the "Company"), proposes to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as Representative (the "Representative") an aggregate of
1,750,000 Units (the "Firm Units"). Each Unit will consist of one share of the
Company's Common Stock ("Common Stock") and one Purchase Warrant substantially
in the form filed as an exhibit to the Registration Statement (hereinafter
defined) ("Warrants"). The respective number of the Firm Units to be so
purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company also proposes to grant to the Representative an
option to purchase in aggregate up to 262,500 additional Units, identical to the
Firm Units (the "Option Units"), as set forth below.
As the Representative, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourself as Representative and on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm Units
set forth opposite their respective names in Schedule I. The Firm Units and the
Option Units (to the extent the aforementioned option is exercised) are herein
collectively called the "Units."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
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<PAGE>
1. Representations and Warranties of the Company.
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form SB-2 (File No. 333-_______) with
respect to the Units has been carefully prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Units, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of California, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company does not own
and never has owned a controlling interest in any other corporation or other
business entity that has or ever has had any material assets, liabilities or
operations. The Company is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such qualification.
(c) The outstanding shares of each class or series of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable and, except as disclosed in the Registration Statement, have been
issued and sold by the Company in compliance in all material respects with
applicable securities laws; the issuance and sale of the Units have been duly
authorized by all necessary corporate action and, when issued and paid for as
contemplated herein, the Units will be validly issued, fully paid and
non-assessable; and no preemptive rights of shareholders exist with respect to
any security of the Company or the issue and sale thereof. Neither the filing of
the Registration Statement nor the offering or sale of the Units as contemplated
by this
2
<PAGE>
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock or
other securities of the Company.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. The Common Stock conforms and the Warrants
and the Representative's Warrant will conform to the description thereof
contained in the Registration Statement. The forms of certificates for the
securities comprising the Units conform to the requirements of the corporate law
of California.
(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Units nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representative, specifically for use in the
preparation thereof.
(f) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of the
Company at the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data of the Company included in the Registration Statement
presents fairly the information shown therein and such data has been compiled on
a basis consistent with the financial statements presented therein and the books
and records of the Company.
(g) Friedman, Minsk, Cole & Fastovsky, who have certified certain of
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise
3
<PAGE>
which if determined adversely to the Company might result in any material
adverse change in the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company or to prevent the consummation of the transactions contemplated hereby,
except as set forth in the Registration Statement.
(i) The Company has good and marketable title to all properties and
assets, tangible and intangible, reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material. The Company's ownership rights in its patents, patent
licenses and other material technology is consistent with (i) the description
thereof in the Registration Statement, and (ii) the business needs of the
Company. All of the leases and subleases under which the Company holds
properties are in full force and effect (with only such exceptions as are
commonly accepted by prudent companies engaged in the Company's business) and
the Company has not received notice of any material claim of any sort that has
been asserted by anyone materially adverse to the rights of the Company under
any of such leases or subleases, or affecting or questioning the rights of the
Company to the continued possession of the leased or subleased premises or
property under any such lease or sublease.
(j) The Company has filed all federal, state, local and foreign income
tax returns which have been required to be filed and have paid all taxes
indicated by said returns and all assessments received by it to the extent that
such taxes have become due and are not being contested in good faith. All tax
liabilities have been adequately provided for in the financial statements of the
Company.
(k) Since the respective dates as of which information is given in the
Registration Statement, as it may have been amended or supplemented, there has
not been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered into or any
material transaction that is probable of being entered into by the Company,
other than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended or
supplemented. The Company has no material contingent obligations which are not
disclosed in the Company's financial statements or elsewhere in the Prospectus
which are included in the Registration Statement.
(l) The Company is not, nor, with the giving of notice or lapse of
time or both, will it be, in violation of or in default under its Articles of
Incorporation or Bylaws or under any agreement, lease, contract, indenture or
other instrument or obligation to which it is a party or by which it, or any of
its properties, is bound and which default is of material significance in
respect of the condition, financial or otherwise of the Company or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company. The
4
<PAGE>
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which any member of the Company is a party, or of the
Articles of Incorporation or Bylaws of the Company or any order, rule or
regulation applicable to the Company of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Units for public offering by
the Underwriters under state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.
(n) The Company holds all material patents, patent rights trademarks,
trade names, copyrights, trade secrets and licenses of any of the foregoing
(collectively, "Intellectual Property Rights") that are necessary to the conduct
of its businesses; there is no claim pending or, to the best knowledge of the
Company, threatened against any member of the Company alleging any infringement
of Intellectual Property Rights, or any violation of the terms of any license
relating to Intellectual Property Rights, nor does the Company know of any basis
for any such claim. The Company knows of no material infringement by others of
Intellectual Property Rights owned by or licensed to any member of the Company.
The Company has obtained, is in compliance in all material respect with and
maintains in full force and effect all material licenses, certificates, permits,
orders or other, similar authorizations granted or issued by any governmental
agency (collectively "Government Permits") required to conduct its business as
it is presently conducted. No proceeding to revoke, limit or otherwise
materially change any Government Permit has been commenced or, to the Company's
best knowledge, is threatened against the Company, and the Company has no reason
to anticipate that any such proceeding will be commenced against the Company.
Except as disclosed or contemplated in the Prospectus, the Company has no reason
to believe that any pending application for a Government Permit will be denied
or limited in a manner inconsistent with the Company's business plan as
described in the Prospectus.
(o) The Company is in all material respects in compliance with all
applicable Environmental Laws. The Company has no knowledge of any past, present
or, as anticipated by the Company, future events, conditions, activities,
investigation, studies, plans or proposals that (i) would interfere with or
prevent compliance with any Environmental Law by the Company or (ii) could
reasonably be expected to give rise to any common law or other liability, or
otherwise form the basis of a claim, action, suit, proceeding, hearing or
investigation, involving the Company and related in any way to Hazardous
Substances or Environmental Laws. Except for the prudent and safe use and
management of Hazardous Substances in the ordinary course of the Company's
business, (i) no Hazardous Substance is or has been used, treated, stored,
generated, manufactured or otherwise
5
<PAGE>
handled on or at any Facility and (ii) to the Company's best knowledge, no
Hazardous Substance has otherwise come to be located in, on or under any
Facility. No Hazardous Substances are stored at any Facility except in
quantities necessary to satisfy the reasonably anticipated use or consumption by
the Company. No litigation, claim, proceeding or governmental investigation is
pending regarding any environmental matter for which the Company has been served
or otherwise notified or, to the knowledge of the Company threatened or asserted
against the Company, or the officers or directors of any such member in their
capacities as such, or any Facility or the Company's business. There are no
orders, judgments or decrees of any court or of any governmental agency or
instrumentality under any Environmental Law which specifically apply to the
Company, any Facility or any of the Company's operations. The Company has not
received from a governmental authority or other person (i) any notice that it is
a potentially responsible person for any Contaminated site or (ii) any request
for information about a site alleged to be Contaminated or regarding the
disposal of Hazardous Substances. There is no litigation or proceeding against
any other person by the Company regarding any environmental matter. The Company
has disclosed in the Prospectus or made available to the Underwriters and their
counsel true, complete and correct copies of any reports, studies,
investigations, audits, analysis, tests or monitoring in the possession of or
initiated by the Company pertaining to any environmental matter relating to the
Company, its past or present operations or any Facility.
For the purposes of the foregoing paragraph, "Environmental Laws" means any
applicable federal, state or local statute, regulation, code, rule, ordinance,
order, judgment, decree, injunction or common law pertaining in any way to the
protection of human health or the environment, including without limitation, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Toxic Substances Control Act, the
Clean Air Act, the Federal Water Pollution Control Act and any similar or
comparable state or local law; "Hazardous Substance" means any hazardous, toxic,
radioactive or infectious substance, material or waste as defined, listed or
regulated under any Environmental Law; "Contaminated" means the actual existence
on or under any real property of Hazardous Substances, if the existence of such
Hazardous Substances triggers a requirement to perform any investigatory,
remedial, removal or other response action under any Environmental Laws or if
such response action legally could be required by any governmental authority;
"Facility" means any property currently owned, leased or occupied by the
Company.
(p) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or intends to take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Units.
(q) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder.
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(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as is customary for
companies engaged in similar industries.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(u) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported or incorporated by reference in
the Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(v) The Company is in material compliance with all laws, rules,
regulations, orders of any court or administrative agency, operating licenses or
other requirements imposed by any governmental body applicable to it, including,
without limitation, all applicable laws, rules, regulations, licenses or other
governmental standards applicable to the its business; and the conduct of the
business of the Company, as described in the Prospectus, will not cause the
Company to be in violation of any such requirements.
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(w) Each of the Warrants and the Representative's Warrants (as defined
in Paragraph (d) of Section 2 hereof) have been authorized for issuance to the
purchasers thereof or to the Representative or its designees, as the case may
be, and will, when issued, possess rights, privileges, and characteristics as
represented in the most recent form of Warrants or Representative's Warrants, as
the case may be, filed as an exhibit to the Registration Statement; the
securities to be issued upon exercise of the Warrants and the Representative's
Warrants, when issued and delivered against payment therefor in accordance with
the terms thereof, will be duly and validly issued, fully paid, nonassessable
and free of preemptive rights, and all corporate action required to be taken for
the authorization and issuance of the Warrants and the Representative's
Warrants, and the securities to be issued upon their exercise, have been validly
and sufficiently taken.
(x) Except as disclosed in the Prospectus, neither the Company nor any
of its officers, directors or affiliates have caused any person, other than the
Underwriters, to be entitled to reimbursement of any kind, including, without
limitation, any compensation that would be includable as underwriter
compensation under the NASD's Corporate Financing Rule with respect to the
offering of the Units, as a result of the consummation of such offering based on
any activity of such person as a finder, agent, broker, investment adviser or
other financial service provider.
(y) Except as described in the Prospectus, the Company does not
directly or indirectly control or have a material interest in any other business
entity.
2. Purchase, Sale and Delivery of the Units.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $____ per Unit, the number of Firm Units
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Units to be sold hereunder is to be made in
New York Clearing House funds and, at the option of the Representative, by
certified or bank cashier's checks drawn to the order of the Company or bank
wire to an account specified by the Company against either uncertificated
delivery of Firm Units or of certificates therefor (which delivery, if
certificated, shall take place in such location in New York, New York as may be
specified by the Representative) to the Representative for the several accounts
of the Underwriters. Such payment is to be made at the offices of the
Representative at the address set forth on the first page of this agreement, at
7:00 a.m., Pacific time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and not permitted by law or executive
order to be closed.) Except to the extent uncertificated Firm Units are
delivered at closing, the certificates for the Firm Units will be delivered
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in such denominations and in such registrations as the Representative requests
in writing not later than the second full business day prior to the Closing
Date, and will be made available for inspection by the Representative at least
one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Representative to purchase the Option
Units at the price per Unit as set forth in the first paragraph of this Section
2. The option granted hereby may be exercised in whole or in part by giving
written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 45 days after the date of this Agreement, by the
Representative to the Company setting forth the number of Option Units as to
which the Representative is exercising the option, the names and denominations
in which the Option Units are to be registered and the time and date at which
certificate representing such Units are to be delivered. The time and date at
which certificates for Option Units are to be delivered shall be determined by
the Representative but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The option with respect to the Option Units granted hereunder may
be exercised only to cover over-allotments in the sale of the Firm Units by the
Underwriters. The Representative may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option Units shall
be made on the Option Closing Date in New York Clearing House funds and, at the
option of the Representative, by certified or bank cashier's check drawn to the
order of the Company for the Option Units to be sold by the Company or bank wire
to an account specified by the Company in consideration either of uncertificated
delivery of Option Units or delivery of certificates therefor at the offices of
the Representative set forth on the first page of this Agreement. Except to the
extent uncertificated Option Units are delivered at closing, the certificates
for the Option Units will be delivered in such denominations and in such
registrations as the Representative requests in writing not later than the
second full business day prior to the Option Closing Date, and will be made
available for inspection by the Representative at least one business day prior
to the Option Closing Date.
(d) In addition to the sums payable to the Representative as provided
elsewhere herein, the Representative shall be entitled to receive at the
Closing, for themselves alone and not as Representative of the Underwriters, as
additional compensation for their services, purchase warrants (the
"Representative's Warrants") for the purchase of up to 200,000 Units at a price
of $___ per Unit, upon the terms and subject to adjustment and conversion as
described in the form of Representative's Warrants filed as an exhibit to the
Registration Statement.
3. Offering by the Underwriters.
It is understood that the several Underwriters are to make a public
offering of the Firm Units as soon as the Representative deems it advisable to
do so. The Firm Units are to be
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initially offered to the public at the initial public offering price set forth
in the Prospectus. The Representative may from time to time thereafter change
the public offering price and other selling terms. To the extent, if at all,
that any Option Units are purchased pursuant to Section 2 hereof, the
Representative will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representative for
the Underwriters in the offering and sale of the Units in accordance with an
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representative containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representative shall not
previously have been advised and furnished with a copy or to which the
Representative shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representative promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representative in endeavoring
to qualify the Units for sale under the securities laws of such jurisdictions as
the Representative may reasonably have designated in writing and will make such
applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representative may
reasonably request for distribution of the Units.
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(d) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary Prospectus
as the Representative may reasonably request. The Company will deliver to, or
upon the order of, the Representative during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representative may
reasonably request. The Company will deliver to the Representative at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representative such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representative
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Units as contemplated in this Agreement and the Prospectus. If during the period
in which a prospectus is required by law to be delivered by an Underwriter or
dealer, any event shall occur as a result of which, in the judgment of the
Company or in the reasonable opinion of the Underwriters, it becomes necessary
to amend or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading, or, if it is necessary at any time to
amend or supplement the Prospectus to comply with any law, the Company promptly
will prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(f) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earning statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representative copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended. The Company will deliver to the Representative
similar reports with respect to significant subsidiaries, as that term is
defined in the Rules and Regulations, which are not consolidated in the
Company's financial statements.
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(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of Common
Stock (or agreement therefor) will be made for a period of one year after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder, or pursuant to contractual obligations existing on the date hereof
for pursuant to employee benefit plans in effect on the date hereof, or with the
prior written consent of the Representative, which consent will not be
unreasonably withheld.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Common Stock and Warrants on The Nasdaq National Market.
(j) The Company has caused each officer and director and each person
who owns, beneficially or of record, 5% or more of the shares of the Common
Stock outstanding immediately prior to this offering to furnish to you, on or
prior to the date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters ("Lockup Agreements"), pursuant to which each
such person shall agree (A) not to offer, sell, sell short or otherwise dispose
of any shares of Common Stock or other capital stock of the Company, or any
other securities convertible, exchangeable or exercisable for Common Stock or
derivatives of Common Stock owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of one year after the date of
this Agreement, directly or indirectly, except with the prior written consent of
the Representative; and (B) to give prior written notice to the Representative
for a period of five years from the effective date of the Registration
Statement, with respect to any sales of Common Stock of the Company pursuant to
Rule 144 under the Securities Act or any similar rule.
(k) The Company shall apply the net proceeds of its sale of the Units
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Units and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Units in such a manner as would
require the Company to register as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act").
(m) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock and a Warrant Agent for the Warrants.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
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5. Costs and Expenses.
(a) The Representative shall be entitled to reimbursement from the
Company, for itself alone and not as Representative of the Underwriters, to a
non-accountable expense allowance equal to 2% of the aggregate initial public
offering price of the Firm Units and any Option Units purchased by the
Underwriters. The Representative shall be entitled to withhold this allowance on
the Closing Date related to the purchase of the Firm Units or the Option Units,
as the case may be.
(b) In addition to the payment described in Paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the costs of due diligence investigation of the
principals of the Company, the Blue Sky Survey and any supplements or amendments
thereto; the filing fees of the Commission; the filing fees and expenses
(including legal fees and disbursements) incident to securing any required
review by the NASD Regulation, Inc.) of the terms of the sale of the Units; the
Listing Fee of The Nasdaq Stock Market; and the expenses, including the fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Units under state securities or Blue Sky laws. Any transfer
taxes imposed on the sale of the Units to the several Underwriters will be paid
by the Company. The Company agrees to pay all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of directed Units by the
Underwriters to employees and persons having business relationships with the
Company. The Company shall not, however, be required to pay for any of the
Underwriters' expenses (other than those related to qualification under NASD
regulation and state securities or Blue Sky laws) except that, if this Agreement
shall not be consummated, then the Company shall reimburse the several
Underwriters for accountable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Units or in contemplation of performing
their obligations hereunder; but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Units.
6. Conditions of Obligations of the Underwriters.
The several obligations of the Underwriters to purchase the Firm Units
on the Closing Date and the Option Units, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and
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Regulations shall have been made, and any request of the Commission for
additional information (to be included in the Registration Statement or
otherwise) shall have been disclosed to the Representative and complied with to
their reasonable satisfaction. No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been issued and
no proceedings for that purpose shall have been taken or, to the knowledge of
the Company, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Units.
(b) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Stoel Rives LLP, counsel
for the Company, dated the Closing Date or the Option Closing Date, as the case
may be, addressed to the Underwriters (and stating that it may be relied upon by
counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of California,
with corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement; the Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and non-assessable; all of the securities of the Company conform to
the description thereof contained in the Prospectus; the certificates for the
Common Stock and Warrants are in due and proper form; the shares of Common Stock
to be sold by the Company pursuant to this Agreement, including shares of Common
Stock to be sold as a part of the Option Units, have been duly authorized and,
upon issuance and delivery thereof as contemplated in this Agreement and the
Registration Statement, will be validly issued, fully paid and non-assessable;
no preemptive rights of shareholders exist with respect to any of the Common
Stock or the issuance or sale thereof pursuant to any applicable statute or the
provisions of the Company's Articles of Incorporation or Bylaws or, to such
counsel's best knowledge, pursuant to any contractual obligation. The Warrants
and the Representative's Warrants have been authorized for issuance to the
purchasers of Units or the Representative, as the case may be, and will, when
issued, possess rights, privileges, and characteristics as represented in the
most recent form of Warrants or Representative's Warrants, as the case may be,
filed as an exhibit to the Registration Statement; the securities to be issued
upon exercise of the Warrants and the Representative's Warrants, as the case may
be, when issued and delivered against payment therefor in accordance with the
terms of the Representative's Warrants, will be duly and validly issued, fully
paid, nonassessable and free of preemptive rights, and all corporate action
required to be taken for the authorization and issuance of the Warrants, the
Representative's Warrants, and the securities to be issued upon their exercise,
has been validly and sufficiently taken.
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(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Units or the right to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each amendment
or supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Shares Eligible for
Future Sale" and "Description of Securities" in the Prospectus and in Items 24
and 26 of the Registration Statement, insofar as such statements constitute a
summary of documents referred to therein or matters of law, fairly summarize in
all material respects the information called for with respect to such documents
and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Articles of Incorporation or Bylaws of the
Company, or any agreement or instrument known to such counsel to which the
Company is a party or by which the Company may be bound.
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(x) Each of this Agreement and the Warrant Agreement by and among
the Company, the Warrantholders (defined therein) and Interwest Transfer
Company, as Warrant Agent, has been duly authorized, executed and delivered by
the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by state securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
In rendering such opinion, such counsel may rely as to matters
governed by the laws of states other than California or Federal laws on local
counsel in such jurisdictions, provided that in each case such counsel shall
state that they believe that they and the Underwriters are justified in relying
on such other counsel. In addition to the matters set forth above, the opinion
of Stoel Rives LLP shall also include a statement to the effect that nothing has
come to the attention of such counsel that has caused them to believe that (i)
the Registration Statement, at the time it became effective under the Act (but
after giving effect to any modifications incorporated therein pursuant to Rule
430A under the Act) and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein).
(c) The Representative shall have received from Grover T. Wickersham,
P.C., counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as
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the case may be, substantially to the effect specified in subparagraphs (i),
(iv) and (v) of Paragraph (b) of this Section 6. In rendering such opinion
Grover T. Wickersham, P.C. may rely as to all matters governed other than by the
laws of the State of California or Federal laws on the opinion of counsel
referred to in Paragraph (b) of this Section 6. In addition to the matters set
forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel that has caused them to
believe that (i) the Registration Statement, or any amendment thereto, as of the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Grover T. Wickersham, P.C. may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
(d) The Representative shall have received at or prior to the Closing
Date from Grover T. Wickersham, P.C. a memorandum or summary, in form and
substance satisfactory to the Representative, with respect to the qualification
for offering and sale by the Underwriters of the Units under the state
securities or Blue Sky laws of such jurisdictions as the Representative may
reasonably have designated to the Company.
(e) The Representative, on behalf of the several Underwriters, shall
have received, on each of the dates hereof, the Closing Date and the Option
Closing Date, as the case may be, a letter dated the date hereof, the Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to the Representative, of Friedman, Minsk, Cole & Fastovsky
confirming that they are independent public accountants within the meaning of
the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations and containing such other statements and
information as is ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and Prospectus.
(f) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
17
<PAGE>
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.
(g) The Company shall have furnished to the Representative such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representative may reasonably have requested.
(h) The Common Stock and Warrants have been approved for quotation
upon notice of issuance on the Nasdaq National Market.
(i) The Lockup Agreements described in Section 4(j) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representative and to Grover T.
Wickersham, P.C., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
18
<PAGE>
7. Conditions of the Obligations of the Company.
The obligations of the Company to sell and deliver the portion of the
Units required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Units, whether or not such Underwriter or
controlling person is a party to any action or proceeding; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the
19
<PAGE>
Company or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of presentation) the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
20
<PAGE>
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Units. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Units
purchased by such Underwriter, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
21
<PAGE>
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Units and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. Default by Underwriters.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Units
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representative of the Underwriters, shall use your reasonable efforts to procure
within 36 hours thereafter one or more of the other Underwriters, or any others,
to purchase from the Company such amounts as may be agreed upon and upon the
terms set forth herein, the Firm Units or Option Units, as the case may be,
which the defaulting Underwriter or Underwriters failed to purchase. If during
such 36 hours you, as such Representative, shall not have procured such other
Underwriters, or any others, to purchase the Firm Units or Option Units, as the
case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of Units with respect to which
such default shall occur does not exceed 10% of the Firm Units or Option Units,
as the case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm Units or Option
Units, as the case may be, which they are obligated to purchase hereunder, to
purchase the Firm Units or Option Units, as the case may be, which such
defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of Firm Units or Option Units, as the case may be, with respect
to which such default shall occur exceeds 10% of the Firm Units or Option Units,
as the case may be, covered hereby, the Company or you as the Representative of
the Underwriters will have the right, by written notice given within the next
36-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriters or of the
Company except to the extent provided in Section 8 hereof. In the event of a
default by any Underwriter or
22
<PAGE>
Underwriters, as set forth in this Section 9, the Closing Date or Option Closing
Date, as the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representative, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. Notices.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Paulson Investment Company,
Inc., 811 SW Naito Parkway, Portland, Oregon 97204, Attention: Chester L.F.
Paulson; with a copy to Grover T. Wickersham, P.C., 430 Cambridge Avenue, Suite
100, Palo Alto, California 94306, attention: Grover T. Wickersham; if to the
Company, to 3Dshopping.com, 517 Boccaccio Avenue, Venice, California 90291,
Attention: Lawrence Weisdorn; with copy to Stoel Rives LLP, 900 SW 5th Avenue,
Portland, Oregon 97204, Attention: John J. Halle.
11. Termination.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Units are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company, the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Units or to enforce contracts for
the sale of the Units, (iii) the Dow Jones Industrial Average shall have fallen
by 15 percent or more from its closing price on the day immediately preceding
the date that the Registration Statement is declared effective by the
Commission, (iv) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (v) the enactment, publication, decree or other
promulgation of any statute, regulation,
23
<PAGE>
rule or order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (vi) declaration of a banking moratorium
by United States or New York State authorities, (vii) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (viii) the suspension of trading of the Common Stock or the
Warrants by the Commission on the Nasdaq Stock Market or (ix) the taking of any
action by any governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Units from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. Information Provided by Underwriters.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-B under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. Miscellaneous.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Units under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Oregon. All disputes relating to this Underwriting
Agreement shall be adjudicated before
24
<PAGE>
a court located in Multnomah County, Oregon to the exclusion of all other courts
that might have jurisdiction.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
3Dshopping.com
By:
-------------------------------------
Lawrence Weisdorn, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
PAULSON INVESTMENT COMPANY, INC.
As Representative of the several
Underwriters listed on Schedule I
By: ___________________________________
Authorized Officer
25
<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of Firm Units
Underwriter to be Purchased
----------- ---------------
Paulson Investment Company, Inc.
Total 1,750,000
=========
26
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
OF
PI GRAPHIX, INC.
The undersigned, Lawrence Weisdorn and Robert J. Grant, hereby certify
that:
ONE: They are the duly elected and acting President and the Secretary,
respectively, of Pi Graphix, Inc., a California corporation (the
"Corporation").
TWO: The Articles of Incorporation of the Corporation are amended and
restated to read in full as follows:
ARTICLE I
The name of this corporation is 3Dshopping.com.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
ARTICLE III
This corporation is authorized to issue two classes of stock: Common and
Preferred. The total number of shares of stock that this corporation has the
authority to issue is 15,000,000 consisting of 10,000,000 shares of Common
Stock and 5,000,000 shares of Preferred Stock. The Preferred Stock may be
issued from time to time in one or more series. The Board of Directors is
authorized to fix the number of shares of any series of Preferred Stock and
to determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock and,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting
any series of Preferred Stock, to increase (but not below the number of
shares of any such series then outstanding) the number of shares of any such
series subsequent to the issue of shares of that series.
The corporation shall from time to time in accordance with the laws of
the State of California increase the authorized amount of its Common Stock if
at any time the number of
<PAGE>
shares of Common Stock remaining unissued and available for issuance shall
not be sufficient to permit conversion of the Preferred Stock.
ARTICLE IV
The liability of directors of the corporation for monetary damages shall
be eliminated to the fullest extent permissible under California law, as the
same exists or may hereafter be amended. Any repeal or modification of the
foregoing provisions of this Article IV by the shareholders of this
corporation or otherwise shall not adversely affect any right or protection
of a director or former director of this corporation existing at the time of
such repeal or modification. The elimination of personal liability set forth
in this Article IV under the General Corporation Law of the State of
California shall not be denied or limited by the corporation's Bylaws.
ARTICLE V
The corporation is authorized to indemnify its agents to the fullest
extent permissible under California law, as the same exists or may hereafter
be amended. For purposes of this provision, the term "agent" has the meaning
set forth from time to time in Section 317 of the California Corporations
Code or any successor statute. Any repeal or modification of the foregoing
provisions of this Article V by the shareholders of this corporation or
otherwise shall not adversely affect any right or protection of an agent or
former agent of this corporation existing at the time of such repeal or
modification. The indemnification provisions set forth in this Article V
under the General Corporation Law of the State of California shall not be
denied or limited by the corporation's Bylaws.
* * *
THREE: The foregoing amendment and restatement has been approved by the
Board of Directors of the Corporation.
FOUR: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of the Corporation in accordance
with Sections 902 and 903 of the California General Corporation Law. The
total number of outstanding shares of Common Stock entitled to vote with
respect to the foregoing amendment and restatement is 3,645,547 shares. The
number of shares voting in favor of the foregoing amendment and restatement
equaled or exceeded the vote required, such required vote being a majority of
the outstanding shares of Common Stock.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
March 8, 1999. The undersigned certify under penalty of perjury under the
laws of the state of California that they have read the foregoing Certificate
of Amendment of Articles of Incorporation and know the contents thereof, and
that the statements therein are true and correct.
2
<PAGE>
Executed in Los Angeles, California on March 8, 1999.
LAWRENCE WEISDORN
-----------------------------------
Lawrence Weisdorn, President
ROBERT J. GRANT
-----------------------------------
Robert J. Grant, Secretary
3
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
3DSHOPPING.COM
<PAGE>
BYLAWS
TABLE OF CONTENTS
Page
ARTICLE I. CORPORATE OFFICES
Section 1.1 Principal Office ......................................... 1
1.2 Other Offices ............................................ 1
ARTICLE II. SHAREHOLDERS MEETINGS ........................................... 1
Section 2.1 Place of Meetings ........................................ 1
2.2 Annual Meeting ........................................... 1
2.3 Special Meeting .......................................... 2
2.4 Notice of Shareholders' Meetings ......................... 2
2.5 Manner of Giving Notice; Affidavit of Notice ............. 3
2.6 Quorum ................................................... 3
2.7 Adjourned Meeting; Notice ................................ 3
2.8 Voting ................................................... 4
2.9 Validation of Meetings; Waiver of Notice; Consent ........ 5
2.10 Shareholder Action by Written Consent without a Meeting .. 5
2.11 Record Date for Shareholder Notice, Voting and Giving
Consents ................................................. 6
2.12 Proxies .................................................. 7
2.13 Inspectors of Election ................................... 7
ARTICLE III. DIRECTORS ....................................................... 8
Section 3.1 Powers ................................................... 8
3.2 Number and Qualification of Directors .................... 8
3.3 Election and Term of Office of Directors ................. 9
3.4 Vacancies ................................................10
3.5 Place of Meetings; Meetings by Telephone .................10
3.6 Regular Meetings .........................................11
3.7 Special Meetings .........................................11
3.8 Quorum ...................................................11
3.9 Waiver of Notice .........................................11
3.10 Adjournment ..............................................12
3.11 Notice of Adjournment ....................................12
3.12 Action without Meeting ...................................12
3.13 Fees and Compensation of Directors .......................12
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ARTICLE IV. COMMITTEES ......................................................13
Section 4.1 Committees of Directors ..................................13
4.2 Meetings and Actions of Committees .......................13
ARTICLE V. OFFICERS ........................................................14
Section 5.1 Officers .................................................14
5.2 Election of Officers .....................................14
5.3 Subordinate Officers .....................................14
5.4 Removal and Resignation of Officers ......................14
5.5 Vacancies in Offices .....................................15
5.6 Chairman of the Board ....................................15
5.7 President ................................................15
5.8 Vice Presidents ..........................................15
5.9 Secretary ................................................15
5.10 Chief Financial Officer ..................................16
ARTICLE VI. INDEMNIFICATION OF DIRECTORS, AND OFFICERS,
EMPLOYEES AND OTHER AGENTS ......................................16
Section 6.1 Definitions ..............................................16
6.2 Indemnification in Actions by Third Parties ..............17
6.3 Indemnification in Actions by or in the Right
of the Corporation .......................................17
6.4 Indemnification against Expenses .........................18
6.5 Required Determinations ..................................18
6.6 Advance of Expenses ......................................18
6.7 Insurance; Other Financial Arrangements ..................19
6.8 Effect of Amendments .....................................19
6.9 Separability .............................................19
6.10 Miscellaneous ............................................19
ARTICLE VII. RECORDS AND REPORTS .............................................20
Section 7.1 Maintenance and Inspection of Share Register .............20
7.2 Maintenance and Inspection of Bylaws .....................20
7.3 Maintenance and Inspection of Other Corporate Records ....21
7.4 Inspection by Directors ..................................21
7.5 Annual Report to Shareholders; Waiver ....................21
7.6 Financial Statements .....................................22
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ARTICLE VIII. GENERAL MATTERS ................................................22
Section 8.1 Record Date for Purposes other than Notice and Voting ....22
8.2 Checks, Drafts, Evidences of Indebtedness ................23
8.3 Corporate Contracts and Instruments; How Executed ........23
8.4 Certificates for Shares ..................................23
8.5 Lost Certificates ........................................24
8.6 Construction and Definitions .............................24
ARTICLE IX. AMENDMENTS ......................................................24
Section 9.1 Amendment by Shareholders ................................24
9.2 Amendment by Directors ...................................24
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AMENDED AND RESTATED
BYLAWS
OF
3DSHOPPING.COM
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE.
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state, and
the corporation has one or more business offices in such state, the board of
directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES.
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING.
The annual meeting of shareholders shall be held on such date as shall be
fixed by the board of directors from time to time. At the meetings, directors
shall be elected, reports of the affairs of the corporation shall be considered
and any other business may be transacted that is within the power of the
shareholders.
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2.3 SPECIAL MEETING.
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of the
request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this Section 2.3 shall be construed as
limiting, fixing or affecting the time when a meeting of shareholders called by
action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS.
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if sent
by third-class mail, thirty (30)) nor more than sixty (60) days before the date
of the meeting. The notice shall specify the place, date and hour of the meeting
and (i) in the case of a special meeting, the general nature of the business to
be transacted (no business other than that specified in the notice may be
transacted); or (ii) in the case of the annual meeting, those matters that the
board of directors, at the time of giving the notice, intends to present for
action by the shareholders. The notice of any meeting at which directors are to
be elected shall include the name of any nominee or nominees whom, at the time
of the notice, the board of directors intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"); (ii) an amendment of the articles of incorporation, pursuant to Section
901 of the Code; (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code; (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code; or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall also state the general nature of that
proposal.
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2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either personally or
by first-class mail or, in the event the corporation has outstanding shares held
of record by five hundred (500) or more persons on the record date for the
shareholders' meeting, by third-class mail, or telegraphic or other written
means of communication, addressed to the shareholder at the address of that
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or other written
means of communication to the corporation's principal executive office, or if
published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by other means
of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if the same shall be available to the shareholder on written demand of the
shareholder at the principal executive office of the corporation for a period of
one (1) year from the date of the giving of the notice to all other
shareholders.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM.
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE.
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy, but in the
absence of a quorum, no other business may be transacted at that meeting, except
as provided in Section 2.6 of these Bylaws.
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When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case notice of the adjourned meeting shall be given.
Notice of any such adjourned meeting shall be given to each shareholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned meeting the
corporation may transact any business that has been transacted at the original
meeting.
2.8 VOTING.
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 702 to 704, inclusive, of the Code
(relating to voting shares held by a fiduciary, in the name of a corporation or
in joint ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder before the voting has begun.
On any matter other than the election of directors, any shareholder may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but, if the shareholder
fails to specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number, or voting by classes, is
required by the Code or by the articles of incorporation.
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At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes that such shareholder normally
is entitled to cast) unless the candidates' names have been placed in nomination
prior to commencement of the voting and a shareholder has given notice at the
meeting prior to commencement of the voting of the shareholder's intention to
cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates placed in
nomination and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which that
shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among any or all of the candidates, as the
shareholder thinks fit. The candidate receiving the highest number of
affirmative votes, up to the number of directors to be elected, shall be
elected.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though had
at a meeting duly held after regular call and notice, if a quorum is present
either in person or by proxy, and if, either before or after the meeting, each
person entitled to vote, who was not present in person or by proxy, signs a
written waiver of notice or a consent to the holding of the meeting or an
approval of the minutes thereof. The waiver of notice, consent or approval need
not specify either the business to be transacted or the purpose of any annual or
special meeting of shareholders, except that if action is taken or proposed to
be taken for approval of any of those matters specified in the second paragraph
of Section 2.4 of these Bylaws, the waiver of notice or consent shall state the
general nature of the proposal. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of, and presence at, that meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of a matter required by
these Bylaws or the Code to be included but not included in the notice of the
meeting, if that objection is expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action that may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
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In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
Such notice shall be given in the manner specified in Section 2.5 of these
Bylaws. In the case of approval of (i) a contract or transaction in which a
director has a direct or indirect financial interest, pursuant to Section 310 of
the Code; (ii) indemnification of a corporate "agent," pursuant to Section 317
of the Code; (iii) a reorganization of the corporation, pursuant to Section 1201
of the Code; and (iv) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of the
Code, the notice shall be given at least ten (10) days before the consummation
of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS.
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record at the
close of business on the date so fixed are entitled to notice and to vote or to
give consents, as the case may be, notwithstanding any transfer of any shares on
the books of the corporation after the record date, except as otherwise provided
in the Code or by agreement.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given; or (ii) when prior action by the
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board has been taken, shall be the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these Bylaws.
2.12 PROXIES.
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the shareholder or the shareholder's attorney-in-fact. A
validly executed proxy that does not state that it is irrevocable shall continue
in full force and effect unless (i) revoked by the person executing it, before
the vote pursuant to that proxy, by a writing delivered to the corporation
stating that the proxy is revoked, or by a subsequent proxy executed by the
person executing the prior proxy and presented to the meeting, or as to any
meeting by attendance at such meeting and voting in person by the person
executing the proxy or (ii) written notice of the death or incapacity of the
maker of that proxy is received by the corporation before the vote pursuant to
that proxy is counted; provided, however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy, unless otherwise
provided in the proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of Sections 705(e) and
705(f) of the Code.
2.13 INSPECTORS OF ELECTION.
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment. If
no inspector of election is so appointed, the chairman of the meeting may, and
on the request of any shareholder or a shareholder's proxy shall, appoint an
inspector or inspectors of election to act at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed at
a meeting pursuant to the request of one (1) or more shareholders or proxies,
the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
the chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies;
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(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these Bylaws relating to action required to be approved by
the shareholders or by the outstanding shares, or by a less than majority vote
of a class or series of preferred shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.2 NUMBER AND QUALIFICATION OF DIRECTORS.
Subject to the next succeeding paragraph, the number of directors of the
corporation shall not be less than five (5) nor more than nine (9) until changed
by amendment of the articles of incorporation or by a bylaw duly adopted by the
shareholders amending this Section 3.2. The exact number of directors shall be
fixed, within the limits specified, by amendment of the next sentence duly
adapted either by the Board or the shareholders. The exact number of directors
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shall be five (5) until changed as provided in this Section 3.2. The indefinite
number of directors may be changed, or a definite number fixed without
provisions for an indefinite number, by a duly adopted amendment to the articles
of incorporation or by an amendment to this bylaw duly adopted by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote; provided, however, that an amendment reducing the number or the minimum
number of directors to a number less than five (5) cannot be adopted if the
votes cast against its adoption at a meeting of the shareholders, or the shares
not consenting in the case of action by written consent, are equal to more than
16-2/3% of the outstanding shares entitled to vote. No amendment may change the
stated maximum number of authorized directors to a number greater than two times
the stated minimum number of directors minus one.
So long as the corporation has only one shareholder, the number of
directors may be one or two, and so long as the corporation has only two
shareholders, the number of directors may be two. The exact number of directors
shall be set by a duly adopted resolution of the board of directors.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of shareholders to hold
office until the next such annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
Upon the corporation becoming a listed corporation (as defined in Section
301.5 of the California Corporations Code), the Board of Directors may elect, in
its sole discretion, to create a staggered board divided into classes, to become
effective at the next annual shareholders meeting; provided that the Board of
Directors may only elect to create a staggered board if the number of directors
in office at the time of the annual shareholders meeting at which the change
becomes effective is greater than five. The directors (1) shall be divided into
two classes if there are more than five and less than nine directors at the time
of such shareholders meeting with one half of the directors or as close an
approximation as possible in each class or (2) shall be divided into three
classes if there are more than eight directors in office at the time of such
shareholders meeting with one third of the directors or as close an
approximation as possible in each class. If the board is divided into two
classes, the successors to members of Class I shall be elected at the next
annual meeting of shareholders following the annual meeting referred to in the
preceding sentence and then every two years subsequent to that meeting and the
successors to members of Class II shall be elected at the second annual meeting
of shareholders following the annual meeting referred to in the preceding
sentence and then every two years subsequent to that meeting. If the board is
divided into three classes, the successors to members of Class I shall be
elected at the next annual meeting of shareholders and then every three years
subsequent to that meeting; the successors to
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members of Class II shall be elected at the second annual meeting of
shareholders and then every three years subsequent to that meeting; and the
successors to members of Class III shall be elected at the third annual meeting
of shareholders and then every three years subsequent to that meeting.
3.4 VACANCIES.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director,
except that a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
vote or written consent of the shareholders or by court order may be filled only
by the vote of a majority of the outstanding shares entitled to vote thereon
represented at a duly held meeting at which a quorum is present, or by the
unanimous written consent of all shares entitled to vote thereon. Each director
so elected shall hold office until the next annual meeting of the shareholders
and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
in the event of the death, resignation or removal of any director, or if the
board of directors by resolution declares vacant the office of a director who
has been declared of unsound mind by an order of court or convicted of a felony,
or if the authorized number of directors is increased, or if the shareholders
fail, at any meeting of shareholders at which any director or directors are
elected, to elect the number of directors to be elected at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal, if by written consent, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
Regular meetings of the board of directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation or such other place designated by resolution of the board.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
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3.6 REGULAR MEETINGS.
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS.
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone or facsimile transmission to each director or sent by
first-class mail or telegram, charges prepaid, addressed to each director at
that director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally, or by telephone, facsimile transmission or telegram, it
shall be delivered personally or by telephone or facsimile transmission or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM.
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these Bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees) and Section 317(e) of the Code (as to
indemnification of directors).
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE.
The transactions of any meeting of the board of directors, however called
and noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice if a quorum is present and if, either before
or after the meeting, each of the directors not present
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signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes thereof. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting, before or at its commencement, the lack
of notice to that director.
3.10 ADJOURNMENT.
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need not be
given, unless the meeting is adjourned for more than twenty-four (24) hours, in
which case notice of the time and place shall be given before the time of the
adjourned meeting, in the manner specified in Section 3.7 of these Bylaws, to
the directors who were not present at the time of the adjournment.
3.12 ACTION WITHOUT MEETING.
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, if all members of the board shall individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS.
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement of expenses, as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise, and receiving compensation
for those services.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two (2) or more directors, to serve at the pleasure of the board.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies in the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these Bylaws or the adoption of new
Bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range set forth in the
corporation's articles of incorporation or determined by the board of directors;
or
(g) the appointment of any other committees of the board of directors
or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment) and Section
3.12 (action without meeting), with such changes in the context of those Bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members, except that the time of regular meetings of the
committees may be determined either
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by resolution of the board of directors or by resolution of the committee;
special meetings of committees may also be called by resolution of the board of
directors; and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the corporation shall be a president, a secretary and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these Bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS.
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws,
shall be chosen by, and shall serve at the pleasure of, the board, subject to
the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in these Bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation
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shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to which
the officer is a party.
5.5 VACANCIES IN OFFICES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD.
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may be from time to time assigned to him by the
board of directors or prescribed by these Bylaws. If there is no president, the
chairman of the board shall also be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 5.7 of
these Bylaws.
5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by the board of
directors, to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence of the
chairman of the board, or if there be none, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors and these
Bylaws.
5.8 VICE PRESIDENTS.
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall 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. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these Bylaws, the
president or the chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation, or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders, with the time and
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place of holding, whether regular or special (and, if special, how authorized
and the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required by these Bylaws or by
law to be given, and he shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, AND OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1 DEFINITIONS
For purposes of this Article VI, the following terms shall have the
following meanings:
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(a) "Agent" means any person who is or was a director, officer,
employee or other agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
or was a director, officer, employee or agent of a foreign or domestic
corporation or of another enterprise at the request of the predecessor
corporation.
(b) "Proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative.
(c) "Expenses" includes, without limitation, attorneys' fees and any
expenses of establishing a right to indemnification under this Article VI, the
corporation's Articles of Incorporation and/or the Code.
6.2 INDEMNIFICATION IN ACTIONS BY THIRD PARTIES.
To the extent not inconsistent with California law as in effect from time
to time, the corporation shall, subject to Section 6.5, indemnify any person who
was or is a party or is threatened to be made a party to any proceeding (other
than an action by or in the right of the corporation to procure a judgment in
its favor, as contemplated by Section 6.3) by reason of the fact that the person
is or was an agent of the corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with the proceeding if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of the person was unlawful. The termination of any 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 the person reasonably believed to be in
the best interests of the corporation or that the person had reasonable cause to
believe that the person's conduct was unlawful.
6.3 INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
To the extent not inconsistent with California law as in effect from time
to time, the corporation shall, subject to Section 6.5, indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that the person is or was an agent of the
corporation, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of the action if the person acted in
good faith, in a manner the person believed to be in the best interests of the
corporation and its shareholders. The foregoing notwithstanding, indemnification
may not be made for (i) any claim, issue or matter as to which the person shall
have been adjudged to be liable to the corporation in the performance of that
person's duty to the corporation and its shareholders, unless and only to the
extent that the court in which the proceeding is or was pending shall determine
upon application that, in view of
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all the circumstances of the case, the person is fairly and reasonably entitled
to indemnity for expenses, and then, only to the extent that the court shall
determine; (ii) amounts paid in settling or otherwise disposing of a pending
action without court approval; or (iii) expenses incurred in defending a pending
action which is settled or otherwise disposed of without court approval.
6.4 INDEMNIFICATION AGAINST EXPENSES
Except as otherwise required or prohibited by the Code, to the extent that
a director (including a member of a committee of the Board of Directors),
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
Sections 6.2 and 6.3 of these bylaws, or in defense of any claim, issue or
matter therein, the corporation shall indemnify him or her against expenses,
including attorneys' fees, actually and reasonably incurred by him or her in
connection with the defense.
6.5 REQUIRED DETERMINATIONS
Except as provided in Section 6.4 of these bylaws, any indemnification
under Sections 6.2 or 6.3 of these bylaws, unless advanced pursuant to Section
6.6 of these bylaws, must be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the agent is proper
in the circumstances because he or she has met the applicable standard of
conduct, if any, set forth in Sections 6.2 or 6.3 or these bylaws, as
applicable. Such determination shall be made by any of the following:
(a) By the Board of Directors, by a majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(b) If a majority of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal counsel
in a written opinion;
(c) By the approval of the shareholders, as defined in the Code, with
the shares owned by the person to be indemnified not be entitled to vote
thereon;
(d) By the court in which the proceeding is or was pending upon
application made by the corporation or the agent or the attorney or other person
rendering services in connection with the defense, whether or not the
application by the agent, attorney or other person is opposed by the
corporation.
6.6 ADVANCE OF EXPENSES
Expenses incurred in defending any proceeding may be advanced by the
corporation prior to the final disposition of the proceeding upon receipt of an
undertaking by or on behalf of the agent to repay that amount if it shall be
determined ultimately that the agent is not entitled to be indemnified as
authorized by this Article VI.
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6.7 INSURANCE; OTHER FINANCIAL ARRANGEMENTS.
The corporation shall have the power to purchase and maintain insurance or
make other financial arrangements on behalf of any agent of the corporation
against any liability asserted against or incurred by the agent in that capacity
or arising out of the agent's status as such, whether or not the corporation
would have the power to indemnify the agent against that liability.
6.8 EFFECT OF AMENDMENTS.
No amendment of this Article VI or the Articles of Incorporation shall
impair the rights described herein in effect as to particular agents at the time
of such amendment.
6.9 SEPARABILITY.
The provisions of this Article VI are separable, and if any provision be
held invalid, all other provisions are fully in effect and such invalid
provision shall only be curtailed to the extent necessary to make such provision
enforceable, it being the intent of this Article VI that the corporation
indemnify its agents to the maximum extent permitted by law.
6.10 MISCELLANEOUS.
The indemnification and advancement of expenses authorized in or ordered by
a court pursuant to this Article VI are subject to the following additional
provisions:
(a) The indemnification authorized herein shall not be deemed
exclusive of any additional rights to indemnification for breach of duty to the
corporation and its shareholders while acting in the capacity of a director or
officer of the corporation to the extent additional rights to indemnification
are authorized in the Articles of Incorporation. The indemnification provided by
this Article VI for acts, omissions or transactions while acting in the capacity
of, or while serving as, a director or officer of the corporation but not
involving breach of duty to the corporation and its shareholders shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, to the extent the additional rights to indemnification
are authorized in the articles of the corporation.
(b) The rights to indemnity hereunder shall continue as to a person
who has ceased to be director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of that person.
(c) The rights to indemnity hereunder are not intended to be denied or
limited by these bylaws or the Articles of Incorporation, but are rather
intended to be accorded to the party due indemnification to the greatest extent
permitted by law.
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(d) Nothing contained in these bylaws shall affect any right to
indemnification to which persons other than directors and officers may be
entitled by contract or otherwise.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.
The corporation shall keep at its principal executive office, or at the
office of its transfer agent or registrar, if either be appointed and as
determined by resolution of the board of directors, a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and, if
required to do so by the rules of the Securities and Exchange Commission, has
filed with the Securities and Exchange Commission any notices relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names and addresses and shareholdings during usual business hours on five (5)
business days' prior written demand on the corporation; (ii) obtain from the
transfer agent of the corporation, on written demand and on the tender of such
transfer agent's usual charges for such list, a list of the names and addresses
of the shareholders who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which that list has
been compiled or as of a date specified by the shareholder after the date of
demand. Such list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) business days after the demand
is received or five (5) business days after the date specified in the demand as
the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection and copying on
the written demand of any shareholder or holder of a voting trust certificate,
at any time during usual business hours, for a purpose related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 must be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS.
The corporation shall keep at its principal executive office, or if its
principal executive office is not in the State of California, at its principal
business office in such state, the original or
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a copy of these Bylaws, as amended to date, which Bylaws shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in such state,
the secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of these Bylaws, as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records, and the minutes of proceedings of the
shareholders and the board of directors and any committee or committees of the
board of directors, shall be kept at such place or places designated by the
board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or by an
agent or attorney, and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS.
Every director shall have the absolute right at any reasonable time to
inspect all books, records and documents of every kind and the physical
properties of the corporation and each of its subsidiary corporation. Such
inspection by a director may be made in person or by an agent or attorney, and
the right of inspection includes the right to copy and make extracts of
documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER.
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) (or, if sent by third-class mail, thirty-five (35)) days before the
annual meeting of shareholders to be held during the next fiscal year and in the
manner specified in Section 2.5 of these Bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain a balance sheet as of the end of the fiscal
year and an income statement and statement of changes in financial position for
the fiscal year, accompanied by any report of independent accountants or, if
there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
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The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by less than one hundred (100) holders of
record.
7.6 FINANCIAL STATEMENTS.
A copy of any annual financial statement and any income statement of the
corporation for each quarterly period of each fiscal year, and any accompanying
balance sheet of the corporation as of the end of each such period, that has
been prepared by the corporation shall be kept on file in the principal
executive office of the corporation for thirty-six (36) months; and each such
statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, such report shall likewise be delivered or mailed to
the shareholder or shareholders within thirty (30) days after the request, if
such request is made more than one hundred twenty (120) days after the close of
that fiscal year.
The corporation shall also, on the written request of any shareholder, mail
to the shareholder a copy of the last annual, semi-annual or quarterly income
statement that it has prepared and a balance sheet as of the end of that period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any
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other lawful action (other than action by shareholders by written consent
without a meeting), the board of directors may fix, in advance, a record date,
that shall not be more than sixty (60) days before any such action, and in that
case only shareholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS.
All checks, drafts, or other orders for payment of money, notes or other
evidences of indebtedness issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the board of directors.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances; and, unless so authorized or ratified by the board of directors or
within the agency power of an officer, no officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES.
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid, and the board of
directors may authorize the issuance of certificates or shares as partly paid
provided that these certificates shall state the amount of the consideration to
be paid for them and the amount paid. All certificates shall be signed in the
name of the corporation by the chairman of the board or vice chairman of the
board or the president or a vice president and by the chief financial officer,
treasurer, or an assistant treasurer or the secretary or an assistant secretary,
certifying the number of shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate shall have ceased to be
that officer, transfer agent or
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registrar before that certificate is issued, it may be issued by the corporation
with the same effect as if that person were an officer, transfer agent or
registrar at the date of issue.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require, including
provision for indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION AND DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the Code shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS.
Subject to the requirements of any applicable statutes or regulations, new
Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote.
9.2 AMENDMENT BY DIRECTORS.
Subject to the rights of the shareholders as provided in Section 9.1 of
these Bylaws, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a Bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
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WARRANT AGREEMENT
between
3Dshopping.com
and
Interwest Transfer Company
Dated as of ___________, 1999
<PAGE>
This Agreement, dated as of __________, 1999, is between
3Dshopping.com, a California corporation (the "Company") and Interwest Transfer
Company, a ____________ corporation, (the "Warrant Agent").
The Company, at or about the time that it is entering into this
Agreement, proposes to issue and sell to public investors up to _____________
Units ("Units"). Each Unit consists of one share of Common Stock of the Company
("Common Stock") and one Warrant (collectively, the "Warrants"), each Warrant
exercisable to purchase one share of Common Stock for $_____, upon the terms and
conditions and subject to adjustment in certain circumstances, all as set forth
in this Agreement..
The Company proposes to issue to the Representative of the
Underwriters in the public offering of Units referred to above warrants to
purchase up to __________ additional Units.
The Company wishes to retain the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, transfer, exchange and replacement of the certificates evidencing the
Warrants to be issued under this Agreement (the "Warrant Certificates") and the
exercise of the Warrants;
The Company and the Warrant Agent wish to enter into this Agreement to
set forth the terms and conditions of the Warrants and the rights of the holders
thereof ("Warrantholders") and to set forth the respective rights and
obligations of the Company and the Warrant Agent. Each Warrantholder is an
intended beneficiary of this Agreement with respect to the rights of
Warrantholders herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent
The Company appoints the Warrant Agent to act as agent for the Company
in accordance with the instructions in this Agreement and the Warrant Agent
accepts such appointment.
Section 2. Date, Denomination and Execution of Warrant Certificates
The Warrant Certificates (and the Form of Election to Purchase and the
Form of Assignment to be printed on the reverse thereof) shall be in registered
form only and shall be substantially of the tenor and purport recited in Exhibit
A hereto, and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law, or with any rule or regulation made pursuant thereto, or with any rule or
regulation of any stock exchange on which the Common Stock or the Warrants may
be listed or any automated quotation system, or to conform to usage. Each
Warrant Certificate shall entitle the registered holder thereof, subject to the
provisions of this Agreement and of the Warrant Certificate, to purchase, on or
before the close of business on __________, 2004 (the "Expiration Date"), one
fully paid and non-assessable share of Common Stock for each Warrant evidenced
by such Warrant Certificate, subject to adjustments as provided in Sections 6
hereof, for $_____ (the "Exercise Price"). Each Warrant Certificate issued as a
part of a Unit offered to the public as described in the recitals, above, shall
be dated _____________, 1999; each other Warrant Certificate shall be dated the
date on which the Warrant Agent receives valid issuance instructions from the
Company or a transferring holder of a Warrant Certificate or, if such
instructions specify another date, such other date.
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For purposes of this Agreement, the term "close of business" on any
given date shall mean 5:00 p.m., Eastern time, on such date; provided, however,
that if such date is not a business day, it shall mean 5:00 p.m., Eastern time,
on the next succeeding business day. For purposes of this Agreement, the term
"business day" shall mean any day other than a Saturday, Sunday, or a day on
which banking institutions in New York, New York are authorized or obligated by
law to be closed.
Each Warrant Certificate shall be executed on behalf of the Company by
the Chairman of the Board or its President or a Vice President, either manually
or by facsimile signature printed thereon, and have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. Each Warrant Certificate shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any Warrant Certificate
shall cease to be such officer of the Company before countersignature by the
Warrant Agent and issue and delivery thereof by the Company, such Warrant
Certificate, nevertheless, may be countersigned by the Warrant Agent, issued and
delivered with the same force and effect as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company.
Section 3. Subsequent Issue of Warrant Certificates
Subsequent to their original issuance, no Warrant Certificates shall
be reissued except (i) Warrant Certificates issued upon transfer thereof in
accordance with Section 4 hereof, (ii) Warrant Certificates issued upon any
combination, split-up or exchange of Warrant Certificates pursuant to Section 4
hereof, (iii) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 5 hereof,
(iv) Warrant Certificates issued upon the partial exercise of Warrant
Certificates pursuant to Section 7 hereof, and (v) Warrant Certificates issued
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable thereunder pursuant to Section 22 hereof. The Warrant
Agent is hereby irrevocably authorized to countersign and deliver, in accordance
with the provisions of said Sections 4, 5, 7 and 22, the new Warrant
Certificates required for purposes thereof, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrant Certificates
duly executed on behalf of the Company for such purposes.
Section 4. Transfers and Exchanges of Warrant Certificates
The Warrant Agent will keep or cause to be kept books for registration
of ownership and transfer of the Warrant Certificates issued hereunder. Such
registers shall show the names and addresses of the respective holders of the
Warrant Certificates and the number of Warrants evidenced by each such Warrant
Certificate.
The Warrant Agent shall, from time to time, register the transfer of
any outstanding Warrants upon the books to be maintained by the Warrant Agent
for that purpose, upon surrender of the Warrant Certificate evidencing such
Warrants, with the Form of Assignment duly filled in and executed with such
signature guaranteed by a banking institution or NASD member and such supporting
documentation as the Warrant Agent or the Company may reasonably require, to the
Warrant Agent at its stock transfer office in __________, California at any time
on or before the Expiration Date, and upon payment to the Warrant Agent for the
account of the Company of an amount equal to any applicable transfer tax.
Payment of the amount of such tax may be made in cash, or by certified or
official bank check, payable in lawful money of the United States of America to
the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of Assignment
duly filled in and executed, accompanied by payment of an amount equal to any
applicable transfer tax, the Warrant Agent shall promptly cancel the surrendered
Warrant Certificate and countersign and deliver to the transferee a new Warrant
Certificate for the number of full Warrants transferred to such transferee;
provided, however, that in case the registered holder of any Warrant Certificate
shall elect to transfer fewer than all of the Warrants evidenced by such Warrant
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Certificate, the Warrant Agent in addition shall promptly countersign and
deliver to such registered holder a new Warrant Certificate or Certificates for
the number of full Warrants not so transferred.
Any Warrant Certificate or Certificates may be exchanged at the option
of the holder thereof for another Warrant Certificate or Certificates of
different denominations, of like tenor and representing in the aggregate the
same number of Warrants, upon surrender of such Warrant Certificate or
Certificates, with the Form of Assignment duly filled in and executed, to the
Warrant Agent, at any time or from time to time after the close of business on
the date hereof and prior to the close of business on the Expiration Date. The
Warrant Agent shall promptly cancel the surrendered Warrant Certificate and
deliver the new Warrant Certificate pursuant to the provisions of this Section.
Section 5. Mutilated, Destroyed, Lost or Stolen Warrant Certificates
Upon receipt by the Company and the Warrant Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
any Warrant Certificate, and in the case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to them
of all reasonable expenses incidental thereto, and, in the case of mutilation,
upon surrender and cancellation of the Warrant Certificate, the Warrant Agent
shall countersign and deliver a new Warrant Certificate of like tenor for the
same number of Warrants.
Section 6. Adjustments of Number and Kind of Shares Purchasable and Exercise
Price
The number and kind of securities or other property purchasable upon
exercise of a Warrant shall be subject to adjustment from time to time upon the
occurrence, after the date hereof, of any of the following events:
A. In case the Company shall (1) pay a dividend in, or make a distribution
of, shares of capital stock on its outstanding Common Stock, (2) subdivide its
outstanding shares of Common Stock into a greater number of such shares or (3)
combine its outstanding shares of Common Stock into a smaller number of such
shares, the total number of shares of Common Stock purchasable upon the exercise
of each Warrant outstanding immediately prior thereto shall be adjusted so that
the holder of any Warrant Certificate thereafter surrendered for exercise shall
be entitled to receive at the same aggregate Exercise Price the number of shares
of capital stock (of one or more classes) which such holder would have owned or
have been entitled to receive immediately following the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the record date with respect to such event. Any adjustment made pursuant to
this Subsection shall, in the case of a stock dividend or distribution, become
effective as of the record date therefor and, in the case of a subdivision or
combination, be made as of the effective date thereof. If, as a result of an
adjustment made pursuant to this Subsection, the holder of any Warrant
Certificate thereafter surrendered for exercise shall become entitled to receive
shares of two or more classes of capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive and shall be
evidenced by a Board resolution filed with the Warrant Agent) shall determine
the allocation of the adjusted Exercise Price between or among shares of such
classes of capital stock.
B. In the event of a capital reorganization or a reclassification of the
Common Stock (except as provided in Subsection A. above or Subsection E. below),
any Warrantholder, upon exercise of Warrants, shall be entitled to receive, in
substitution for the Common Stock to which he would have become entitled upon
exercise immediately prior to such reorganization or reclassification, the
shares (of any class or classes) or other securities or property of the Company
(or cash) that he would have been entitled to receive at the same aggregate
Exercise Price upon such reorganization or reclassification if such Warrants had
been exercised immediately prior to the record date with respect to such event;
and in any such case, appropriate provision (as determined by the Board of
Directors of the Company, whose determination shall be conclusive and shall be
evidenced by a certified Board resolution filed with the Warrant Agent) shall be
made for the application of this Section 6 with respect to the rights and
interests thereafter of the Warrantholders (including but not limited to the
allocation of the Exercise Price between or among shares of classes of capital
stock), to the end that this Section 6 (including the adjustments of the
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number of shares of Common Stock or other securities purchasable and the
Exercise Price thereof) shall thereafter be reflected, as nearly as reasonably
practicable, in all subsequent exercises of the Warrants for any shares or
securities or other property (or cash) thereafter deliverable upon the exercise
of the Warrants.
C. Whenever the number of shares of Common Stock or other securities
purchasable upon exercise of a Warrant is adjusted as provided in this Section
6, the Company will promptly file with the Warrant Agent a certificate signed by
a Chairman or co-Chairman of the Board or the President or a Vice President of
the Company and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary of the Company setting forth the number and kind of
securities or other property purchasable upon exercise of a Warrant, as so
adjusted, stating that such adjustments in the number or kind of shares or other
securities or property conform to the requirements of this Section 6, and
setting forth a brief statement of the facts accounting for such adjustments.
Promptly after receipt of such certificate, the Company, or the Warrant Agent at
the Company's request, will deliver, by first-class, postage prepaid mail, a
brief summary thereof (to be supplied by the Company) to the registered holders
of the outstanding Warrant Certificates; provided, however, that failure to file
or to give any notice required under this Subsection, or any defect therein,
shall not affect the legality or validity of any such adjustments under this
Section 6; and provided, further, that, where appropriate, such notice may be
given in advance and included as part of the notice required to be given
pursuant to Section 12 hereof.
D. In case of any consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger which
does not result in any reclassification or change of the outstanding Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
corporation formed by such consolidation or merger or the corporation which
shall have acquired such assets, as the case may be, shall execute and deliver
to the Warrant Agent a supplemental warrant agreement providing that the holder
of each Warrant then outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, solely
the kind and amount of shares of stock and other securities and property (or
cash) receivable upon such consolidation, merger, sale or transfer by a holder
of the number of shares of Common Stock of the Company for which such Warrant
might have been exercised immediately prior to such consolidation, merger, sale
or transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided in this Section. The above provision of this Subsection shall similarly
apply to successive consolidations, mergers, sales or transfers.
The Warrant Agent shall not be under any responsibility to determine
the correctness of any provision contained in any such supplemental warrant
agreement relating to either the kind or amount of shares of stock or securities
or property (or cash) purchasable by holders of Warrant Certificates upon the
exercise of their Warrants after any such consolidation, merger, sale or
transfer or of any adjustment to be made with respect thereto, but subject to
the provisions of Section 20 hereof, may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in relying upon, a
certificate of a firm of independent certified public accountants (who may be
the accountants regularly employed by the Company) with respect thereto.
E. Irrespective of any adjustments in the number or kind of shares issuable
upon exercise of Warrants, Warrant Certificates theretofore or thereafter issued
may continue to express the same price and number and kind of shares as are
stated in the similar Warrant Certificates initially issuable pursuant to this
Warrant Agreement.
F. The Company may retain a firm of independent public accountants of
recognized standing, which may be the firm regularly retained by the Company,
selected by the Board of Directors of the Company or the Executive Committee of
said Board, and not disapproved by the Warrant Agent, to make any computation
required under this Section, and a certificate signed by such firm shall, in the
absence of fraud or gross negligence, be conclusive evidence of the correctness
of any computation made under this Section.
G. For the purpose of this Section, the term "Common Stock" shall mean (i)
the Common Stock or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that at
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any time as a result of an adjustment made pursuant to this Section, the holder
of any Warrant thereafter surrendered for exercise shall become entitled to
receive any shares of capital stock of the Company other than shares of Common
Stock, thereafter the number of such other shares so receivable upon exercise of
any Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section, and all other provisions of this
Agreement, with respect to the Common Stock, shall apply on like terms to any
such other shares.
H. The Company may, from time to time and to the extent permitted by law,
reduce the exercise price of the Warrants by any amount for a period of not less
than 20 days. If the Company so reduces the exercise price of the Warrants, it
will give not less than 15 days' notice of such decrease, which notice may be in
the form of a press release, and shall take such other steps as may be required
under applicable law in connection with any offers or sales of securities at the
reduced price.
Section 7. Exercise and Redemption of Warrants
Unless the Warrants have been redeemed as provided in this Section 7,
the registered holder of any Warrant Certificate may exercise the Warrants
evidenced thereby, in whole at any time or in part from time to time at or prior
to the close of business, on the Expiration Date, subject to the provisions of
Section 9, at which time the Warrant Certificates shall be and become wholly
void and of no value. Warrants may be exercised by their holders or redeemed by
the Company as follows:
A. Exercise of Warrants shall be accomplished upon surrender of the Warrant
Certificate evidencing such Warrants, with the Form of Election to Purchase on
the reverse side thereof duly filled in and executed, to the Warrant Agent at
its stock transfer office in _________, California, together with payment to the
Company of the Exercise Price (as of the date of such surrender) of the Warrants
then being exercised and an amount equal to any applicable transfer tax and, if
requested by the Company, any other taxes or governmental charges which the
Company may be required by law to collect in respect of such exercise. Payment
of the Exercise Price and other amounts may be made by wire transfer of good
funds, or by certified or bank cashier's check, payable in lawful money of the
United States of America to the order of the Company. No adjustment shall be
made for any cash dividends, whether paid or declared, on any securities
issuable upon exercise of a Warrant.
B. Upon receipt of a Warrant Certificate, with the Form of Election to
Purchase duly filled in and executed, accompanied by payment of the Exercise
Price of the Warrants being exercised (and of an amount equal to any applicable
taxes or government charges as aforesaid), the Warrant Agent shall promptly
request from the Transfer Agent with respect to the securities to be issued and
deliver to or upon the order of the registered holder of such Warrant
Certificate, in such name or names as such registered holder may designate, a
certificate or certificates for the number of full shares of the securities to
be purchased, together with cash made available by the Company pursuant to
Section 8 hereof in respect of any fraction of a share of such securities
otherwise issuable upon such exercise. If the Warrant is then exercisable to
purchase property other than securities, the Warrant Agent shall take
appropriate steps to cause such property to be delivered to or upon the order of
the registered holder of such Warrant Certificate. In addition, if it is
required by law and upon instruction by the Company, the Warrant Agent will
deliver to each Warrantholder a prospectus which complies with the provisions of
Section 9 of the Securities Act of 1933 and the Company agrees to supply Warrant
Agent with sufficient number of prospectuses to effectuate that purpose.
C. In case the registered holder of any Warrant Certificate shall exercise
fewer than all of the Warrants evidenced by such Warrant Certificate, the
Warrant Agent shall promptly countersign and deliver to the registered holder of
such Warrant Certificate, or to his duly authorized assigns, a new Warrant
Certificate or Certificates evidencing the number of Warrants that were not so
exercised.
D. Each person in whose name any certificate for securities is issued upon
the exercise of Warrants shall for all purposes be deemed to have become the
holder of record of the securities represented thereby as of, and such
certificate shall be dated, the date upon which the Warrant Certificate was duly
surrendered in proper form and
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payment of the Exercise Price (and of any applicable taxes or other governmental
charges) was made; provided, however, that if the date of such surrender and
payment is a date on which the stock transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares as
of, and the certificate for such shares shall be dated, the next succeeding
business day on which the stock transfer books of the Company are open (whether
before, on or after the Expiration Date) and the Warrant Agent shall be under no
duty to deliver the certificate for such shares until such date. The Company
covenants and agrees that it shall not cause its stock transfer books to be
closed for a period of more than 20 consecutive business days except upon
consolidation, merger, sale of all or substantially all of its assets,
dissolution or liquidation or as otherwise provided by law.
E. The Warrants outstanding at the time of a redemption may be redeemed at
the option of the Company, in whole or in part on a pro-rata basis, at any time
if, at the time notice of such redemption is given by the Company as provided in
Paragraph F, below, the Daily Price has exceeded $_____ for the twenty
consecutive trading days immediately preceding the date of such notice, at a
price equal to $0.25 per Warrant (the "Redemption Price"). For the purpose of
the foregoing sentence, the term "Daily Price" shall mean, for any relevant day,
the closing bid price on that day as reported by the principal exchange or
quotation system on which prices for the Common Stock are reported. On the
redemption date the holders of record of redeemed Warrants shall be entitled to
payment of the Redemption Price upon surrender of such redeemed Warrants to the
Company at the principal office of the Warrant Agent in ___________, California.
F. Notice of redemption of Warrants shall be given at least 30 days prior
to the redemption date by mailing, by registered or certified mail, return
receipt requested, a copy of such notice to the Warrant Agent and to all of the
holders of record of Warrants at their respective addresses appearing on the
books or transfer records of the Company or such other address designated in
writing by the holder of record to the Warrant Agent not less than 40 days prior
to the redemption date.
G. From and after the redemption date, all rights of the Warrantholders
(except the right to receive the Redemption Price) shall terminate, but only if
(a) no later than one day prior to the redemption date the Company shall have
irrevocably deposited with the Warrant Agent as paying agent a sufficient amount
to pay on the redemption date the Redemption Price for all Warrants called for
redemption and (b) the notice of redemption shall have stated the name and
address of the Warrant Agent and the intention of the Company to deposit such
amount with the Warrant Agent no later than one day prior to the redemption
date.
H. The Warrant Agent shall pay to the holders of record of redeemed
Warrants all monies received by the Warrant Agent for the redemption of Warrants
to which the holders of record of such redeemed Warrants who shall have
surrendered their Warrants are entitled.
I. Any amounts deposited with the Warrant Agent that are not required for
redemption of Warrants may be withdrawn by the Company. Any amounts deposited
with the Warrant Agent that shall be unclaimed after six months after the
redemption date may be withdrawn by the Company, and thereafter the holders of
the Warrants called for redemption for which such funds were deposited shall
look solely to the Company for payment. The Company shall be entitled to the
interest, if any, on funds deposited with the Warrant Agent and the holders of
redeemed Warrants shall have no right to any such interest.
J. If the Company fails to make a sufficient deposit with the Warrant Agent
as provided above, the holder of any Warrants called for redemption may at the
option of the holder (a) by notice to the Company declare the notice of
redemption a nullity as to such holder, or (b) maintain an action against the
Company for the Redemption Price. If the holder brings such an action, the
Company will pay reasonable attorneys' fees of the holder. If the holder fails
to bring an action against the Company for the Redemption Price within 60 days
after the redemption date, the holder shall be deemed to have elected to declare
the notice of redemption to be a nullity as to such holder and such notice shall
be without any force or effect as to such holder. Except as otherwise
specifically provided in this Paragraph J, a notice of redemption, once mailed
by the Company as provided in Paragraph F shall be irrevocable.
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Section 8. Fractional Interests
The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants. If any fraction (calculated to the nearest
one-hundredth) of a Warrant or a share of securities would, except for the
provisions of this Section, be issuable on the exercise of any Warrant, the
Company shall, at its option, either purchase such fraction for an amount in
cash equal to the current value of such fraction computed on the basis of the
closing market price (as quoted on NASDAQ) on the trading day immediately
preceding the day upon which such Warrant Certificate was surrendered for
exercise in accordance with Section 7 hereof or issue the required fractional
Warrant or share. By accepting a Warrant Certificate, the holder thereof
expressly waives any right to receive a Warrant Certificate evidencing any
fraction of a Warrant or to receive any fractional share of securities upon
exercise of a Warrant, except as expressly provided in this Section 8.
Section 9. Reservation of Equity Securities
The Company covenants that it will at all times reserve and keep
available, free from any pre-emptive rights, out of its authorized and unissued
equity securities, solely for the purpose of issue upon exercise of the
Warrants, such number of shares of equity securities of the Company as shall
then be issuable upon the exercise of all outstanding Warrants ("Equity
Securities"). The Company covenants that all Equity Securities which shall be so
issuable shall, upon such issue, be duly authorized, validly issued, fully paid
and non-assessable.
The Company covenants that if any equity securities, required to be
reserved for the purpose of issue upon exercise of the Warrants hereunder,
require registration with or approval of any governmental authority under any
federal or state law before such shares may be issued upon exercise of Warrants,
the Company will use all commercially reasonable efforts to cause such
securities to be duly registered, or approved, as the case may be, and, to the
extent practicable, take all such action in anticipation of and prior to the
exercise of the Warrants, including, without limitation, filing any and all
post-effective amendments to the Company's Registration Statement on Form SB-2
(Registration No. 333-59823) necessary to permit a public offering of the
securities underlying the Warrants at any and all times during the term of this
Agreement, provided, however, that in no event shall such securities be issued,
and the Company is authorized to refuse to honor the exercise of any Warrant, if
such exercise would result in the opinion of the Company's Board of Directors,
upon advice of counsel, in the violation of any law; and provided further that,
in the case of a Warrant exercisable solely for securities listed on a
securities exchange or for which there are at least two independent market
makers, in lieu of obtaining such registration or approval, the Company may
elect to redeem Warrants submitted to the Warrant Agent for exercise for a price
equal to the difference between the aggregate low asked price, or closing price,
as the case may be, of the securities for which such Warrant is exercisable on
the date of such submission and the Exercise Price of such Warrants; in the
event of such redemption, the Company will pay to the holder of such Warrants
the above-described redemption price in cash within 10 business days after
receipt of notice from the Warrant Agent that such Warrants have been submitted
for exercise.
Section 10. Reduction of Conversion Price Below Par Value
Before taking any action that would cause an adjustment pursuant to
Section 6 hereof reducing the portion of the Exercise Price required to purchase
one share of capital stock below the then par value (if any) of a share of such
capital stock, the Company will use its best efforts to take any corporate
action which, in the opinion of its counsel, may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such capital stock.
Section 11. Payment of Taxes
The Company covenants and agrees that it will pay when due and payable
any and all federal and state documentary stamp and other original issue taxes
which may be payable in respect of the original issuance of
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the Warrant Certificates, or any shares of Common Stock or other securities upon
the exercise of Warrants. The Company shall not, however, be required (i) to pay
any tax which may be payable in respect of any transfer involved in the transfer
and delivery of Warrant Certificates or the issuance or delivery of certificates
for Common Stock or other securities in a name other than that of the registered
holder of the Warrant Certificate surrendered for purchase or (ii) to issue or
deliver any certificate for shares of Common Stock or other securities upon the
exercise of any Warrant Certificate until any such tax shall have been paid, all
such tax being payable by the holder of such Warrant Certificate at the time of
surrender.
Section 12. Notice of Certain Corporate Action
In case the Company after the date hereof shall propose (i) to offer
to the holders of Common Stock, generally, rights to subscribe to or purchase
any additional shares of any class of its capital stock, any evidences of its
indebtedness or assets, or any other rights or options or (ii) to effect any
reclassification of Common Stock (other than a reclassification involving merely
the subdivision or combination of outstanding shares of Common Stock) or any
capital reorganization, or any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
any sale, transfer or other disposition of its property and assets substantially
as an entirety, or the liquidation, voluntary or involuntary dissolution or
winding-up of the Company, then, in each such case, the Company shall file with
the Warrant Agent and the Company, or the Warrant Agent on its behalf, shall
mail (by first-class, postage prepaid mail) to all registered holders of the
Warrant Certificates notice of such proposed action, which notice shall specify
the date on which the books of the Company shall close or a record be taken for
such offer of rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up shall take place
or commence, as the case may be, and which shall also specify any record date
for determination of holders of Common Stock entitled to vote thereon or
participate therein and shall set forth such facts with respect thereto as shall
be reasonably necessary to indicate any adjustments in the Exercise Price and
the number or kind of shares or other securities purchasable upon exercise of
Warrants which will be required as a result of such action. Such notice shall be
filed and mailed in the case of any action covered by clause (i) above, at least
ten days prior to the record date for determining holders of the Common Stock
for purposes of such action or, if a record is not to be taken, the date as of
which the holders of shares of Common Stock of record are to be entitled to such
offering; and, in the case of any action covered by clause (ii) above, at least
20 days prior to the earlier of the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up is expected to
become effective and the date on which it is expected that holders of shares of
Common Stock of record on such date shall be entitled to exchange their shares
for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up.
Failure to give any such notice or any defect therein shall not affect
the legality or validity of any transaction listed in this Section 12.
Section 13. Disposition of Proceeds on Exercise of Warrant Certificates, etc.
The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent for the purchase of securities or other property through the
exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by Warrantholders during normal business hours at its stock transfer
office. Copies of this Agreement may be obtained upon written request addressed
to the Warrant Agent at its stock transfer office in __________, California.
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Section 14. Warrantholder Not Deemed a Stockholder
No Warrantholder, as such, shall be entitled to vote, receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Warrants
represented thereby for any purpose whatever, nor shall anything contained
herein or in any Warrant Certificate be construed to confer upon any
Warrantholder, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise), or to receive notice of
meetings or other actions affecting stockholders (except as provided in Section
12 hereof), or to receive dividend or subscription rights, or otherwise, until
such Warrant Certificate shall have been exercised in accordance with the
provisions hereof and the receipt of the Exercise Price and any other amounts
payable upon such exercise by the Warrant Agent.
Section 15. Right of Action
All rights of action in respect to this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of the Warrant Agent or
of any other holder of a Warrant Certificate, may, in his own behalf for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, his right
to exercise the Warrants evidenced by such Warrant Certificate, for the purchase
of shares of the Common Stock in the manner provided in the Warrant Certificate
and in this Agreement.
Section 16. Agreement of Holders of Warrant Certificates
Every holder of a Warrant Certificate by accepting the same consents
and agrees with the Company, the Warrant Agent and with every other holder of a
Warrant Certificate that:
A. the Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement;
and
B. the Company and the Warrant Agent may deem and treat the person in whose
name the Warrant Certificate is registered as the absolute owner of the Warrant
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
Section 17. Cancellation of Warrant Certificates
In the event that the Company shall purchase or otherwise acquire any
Warrant Certificate or Certificates after the issuance thereof, such Warrant
Certificate or Certificates shall thereupon be delivered to the Warrant Agent
and be canceled by it and retired. The Warrant Agent shall also cancel any
Warrant Certificate delivered to it for exercise, in whole or in part, or
delivered to it for transfer, split-up, combination or exchange. Warrant
Certificates so canceled shall be delivered by the Warrant Agent to the Company
from time to time, or disposed of in accordance with the instructions of the
Company.
Section 18. Concerning the Warrant Agent
The Company agrees to pay to the Warrant Agent from time to time, on
demand of the Warrant Agent, reasonable compensation for all services rendered
by it hereunder and also its reasonable expenses, including counsel fees, and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Warrant Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad
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faith or willful misconduct on the part of the Warrant Agent, arising out of or
in connection with the acceptance and administration of this Agreement.
Section 19. Merger or Consolidation or Change of Name of Warrant Agent
Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 21 hereof. In case at the time such successor to
the Warrant Agent shall succeed to the agency created by this Agreement, any of
the Warrant Certificates shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrant Certificates so countersigned; and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
Section 20. Duties of Warrant Agent
The Warrant Agent undertakes the duties and obligations imposed by
this Agreement upon the following terms and conditions, by all of which the
Company and the holders of Warrant Certificates, by their acceptance thereof,
shall be bound:
A. The Warrant Agent may consult with counsel satisfactory to it (who may
be counsel for the Company or the Warrant Agent's in-house counsel), and the
opinion of such counsel shall be full and complete authorization and protection
to the Warrant Agent as to any action taken, suffered or omitted by it in good
faith and in accordance with such opinion; provided, however, that the Warrant
Agent shall have exercised reasonable care in the selection of such counsel.
Fees and expenses of such counsel, to the extent reasonable, shall be paid by
the Company.
B. Whenever in the performance of its duties under this Agreement, the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by a Chairman or co-Chairman of the Board or
the President or a Vice President or the Secretary of the Company and delivered
to the Warrant Agent; and such certificate shall be full authorization to the
Warrant Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
C. The Warrant Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
D. The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature on the Warrant Certificates and such
statements or recitals as describe the Warrant Agent or action taken or to be
taken by it) or be required
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to verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
E. The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Warrant Certificate; nor shall
it be responsible for the making of any change in the number of shares of Common
Stock for which a Warrant is exercisable required under the provisions of
Section 6 or responsible for the manner, method or amount of any such change or
the ascertaining of the existence of facts that would require any such
adjustment or change (except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Exercise Price); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock to be
issued pursuant to this Agreement or any Warrant Certificate or as to whether
any shares of Common Stock will, when issued, be validly issued, fully paid and
non-assessable.
F. The Warrant Agent shall be under no obligation to institute any action,
suit or legal proceeding or take any other action likely to involve expense
unless the Company or one or more registered holders of Warrant Certificates
shall furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrants or the production thereof at any
trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the ratable benefit of
the registered holders of the Warrant Certificates, as their respective rights
or interests may appear.
G. The Warrant Agent and any stockholder, director, officer or employee of
the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
H. The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from a
Chairman or co-Chairman of the Board or President or a Vice President or the
Secretary or the Controller of the Company, and to apply to such officers for
advice or instructions in connection with the Warrant Agent's duties, and it
shall not be liable for any action taken or suffered or omitted by it in good
faith in accordance with instructions of any such officer.
I. The Warrant Agent will not be responsible for any failure of the Company
to comply with any of the covenants contained in this Agreement or in the
Warrant Certificates to be complied with by the Company.
J. The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees and the Warrant Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys, agents or employees or for any loss to the Company resulting from
such neglect or misconduct; provided, however, that reasonable care shall have
been exercised in the selection and continued employment of such attorneys,
agents and employees.
K. The Warrant Agent will not incur any liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken, or any
failure to take action, in reliance on any notice, resolution, waiver, consent,
order, certificate, or other paper, document or instrument reasonably believed
by the Warrant Agent to be genuine and to have been signed, sent or presented by
the proper party or parties.
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<PAGE>
L. The Warrant Agent will act hereunder solely as agent of the Company in a
ministerial capacity, and its duties will be determined solely by the provisions
hereof. The Warrant Agent will not be liable for anything which it may do or
refrain from doing in connection with this Agreement except for its own
negligence, bad faith or willful conduct.
Section 21. Change of Warrant Agent
The Warrant Agent may resign and be discharged from its duties under
this Agreement upon 30 days' prior notice in writing mailed, by registered or
certified mail, to the Company. The Company may remove the Warrant Agent or any
successor warrant agent upon 30 days' prior notice in writing, mailed to the
Warrant Agent or successor warrant agent, as the case may be, by registered or
certified mail. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent and shall, within 15 days following such appointment, give
notice thereof in writing to each registered holder of the Warrant Certificates.
If the Company shall fail to make such appointment within a period of 15 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent,
then the Company agrees to perform the duties of the Warrant Agent hereunder
until a successor Warrant Agent is appointed. After appointment and execution of
a copy of this Agreement in effect at that time, the successor Warrant Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Warrant Agent without further act or deed; but
the former Warrant Agent shall deliver and transfer to the successor Warrant
Agent, within a reasonable time, any property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Failure to give any notice provided for in this Section,
however, or any defect therein shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
warrant agent, as the case may be.
Section 22. Issuance of New Warrant Certificates
Notwithstanding any of the provisions of this Agreement or the several
Warrant Certificates to the contrary, the Company may, at its option, issue new
Warrant Certificates in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable under the several Warrant Certificates made in accordance
with the provisions of this Agreement.
Section 23. Notices
Notice or demand pursuant to this Agreement to be given or made on the
Company by the Warrant Agent or by the registered holder of any Warrant
Certificate shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
3Dshopping.com
517 Boccaccio Avenue
Venice, CA 90291
Subject to the provisions of Section 21, any notice pursuant to this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made if
sent by first-class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Warrant Agent with the Company) as
follows:
Interwest Transfer Company
--------------------------
--------------------------
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<PAGE>
Any notice or demand authorized to be given or made to the registered
holder of any Warrant Certificate under this Agreement shall be sufficiently
given or made if sent by first-class or registered mail, postage prepaid, to the
last address of such holder as it shall appear on the registers maintained by
the Warrant Agent.
Section 24. Modification of Agreement
The Warrant Agent may, without the consent or concurrence of the
Warrantholders, by supplemental agreement or otherwise, concur with the Company
in making any changes or corrections in this Agreement that the Warrant Agent
shall have been advised by counsel (who may be counsel for the Company) are
necessary or desirable to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained, or to make any other provisions in regard to matters or questions
arising hereunder and which shall not be inconsistent with the provisions of the
Warrant Certificates and which shall not adversely affect the interests of the
Warrantholders. As of the date hereof, this Agreement contains the entire and
only agreement, understanding, representation, condition, warranty or covenant
between the parties hereto with respect to the matters herein, supersedes any
and all other agreements between the parties hereto relating to such matters,
and may be modified or amended only by a written agreement signed by both
parties hereto pursuant to the authority granted by the first sentence of this
Section.
Section 25. Successors
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrant Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
Section 26. California Contract
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of California and for
all purposes shall be construed in accordance with the laws of said State.
Section 27. Termination
This Agreement shall terminate as of the close of business on the
Expiration Date, or such earlier date upon which all Warrants shall have been
exercised or redeemed, except that the Warrant Agent shall account to the
Company as to all Warrants outstanding and all cash held by it as of the close
of business on the Expiration Date.
Section 28. Benefits of this Agreement
Nothing in this Agreement or in the Warrant Certificates shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent, and their respective successors and assigns hereunder and the
registered holders of the Warrant Certificates any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company, the Warrant Agent, their respective
successors and assigns hereunder and the registered holders of the Warrant
Certificates.
Section 29. Descriptive Headings
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
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<PAGE>
Section 30. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
3Dshopping.com
By: ______________________________
Title:
Interwest Transfer Company
By: ______________________________
Title:
15
<PAGE>
Exhibit A
VOID AFTER 5 P.M. PACIFIC TIME ON __________, 2004
WARRANTS TO PURCHASE COMMON STOCK
W_____ _________ Warrants
3Dshopping.com
CUSIP ______________
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants
("Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from 3Dshopping.com, a corporation incorporated under the laws of the
State of California ("Company"), subject to the terms and conditions set forth
hereinafter and in the Warrant Agreement hereinafter more fully described (the
"Warrant Agreement") referred to, at any time on or before the close of business
on ___________, 2004 or, if such Warrant is redeemed as provided in the Warrant
Agreement, at any time prior to the effective time of such redemption (the
"Expiration Date"), one fully paid and non-assessable share of Common Stock
Stock of the Company ("Common Stock") upon presentation and surrender of this
Warrant Certificate, with the instructions for the registration and delivery of
Common Stock filled in, at the stock transfer office in __________, California,
of Interwest Transfer Company, Warrant Agent of the Company ("Warrant Agent") or
of its successor warrant agent or, if there be no successor warrant agent, at
the corporate offices of the Company, and upon payment of the Exercise Price (as
defined in the Warrant Agreement) and any applicable taxes paid either in cash,
or by certified or official bank check, payable in lawful money of the United
States of America to the order of the Company. Each Warrant initially entitles
the holder to purchase one share of Common Stock for $______. The number and
kind of securities or other property for which the Warrants are exercisable are
subject to further adjustment in certain events, such as mergers, splits, stock
dividends, recapitalizations and the like, to prevent dilution. The Company may
redeem any or all outstanding and unexercised Warrants at any time if the Daily
Price has exceeded $_____ for twenty consecutive trading days immediately
preceeding the date of notice of such redemption, upon 30 days notice, at a
price equal to $____ per Warrant. For the purpose of the foregoing sentence, the
term "Daily Price" shall mean, for any relevant day, the closing bid price on
that day as reported by the principal exchange or quotation system on which
prices for the Common Stock are reported. All Warrants not theretofore exercised
or redeemed will expire on _________, 2004.
This Warrant Certificate is subject to all of the terms, provisions
and conditions of the Warrant Agreement, dated as of ____________, 1999
("Warrant Agreement"), between the Company and the Warrant Agent, to all of
which terms, provisions and conditions the registered holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is incorporated
herein by reference and made a part hereof and reference is made to the Warrant
Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Warrant Agent, the Company and the
holders of the Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the stock transfer office of the Warrant Agent or
may be obtained upon written request addressed to the Company at 517 Boccaccio
Avenue, Venice, CA 90291, Attention: Chief Financial Officer.
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<PAGE>
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but shall make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise
of Warrants would violate the securities laws of the United States, certain
states thereof or other jurisdictions. The Company has agreed to use all
commercially reasonable efforts to cause a registration statement to continue to
be effective during the term of the Warrants with respect to such sales under
the Securities Act of 1933, and to take such action under the laws of various
states as may be required to cause the sale of securities upon exercise to be
lawful. However, the Company will not be required to honor the exercise of
Warrants if, in the opinion of the Board of Directors, upon advice of counsel,
the sale of securities upon such exercise would be unlawful. In certain cases,
the Company may, but is not required to, purchase Warrants submitted for
exercise for a cash price equal to the difference between the market price of
the securities obtainable upon such exercise and the exercise price of such
Warrants.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
No holder of this Warrant Certificate, as such, shall be entitled to
vote, receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter submitted to stockholders at any meeting
thereof, or give or withhold consent to any merger, recapitalization, issuance
of stock, reclassification of stock, change of par value or change of stock to
no par value, consolidation, conveyance or otherwise) or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or otherwise
until the Warrants evidenced by this Warrant Certificate shall have been
exercised and the Common Stock purchasable upon the exercise thereof shall have
become deliverable as provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Company's Common Stock or
other class of stock purchasable upon the exercise of the Warrants evidenced by
this Warrant Certificate are closed for any purpose, the Company shall not be
required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same
consents and agrees with the Company, the Warrant Agent, and with every other
holder of a Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate
for shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be
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payable in respect thereof by the holder of this Warrant Certificate pursuant to
the Warrant Agreement shall have been paid, such tax being payable by the holder
of this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the proper officers of the Company
and its corporate seal.
Dated:
3Dshopping.com
By: _____________________________________
Chief Executive Officer
Attest: _________________________________
Secretary
Countersigned
__________________________________
By: ______________________________
Authorized Officer
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THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
COMMON STOCK
PURCHASE WARRANTS
Issued to:
PAULSON INVESTMENT COMPANY, INC.
Exercisable to Purchase
175,000 Units
of
3Dshopping.com
Void after ____________, 2004
<PAGE>
This is to certify that, for value received and subject to the terms and
conditions set forth below, the Warrantholder (hereinafter defined) is entitled
to purchase, and the Company promises and agrees to sell and issue to the
Warrantholder, at any time on or after _________, 2000 and on or before
_________, 2004, up to 175,000 Units (hereinafter defined) at the Exercise Price
(hereinafter defined).
This Warrant Certificate is issued subject to the following terms and
conditions:
1. Definitions of Certain Terms. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Closing Date" means the date on which the Offering is closed.
(c) "Commission" means the Securities and Exchange Commission.
(d) "Common Stock" means the common stock, no par value, of the
Company.
(e) "Company" means 3Dshopping.com, a California corporation.
(f) "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in Section
6 hereof, except Warrantholder's Expenses.
(g) "Effective Date" means the date on which the Registration
Statement is declared effective by the Commission.
(h) "Exercise Price" means the price at which the Warrantholder may
purchase one complete Unit (or Securities obtainable in lieu of one complete
Unit) upon exercise of Warrants as determined from time to time pursuant to the
provisions hereof. The initial Exercise Price is $___ per Unit (120% of the
initial public offering price of a Unit). If a Warrant is exercised for a
component of a Unit or Units, then the price payable in connection with such
exercise shall be determined by allocating $0.001 to the Unit Warrant and the
balance of the Exercise Price to the share of Common Stock, or, in each case, to
any securities obtainable in addition to or in lieu of such share of Unit
Warrant or Common Stock by virtue of the application of Section 3 of this
Warrant.
(i) "Offering" means the public offering of Units made pursuant to the
Registration Statement.
(j) "Participating Underwriter" means any underwriter participating in
the sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.
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(k) "Registration Statement" means the Company's registration
statement (File No.333-________), as amended on the Closing Date.
(l) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
(m) "Securities" means the securities obtained or obtainable upon
exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange, or conversion of such securities.
(n) "Unit" means, as the case may require, either one of the Units
offered to the Public pursuant to the Registration Statement or one of the Units
obtainable on exercise of a Warrant.
(o) "Unit Warrant" means a Common Stock purchase warrant included as a
component of a Unit.
(p) "Warrant Certificate" means a certificate evidencing the Warrant.
(q) "Warrantholder" means a record holder of the Warrant or
Securities. The initial Warrantholder is Paulson Investment Company, Inc.
(r) "Warrantholder's Expenses" means the sum of (i) the aggregate
amount of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by a
fraction the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering on
behalf of the Warrantholder and the denominator of which is the aggregate sales
price of all of the securities sold by such underwriter, underwriting syndicate,
or agent in such offering and (ii) all out-of-pocket expenses of the
Warrantholder, except for the reasonable fees and disbursements of one firm
retained as legal counsel on behalf of all of the Warrantholders that will be
paid by the Company.
(s) "Warrant" means the warrant evidenced by this certificate, any
similar certificate issued in connection with the Offering, or any certificate
obtained upon transfer or partial exercise of the Warrant evidenced by any such
certificate.
2. Exercise of Warrants. All or any part of the Warrant may be exercised
commencing on the first anniversary of the Effective Date and ending at 5 p.m.
Pacific Time on the fifth anniversary of the Effective Date by surrendering this
Warrant Certificate, together with appropriate instructions, duly executed by
the Warrantholder or by its duly authorized attorney, at the office of the
Company, 517 Boccaccio Avenue, Venice, California 90291, or at such other office
or agency as the Company may designate. Upon receipt of notice of exercise, the
Company shall immediately instruct its transfer agent to prepare certificates
for the Securities to be received by the Warrantholder upon completion of the
Warrant exercise. When such certificates are prepared, the Company shall notify
the Warrantholder and deliver such certificates to the Warrantholder or as per
the Warrantholder's instructions immediately upon
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<PAGE>
payment in full by the Warrantholder, in lawful money of the United States, of
the Exercise Price payable with respect to the Securities being purchased. If
the Warrantholder shall represent and warrant that all applicable registration
and prospectus delivery requirements for their sale have been complied with upon
sale of the Securities received upon exercise of the Warrant, such certificates
shall not bear a legend with respect to the Securities Act of 1933.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise of the Warrant
will be deemed to have been issued, and any person exercising the Warrants will
be deemed to have become a holder of record of those Securities, as of the date
of the payment of the Exercise Price.
3. Adjustments in Certain Events. The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock are
divided into a greater number of shares or a dividend in stock is paid on the
Common Stock, the number of shares of Common Stock for which the Warrant is then
exercisable will be proportionately increased and the Exercise Price will be
proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of shares of Common Stock for which the Warrant is then exercisable will be
proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this subsection 3(a)
will be made with the intent and, as nearly as practicable, the effect that
neither the percentage of the total equity of the Company obtainable on exercise
of the Warrants nor the price payable for such percentage upon such exercise
will be affected by any event described in this subsection 3(a).
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, then, as a condition of such
change, lawful and adequate provision will be made so that the holder of this
Warrant Certificate will have the right thereafter to receive upon the exercise
of the Warrant the kind and amount of shares of stock or other securities or
property to which he would have been entitled if, immediately prior to such
event, he had held the number of shares of Common Stock obtainable upon the
exercise of the Warrant. In any such case, appropriate adjustment will be made
in the application of the provisions set forth herein with respect to the rights
and interest thereafter of the Warrantholder, to the end that the provisions set
forth herein will thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrant. The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of this Warrant Certificate, if not the
Company, agrees to be bound by and comply with the provisions of this Warrant
Certificate.
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(c) When any adjustment is required to be made in the number of shares
of Common Stock, other securities, or the property purchasable upon exercise of
the Warrant, the Company will promptly determine the new number of such shares
or other securities or property purchasable upon exercise of the Warrant and (i)
prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the new number of such shares or other securities or
property purchasable upon exercise of the Warrant and (ii) cause a copy of such
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.
(d) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant, but the Company will pay,
in lieu of fractional shares, a cash payment therefor on the basis of the mean
between the bid and asked prices of the Common Stock in the over-the-counter
market or the last sale price on a national securities exchange or on The Nasdaq
National Market on the day immediately prior to exercise.
(e) If securities of the Company or securities of any subsidiary of
the Company are distributed pro rata to holders of Common Stock, such number of
securities will be distributed to the Warrantholder or his assignee upon
exercise of his rights hereunder as such Warrantholder or assignee would have
been entitled to if this Warrant Certificate had been exercised prior to the
record date for such distribution. The provisions with respect to adjustment of
the Common Stock provided in this Section 3 will also apply to the securities to
which the Warrantholder or his assignee is entitled under this subsection 3(e).
(f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale of the Common Stock or other
Securities purchasable upon exercise of the Warrant.
4. Reservation of Securities. The Company agrees that the number of shares
of Common Stock, Unit Warrants or other Securities sufficient to provide for the
exercise of the Warrant upon the basis set forth above will at all times during
the term of the Warrant be reserved for issuance upon exercise of the Warrant.
5. Validity of Securities. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.
6. Registration of Securities Issuable on Exercise of Warrant Certificate.
(a) The Company will register the Securities with the Commission
pursuant to the Act so as to allow the unrestricted sale of the Securities to
the public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. Pacific Time on the fifth anniversary of
the Effective Date (the "Registration Period"). The Company will also file such
applications and other documents necessary to permit the sale of the Securities
to the public during the Registration Period in those states in which the Units
were qualified for sale in the Offering or such other states as the Company and
the Warrantholder agree to. In order to
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comply with the provisions of this Section 6(a), the Company is not required to
file more than one registration statement. No registration right of any kind,
"piggyback" or otherwise, will last longer than five years from the Closing
Date.
(b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer, and sale of the Securities.
(c) Except as specifically provided herein, the manner and conduct of
the registration, including the contents of the registration, will be entirely
in the control and at the discretion of the Company. The Company will file such
post-effective amendments and supplements as may be necessary to maintain the
currency of the registration statement during the period of its use. In
addition, if the Warrantholder participating in the registration is advised by
counsel that the registration statement, in their opinion, is deficient in any
material respect, the Company will use its best efforts to cause the
registration statement to be amended to eliminate the concerns raised.
(d) The Company will furnish to the Warrantholder the number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of Securities owned by it.
(e) The Company will, at the request of Warrantholders holding at
least 50 percent of the then outstanding Warrants, (i) furnish an opinion of the
counsel representing the Company for the purposes of the registration pursuant
to this Section 6, addressed to the Warrantholders and any Participating
Underwriter, (ii) furnish an appropriate letter from the independent public
accountants of the Company, addressed to the Warrantholders and any
Participating Underwriter, and (iii) make representations and warranties to the
Warrantholders and any Participating Underwriter. A request pursuant to this
subsection (e) may be made on three occasions. The documents required to be
delivered pursuant to this subsection (e) will be dated within ten days of the
request and will be, in form and substance, equivalent to similar documents
furnished to the underwriters in connection with the Offering, with such changes
as may be appropriate in light of changed circumstances.
7. Indemnification in Connection with Registration.
(a) If any of the Securities are registered, the Company will
indemnify and hold harmless each selling Warrantholder, any person who controls
any selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which any Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it will reimburse
each Warrantholder, each controlling person, and each Participating Underwriter
for any legal or other expenses reasonably incurred by the Warrantholder,
controlling person, or Participating Underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action,
insofar as such losses, claims, damages, or liabilities, joint or several (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue
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statement of any material fact contained, on the effective date thereof, in any
such registration statement or any preliminary prospectus or final prospectus,
or any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any case to the extent
that any loss, claim, damage, or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in any registration statement, preliminary prospectus, final prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished by a Warrantholder for use in the preparation
thereof. The indemnity agreement contained in this subparagraph (a) will not
apply to amounts paid to any claimant in settlement of any suit or claim unless
such payment is first approved by the Company, such approval not to be
unreasonably withheld.
(b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained in said registration statement, any preliminary or final
prospectus, or other filing, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, preliminary or final prospectus, or other filing, or
amendment or supplement, in reliance upon and in conformity with written
information furnished by such Warrantholder for use in the preparation thereof;
provided, however, that the indemnity agreement contained in this subparagraph
(b) will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Warrantholder, such approval
not to be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under subparagraphs
(a) or (b) above of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, notify the indemnifying party of the commencement thereof; but the
omission to notify the indemnifying party will not relieve it from any liability
that it may have to any indemnified party otherwise than under subparagraphs (a)
and (b).
(d) If any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified
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<PAGE>
party; and after notice from the indemnifying party to such indemnified party of
its election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
8. Restrictions on Transfer. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the Effective Date except to underwriters of the Offering or to individuals who
are either a partner or an officer of such an underwriter or by will or by
operation of law. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates evidencing the
same aggregate number of Warrants.
9. No Rights as a Shareholder. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
10. Notice. Any notices required or permitted to be given hereunder will be
in writing and may be served personally or by mail; and if served will be
addressed as follows:
If to the Company:
517 Boccaccio Avenue
Venice, California 90291
Attn: President
If to the Warrantholder:
at the address furnished
by the Warrantholder to the
Company for the purpose of
notice.
Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may by written notice to the other specify a different address for notice
purposes.
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11. Applicable Law. This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this Warrant
Certificate shall be tried before the courts of Oregon located in Multnomah
County, Oregon to the exclusion of all other courts that might have
jurisdiction.
Dated as of ______________, 1999
3Dshopping.com
By:
------------------------------------
Its:
-----------------------------------
Agreed and Accepted as of ___________, 1999.
PAULSON INVESTMENT COMPANY, INC.
By:
------------------------------------
Its:
-----------------------------------
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CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
ASTERISK * DENOTES SUCH OMISSIONS.
WEBSITE LINKING AND PROMOTION AGREEMENT
- --------------------------------------------------------------------------------
Dated as of April 22, 1998 Agreement No. DEN-980416-5204
("Effective Date")
MediaOne of Delaware, Inc. PI Graphix, Inc.
and/or ("PI Graphix")
MediaOne, Inc.
("MediaOne")
Address: 9000 E. Nichols Avenue, Address: 517 Boccaccio Avenue
Ste. 100 Venice, CA 90291
Englewood, CO 80112 Contact: Lawrence Weisdorn
Contact: Phil Weinstock Phone: 310.301.6733
Phone: 303.705.7673 Fax: 310.301.6730
Fax: 303.705.5161 E-Mail Address:
E-Mail Address: lawrencewpigraphix.com
[email protected]
This Agreement may refer to PI Graphix or to MediaOne as a "Party" or PI Graphix
and MediaOne together as "Parties" to this Agreement.
1. PURPOSE. MediaOne provides an entertainment, education, and information
service as a part of its MediaOne Business Broadband Information Service
("MediaOne Service") on numerous sites ("MediaOne Sites") on the World Wide Web
("WWW") part of the Internet. PI Graphix provides electronic commerce systems
and related information services on the WWW ("PI Graphix Site(s)"). MediaOne and
PI Graphix desire to provide links to the other's sites (collectively "Sites")
and engage in other activities on the terms and conditions set forth in this
Agreement.
2. RESPONSIBILITIES OF THE PARTIES.
2.1. Linking.
(a) PI Graphix shall:
(i) Manage, maintain, handle all electronic commerce transaction, and
provide all customer services relating to PI Graphix's sites.
(ii) Establish and maintain prominent hypertext links ("Site links")
from the PI Graphix Sites to the MediaOne Sites maintained by PI
Graphix as mutually agreed to by the Parties;
(iii) Provide a logo and hypertext mark-up language ("HTML") that
together shall be displayed in the PI Graphix area of the MediaOne
Site ("PI Graphix Button");
(iv) Use reasonable commercial efforts to provide MediaOne monthly
sales, usage and demographic data available regarding use of the Sites
in relevant categories; and,
(v) Work with MediaOne, on an ongoing basis, to identify areas within
the PI Graphix site where it would be appropriate to provide Site
links to the MediaOne Sites based on users seeking local information
of a type included in the MediaOne Sites.
(b) MediaOne shall:
(i) In cooperation with PI Graphix, produce Co-branded versions of the
Media One Sites' to be maintained on the MediaOne servers for users to
have access to the PI Graphix Site. Such Co-branded Pages shall
include a graphic provided by PI Graphix to be displayed in the size
agreed to by the parties and will be similar in all respects to the
primary MediaOne home pages with the
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(Linking and Promotion Agreement)
exception of the addition of the prominently placed PI Graphix logo.
The information accessed through the Co-branded Pages will include but
not be limited to: the PI Graphix 3Dshopping.com areas and related
information and sites. The Co-branded Pages shall provide a Site link
back to the PI Graphix site of origin. A "Back Button" shall be used
to accomplish the Site links back. Such Back Buttons shall be
comprised of a graphic provided by PI Graphix and shall be displayed
in the size specified by PI Graphix;
(ii) Establish and maintain prominent Site links from its MediaOne
Sites to PI Graphix Site including but not limited to: the PI Graphix
area in the format of the PI Graphix Button and as mutually agreed to
by the Parties;
(iii) Work with PI Graphix, on an ongoing basis, to identify areas
within the MediaOne Site where it would be appropriate to provide Site
links to the PI Graphix Sites based on users seeking information of a
type included in the PI Graphix's Sites; and,
(iv) Use reasonable commercial efforts to provide PI Graphix monthly
usage and demographic data available regarding use of the PI Graphix
Sites in relevant categories.
2.2. Licenses. Each Party grants to the other Party during the term of this
Agreement a non-exclusive, royalty-free, world-wide right and license to use its
trade names, trademarks, service names and service marks ("Marks") in compliance
with any guidelines which may be provided from time to time. Such use shall be
solely in connection with the MediaOne Site and PI Graphix Sites, including, but
not limited to, use for promotion and demonstration purposes. Each Party agrees
to maintain a standard of quality for any services offered under the other
Party's Marks commensurate with standards previously achieved and maintained by
the other Party or as may be set by the other Party from time to time. Each
Party has the right to inspect the services offered by the other Party under the
inspecting Party's Marks and may terminate this trademark license grant
immediately at its sole discretion. The Parties agree to cooperate with the
other in facilitating the monitoring and control of the other's Marks. Nothing
in this Agreement shall be deemed to grant to the other Party any ownership
interest in the Marks.
2.3. Promotional Efforts.
(a) The Parties agree to work together in identifying and pursuing
promotional activities designed to enhance the value of their respective
Sites. These efforts may include the development of a joint co-marketing
program that will allow each Party to access the other's customers/clients,
participation in public relations activities, use of each other's Marks on
specific targeted creative advertising executions, press releases, agreed
upon advertising placement within each other's Sites, and other promotions
that benefit both Parties. MediaOne will be responsible for the placement
and promotion of banners, editorials, hyperlinks, etc., within MediaOne's
local commerce community. PI Graphix will provide MediaOne with the
graphics for Banners and hyperlinks and with raw data and research
material.
(b) Each Party will submit to the other Party, for its prior written
approval, which shall not be unreasonably withheld or delayed, any
marketing, advertising, press releases, and all other promotional materials
related to the MediaOne Sites or the PI Graphix Sites that reference the
other Party and/or its Marks (the "Materials"). Each Party shall solicit
and reasonably consider the views of the other Party in designing and
implementing such Materials. Once approved, the Materials (other than press
releases) may be used by a Party for the purpose of promoting the MediaOne
Sites or the PI Graphix Sites contained therein and reused for such purpose
until such approval is withdrawn with reasonable prior notice. In the event
such approval is withdrawn (which either Party may do at its sole
discretion), existing inventories of Material may be depleted.
Notwithstanding the foregoing, either Party may issue press releases and
other disclosures as required by law or as reasonably advised by legal
counsel without the consent of the other Party and, in such event, prompt
notice thereof shall be provided to the other Party.
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(Linking and Promotion Agreement)
2.4. General.
(a) Each Party shall be solely responsible for supplying and managing its
Site(s) at its own expense and neither Party shall have any obligations
whatsoever with respect to the Site(s) of the other. Each Party shall
manage, review, delete, edit, create, update and otherwise manage all
content and services available on or through its respective Site(s).
Neither Party has any obligation to the other Party to pre-screen content
posted by users of its Site(s).
(b) Neither Party shall be required to provide any personal information
regarding specific users, including, without limitation, their names and
addresses or any other information the provision of which could violate any
privacy or other rights of users or third-parties. Neither Party will be
required to include in any reports any information the provision of which
to the other would cause such Party to violate any law, rule or regulation
or any contractual or legal obligation of such Party to any other person.
(c) Each Party shall: (i) provide the other with specified graphic files
and Site link addresses and notify the other in advance of any changes in
its URL(s) and, (ii) if developed and maintained by a Party, provide a Site
link from such Party's appropriate business alliance index (or similar link
listing index) to the other Party's Site(s).
(d) Each Party shall promptly inform the other of (i) any information
related to its Site(s) that could reasonably lead to a claim, demand, or
liability of or against the other Party by any third-party; and (ii) any
changes in its Sites which would substantially change the content in any
area to which the other Party has linked.
(e) Each Party retains the right, in its sole discretion, to immediately
cease linking to the other Party's Site(s) if in such Party's opinion, the
other Party's Site(s) infringes on or violates any applicable law or
regulation; any proprietary right of any third-party; or is defamatory,
obscene, offensive or controversial. Notwithstanding any exercise of, or
failure to exercise, such right, each Party shall have the sole and
exclusive responsibility for its respective Site(s).
(f) Neither Party will place advertising on the Co-branded Pages for
entities which are direct competitors of the other (such as other
high-speed Internet service providers, cable service providers or providers
of locally focused online entertainment, education and information services
which are not owned or controlled by the Party) or advertising for weapons,
tobacco products, distilled spirits, or services related to sexual themes
or content.
(g) PI Graphix shall retain all right, title, and interest in and to the PI
Graphix Sites. MediaOne shall retain all right, title, and interest in and
to the MediaOne Site. Unless otherwise agreed to in writing, if content is
jointly created by the Parties, the intellectual property rights to such
content shall be jointly owned by the Parties. Neither Party shall license
to any third-party such jointly owned content without the other's written
approval.
2.5. Caching. PI Graphix hereby grants to MediaOne during the term of this
Agreement a nonexclusive, royalty-free, worldwide license to reproduce,
distribute, perform and display, in whole or in part, the content on the PI
Graphix site on, from, and in connection with, any MediaOne Sites and for
promotion and demonstration purposes.
3. FEES/PAYMENT.
3.1. The Parties agree to make payments as set forth in the Fee/Payments
Schedule attached hereto.
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<PAGE>
(Linking and Promotion Agreement)
3.2. Other than for payments of fixed amounts, payment of all amounts due under
this Agreement shall be made by the responsible Party within thirty (30) days of
the end of each quarter representing payments for the preceding calendar quarter
when such payments accumulate to or exceed one hundred dollars ($100.00) or
within thirty (30) days of from the expiration or termination of the Agreement.
Reports containing sufficient information for the calculation of such amounts
will be provided to the Party receiving payment. In the event there is a dispute
regarding the amount due, upon reasonable request, a Party will provide copies
of all records or other documentation relevant to the calculation of such
amounts. The Parties agree to maintain records supporting fees payable by either
Party for a period of three (3) years following the date that the payment was
made. The relevant portion of such records and accounts shall be available for
inspection and audit by an auditing Party or its representative (but not more
than once in any twelve (12) month period) during regular business hours and
upon reasonable advance written notice.
3.3. Each Party agrees to pay directly taxes it incurs under the law.
4. TERM/TERMINATION.
4.1. The initial term of this Agreement shall begin on the Effective Date and
shall continue for a period of one (1) year from the date the Co-branded pages
and the Back Button are operational ("Initial Term"). This Agreement shall be
automatically extended for successive one (1) year periods (each a "Renewal
Term") unless the Agreement has been terminated in accordance with this Section
4.
4.2. Either Party may terminate this Agreement at any time in the event of a
material breach by any of the other Parties which remains uncured after fifteen
(15) days' written notice thereof. Either Party may terminate this Agreement for
any reason, in whole or in part, without liability to the other Party upon
thirty (30) days written notice to the other Party, which such termination shall
not be effective until the commencement of the next Renewal Term hereof, unless
otherwise agreed to by the Parties.
4.3. Notwithstanding anything to the contrary herein, upon written notice,
either Party may immediately terminate this Agreement, in whole or in part,
without liability to the other Party if such Party cancels their Site(s) or any
component thereof necessary to offer the Site links as contemplated hereby.
5. CONFIDENTIALITY.
5.1. Each Party acknowledges and agrees that any and all information relating to
the other Party's business and not publicly known, including without limitation,
the contents of this Agreement, technical processes and formulas, source codes,
names, addresses and information about users and advertisers, product designs,
sales, costs and other unpublished financial information, product plans, and
marketing data is confidential and proprietary information. Each Party agrees
that it shall take reasonable steps, at least substantially equivalent to the
steps as it takes to protect its own proprietary information, during the term of
this Agreement, and for a period of one (1) year following expiration or
termination of this Agreement, to prevent the duplication or disclosure of any
such confidential or proprietary information, other than by or to its employees
or agents who must have access to such information to perform such Party's
obligations hereunder, who shall each treat such information as provided herein,
and as may be required by either of the Parties for public or private financing.
To the extent that such information is publicly known, already known by, or in
the possession of the non-disclosing Party; is independently developed by the
non-disclosing Party; is thereafter rightly obtained by the non-disclosing Party
from a source other than the disclosing Party; or is required to be disclosed by
law, regulation, or court order; then there shall be no restriction of the use
of such information.
5.2. Upon the termination or expiration of this Agreement, (i) each Party shall
promptly return or certify as to the destruction of all confidential and
proprietary information and other information, documents, manuals, equipment and
other materials belonging to the other Party; (ii) each Party shall immediately
cease using all materials of the other Party in any form, and (iii) all licenses
granted herein shall terminate. In the event of a
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<PAGE>
(Linking and Promotion Agreement)
partial termination, all terms and conditions of this Agreement shall remain in
full force and effect with respect to rights and obligations not affected by the
partial termination.
6. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION.
6.1. Representations and Warranties. Each Party represents and warrants to the
other that (i) its Site(s) are or will be functional Internet site(s) accessible
to subscribers and users of the Internet; (ii) the Sites do not and will not
contain any content, materials, advertising or services that infringe on or
violate any applicable law or regulation, any proprietary right of any
third-party (including copyright, trademark, patent, and trade secret), or which
is defamatory, obscene or offensive; (iii) it has the right and authority to
enter into and perform all obligations under this Agreement; and (iv) it shall
comply with all applicable laws, statutes, ordinances, rules and regulations
with respect to its Site(s). In the event of an error, delay, defect, breakdown
or failure of its Site, the Party's obligation shall be limited to the use of
reasonable diligence under the circumstances to restore its Site(s) to
operation.
6.2. Indemnity. Each Party will defend, indemnify, save and hold harmless the
other Party's Affiliates, and their officers, directors, agents, and employees
from any and all third-party claims, demands, liabilities, costs or expenses,
including reasonable attorney's fees ("Liabilities"), resulting from the
indemnifying Party's breach of any material duty, representation, or warranty
contained in this Agreement, except there shall be no obligation to indemnify,
defend, save and hold harmless where Liabilities result from the gross
negligence or knowing and willful misconduct of the other Party. Each Party
agrees to (i) promptly notify the other Party in writing of an indemnifiable
claim and (ii) give the other Party the opportunity to defend or negotiate a
settlement of any such claim at such other Party's expense and cooperate fully
with the other Party, at that other Party's expense, in defending or settling
such claim. Each Party reserves the right, at its own expense, to participate in
the defense of any matter otherwise subject to indemnification by the other
Party.
7. LIMITATION OF LIABILITY AND DISCLAIMER.
7.1. Liability. EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS SPECIFICALLY SET
FORTH IN THIS AGREEMENT OR DAMAGES FOR PERSONAL INJURY OR PROPERTY DAMAGE,
NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR (1) DIRECT DAMAGES IN
EXCESS OF FIVE THOUSAND DOLLARS ($5,000.00); OR (2) ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL, OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) ARISING FROM THIS AGREEMENT, SUCH
AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS,
EXCEPT THAT EITHER PARTY SHALL BE ENTITLED TO RECEIVE CONSEQUENTIAL DAMAGES FOR
A BREACH OF SECTION 5 (CONFIDENTIALITY) OR BREACH OF ANY LICENSES GRANTED UNDER
THIS AGREEMENT IN AN AMOUNT NOT TO EXCEED FIVE THOUSAND DOLLARS ($5,000.00).
7.2. No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY MATTER SUBJECT
TO THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE.
8. GENERAL PROVISIONS.
8.1. Amendment. No change, amendment or modification of any provisions of this
Agreement shall be valid unless set forth in a written instrument signed by all
Parties. This Agreement sets forth the entire agreement and supersedes any and
all prior agreements, written or oral, of the Parties with respect to the
transactions set forth herein.
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(Linking and Promotion Agreement)
8.2. Assignment. Neither this Agreement, nor any rights hereunder in whole or in
part, shall be assignable or otherwise transferable by either Party without the
express written consent of the other; provided that MediaOne may assign this
Agreement: (i) to any successor in interest to all or substantially all of its
Service, (ii) to any parent, subsidiary, or Affiliate of MediaOne, and/or (iii)
to any joint venture with Time Warner for the provision of broadband information
services, if such assignee agrees in writing to be bound by the terms and
conditions of this Agreement. For purposes of this Agreement, the term
"Affiliate" means any entity wholly owned by MediaOne or which, directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, MediaOne. For purposes of this paragraph,
"control" means (i) in the case of corporate entities, direct or indirect
ownership of more than twenty (20%) of the stock or shares entitled to vote for
the election of the board of directors or other governing body of the entity; or
(ii) in the case of non-corporate entities, direct or indirect ownership of more
than twenty (20%) of the equity interest.
8.3. Compliance with Laws. This Agreement and the Parties' actions under this
Agreement shall comply with all applicable federal, state, and local laws,
rules, regulations, court orders, and governmental or regulatory agency orders.
8.4. Construction. In the event that any provision of this Agreement conflicts
with the law under which this Agreement is to be construed, or if any such
provision is held invalid by a court with jurisdiction over the Parties to this
Agreement, such provision shall be deemed to be restated to reflect as nearly as
possible the original intentions of the Parties in accordance with applicable
law, and the remainder of this Agreement shall remain in full force and effect.
8.5. Dispute Resolution. Any claim, controversy, or dispute between the Parties,
their Affiliates, their approved assignees, agents, employees, officers, or
directors ("Dispute") shall be resolved by arbitration conducted by a single
arbitrator engaged in the practice of law and familiar with the subject matter
of the Dispute, under the then current rules of the American Arbitration
Association ("AAA"). The Federal Arbitration Act, 9 U.S.C. ss.ss.. 1-16, not
state law, shall govern the arbitrability of all Disputes. The arbitrator shall
have authority to award injunctive relief and/or compensatory damages only, as
allowed herein. The arbitrator's award shall be final and binding and may be
entered in any court having jurisdiction thereof. The prevailing Party, as
determined by the arbitrator, shall be entitled to an award of reasonable
attorneys' fees and costs. The arbitration shall occur in the City and State of
the Party against whom the arbitration is brought, and the laws of such state
shall govern the construction and interpretation of the Agreement. It is
expressly agreed that the arbitrator shall be authorized to issue injunctive
relief pending a final arbitration decision and either Party may seek relief in
an appropriate court of law to enforce such determination by an arbitrator.
Either Party may seek a temporary restraining order from an appropriate court of
law for a period of time needed for the designation of an arbitrator and the
arbitrator's assuming responsibility for the Dispute including whether to issue
injunctive relief pending a final arbitration decision.
8.6. Independent Contractors. The Parties to this Agreement are independent
contractors. No Party is an agent, representative, or partner of the other
Party. No party shall have any right, power or authority to enter into any
agreement for, or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other Party. This Agreement shall not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
8.7. No Waiver. The failure of either Party to insist upon or enforce strict
performance by the other Party, of any provision of this Agreement, or to
exercise any right under this Agreement, shall not be construed as a waiver or
relinquishment of such Party's right to enforce any such provision or right in
any other instance.
8.8. Notice. Any notice, approval, request, authorization, direction or other
communication under this Agreement shall be given in writing and shall be deemed
to have been delivered and given for all purposes (i) on the delivery date if
delivered by electronic mail; (ii) on the delivery date if delivered personally
to the Party to whom the same is directed; (iii) one (1) business day after
deposit with a commercial overnight carrier with written
6
<PAGE>
(Linking and Promotion Agreement)
verification of receipt; or (iv) five (5) business days after the mailing date
whether or not actually received, if sent by U. S. mail, return receipt
requested, postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available to the Contact at the address of the
Party to whom the same is directed.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
MediaOne PI Graphix
Signatory: PHIL WEINSTOCK Signatory: LAWRENCE WEISDORN
----------------------- -----------------------
Title: Director Programming Title: President
--------------------------- ---------------------------
Date: 4/25/98 Date: April 22, 1998
------------------- -------------------
7
<PAGE>
(Linking and Promotion Agreement)
FEE/PAYMENT SCHEDULE
--------------------
[* * *](1)
- --------------
(1) Omitted pursuant to a request for confidential treatment.
<PAGE>
[Logo]
Pi Graphix, Inc.
WEBSITE DESIGN, BUILD AND MAINTAIN AGREEMENT
Schedule of Design, Format and Specification
This Agreement, including, without limitation, the attached Terms and
Conditions (collectively, Agreement) is made and entered into by and between
Pi Graphix, Inc., ("Pi Graphix"), with an address at 517 Boccaccio Ave.,
Venice, California, 90291 and the client identified below ("Merchant").
Client: Leavans Awards Co., Inc. Address: 41 Summer Street /P.O. Box 1210
------------------------------ -------------------------------
City: Attleboro State: MA Zip: 02703
--------------------------------- --------------- -----------
Contact: Jim Fleet/Dan McLaughlin Phone: 508-222-2930 Fax: 508-222-2883
----------------------------- -------------- -------------
Pi Graphix to provide the following:
1. Pi Graphix will create digital content to serve as Merchant's
library and display gallery, for the Ambassador Recognition
program.
2. Content from the library will be deployed to display 12 levels of
the Merchant's Ambassador program at www.leavensawards.com
3. Content for the Library will consist of
- 360 degree rotation of products. Each rotation consists of 28 to 32
digital images. Resolution and detail to be digitally enhanced to
provide optimum clarity. Blue screen technique allows for insertion
of custom background. Complete file includes driver for non plugin
viewing on Java based browser (Explorer or Netscape 3.0 or newer)
- Partial rotation of products. Each partial rotation consists of 10
to 32 digital images. Resolution and detail to be digitally
enhanced to provide optimum clarity. Blue screen technique allows
for insertion of custom background. Complete file includes driver
for non plugin viewing on Java based browser (Explorer or Netscape
3.0 or newer)
- Still product shots. Each product display consists of 1 digital
image. Resolution and detail to be digitally enhanced to provide
optimum clarity. Blue screen technique allows for insertion of
custom background.
- Audio clips. Pi Graphix offers non plug-in audio files (maximum length
- 30 seconds per file, $120 to $150 per file). Client provides the
recording; Pi converts and deploys the audio.
Corporate Office
517 Boccaccio Ave. - Venice - California 90291
310 301-6733 - fax 310 301-6730 - e-mail [email protected] - www.pigraphix.com
<PAGE>
4. Pi shall create the content and site in accordance with the design meeting
dated to be determined and attended by ______________________.
5. Pi Graphix shall implement parallel navigation for main, sub and asset
pages, if applicable.
6. Pi Graphix to provide Merchant with detailed pricing proposals for Internet
or Intranet access to Programs for Merchants clients. Merchant to provide
written work orders to Pi Graphix for all such sub-contracts.
7. Merchant to deliver and pick up all materials, subjects and products to be
displayed at the Site.
Merchant to provide:
1. Text for all merchandise with complete description suitable for catalog
copy. Include vendor part numbers, product weight, price, etc. Specify 1
contact person for all decisions and approvals.
2. Authorize a minimum of 5 sub-contracts with five different clients
(ambassador and/or custom) with in 6 months of completion of this
project.
Contract Price - Pi Graphix agrees to deliver the above listed products and
services for $34,000.00. $5,000.00 deposit on signing, balance upon receipt
of monthly invoice. If Merchant executes contract prior to Sept. 23, 1998 Pi
Graphix will deduct 10% from the contract amount. Merchant to provide written
work orders to Pi Graphix for all sub-contract work. Pi Graphix shall invoice
Merchant monthly
CLIENT HAS READ AND AGREES TO ALL OF THE ATTACHED TERMS AND CONDITIONS. THIS
AGREEMENT SHALL BE EFFECTIVE WHEN EXECUTED BY AUTHORIZED REPRESENTATIVES OF
MERCHANT AND PI GRAPHIX
PI GRAPHIX INC. MERCHANT
By: LAWRENCE WEISDORN By: JAMES E. FLEET
---------------------------------- -------------------------------
(Signature) (Signature)
Lawrence Weisdorn James E. Fleet
---------------------------------- -------------------------------
(Name) (Name)
Sept. 22/98 September 24, 1998
---------------------------------- -------------------------------
(Date) (Date)
Corporate Office
517 Boccaccio Ave. - Venice - California 90291
310 301-6733 - fax 310 301-6730 - e-mail [email protected] - www.pigraphix.com
<PAGE>
WEBSITE DESIGN, BUILD AND MAINTAIN AGREEMENT
THIS AGREEMENT, together with the schedule of design, format and
specifications (the "Schedule of design"), (collectively "Agreement") is
entered into this 1st day of October, 1998, between PI GRAPHIX, INC., ("Pi
Graphix") and Leavens Awards Co., Inc. ("Merchant").
WHEREAS, Pi Graphix has developed a format for web sites on the World
Wide Web ("WWW") portion of the Internet to serve as an Online
Store/Electronic Catalogue for retailers and wholesalers of products (the
"Site"). Pi Graphix wishes to provide Merchant with access to its own Site
for the purpose of displaying its products and other related services on the
Internet and/or Intranets.
Pi Graphix is the owner and developer of certain software and
interactive technology, which when utilized and displayed on the Site, will
permit users to shop and select Merchant's products;
Merchant is in the business of displaying, selling products and/or
services and desires Pi Graphix to build a site for the Merchant.
THEREFORE, in consideration of the mutual covenants set forth herein, Pi
Graphix, and Merchant hereby agree as follows:
TERM - This Agreement shall have an effective date commencing on the date of
signature hereof. During the term and upon the payment of the costs and fees
in accordance with the Schedule of design, Merchant shall have an exclusive,
non-transferable license to advertise, market and administrate recognition
programs and products in utilizing the services offered by Pi Graphix subject
to the provisions hereunder. The initial term of this Agreement shall run
through and including thirty-six (36) months from the date of the initial
Participation Agreement (the "Initial Term"). Thereafter, this Agreement and
the Services provided hereunder shall be automatically renewed for a period
of twelve (12) months (individually, a Renewal Period) without further notice
unless the Agreement is terminated as set forth herein. In the event the
Merchant enters into a subsequent agreement with Pi Graphix to renovate
and/or restock the Merchant Listing, this agreement is deemed to be willingly
terminated by both parties on the date such subsequent agreement comes into
effect.
NO FULFILLMENT OBLIGATIONS - Except as otherwise provided for and agreed to
herein, Pi Graphix shall have no responsibility or obligation with respect to
the fulfillment of goods or services ordered from the Site, and all
fulfillment-related tasks shall be performed by Merchant.
MERCHANT LISTING DESIGN - Merchant must define all merchandise with complete
descriptions suitable for catalogue copy. Merchant shall include vendor part
numbers, product weight, price, etc. A sample of each product shall be
supplied to Pi Graphix prior to start of merchant sample Listing. Pi Graphix
will transmit to Merchant for Merchant's approval a sample Merchant Listing
("Sample Listing"). Upon Merchant's written approval of the Sample Listing,
Pi Graphix shall complete the corresponding Merchant Listing and database and
prepare for installation of same on the Site. Time is of the essence with
regard to the foregoing. To meet production deadlines, Pi Graphix shall
accommodate only 1 set of minor merchant generated revisions. Merchant agrees
to pay to Pi Graphix for storefront creation and product animation charge as
per the contract price.
OPERATION OF BUSINESS - At all times on and after the commencement date of
this Agreement together with the opening of Merchant's premises on the Site,
Merchant shall conduct its business with a business-like standard and in
reputable manner, with an adequate staff and full stock of merchandise.
LIMITED WARRANTY - Pi Graphix warrants that its services will be rendered in
a competent, professional manner. Pi Graphix does not warrant and
specifically disclaims any representation that the Site, the Services, or the
Merchant Listing will meet Merchant's specific requirements or that
Merchant's use will be continuously uninterrupted or error-free. Pi Graphix
shall not be responsible in any way for the contents of any Merchant Listing.
Merchant is entirely responsible for such contents and any and all
obligations with respect to Merchant's customers or potential customers.
Merchant agrees that it shall include any and all proprietary notices of
third parties in materials supplied to Pi Graphix for a Merchant Listing.
Except as expressly set forth in this paragraph, Pi Graphix disclaims all
other express and implied warranties, including, but not limited to, implied
warranties of merchantability and fitness for a particular purpose. Pi
Graphix's limited warranty set forth herein is in lieu of any and all
liabilities or obligations of Pi Graphix for damages arising out of, or in
connection with, the Site, the Services and the Merchant Listing.
Corporate Office
517 Boccaccio Ave. - Venice - California 90291
310 301-6733 - fax 310 301-6730 - e-mail [email protected] - www.pigraphix.com
<PAGE>
LIMITATION OF LIABILITY - Pi Graphix will not be responsible to Merchant or
any third parties, under any circumstances for indirect, incidental,
consequential, special, punitive or exemplary damage or losses which Merchant
may incur in connection with the Services or Merchant Listing or otherwise,
regardless of the type of claim or the nature of the cause of action, even if
Pi Graphix has been advised or is aware of the possibility of such damage or
loss. In no event shall Pi Graphix's liability for direct damages by
Merchant, for any reason, and upon any cause of action, arising from or
relating to this Agreement, or the subject matter hereof exceed the license
fees paid to Pi Graphix by Merchant hereunder.
CONFIDENTIALITY - Pi Graphix covenants and agrees that it will not disclose
the identities or addresses of persons who register with the Site to any
third party. Including, without limitation, any other merchant, except as
reasonably necessary to fulfill the terms of this Agreement, or use
information regarding or supplied by Merchant, for Pi Graphix's own purposes.
Provided, Pi Graphix reserves the right to disclose general information,
regarding number of sites and the demographics of users accessing the Site or
some portion thereof.
PROPRIETARY RIGHTS; INDEMNIFICATION - Merchant agrees and acknowledges that
Pi Graphix and its suppliers own all rights, title and interest in and to the
Site, subject only to Merchant's rights in and to the information and content
supplied by Merchant hereunder. Merchant agrees to defend, and indemnify and
hold harmless Pi Graphix and its owners, proprietors, officers, shareholders,
directors, employees, affiliates and subsidiaries from and against any and
all claims, proceedings, damages, injuries, liability, losses, costs and
expenses (including, without limitation, reasonable attorneys' fees) arising
out of or relating to any acts by Merchant, undertaken in connection with the
Site. Including, without limitation, those arising out of or related to a
breach of any Merchant warranty, any Merchant Listing, or information or
content which Merchant supplies to Pi Graphix hereunder.
PROPRIETARY RIGHTS; NO GRANT OF RIGHTS - Nothing in this Agreement shall be
construed to convey to Merchant any interest whatsoever in the Site
including, without limitation, any HTML, QuicktimeVR or JAVA, etc. programs
developed hereunder.
PROPRIETARY RIGHTS; GENERAL - Merchant represents and warrants to Pi Graphix
that Merchant owns or otherwise has the right to convey to Pi Graphix all
information and content provided to Pi Graphix and that such information and
content does not infringe on the rights of any third party. Merchant
represents and warrants that it has obtained, and currently holds, any and
all grants of rights from third parties which may be required to display
text, graphics or other materials in a Merchant Listing as specified by
Merchant. Merchant represents and warrants that it has set forth or described
in the Participation Agreement, any and all requirements of Merchant's
suppliers, if any, with respect to content and form of materials to be used
in any Merchant Listing including, without limitation, any requirements with
respect to intellectual property rights and/or notices. Pi Graphix reserves
the right not to exhibit on the Site any image or Merchant has provided text
for which Pi Graphix, in its sole discretion determines is inappropriate or
lacks adequate information.
TERMINATION - Notwithstanding anything to the contrary herein, Pi Graphix, or
the merchant may terminate this Agreement only when a breach of the contract
has been committed by the terminated party. In this event the termination
shall become effective immediately. In the event Pi Graphix breaches the
terms of the contract leading to termination prior to the expiration of the
contract term, then all information relating to merchant's clients, client
programs and product/services are to remain in strict confidence. There is to
be no direct, or indirect, communication with the merchant's clients for a
period of twelve (12) months after the termination effective date.
MISCELLANEOUS
NOTICES - Any notice or other communication required or desired to be served,
given or delivered hereunder shall be in writing and shall be deemed to have
been duly served given or delivered, upon personal delivery upon deposit
(within the Continental United States) in the United States Mail, with proper
postage or other prepaid and addressed to the party to be notified as per the
attached Participation Agreement or such other address or addresses of which
either party may notify the other party in writing in the manner prescribed
herein.
SUCCESSORS AND ASSIGNS - Subject to the foregoing restrictions, this
Agreement shall inure to the benefit of this Pi Graphix and is not assignable
by Merchant and shall bind the heirs, executors, personal representatives,
successors and assigns of the respective parties hereto.
SEVERABILITY - The Provisions of this Agreement are intended to be severable.
If any term or provision of this Agreement is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement.
GOVERNING LAW - This Agreement shall be governed by the laws of the State of
California and any questions arising hereunder shall be construed or
determined according to such law. Headings at the beginning of each numbered
paragraph of the Agreement are solely for the convenience of the parties and
are not a part of this Agreement.
Corporate Office
517 Boccaccio Ave. - Venice - California 90291
310 301-6733 - fax 310 301-6730 - e-mail [email protected] - www.pigraphix.com
<PAGE>
ATTORNEY'S FEES - If any party should bring legal action to construe or
enforce any of the terms or conditions of this agreement, the prevailing
party in that action shall be entitled to recover reasonable attorneys' fees
from the non-prevailing party, together with all costs, expenses and
reasonable attorneys' fees incurred in enforcing any judgment entered therein
or in an appeal therefrom.
SEPARATE COUNSEL - Each party hereto acknowledges that he has been offered
the opportunity to have this Agreement reviewed by such parties independent
counsel and, by such party's signature to this agreement, covenants and
warrants that each has either: (a) Had separate and independent counsel
review this Agreement, and such party so fully understands and is satisfied
with the Agreement; or (b) Has knowingly waived its right to have separate
and independent representation and counsel and such party fully understands
and agrees to be bound by the Agreement.
ENTIRE AGREEMENT - This Agreement contains the entire agreement of the
parties with respect to the matters covered herein, and no other agreement,
statement, or promise made by any party which is not contained herein shall
be binding or valid. This Agreement may be modified or amended only by
written instrument duly executed by all parties hereto.
COUNTERPARTS - This Agreement may be executed in several counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute a single instrument.
Pi Graphix Merchant
LEW Sept. 22/98 JF 9/24/98
- ---------------------------------- ---------------------------------
(Initial & date) (Initial & date)
Corporate Office
517 Boccaccio Ave. - Venice - California 90291
310 301-6733 - fax 310 301-6730 - e-mail [email protected] - www.pigraphix.com
<PAGE>
Contract for Internet Consulting Services
This contract sets forth the basic terms and conditions of the agreement
between PiGraphix, located at 517 Boccaccio Avenue, Venice, California
90291, hereafter known as Client, and Fish Interactive, hereafter known
as Fish, located at 4676 Admiralty Way, Suite 410, Marina Del Rey, CA
90292 with regard to Internet Consulting Services as specified in the
sections below.
1. Engagement: Client hereby engages Fish to perform all of the
services set forth in Exhibit A attached to this document, and
incorporated herein by this reference. Fish agrees to perform these
services as specified in Exhibit A.
2. Consideration: Client hereby agrees to pay Fish for these services
according to the schedule of payments set forth in Exhibit A.
3. Confidentiality: Fish will not disclose any of Client's trade
secrets, business practices, know how or private company
information except as authorized by Client to accomplish its tasks
as set forth in Exhibit A, except when: a) this information is
publicly available through causes other than Fish's disclosure of
said private information or b) Fish had prior knowledge of said
information. Fish will perform the services set forth in Exhibit A
in good faith, and its liability will be limited to the total
amount due in Exhibit A.
4. Software Use & Terms: The deliverable belongs exclusively to Client
for internal use. In the event that client wishes to resell or
license the deliverable a royalty fee of 5% of Gross Sales,
prorated by the value of commerce back and delivered by Fish as a
part of the entre system, shall be due Fish.
5. The tools or "objects" used to create the deliverable belong to
Fish, and are considered Fish's property.
6. Entire Agreement: This agreement constitutes the entire agreement
between Client and Fish with respect to the Internet Services
project, and cannot be modified without the express written consent
of both parties. Neither Client nor Fish has made any
representation, promise or warranty, explicit or implied, not set
forth in this contract.
7. Governing Law: This agreement shall be governed and interpreted in
accordance with the laws of the State of California applicable to
such contracts entirely made and to be performed in said
jurisdiction, and is subject to all applicable provisions of
federal, state and local laws and governmental restrictions.
8. Arbitration: In the event of a dispute regarding this contract the
parties shall submit the dispute to arbitration according the
statutes of the California Board of Arbitration prior to
institution of any legal procedures.
9. Miscellaneous: This agreement shall be governed and interpreted in
accordance with the laws of the State of California. If for any
reason any provision of this contract is judged by a court to be
unenforceable, such adjudication shall in no way effect any other
provision of this agreement or the validity or enforcement of the
remainder of the contract. The effected provision shall be modified
or curtailed only to the extent necessary to bring it into
compliance with compatible law. This agreement constitutes the
entire understanding between Client and Fish and supersedes any
previous agreement, whether written or oral.
Date: 2/10/99
Signed:
PiGraphix: By: ROBERT J. GRANT Fish: MICHAEL BOEHM
----------------------- -----------------
Its CFO
<PAGE>
Exhibit A--Proposal for Internet Development
For: Don Westland, Bob Grant, PiGraphix
From: Albert Soong, Fish Interactive
Date: 2/9/99
Goal:
Make back end system of PiGraphix commerce site more stable,
responsive to needs, easier to maintain and flexible by converting
over to the ReelCommerce standard database and templates.
Add Credit and Transaction HTML to CyberCash interface. Allow
integrated database tracking of transactions by linking SQL database
with results from CyberCash transactions (allows reconciliation).
Add miscellaneous functionality to enhance current systems feature
list.
Timetable:
Time Activities
Week 1 Sign off: install CF 4.0 & SQL 7.0
Week 2 Design database conversion & start modifying admin templates
Week 3 Display templates & debug admin
Week 4 Bring forward Java and other applets - connect nav structure
Week 5 Begin CyberCash interface & additional enhancements
Week 6 Integrate CyberCash & enhancements
Week 7 Testing, tuning, debug
Week 8 Go live
Conversion of system to Reelcommerce Tools:
Database
Conversion and upgrade to SQL 7. Easier admin, tuning, backup
and better performance.
Admin
Link to new database structure. CF 4.0 Implementation, use of
optimized templates, new PW admin, allows option of
publishing static pages for performance and duplicate sites.
Display
Link to new database structure. CF 4.0 Implementation allows
session tracking, use of optimized templates.
Function
Link to new database structure. New features include new UPS
table (US - upgrade to international easier), confirmation
email on order acceptance, and shipping (with UPS tracking
#), and notes field on orders for special handing.
Note: We are counting on PiGraphix to reconnect the navigation urls
to point to the new structure, but this should not be complicated.
<PAGE>
Conversion of CyberCash transaction system to CF/HTML interface:
Database
Create detailed transaction logs populated by CyberCash (or
alternative gateway) transaction results.
Admin
Allow credits to accounts; partial credits--with password
protection can transfer the bulk of CyberCash admin to savvy
merchants.
Display
Review of declines, reconciliation reports, activity reports
by transaction.
Additional Functionality:
Faxing Orders
Debug or revamp faxing application developed earlier. Fax
application sends faxes to PiGraphix and/or vendors when
orders come in similar to the way the email notification
works. Involves solidifying the email to fax gateway, setting
up fax modem remote from SoftAware, testing and debugging.
International Shipping
Create support for international shipping calculation via
UPS. Module will check for data via the UPS extranet, which
was designed for such use. Use of this extranet support all
methods of UPS shipping and all ship from and ship to
combinations, which is nearly impossible to replicate in a
database. Shipping via other carriers (FedEx, USPS) must be
implemented on a case by case basis as there is no uniform
standard for retrieving the data.
Remote Static Publishing
Complete static publishing module to allow product pages to
be published into static HTML pages which do not need
ColdFusion processing before they are shown to the user. All
pages may scheduled to be published at once, or a "publish"
button on the admin published specific product pages.
Directory structure must be set up to support static pages
and a min-app must be developed to synchronize published
pages with local or remote areas for Web access.
Estimated Price and Terms:
Ecommerce system conversion: $ 7,760
CyberCash transaction system: $ 3,740
Faxing orders: $ 1,360
International shipping: $ 1,020
Remote static publishing: $ 1,360
Total (time and materials): $15,240
Intellectual property purchase: $ 2,500
Total estimated cost: $17,740
On Sign Off:
40% of time and materials, 50% of intellectual property - $7,346
Bi Weekly (through end of week 6);
Up to date on time and materials
<PAGE>
On Completion:
50% of intellectual property ($1,250), up to date on time and
materials
<PAGE>
Shandwick
1888 Century Park East, Suite 920
Los Angeles, California 90067
Telephone: 310-785-9002 Facsimile: 310-785-9003
LETTER OF AGREEMENT
February 5, 1999
Lawrence Weisdorn
President
PiGraphix, Inc.
517 Boccaccio Avenue
Venice, California 90291
Dear Mr. Weisdorn:
This letter outlines the services Shandwick International, Inc., proposes to
render in connection with the engagement between PiGraphix, Inc. (the
"Client") and Shandwick International, Inc. (the "Agency"); summarizes the
fee arrangement for the services to be rendered; and upon review and
acceptance, constitutes the Letter of Agreement for the relationship between
the Client and Agency.
Appointment and Authorization of the Agency
The Agency is hereby retained as the Agency of record to represent the Client
in carrying out its media relations outreach program and is authorized to act
on behalf of the Client in this regard subject to the terms and conditions of
this Agreement.
Outline of Services
As the Client's public relations agency, the Agency will provide a
comprehensive range of communications services, including: counsel, planning
and strategy; market and editorial research; development of editorial
materials; ongoing and targeted press relations, and such special activities
as press tours, technical articles, press events and trade show support as
the Client and Agency determine is appropriate.
In addition to basic corporate and product public relations, the Agency will
provide assistance and counsel as needed for such activities as customer
support, employee communications and financial investor relations. Toward
that end, the Agency will develop a strategic plan and budget with the
Client, which will be the basis of the program projects that will be
implemented. In the absence of such a plan and budget, mutually agreed upon
projects will be executed at the Agency's hourly rates.
Although there are no guarantees, since results are influenced by many
variables beyond the Agency's or Client's control, the Agency will use its
good faith efforts to achieve goals within the budget agreed upon. The Agency
shall have no liability hereunder except for its gross negligence or willful
misconduct.
<PAGE>
Letter of Agreement
Page 2
Fee Arrangement
The Agency will bill the Client in advance $15,000 for professional staff
time, which will be credited against the final Client fee invoice. At the end
of each month, Agency will invoice to Client actual hours incurred at a rate
of $135.00 per hour, excluding officers of the Agency, which will be billed
at the applicable rate. Billing rates are subject to change on sixty- (60)
day's notice or upon contract renewal.
Disbursements, including but not limited to travel, meals, news wire, news
retrieval, telephone, postage, deliveries, in-house copies, subscriptions,
production, program-related entertainment, and other miscellaneous expenses
will be billed each month at Agency's cost plus Agency's standard 17.65
percent service fee.
Production or special projects involving substantial outlay ($2,000 or more)
or which extend over a period of more than thirty (30) days will be billed in
advance, either in whole or in part, at the Agency's discretion and will be
due upon receipt. Other expenses may also be billed in advance at the option
of the Agency.
Payment is due within fifteen (15) days of the date of the invoice. Any
invoice unpaid after thirty (30) days will incur a 1-1/4% per month service
charge and may result in the suspension of services until payment is
received. If there is a dispute, the Agency must be notified within twenty
(20) days of the date of the invoice in writing. Objections not received
within this time period are waived.
Termination
This contract shall remain in effect and be binding upon the parties and
their assigns for a period of six months, commencing February 5, 1999.
Thereafter, the Agreement shall automatically be renewed for successive
six-month periods. Either party may terminate this Agreement at any time upon
sixty- (60) days' written notice. The rights and responsibilities of the
Agency and the Client shall continue in full force during the period of
notice. The Client is obligated to compensate the Agency for completion of
projects in process. The Client may, at its option, include in its notice a
request that the Agency undertake additional projects, which the Agency will
do under the above compensation terms. Upon such renewal, the hourly charges
may be increased by the Agency in accordance with the Agency's policies
applicable to clients generally.
<PAGE>
Letter of Agreement
Page 3
Furnished Materials
Agency shall use its good faith efforts to keep confidential information and
materials provided by the Client to the Agency on a confidential basis except
as otherwise required by law.
The Client agrees that any information or material provided to the Agency
shall be truthful and shall not be misleading or unlawful nor will it
wrongfully divulge or infringe upon the patent, trademark, copyright, trade
secret or other rights of third parties. The Client further agrees to
indemnify and hold harmless the Agency and/or its agents and employees for
and from any and all losses, damages, punitive damages, fines, penalties,
costs and expenses, including reasonable attorney fees incurred by the Agency
and/or its agents and employees which arise out of the furnishing by the
Client, or the Client's agents and/or employees, or any information or
material. The foregoing obligation shall survive any termination of this
Agreement.
In addition the Client will indemnify the Agency for all reasonable
attorney's fees and costs incurred in enforcing the terms and conditions of
this Letter of Agreement. The Client's duty to indemnify the Agency under
this contract will not terminate with the cancellation of this contract.
The Client will indemnify the Agency for all reasonable attorney fees and
costs incurred in producing documents or giving testimony in connection with
any litigation involving the Client and a third party.
No Solicitation
The Client agrees that during the term of this agreement and for a six- (6)
month period thereafter, it will not solicit or induce any employee of the
Agency to leave his or her employment with the Agency or hire any employee of
the Agency. Should the Client hire an employee of the Agency within such
time, the Client agrees to compensate Agency a sum equivalent to 25% of the
employee's current annual salary.
<PAGE>
Letter of Agreement
Page 4
Entire Agreement
This agreement contains the entire agreement of the parties. This Agreement
may not be modified except in writing signed by the parties hereto.
Upon acceptance of this Letter of Agreement, please sign both copies of this
letter and return them for counter-signature to John E. Lundy, Shandwick
International, Inc., 1888 Century Park East, Suite 920, Los Angeles, CA
90067. A fully-executed copy will be returned to you for your records.
We look forward to a mutually beneficial relationship.
Very truly yours,
Shandwick International, Inc.
By: JOHN E. LUNDY
------------------------------
John E. Lundy
Chief Financial Officer
We wish to engage Shandwick International, Inc. under the above terms:
Authorized and approved by
PiGraphix, Inc.
By: LAWRENCE WEISDORN
------------------------------
President
February 5, 1999
------------------------------
Date
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[Logo]
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, April
15, 1996, is made by and between Perloff/Webster ("Lessor") and Samuel Hamann
Graphix, Inc. ("Lessee"), (collectively the "Parties," or individually a
"Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 517 Boccaccio Ave., located in the City
of Venice, County of Los Angeles, State of California, with zip code 90291
("Premises"). The "Building" is that certain building containing the Premises
and generally described as (describe briefly the nature of the Building):
Approximately 1,650 square feet.
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "Industrial
Center." (Also see Paragraph 2.)
1.2(b) Parking: Four (4) unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and ____-____ reserved vehicle parking spaces ("Reserved
Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: One years and -0- months ("Original Term") commencing June 1,
1996 ("Commencement Date") and ending May 31, 1997 ("Expiration Date"). (Also
see Paragraph 3.)
1.4 Early Possession: N/A ("Early Possession Date"). (Also see Paragraphs
3.2 and 3.3.)
1.5 Base Rent: $1,900.00 per month ("Base Rent"), payable on the FIRST day
of each month commencing May 1, 1996. (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _________, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $5,700 as Base Rent for the period
First, Last, and 10th Month.
1.6(b) Lessee's Share of Common Area Operating Expenses: Twenty Seven
percent (27%) ("Lessee's Share") as determined by [X] prorata square footage of
the Premises as compared to the total square footage of the Building or [ ]
other criteria as described in Addendum _____.
1.7 Security Deposit: $1,900.00 ("Security Deposit"). (Also see Paragraph
5.)
1.8 Permitted Use: Office ("Permitted Use"). (Also see Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] N/A represents Lessor exclusively ("Lessor's Broker");
[ ] N/A represents Lessee exclusively ("Lessee's Broker");
[ ] N/A represents both Lessor and Lessee ("Dual Agency"); (Also see Paragraph
15.)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $N/A)
for brokerage services rendered by said Broker(s) in connection with this
transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 56, and Exhibits _______ through _______,
all of which constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and Lessee's Share
(as defined in Paragraph 1.6(b)) based thereon is not subject to revision
whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
noncompliance of the Premises with said warranties.
Initials: LEW
MULTI-TENANT - MODIFIED NET PW
<PAGE>
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other Leases of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereto in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however (including but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
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, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, 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. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to service
the Common Areas.
(iii) Trash disposal, property management and security services
and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be paid
by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The costs of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such
over-
MULTI-TENANT - MODIFIED NET Initials: PW
-2- LEW
<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys fees) which Lessor may suffer
or incur by reason thereof. If Lessor uses or applies all or any portion of said
Security Deposit, Lessee shall within ten (10) days after written request
therefore deposit monies with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Any time the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional monies with Lessor as an addition to the Security Deposit so
that the total amount of the Security Deposit shall at all times bear the same
proportion to the then current Base Rent as the initial Security Deposit bears
to the initial Base Rent set forth in Paragraph 1.5. Lessor shall not be
required to keep all or any part of the Security Deposit separate from its
general accounts. Lessor shall, at the expiration or earlier termination of the
term hereof and after Lessee has vacated the Premises, return to Lessee (or, at
Lessor's option, to the last assignee, if any, of Lessee's interest herein),
that portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security Deposit
shall be considered to be held in trust, to bear interest or other increment for
its use, or to be prepayment for any monies to be paid by Lessee under this
Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) or reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and other wise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain the contract for the heating, air conditioning and ventilating
systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand,
for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an 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, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke
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detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior or interior surfaces of exterior walls
nor shall Lessor be obligated to maintain, repair or replace windows, doors or
plate glass of the Premises. Lessee expressly waives the benefit 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 Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. 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 on the Premises, which claims are or may be secured by any mechanic's 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, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility 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 and protect itself,
Lessor and the Premises 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. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installation. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of premiums for the insurance policies
maintained by Lessor under this Paragraph 8 shall be a Common Area Operating
Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in
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this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7)
days after the earlier of the Early Possession Date or the Commencement Date,
certified copies of, or certificates evidencing the existence and amounts of,
the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be
cancelable or subject to 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 evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
be Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee's employees, contractors, invitees, customers, or any other person in or
about the Premises, 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, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said injury or damage results from conditions arising upon the Premises
or upon other portions of the Building of which the Premises are a part, from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is accessible or not. Lessor shall not
be liable for any damages arising from any act or neglect of any other lessee of
Lessor nor from the failure by Lessor to enforce the provisions of any other
lease in the Industrial Center. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period. Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Leases shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 Partial Damage - Uninsured Loss. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which the event Lessee shall make the repairs at Lessee's expense and this
Lease shall continue in full force and effect), 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 receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
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 commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within in the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, 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 and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation 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, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
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to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
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 commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8. Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real Property
Taxes" 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 upon the Industrial Center 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, levied against any legal or equitable
interest of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building 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 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone
else responsible for the performance of the Lessee's obligations under this
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject to the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering processing the request for consent. Lessee agrees to provide Lessor
with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
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(g) The occurrence of a transaction describe in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the term, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (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 thirty (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 thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, 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 attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
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(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
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 upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or 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 six percent (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 or Breach 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 Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
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 ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (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 Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. 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 diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers 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, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, 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 the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or 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. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within ten
(10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. 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 the owner or
owners at the time in question of the fee title to the Premises. In the vent of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
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. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written 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 the purpose of mailing or delivering notices to Lessee. 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 written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is show, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day
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delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
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. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by lessee.
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. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event or Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the vent of such foreclosure, such new owner shall not: (i) be liable
for any act or omission or any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiver assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement 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
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quite Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
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39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the following
meaning: (a) the right 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; (b)
the right of 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; (c) the
right 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 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 to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
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
Options to extend or renew this Lease have been validly 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 period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(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 thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
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 the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
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 a 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 either Party hereto 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 its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
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. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
MULTI-TENANT - MODIFIED NET Initials: PW
-10- LEW
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE 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 FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE
OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at 321 Hampton Dr. Executed at 321 Hampton Drive
---------------------- ----------------------
on 4/17/96 on 4/17/96
------------------------------- -------------------------------
by LESSOR: by LESSEE:
BERNARD PERLOFF Sam Hamann Graphix Inc.
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
By: By: LAWRENCE WEISDORN
------------------------------ ------------------------------
Name Printed: Name Printed: Lawrence Weisdorn
-------------------- --------------------
Title: Title: President
--------------------------- ---------------------------
By: By:
------------------------------ ------------------------------
Name Printed: Name Printed:
-------------------- --------------------
Title: Title:
--------------------------- ---------------------------
Address: Address:
------------------------- -------------------------
- ---------------------------------- ----------------------------------
Telephone: ( ) _________________ Telephone: ( ) _________________
Facsimile: ( ) _________________ Facsimile: ( ) _________________
BROKER: BROKER:
Executed at Executed at
---------------------- ----------------------
on on
------------------------------- -------------------------------
By: By:
------------------------------ ------------------------------
Name Printed: Name Printed:
-------------------- --------------------
Title: Title:
--------------------------- ---------------------------
Address: Address:
------------------------- -------------------------
- ---------------------------------- ----------------------------------
Telephone: ( ) _________________ Telephone: ( ) _________________
Facsimile: ( ) _________________ Facsimile: ( ) _________________
NOTICE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 South Figueroa Street, Suite M-1, Los Angeles,
California 90071 (213) 687-8777.
MULTI-TENANT - MODIFIED NET Initials: LEW
-11- PW
<PAGE>
ADDENDUM TO LEASE
Dated: April 16, 1996
By And Between: Perloff/Webster, Lessor
&
Samuel Harmann Graphix, Inc., Lessee
For The Premises
Located At: 517 Boccaccio Ave.
Venice, Ca. 90291
49. LESSEE IS AWARE OF ITEM 34 WHICH PROHIBITS LESSEE FROM PLACING ANY SIGN UPON
THE PREMISES WITHOUT LESSOR'S PRIOR WRITTEN CONSENT. LESSEE AGREES TO SUBMIT A
WRITTEN PROPOSAL, INCLUDING AN ILLUSTRATION OF THE SIGN LESSEE DESIRES TO PLACE
ON THE PREMISES. IF LESSEE PLACES A SIGN WITHOUT PRIOR WRITTEN APPROVAL, LESSEE
SHALL BE IN DEFAULT OF THIS LEASE. LESSOR WILL NOT UNREASONABLY WITHHOLD OR DENY
CONSENT.
50. LESSOR RETAINS THE RIGHT TO THE VISUAL IMAGE OF THE PREMISES, ITS INTERIOR
AND EXTERIOR, INCLUDING ITS REPRODUCTION IN FILM, TELEVISION, COMMERCIALS OR ANY
OTHER MEDIA. LESSEE AGREES NOT TO ENTER INTO ANY AGREEMENT INVOLVING THE RENTAL
OF THE PREMISES AS A LOCATION FOR THE COMMERCIAL FILMING OR VIDEO OR PHOTOGRAPHY
OF THE INTERIOR OR EXTERIOR OF THE PREMISES WITHOUT LESSOR'S PRIOR WRITTEN
APPROVAL. IF LESSEE IS CONTACTED, HE/SHE AGREES TO REFER ALL NEGOTIATIONS TO
LESSOR. IF LESSEE PERMITS FILMING ON THE PREMISES WITHOUT WRITTEN PERMISSION
FROM LESSOR, THEN 100% OF THE FEE FOR SUCH FILMING SHALL BE THE LESSOR'S.
VIOLATION OF THIS PROVISION SHALL BE CONSIDERED A MATERIAL BREACH OF THIS LEASE.
LESSEE SHALL HAVE THE RIGHT TO FILM ON THE PREMISES FOR PROMOTIONAL PURPOSES OF
ITS PRODUCTS AND/OR COMPANY OR FOR ANY COMMERCIALS ADVERTISING ITS PRODUCTS
AND/OR COMPANY.
51. LESSEE AGREES NOT TO DIVULGE ANY OF THE TERMS OR CONDITIONS OF THIS LEASE TO
ANY OTHER TENANTS IN THE BUILDING OR TO ANYONE ELSE OTHER THAN REQUIRED FOR HIS
OWN BUSINESS PURPOSES. VIOLATION OF THIS PROVISION SHALL BE CONSIDERED A
MATERIAL BREACH OF THIS LEASE.
52. LESSEE SHALL PAY $330.00 PER MONTH ALONG WITH THE RENT TO COVER LESSEE'S
SHARE OF OPERATING EXPENSES. THIS AMOUNT SHALL BE FIXED FOR THE FIRST YEAR OF
THIS LEASE.
53. LESSEE SHALL PAY $250.00 PER MONTH ALONG WITH THE RENT TO COVER LESSEE'S
SHARE OF UTILITY EXPENSES. AT THE END OF EACH YEAR A RECONCILIATION STATEMENT
SHALL BE PRESENTED TO LESSEE BY LESSOR With EITHER A CREDIT OR PAYMENT DUE.
54. LESSOR SHALL REMOVE THE LINOLEUM FLOOR COVERING AND CLEAN AND SEAL THE
CONCRETE FLOOR.
55. LESSEE SHALL HAVE THE OPTION TO RENEW THIS LEASE FOR A PERIOD OF ONE (1)
YEAR. LESSEE MUST GIVE TO LESSOR, AND LESSOR MUST ACTUALLY RECEIVE, WRITTEN
NOTICE OF THE EXERCISE OF THE OPTION TO EXTEND THIS LEASE FOR SAID ADDITIONAL
TERM OF AT LEAST ONE HUNDRED (100) DAYS PRIOR TO THE EXPIRATION OF THIS LEASE,
TIME BEING OF THE ESSENCE. THE BASE RENT FOR THE OPTION PERIOD BEGINNING MAY 1,
1997 SHALL BE $2,150 PER MONTH. HOWEVER, IF THE BUILDING IS SOLD, THE BUYER
SHALL HAVE THE RIGHT TO CANCEL THIS OPTION IN THE EVENT THAT HE OR SHE DESIRES
TO OCCUPY THE SPACE.
56. LESSEE SHALL PAY FIRST MONTH'S RENT, NNN AND UTILITY EXPENSES, LAST MONTH'S
RENT, NNN AND UTILITY EXPENSES, TENTH MONTH'S RENT, NNN AND UTILITY EXPENSES AND
SECURITY AS FOLLOWS: $3,000 UPON SIGNING THIS LEASE AGREEMENT, AND THE REMAINDER
OF $5,540 PRIOR TO MAY 1ST, 1996. IF LESSEE FAILS TO PAY THE MONEY DUE AS ABOVE,
THIS LEASE SHALL BE NULL AND VOID, AND ALL DEPOSITS PAID SHALL BE FORFEIT.
Initials LEW
-----
Initials PW
-----
<PAGE>
LEASE MODIFICATION
Date: January 8, 1997
By & Between: Perloff/Webster, Lessor,
and
Samuel Harmann Graphix, Inc., Lessee
For the Premises
Located at: 517 Boccaccio Ave.
Venice, CA 90291
For the Lease
Dated: April 15, 1996
- --------------------------------------------------------------------------------
1. Samuel Harmann Graphix, Inc. has become Pi Graphix, Inc., a California
Corporation. The above mentioned lease shall hereby be in the name of Pi
Graphix, Inc. All officers and directors shall remain the same.
2. All other terms and conditions shall remain in full force and effect.
- --------------------------------------------------------------------------------
Signed:
BERNARD PERLOFF 1/29/97
- -------------------------------------------------
Perloff/Webster Date
LAWRENCE WEISDORN 1/9/97
- -------------------------------------------------
Samuel Hamann Graphix, Inc. Date
LAWRENCE WEISDORN 1/9/97
- -------------------------------------------------
Pi Graphix, Inc. Date
<PAGE>
LEASE EXTENSION
Date: April 9, 1998
By & Between: Perloff/Webster, Lessor,
and
P.I. Graphix, Inc., Lessee.
For the Premises
Located at: 517 Boccaccio Ave.
Venice, CA 90291
For the Lease
Dated: April 15, 1996
- --------------------------------------------------------------------------------
1. This lease shall be extended for One (1) year commencing June 1, 1998 and
ending May 31, 1999.
2. The Base rent for the extension year shall be $2,135.00 per month.
3. All other terms and conditions shall remain in full force and effect.
- --------------------------------------------------------------------------------
Signed:
BERNARD PERLOFF 4/14/98
- -------------------------------------------------
Perloff/Webster Date
LAWRENCE WEISDORN 4/13/98
- -------------------------------------------------
Pi Graphix, Inc. Date
<PAGE>
Commercial Sub-Lease Agreement
The current Sub Lessor (Westland Network) and (PI Graphix) as Sub Lessee
agree as follows:
1) Property: Sub Lessor hereby agrees to sublease to Pi Graphix the office
space and its contents described as: 801 Ocean Front Walk, Suite 201, Venice,
CA 90291 (the "Premises").
2) Term: The term begins on December 3, 1998, as a month-to-month agreement
in which either party may terminate with a 30-day written notice. All other
terms and conditions of this agreement shall remain in full force and effect.
3) Rent: Sub Lessee agrees top attorney the rent at the rate of $700 per
month for the term of this agreement. Rent is payable in advance on the 3rd
of each calendar month, and is delinquent on the next day. Rent shall be paid
to Westland Network at 13428 Maxella Avenue, Suite 108, Marina Del Rey, CA
90292.
4) Late charges/NSF Checks: Sub Lessee acknowledges that either late payment
of rent or a non-sufficient funds check may cause Sub Lessor to incur costs.
If any installment of rent due from Sub Lessee is not received by Sub Lessor
within five business days after the due date, or if a check is returned NSF,
Sub Lessee shall attorney to Sub Lessor an additional sum of 5 percent of the
rent as a late charge and $25.00 as a NSF fee.
5) Insurance: Sub Lessee's personal property is not insured by Sub Lessor.
Sub Lessee is to carry its own insurance.
6) Utilities: Sub Lessee is to pay for its own phones and any installation
costs.
7) Occupants: Both parties shall have full access to the premises at all
times. Westland Network will maintain control of the master lease. Westland
Network owns and maintains certain office equipment, computer hardware,
furniture and other personal effects identified in an inventory list to be
supplied. These items are for the sole use of Westland Network and are
excluded from the Sub-Lease and use by Pi Graphix and its employees.
8) Parking: Sub Lessee shall be responsible for arranging its own parking
accommodations. Electricity and water are included.
9) Maintenance: Sub Lessee shall properly use the premises, furniture and all
fixtures. Sub Lessee shall immediately notify Sub Lessor of any problem or
damage. Sub Lessee shall pay for all repairs and replacements caused by
damage or abuse by Sub Lessee, or guest of Sub Lessee, excluding ordinary
wear and tear.
10) Alterations: Sub Lessee shall not make any alterations in or about the
premises without Sub Lessor's prior consent, including painting, adding or
changing locks, displays, etc.
11) Entire Contract: Time is of the essence. All prior agreements between Sub
Lessor and Sub Lessee are incorporated in this agreement which constitutes
the entire contract.
PI GRAPHIX, INC.
Sub Lessee: By: LAWRENCE WEISDORN Date: 12/3/98
-------------------------------- -------------------
Its Pres.
PI GRAPHIX, INC.
Sub Lessee: By: ROBERT J. GRANT Date: 12/3/98
-------------------------------- -------------------
Chief Financial Officer
Sub Lessor: DONALD WESTLAND Date: 12/3/98
------------------------------------ -------------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have included our report dated January 15, 1999, except for
Notes 9 and 12 as to which the date is March 9, 1999, accompanying
the financial statements of 3Dshopping.com contained in this
Registration Statement, and we consent to the use of the
aforementioned report in this Registration Statement and Prospectus,
and to the use of our name as it appears under the captions "Selected
Financial Data" and "Experts."
FRIEDMAN, MINSK, COLE & FASTOVSKY
Los Angeles, California
March 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 112,062 144,564
<SECURITIES> 0 0
<RECEIVABLES> 12,544 1,823
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 146,395 163,059
<PP&E> 187,336 125,009
<DEPRECIATION> 81,746 58,539
<TOTAL-ASSETS> 251,985 229,529
<CURRENT-LIABILITIES> 383,185 328,155
<BONDS> 12,052 0
0 0
0 0
<COMMON> 3,306 3,191
<OTHER-SE> (146,558) (101,817)
<TOTAL-LIABILITY-AND-EQUITY> 251,985 229,529
<SALES> 0 0
<TOTAL-REVENUES> 27,539 18,404
<CGS> 0 0
<TOTAL-COSTS> 822,338 473,665
<OTHER-EXPENSES> 1,949,148 637,977
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17,163 10,373
<INCOME-PRETAX> (2,743,947) (1,079,738)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,743,947) (1,079,738)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,743,947) (1,079,738)
<EPS-PRIMARY> (0.68) (0.28)
<EPS-DILUTED> 0 0
</TABLE>
