As filed May 17, 1999 File No. 333-________
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AUTOTRADECENTER.COM INC.
(Exact name of registrant as specified in its charter)
ARIZONA ---- 86-0879572
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Classification Identification No.)
of incorporation Code Number)
or organization)
8135 EAST BUTHERUS, SUITE 3, SCOTTSDALE, ARIZONA 85260
(602) 951-8040
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MIKE STUART, PRESIDENT
AUTOTRADECENTER.COM INC.
8135 EAST BUTHERUS, SUITE 3
SCOTTSDALE, ARIZONA 85260
(602) 951-8040
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications to:
Fay M. Matsukage, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, Colorado 80203
(303) 777-3737
(303) 777-3823 fax
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, 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, 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, check
the following box. [ ]_____
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE OFFERING
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER PRICE AMOUNT OF
REGISTERED REGISTERED UNIT REGISTRATION FEE
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock issuable 100,000 shares (1)<F1> $0.50 $50,000 $13.90
upon exercise of Warrant
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Common Stock issuable _____ shares (1)<F1>(2)<F2> $_____ (1)<F1> $470,000 $130.66
upon conversion of
Series B Preferred Stock
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total $520,000 $144.56
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<FN>
<F1>
(1) An indeterminate number of additional securities are registered
hereunder which may be issued, as provided in the Warrant and Series B
Preferred Stock definition, in the event provisions against dilution
become operative.
<F2>
(2) Each share of Series B Preferred Stock is convertible into shares of
the registrant's Common Stock using a conversion price equal to 65% of
the average closing bid price for the Common Stock for the 10 trading
days immediately preceding the date of conversion:
# OF SHARES OF PREFERRED STOCK X $10 = # of shares of
------------------------------------ Common Stock
65% of average closing bid price
There are 47,000 shares of Series B Preferred Stock issued and
outstanding. Accordingly, the aggregate offering price of the shares of
Common Stock being registered herein is $470,000.
</FN>
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
Subject to Completion, dated May 17, 1999
AUTOTRADECENTER.COM INC.
SHARES OF COMMON STOCK
Certain stockholders of our Company are hereby offering for resale
shares of Common Stock issuable upon conversion of Series B Preferred Stock held
by them. As many as 1,146,341 shares of Common Stock may be issued upon
conversion of the Series B Preferred Stock. The selling stockholders may sell
the Common Stock at any time at any price. We will not receive any proceeds from
the resale of these shares. We have agreed to pay for all expenses of this
offering. See "Selling Stockholders" and "Plan of Distribution."
In addition, we are registering 100,000 shares of Common Stock issuable
upon exercise of a Warrant (the "Warrant Shares") granted to Anthony Advisors.
See "Selling Stockholders" and "Plan of Distribution."
Our Common Stock is traded on the local over-the-counter markets and
the NASD Bulletin Board under the symbol "AUTC." On May 14, 1999, the closing
price for our Common Stock was $2.687 per share.
----------
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 4.
----------
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.
----------
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.
This date of this Prospectus is _____________, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY...........................................................3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................4
RISK FACTORS.................................................................4
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................6
SELECTED FINANCIAL DATA......................................................7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................8
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................................10
BUSINESS.....................................................................11
MANAGEMENT...................................................................15
SECURITIES OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT................18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................19
SELLING STOCKHOLDERS.........................................................22
DESCRIPTION OF SECURITIES....................................................23
PLAN OF DISTRIBUTION.........................................................24
SHARES ELIGIBLE FOR FUTURE SALE..............................................25
LEGAL PROCEEDINGS............................................................25
EXPERTS......................................................................26
AVAILABLE INFORMATION........................................................26
REPORTS TO STOCKHOLDERS......................................................26
FINANCIAL STATEMENTS.........................................................F-1
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
Prospectus. This summary is not complete and may not contain all of the
information that you should consider before purchasing our securities. You
should carefully read this entire Prospectus and the financial statements
contained in this Prospectus.
Unless the context otherwise requires, the terms "we," "our," "us," and
"the Company" refers to AutoTradeCenter.com Inc.
THE COMPANY
The Company is engaged in the wholesale used car business, selling and
buying used vehicles to and from dealers, through several independent wholesale
brokers. The Company was incorporated in Arizona on July 10, 1997 and commenced
operations on September 22, 1997 at its facility in Scottsdale, Arizona. The
Company opened a facility in Albuquerque, New Mexico, on June 1, 1998, which is
operated by its wholly-owned subsidiary, Auto Network USA of New Mexico.
The Company enhances its services by offering alternative finance
programs for dealers who purchase used cars from the Company. These programs are
marketed and administered by Pinnacle Dealer Services, Inc., an affiliated
Arizona corporation that was acquired by the Company on August 20, 1998.
In February 1999, the Company launched an Internet site to facilitate
the buying and selling of vehicles at wholesale between dealers. The business
activities related to the development, management and administration of the
Internet site are being conducted through BusinessTradeCenter.com Inc., a
majority owned subsidiary. The Company has made its inventory available on the
site.
As of March 31, 1999, the Company acquired Walden Remarketing Services,
which has arrangements with the financing subsidiaries of various car
manufacturers to assist in the disposition of their fleet and consumer lease
vehicles.
The Company's offices are located at 8135 East Butherus, Suite 3,
Scottsdale, Arizona 85260, and its telephone number is (602) 951-8040.
THE OFFERING
Securities offered...................... Up to 1,146,341 shares of Common Stock
issuable upon conversion of Series B
Preferred Stock
Up to 100,000 shares of Common Stock
issuable upon exercise of warrants
Securities outstanding.................. 20,218,417 shares of Common Stock
47,000 shares of Series B Preferred
Stock
We will not receive any of the proceeds from the resale of these
securities. See "Selling Stockholders."
RISK FACTORS
Investing in our securities involves a high degree of risk. You should
consider carefully the information under the caption "Risk Factors" beginning on
page 4 of this Prospectus in deciding whether to purchase the securities offered
under this Prospectus.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial data is based upon our consolidated
financial statements included elsewhere in this Prospectus. We have prepared our
consolidated financial statement in accordance with generally accepted
accounting principles. Our results of operations for any interim period do not
necessarily indicate our results of operations for the full year. You should
read this summary financial data in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business," and
our consolidated financial statements.
<TABLE>
<CAPTION>
----------------------- -----------------------
BALANCE SHEET DATA: DECEMBER 31, 1998
(UNAUDITED) MARCH 31, 1998
<S> <C> <C>
Current assets................................... $ 8,541,418 $ 3,893,221
Total assets..................................... $ 8,726,441 $ 3,961,845
Current liabilities.............................. $ 5,297,899 $ 2,687,512
Long-term liabilities............................ $ 2,148,259 $ 534,465
Stockholders' equity............................. $ 1,280,283 $ 739,868
Working capital.................................. $ 3,243,519 $ 1,205,709
----------------------- -----------------------
<CAPTION>
INCOME STATEMENT DATA: NINE MONTHS ENDED JULY 10, 1997
DECEMBER 31, 1998 (INCEPTION) THROUGH
(UNAUDITED) MARCH 31, 1998
<S> <C> <C>
Net sales........................................ $ 69,600,122 $ 31,581,117
Net income before taxes.......................... $ 175,156 $ 15,899
Net income....................................... $ 109,413 $ 12,384
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus are not historical facts but are
forward-looking statements. Such forward-looking statements may be identified by
the use of terminology such as "anticipate," "believe," "estimate," "expect,"
"intend," "may," "plans," "project," and similar expressions. Such statements
involve risks and uncertainties including, but not limited to, those relating to
the stage in which the Company is operating; the lack of revenues; Year 2000
compliance; uncertainty of market acceptance of the Company's services once
introduced; competition; effects of government regulation on the Company's
services; dependence on key personnel; and market for the Company's shares as
well as other factors detailed in "Risk Factors" below and elsewhere in this
Prospectus and in the Company's other filings with the Securities and Exchange
Commission. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.
RISK FACTORS
The securities offered under this Prospectus involve a high degree of
risk. You should carefully consider the risk factors set forth below, as well as
the other information appearing in this Prospectus, before purchasing any of our
securities.
NEWLY-FORMED ENTITY. The Company was incorporated on July 10, 1997 and
has been in operation only since September 22, 1997. While we were able to
generate net income of $12,384 for the period ended March 31, 1998, and $109,413
(unaudited) for the nine months ended December 31, 1998, there can be no
assurance that we will continue to be profitable. In addition, we can provide
only a limited amount of historical information and financial data about our
operations upon which a prospective investor can make an informed judgment as to
our future prospects. Therefore, you should consider the purchase of the
Company's securities as being risky since the
4
<PAGE>
Company may be subject to unforeseen costs, expenses, problems, and difficulties
commonly encountered by new ventures. See the Financial Statements.
SIGNIFICANT INDEBTEDNESS; ASSETS PLEDGED AS COLLATERAL. At December 31,
1998, the Company had liabilities of $7,446,158 (unaudited), as compared to
stockholders' equity of $1,280,283 (unaudited). The Company's line of credit
from a bank (which was increased to $3,000,000 at March 26, 1999 from $500,000
at December 31, 1998) is secured by all inventory, accounts receivable,
equipment, and general tangibles of the Company. If we should fail to generate
sufficient cash flow to service the bank debt, foreclosure on the pledged assets
would impair our operations. See the Financial Statements.
RELATED PARTY TRANSACTIONS. The acquisition of Pinnacle Dealer
Services, Inc.; loans from principal shareholders, officers, and directors of
the Company; and the issuance of stock options to principal shareholders,
officers and directors who have personally guaranteed certain Company
obligations were not arm's-length transactions. While management believes that
the terms of such transactions were fair and in the best interests of the
Company, they were not approved by the shareholders or disinterested directors
of the Company and no fairness opinions were obtained. Further, we engage in
wholesale used car transactions with affiliated entities from time to time on
the same terms as with other dealers. It is likely that officers, directors, and
principal shareholders of the Company will continue to provide financial
assistance in the future. See "Certain Relationships and Related Transactions."
DEPENDENCE ON MANAGEMENT. Our success will largely depend upon the
active participation of our management. We do not have employment agreements
with our management or key-man insurance. The time which the officers and
directors devote to our business affairs and the skill with which they discharge
their responsibilities will substantially impact our success. To the extent the
services of these individuals would be unavailable to us for any reason, we
would have to obtain other executive personnel to manage and operate the
Company. In such event, there is no assurance that we would be able to employ
qualified persons on terms favorable to the Company. See "Management."
RISKS RELATING TO COMPETITION. The Company competes with other
independent wholesale brokers and auto auctions. See "Business - Competition."
LIMITED PUBLIC MARKET. Our Common Stock is traded in the
over-the-counter market. The price for the stock and the volume of shares traded
fluctuate widely. Consequently, persons who invest in the Common Stock may not
be able to use their shares as collateral for loans and may not be able to
liquidate at a suitable price in the event of an emergency. See "Market for
Common Equity and Related Stockholder Matters."
OPTIONS, WARRANTS, AND CONVERTIBLE SECURITIES; POTENTIAL DILUTION AND
ADVERSE IMPACT ON ADDITIONAL FINANCING. As of May 14, 1999, the Company had
outstanding options, warrants, and convertible securities to acquire an
aggregate of 8,807,690 shares of Common Stock. To the extent that the
outstanding options, warrants, and convertible securities are exercised or
converted, the Company's existing shareholders will experience dilution in their
percentage of ownership. So long as these options, warrants, and convertible
securities are exercisable, the holders will have the opportunity to profit from
a rise in the price of the Common Stock. The existence of such options,
warrants, and convertible securities may adversely affect the terms on which the
Company can obtain additional financing. The holders of such options, warrants,
and convertible securities can be expected to exercise them at a time when the
Company would probably be able to obtain additional capital by an offering of
its stock at a price higher than the exercise price of these outstanding
options, warrants, and convertible securities. See "Description of Securities -
Series B Preferred Stock" and "Shares Eligible for Future Sale."
AUTHORIZATION OF PREFERRED STOCK. The Company is authorized to issue up
to 1,000,000 shares of preferred stock, in one or more series, with such rights,
preferences, qualifications, limitations, and restrictions as shall be fixed and
determined by the Company's Board of Directors from time to time. Any such
preferences may operate to the detriment of the rights of the holders of the
Common Stock. As of May 14, 1999, 47,000 shares of Series B Preferred Stock
were issued and outstanding. See "Description of Securities Preferred Stock."
5
<PAGE>
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS. The Company's Articles
of Incorporation and the Arizona Business Corporation Act provide that a
director shall not be personally liable to the Company or its stockholders for
monetary damages for any action taken or any failure to take any action as a
director, except liability for any of the following: (a) the amount of a
financial benefit received by a director to which the director is not entitled;
(b) an intentional infliction of harm on the corporation or the shareholders;
(c) a violation of section 10-833 of the Arizona Business Corporation Act which
pertains to liability for unlawful distributions; or (d) an intentional
violation of criminal law.
"PENNY STOCK" RULES. Our Common Stock is subject to rules promulgated
by the Securities and Exchange Commission relating to "penny stocks," which
apply to non-NASDAQ companies whose stock trades at less than $5.00 per share or
whose tangible net worth is less than $2,000,000. These rules require brokers
who sell "penny stocks" to persons other than established customers and
"accredited investors" to complete certain documentation, make suitability
inquiries of investors, and provide investors with certain information
concerning the risks of trading in the security. These rules may restrict the
ability of brokers to sell the Company's Common Stock and may affect the
secondary market for the Common Stock.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded over-the-counter since
January 29, 1998 on the OTC Bulletin Board. The following table sets forth the
range of high and low bid quotations for each fiscal quarter since the stock
began trading. These quotations reflect inter-dealer prices without retail
mark-up, mark-down, or commissions and may not necessarily represent actual
transactions.
FISCAL QUARTER ENDING HIGH BID LOW BID
March 31, 1998 ................... $ 1.1250 $ 0.0250
June 30, 1998 .................... $ 1.1250 $ 0.7500
September 30, 1998 ............... $ 1.0625 $ 0.1875
December 31, 1998 ................ $ 1.6875 $ 0.5000
March 31, 1999 ................... $ 7.7500 $ 1.5625
On May 14, 1999, the closing price for the Common Stock was $2.687.
The number of record holders of the Company's Common Stock as of May
14, 1999 was 39 according to the Company's transfer agent.
Holders of shares of Common Stock are entitled to dividends when, and
if, declared by the Board of Directors out of funds legally available therefor.
The Company has never paid any cash dividends on its Common Stock and intends to
retain future earnings, if any, to finance the development and expansion of its
business. The Company's future dividend policy is subject to the discretion of
the Board of Directors and will depend upon a number of factors, including
future earnings, capital requirements, and the financial condition of the
Company.
6
<PAGE>
SELECTED FINANCIAL DATA
The balance sheet and income statement data shown below were derived
from audited financial statements of the Company. You should read this data in
conjunction with "Management's Discussion and Analysis OF Financial Condition
and Results of Operations," as well as the Financial Statements of the Company
and notes thereto, included elsewhere in this Prospectus. The interim period
information is not necessarily indicative of the Company's results for the
remainder of the fiscal year.
<TABLE>
<CAPTION>
----------------------- -----------------------
BALANCE SHEET DATA: DECEMBER 31, 1998
(UNAUDITED) MARCH 31, 1998
<S> <C> <C>
Current assets................................... $ 8,541,418 $ 3,893,221
Total assets..................................... $ 8,726,441 $ 3,961,845
Current liabilities.............................. $ 5,297,899 $ 2,687,512
Long-term liabilities............................ $ 2,148,259 $ 534,465
Stockholders' equity............................. $ 1,280,283 $ 739,868
Working capital.................................. $ 3,243,519 $ 1,205,709
----------------------- -----------------------
<CAPTION>
INCOME STATEMENT DATA: NINE MONTHS ENDED JULY 10, 1997
DECEMBER 31, 1998 (INCEPTION) THROUGH
(UNAUDITED) MARCH 31, 1998
<S> <C> <C>
Net sales........................................ $ 69,600,122 $ 31,581,117
Net income before taxes.......................... $ 175,156 $ 15,899
Net income....................................... $ 109,413 $ 12,384
-------------------------------------------------- ----------------------- -----------------------
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
Company's actual future results could differ materially from its historical
results of operations and those discussed in the forward-looking statements. All
period references are from September 22, 1997 (commencement of operations)
through March 31, 1998 and the nine-month period ended December 31, 1998. The
financial impact related to the activities of BusinessTradeCenter.com Inc.
("BTC") and Walden Remarketing Services, Inc. ("Walden Remarketing"), both of
which were acquired subsequent to December 31, 1998, are not included in the
following discussion and analysis.
GENERAL
The following presentation sets forth Management's Discussion and
Analysis of Financial Condition and Results of Operations from September 22,
1997 (commencement of operations) through March 31, 1998, and the nine month
period ended December 31, 1998, which includes a discussion of the Company with
its wholly-owned subsidiaries, Auto Network Group of New Mexico, Inc. ("ANNM"),
and Pinnacle Dealer Services, Inc ("PDS").
Consequently and in order to present an adequate analysis of the
Company's financial trends, the following discussion also includes Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company on a stand-alone basis, as of December 31, 1998. This discussion is
based upon internal financial records presented as of December 31, 1998.
OVERVIEW
The Company began operations on September 22, 1997 and completed its
first fiscal year on March 31, 1998. During this period of time the founders
were involved in the normal activities associated with any start up venture.
Management focused its activities on hiring and training personnel, developing
accounting and management systems and controls, and expanding the Company's
operations into different markets. On June 1, 1998, the Company opened the ANNM
facility in Albuquerque, New Mexico. PDS was acquired in August 1998. PDS
provides to the Company's dealer network, through third party financing
arrangements, financing for the purchase of vehicles purchased by the dealer
from AutoNetwork. This financing arrangement has the effect of increasing sales
and cash flow without exposing the Company to the risks associated with the
dealer obligation.
Because the Company has only conducted operations since September 22,
1997, prior period financial information is not available and discussion of the
Company's operations is limited to the period from inception to March 31, 1998
and the nine month period ended December 31, 1998.
RESULTS OF OPERATIONS
For the nine months ended December 31, 1998, we reported consolidated
sales of $69,600,122, as compared to sales of $31,581,117 for the period ended
March 31, 1998 (which covered approximately six months of operations). The
relative increase in the volume of sales is primarily due to the addition of
independent brokers during the balance of the calendar year 1998 and the opening
of the Albuquerque office on June 1, 1998. Sales for the Albuquerque office for
its first seven months ending December 31, 1998 were $11,248,055.
We realized a gross profit margin of 4.1% for the period ended March
31, 1998, and 4.2% for the nine months ended December 31, 1998. Management does
not anticipate that this gross margin will change significantly in the near
term, although management is initiating programs that may have a positive affect
on its future gross margin.
Total operating expenses were $1,183,120 for the period ending March
31, 1998, and $2,494,544 for the nine months ended December 31, 1998, resulting
in income from operations of $117,750 and $416,834, respectively. These expenses
represent 3.7% of sales for the period ended March 31, 1998 and 3.6% for the
nine months ended December 31, 1998.
8
<PAGE>
While the Company incurred a significant amount of interest expense
($114,404 for the period ending March 31, 1998, and $278,413 for the nine months
ended December 31, 1998), operations were profitable for those periods.
PDS did not contribute any significant direct operating activity since
its inception.
ANTICIPATED TRENDS
Management anticipates that sales will increase in fiscal year 1999
based upon the following: (1) the Company intends to expand into three to five
additional markets; (2) programs have been initiated that will have the effect
of increasing the sales opportunities at each location; and (3) the acquisition
of Walden, coupled with our initiative into the use of the Internet through BTC
may provide opportunities for national and international relationships that may
increase product availability and re-distribution. While management anticipates
a growth in sales in 1999, any anticipated growth is dependent upon its ability
to raise the additional capital and debt financing required to fund such growth.
FLUCTUATIONS IN OPERATING RESULTS
The Company has had limited experience to determine if the Company's
operations will be subjected to major fluctuations or trends. Historically, the
used car market has remained relatively stable as an industry. Industry
projections over the next few years indicates there will be an upward trend in
used car sales; however, there can be no assurance that the Company's sales will
parallel industry projections or that industry projections will materialize.
FINANCIAL CONDITION
Total assets increased from $3,961,845 at March 31, 1998, to a
consolidated total of $8,716,441 at December 31, 1998. The total assets at
December 31, 1998 that were attributable to the operations of ANNM were
$1,214,083. Total assets for the Company at December 31, 1998, without ANNM,
increased from $3,961,845 at March 31, 1998 to $7,762,459 at December 31, 1998,
reflecting the growth of the Company accomplished through the deployment of the
capital and debt raised from outside investors. Assets of PDS were insignificant
at December 31, 1998.
Current liabilities increased from $2,687,512 at March 31, 1998 to a
consolidated total of $5,297,899 at December 31, 1998. The increase attributable
to ANNM's operations was $596,874 with the remaining balance of the increase due
to short-term debt financing. The Company is seeking alternative financing
sources that will have the effect of reducing the short-term debt included in
current liabilities and increasing the amount of long-term debt.
Stockholders' equity increased from $739,868 at March 31, 1998 to a
consolidated balance of $1,280,283 at December 31, 1998. The increase was
attributable to the earnings generated during the nine-month period ending
December 31, 1998, and to the issuance of 266,667 shares for goodwill in
connection with the opening of ANNM. The Company established ANNM by obtaining
the services of a management team, leasing the facility in Albuquerque, and
providing ANNM with initial capital of $250,000. See "Certain Relationships and
Related Transactions - Auto Network USA of New Mexico, Inc. ("ANNM")
Transactions."
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital needs were met during the period ending December
31, 1998 primarily as a result of short-term financing totaling $2,379,759 and
the capital infusion of $377,669 in November 1998.
The model for expansion into other markets and the opening of other
facilities requires the independent wholesale broker in the new location to
subordinate debt to the funds infused into the operations by the Company. This
provides the new location with additional working capital to expand sales
volume. The Company estimates that the additional debt infusion pursuant to this
arrangement will be $300,000 to $500,000 for each new location. These funds are
necessary to support the working capital needs of each market in the purchase of
vehicles and a build up of accounts receivable.
9
<PAGE>
Effective September 1, 1998, PDS initiated a financing program for
dealers who purchase vehicles from the Company. The Company intends to improve
its cash flows through utilization of this finance program. In addition, on
March 31, 1999 the Company obtained a $3,000,000 line of credit with a financial
institution that will provide sufficient liquidity and capital to implement its
business plan including providing for the expansion into other markets.
The effect of BTC is premature to discuss as a result of its recent
introduction into the market place. However, inquiries, correspondence and
dealer registration to be included in the activities created by this internet
site have exceeded management estimates and expectations since its introduction
on February 1, 1999.
The effect of Walden Remarketing is premature to discuss since its
acquisition by the Company on March 31, 1999. However, Walden Remarketing has
previously maintained profitable operations and the Company has no reason to
believe that positive performance will not be achieved in the future.
SAFE HARBOR STATEMENT
Forward-looking statements contained in this Prospectus involve risks
and uncertainties, including, without limitation, the following: (i) the
Company's plans, strategies, objectives, expectations, and intentions are
subject to change at any time at the discretion of management and the Board of
Directors; (ii) the Company's plans and results of operations will be affected
by the Company's ability to manage its growth and working capital; and (iii) the
Company's business is highly competitive and the entrance of new competitors or
the expansion of the operations by existing competitors in the Company's markets
could adversely affect the Company's plans and result of operations.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In the fall of 1998, Price Kong & Company, P.A., which had audited the
financial statements of the Company for the period ended March 31, 1998 (the
"March 1998 Financial Statements"), notified the Company that it would no longer
perform auditing services for companies that would be filing reports with the
Securities and Exchange Commission. The report of Price Kong & Company, P.A. on
the March 1998 Financial Statements did not contain an adverse opinion or a
disclaimer of an opinion. That report was not qualified or modified as to
uncertainty, audit scope, or accounting principles. There were no disagreements
with Price Kong & Company, P.A. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure during
the term of their engagement by the Company. No reportable events occurred
during the term of the engagement.
In January 1999, the Company engaged Neff & Ricci, LLP to audit the
financial statements of the Company for the fiscal year ended March 31, 1999.
The decision to engage Neff & Ricci, LLP was approved by the Company's Board of
Directors. Prior to the engagement of Neff & Ricci, LLP, the Company did not
consult this firm.
10
<PAGE>
BUSINESS
The Company is engaged in the wholesale used car business. Generally,
the wholesale used car business involves the distribution of used vehicles
between dealers. This distribution need takes place on local and national levels
as car demand and supply fluctuates within and between local and national
markets. The typical used car is purchased from a new car dealer as a trade-in,
and then resold at a profit to the used car retail industry. Currently the auto
auctions across the country fill this re-distribution need and independent
wholesalers satisfy only a small portion of the market. The Company believes
that its services provide significant benefits to its dealer customers when
compared to the services provided by auto auctions. Selling dealers are able to
obtain significantly shortened time frames to sell their cars and collect
payment. This allows a selling dealer to dispose of a trade-in while the
customer is still negotiating the transaction, which allows a selling dealer to
completely quantify its transaction with a retail customer. The buying dealer
can negotiate the purchase of individual cars at its convenience.
The Company performs these services through independent wholesale
brokers ("IWB"). Each IWB enters into a contract with the Company whereby the
IWB is given a working line of credit from which the IWB purchases and sells
cars in the name of the Company. The Company has two general compensation plans.
The first and more prevalent plan involves a flat fee (called a "pack") added to
the price of each car and the IWB retains the net benefit of all gains and
losses above such fee. The second compensation plan involves a split of all
gains and losses with each IWB. Currently, the first compensation method is
predominately used by the Company.
CORPORATE BACKGROUND
The Company was organized as an Arizona corporation on July 10, 1997
originally under the name "Auto Network USA, Inc.," and commenced operations on
September 22, 1997, at its facility in Scottsdale, Arizona. From inception until
February 1998, the Company had approximately 12 IWB's and the Company operated
on a break-even basis. During the months of February through December of 1998,
the Company added 14 IWB's and secured additional funding. The result of these
additional brokers and additional funding has allowed the Company's operating
margin to increase, thereby resulting in profitable operations.
In December 1997, the Company sold a total of 1,002,500 shares of its
Common Stock for gross proceeds of $25,062.50 in a private placement. In
February 1998, the Company sold 6,750 shares of Series A Preferred Stock for
$675,000 in a private placement. See "Description of Securities - Series A
Preferred Stock."
Auto Network Group of New Mexico, Inc. ("ANNM"), a wholly-owned
subsidiary, was incorporated on May 18, 1998, and commenced operations on June
1, 1998. The operational methods utilized in opening ANNM appear to have been
successful and the Company anticipates that ANNM will serve as a useful model in
developing future operating facilities.
On August 20, 1998, the Company acquired Pinnacle Dealer Services, Inc.
("PDS"), an affiliated Arizona corporation. See "Certain Relationships and
Related Transactions". PDS promotes and administers alternative finance programs
for dealers who purchase used cars from the Company
From November 1998 to December 1998, the Company sold 47,000 shares of
Series B Preferred Stock for gross proceeds of $470,000 in a private placement.
See "Description of Securities - Series B Preferred Stock."
On January 7, 1999, the Company incorporated BusinessTradeCenter.com
Inc. in Arizona to facilitate the buying and selling of vehicles at wholesale
between dealers on the Internet. The Company has made its inventory available on
the site.
As of March 31, 1999, the Company acquired Walden Remarketing Services,
Inc., a Minnesota corporation ("Walden Remarketing"), which has arrangements
with manufacturers to assist in the disposition of their fleet and consumer
lease vehicles.
11
<PAGE>
CUSTOMERS
The Company sells autos on a wholesale basis to franchise and
independent used car dealers throughout North America. There were over 30,000
registered and licensed car dealers in the United States as of December 31,
1998. As of August 1998, the Company had consummated at least one transaction
with over 700 of these licensed dealers. The past several years has brought
about a much-publicized attempt by various entities to consolidate the retail
car market. These efforts have primarily been directed at the franchised
dealers. To date there has not been sufficient experience to determine if such
consolidation will have a negative or positive impact on the Company's long-term
customer base and growth plans. At present, management believes that its base of
existing customers and potential customers is sufficiently large that any impact
due to the consolidation of the franchised dealers will be minimal.
INTERNET SITE
On February 1, 1999, the Company introduced an Internet site
"AutoTradeCenter.com". This site is restricted to automobile dealers, leasing
companies, banks, and fleet or rental companies and enables these businesses to
buy and sell to each other through both an Inventory Listing Page and an Auction
Page. These businesses must first register as members. To encourage use of this
site, the Company is offering 12 months of membership free if businesses
register by June 1, 1999. Later, the Company plans to charge a membership fee.
The pricing of the membership fee cannot be established at this time, but the
fee will be priced to reflect the value of the service, taking into
consideration any competing pricing structure.
Members can list any inventory on the Inventory List Page and search
that Page for any inventory that they might need. Members can also post desired
vehicles on a Wish List Page. The Company does not charge a listing fee or
purchase fee or otherwise participate in a transaction between buyer and seller.
The Company provides the Internet site as a forum only.
Members can place vehicles that have not sold at their listed prices on
the Auction Page. There, other members can bid on vehicles.
As of May 14, 1999, over 400 businesses had registered as members.
Management of the Company believes that this site will assist it in its
wholesale vehicle operations and possibly provide another source of revenues
from membership, advertising, and other promotional fees.
FINANCE PROGRAMS
PDS is in the business of promoting and administering alternative
finance programs for dealers who purchase used cars from the Company. On August
20, 1998, PDS and the Company executed an agreement with a non-affiliated
lending company that is in the business of providing licensed automobile dealers
with credit lines, thereby allowing them to purchase vehicles from the Company.
These credit lines will be marketed through PDS. In the agreement, the Company
has granted the lending company an exclusive license to provide third party
loans and extensions of credit lines to dealers at the Company's facilities. In
the event a dealer is declined a credit line through this lending company, the
Company may then offer additional outside sources of financial assistance. The
credit applications provided by the lending company bear the PDS logo. The
lending company is to pay the Company a fee for each vehicle purchased through
the lending company so long as the average purchase price is above $10,000 and
the average floor plan term is six weeks. To date, the Company has met this
covenant. The agreement with the lending company is for a term of ten years and
automatically renews for successive ten-year periods unless terminated.
PDS is also currently exploring other alternative finance programs that
may be made available to the Company's dealer network for retail customers who
purchase used cars from these dealers.
12
<PAGE>
WALDEN REMARKETING
Creative buy-back rental car programs by manufacturers in the early
90's resulted in tens of thousands of units being sent to auctions for disposal.
This influx of vehicles created an imbalance in the supply and demand of
vehicles in the United States and put pressure on the manufacturers to sell
their units. At that time, it is estimated that less than a third of new car
dealers regularly purchased vehicles at auctions and it was a challenge to
manufacturers to get their dealers to attend these closed factory sales.
In the mid 90's, creative lease programs appeared and thousands of
off-lease vehicles started to appear at auctions. With only 25% of the vehicles
being purchased by the lessee at termination and dealer purchases falling every
year, the residual prices for the units were not attainable by the lessors and
severe losses on lease portfolios were the outcome. Remarketing programs were
developed to address this resale need.
Remarketing entities such as Walden Remarketing work with manufacturers
to sell off-lease vehicles. Walden Remarketing currently has arrangements with
Honda and Hyundai. Management of the Company believes that the acquisition of
Walden Remarketing provides the Company with better access to used car inventory
and enhances the Company's overall impact in the wholesale used car business.
WORKING CAPITAL PRACTICES
The Company's inventory needs are financed through private sources of
capital and proceeds from the sale of products. In addition, the Company has a
$3,000,000 line of credit with a financial institution.
COMPETITION
Management believes that the Company has two major sources of
competition: independent wholesale brokers and auto auctions.
INDEPENDENT WHOLESALE BROKERS. Approximately 3% of the vehicles sold by
franchised dealers in the United States in 1997 were acquired from independent
wholesale brokers and other related type organizations, according to the 1999
USED CAR MARKET REPORT prepared by ADT Automotive Inc. ("1999 Report").
Independent Wholesale Brokers ("IWB") represent a direct form of competition as
IWB's are performing services similar to the services provided by the Company.
Information on IWB's is limited. It is management's belief that the vast
majority of IWB's are small organizations of typically 1 to 6 individuals. The
Company is not aware of any one IWB that sells more than 2,000 vehicles
annually. It is also management's belief that these groups are generally
undercapitalized and have limited external financial resources.
Management believes that it possesses many competitive advantages over
IWB's due to its relatively greater financial strength and operational staff.
Management believes that its dealers enjoy a greater assurance of timely payment
for all vehicles purchased as compared to other IWB's. On a national basis IWB's
represent a very fragmented part of the auto distribution system and these
persons are part of the targeted consolidation and growth plan for the Company.
AUTO AUCTIONS. Auto auctions as a whole are the most significant
competitor to the Company in the used car distribution system. According to the
1999 Report, in 1997 the total number of vehicles sold by auto auctions was in
excess of 10 million units, which represented 38% of the total used car sales.
From 1982 to 1997 auto auctions' contribution of used cars sold to dealers
increased from 6% to 28%.
Auto auctions originally began as "dealer exchanges" and over time have
evolved into the current distribution system of most of the used cars between
dealers. There are several nationally recognized companies in the auto auction
market. According to the 1999 Report, Manheim Auctions, the largest in the
United States, has 64 locations and sold over 5.2 million units in 1997,
representing over 50% of all auto auction sales during that period. ADT
Automotive, Inc. has 28 locations, and sold 2.1 million cars in 1997, which
represented 21% of the auto auction market. In addition to the two organizations
mentioned above, there are numerous independent auto auctions located throughout
the United States and Canada.
13
<PAGE>
Management believes that the manner in which auto auctions conduct
business is fundamentally flawed in today's environment in that the auctions do
not respond in a rapid manner to the needs of a dealer. Although costs
associated with doing business with the Company may be slightly higher than that
of the auto auctions, management believes that the increased level of service
and the speed at which the service is rendered compensates for the higher costs.
GOVERNMENT REGULATION
Compliance with government regulations does not impose a significant
impact on the sale of used cars between dealers. Laws between state motor
vehicle divisions do vary and the Company performs what duties it considers are
reasonable and appropriate to remain current on any law changes.
EMPLOYEES AND INDEPENDENT WHOLESALE BROKERS ("IWBS")
As of December 31, 1998 the Company had 11 full-time employees and 23
IWBs. Employment levels remain relatively high as the Company anticipates future
growth. The Company is dependent upon a limited number of key management and
technical personnel. Except for management, few of the Company's employees are
highly skilled professionals. The Company's continued success will depend in
large part upon its ability to retain and attract managerial personnel with
significant experience in the wholesale automobile industry. None of the
Company's employees is represented by labor organizations; the Company has never
had a work stoppage or slowdown as a result of labor issues; and the Company
considers relations with employees to be good. Management believes that the
adoption of the 1997 Stock Option Plan, along with other Company benefits, will
enhance employees' interest in remaining with the Company. In the future,
management is planning to add further incentives to attract and retain high
quality personnel. See "Management - Stock Option Plan."
FACILITIES
The Company leases its offices in Scottsdale, Arizona, from an
unrelated third party under an operating lease expiring September 30, 2002. The
Company opened a facility in Albuquerque, New Mexico on June 1, 1998 and entered
into an operating lease with a related party expiring on May 31, 1999. Both of
these leases require the Company to pay all maintenance, insurance, and taxes on
the leased property. Walden Remarketing maintains offices in Minneapolis,
Minnesota, with a related party pursuant to an informal office-sharing
arrangement. See "Certain Relationships and Related Transactions" and Note L of
Notes to Financial Statements.
Management believes that the leases are renewable on substantially
similar terms. In the event that the leases are not renewed, management believes
that leasing any non-customized facility can fill current general
office/warehouse needs.
Management believes that its existing facilities are suitable and
adequate for its operations and that productive capacity is being utilized.
14
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
NAME AGE POSITION
Mike Stuart 51 President and Director
Mark Moldenhauer 46 Vice President, Secretary, and Director
Roger L. Butterwick 52 Treasurer
Mike Stuart and Mark Moldenhauer may be deemed to be the "promoters"
and "parents" of the Company within the meaning of the Rules and Regulations
promulgated under the Securities Act of 1933.
The term of office of each director of the Company ends at the next
annual meeting of the Company=s stockholders or when such director=s successor
is elected and qualifies. No date for the next annual meeting of stockholders is
specified in the Company=s Bylaws or has been fixed by the Board of Directors.
The term of office of each officer of the Company ends at the next annual
meeting of the Company=s Board of Directors, expected to take place immediately
after the next annual meeting of stockholders, or when such officer=s successor
is elected and qualifies.
MIKE STUART has been a Director of the Company since its inception, and
President since November 30, 1997. He has been involved in the automobile sales
industry since 1971, first as a salesman with Lou Grubb Chevrolet in Phoenix,
Arizona, from 1971 to 1980, and then as a manager and partner with Lou Grubb
Mitsubishi from 1981 to 1992. Under his management, JD Power & Associates rated
the Mitsubishi dealership number one in the nation in consumer satisfaction for
five consecutive years. From 1992 to 1997, he was engaged in wholesale and
retail car sales as a dealer in the Arizona area. Mr. Stuart is a past two-term
president of the Greater Phoenix New Car Dealers Association and former chairman
of the Arizona Automobile Dealers Association's Ethics and Judiciary Committee.
He served as the principal instructor for the General Motors Field Management
Training Program and is a past director of the national Mitsubishi Dealer 20
group. Mr. Stuart is a full-time employee of the Company.
MARK MOLDENHAUER has been Vice President of the Company since November
30, 1997, a Director since December 15, 1997, and Secretary since March 24,
1998. Since 1986, he has been engaged in the business of arranging public and
private mergers, acquisitions, and the placement of equity and debt financing
through his firm, MRM Consultants. In connection with rendering those consulting
services, he has served as a director of numerous public and private companies.
Mr. Moldenhauer was involved in management consulting services from 1980 to 1985
through Ball Management. From 1978 to 1980, he was a tax specialist for the
Adolph Coors Company in Golden, Colorado, and from 1976 to 1978, he worked as an
auditor for the national accounting firm then known as Peat, Marwick, Mitchell &
Co. He received a master's degree in accounting from the University of Arkansas
in 1976. Mr. Moldenhauer is a full-time employee of the Company.
ROGER L. BUTTERWICK has been the Treasurer of the Company since April
2, 1999. Mr. Butterwick has over 30 years' experience in building organizations
from start-up through full production and expansion. His entrepreneurial
discipline coupled with his finance and accounting experience has contributed to
the success of numerous private and publicly held organizations. For the past
four years Mr. Butterwick devoted the majority of his time as a partner in
Cambridge Management Associates, LLP, an organization in the business of
structuring and securing financing for developing organizations. Previously, Mr.
Butterwick was an owner of Lehman, Butterwick & Company, P.C., a large local
certified public accounting firm located in Denver, Colorado. In addition, he
has been involved with the finance and mortgage banking industries. Mr.
Butterwick received his Bachelor of Science in Business Administration from the
University of Denver. He is a member of the American Institute of CPA's.
15
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the remuneration for the fiscal year
ended March 31, 1998 of each of the officers and directors, as well as the
annual remuneration of all officers and directors as a group:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR CAPACITIES IN WHICH AGGREGATE
IDENTITY OF GROUP REMUNERATION WAS RECEIVED REMUNERATION
<S> <C> <C>
Mike Stuart President $ 6,000
Mark Moldenhauer Vice President $ 6,000
Officers and directors as a group $12,000
(2 persons)
</TABLE>
Currently, the Company pays Messrs. Stuart and Moldenhauer $4,500 each
per month and Mr. Butterwick $4,000 per month. The Company reimburses all
officers and directors for actual out-of-pocket expenses incurred on behalf of
the Company.
The Company has no retirement, pension, profit sharing or medical
reimbursement plans exclusively covering its officers and directors, and does
not contemplate implementing any such plans at this time.
CONSULTING AGREEMENT
On April 20, 1999, the Company entered into a Consulting Agreement with
Dennis E. Hecker as part of the Company's acquisition of Walden Remarketing
Services. Mr. Hecker has agreed to provide consulting services to the Company
for a period of three years ending April 20, 2002. The Company has agreed to
grant Mr. Hecker an option to purchase 3,000,000 shares of the Company's Common
Stock at $3.00 per share. The options, which expire April 20, 2009, vest
according to a schedule that is based on the trading price of the Common Stock.
The Company has agreed to register the shares issuable upon exercise of the
options. See "Certain Relationships and Related Transactions - Walden
Remarketing Transactions."
STOCK OPTION PLAN
On August 5, 1997, the shareholders of the Company adopted the 1997
Stock Option Plan, which provides for the granting of both incentive stock
options and non-qualified options to eligible employees, officers, and directors
of the Company. Initially, a total of 1,000,000 shares of Common Stock has been
reserved for issuance pursuant to the exercise of stock options under this Plan
(the "Option Pool"). The Option Pool is adjusted annually on the beginning of
the Company's fiscal year to a number equal to 10% of the number of shares of
Common Stock of the Company outstanding at the end of the Company's last
completed fiscal year, or 1,000,000 shares, whichever is greater. The Plan is
administered by the Compensation Committee of the Board of Directors or, if
there is no Committee, by the Board of Directors.
The Plan provides that disinterested directors, defined as non-employee
directors or persons who are not directors of one of the Company's subsidiaries,
will receive automatic option grants to purchase 10,000 shares of Common Stock
upon their appointment or election to the Board of Directors of the Company.
Options shall have an option price equal to 100% of the fair market value of the
Common Stock on the grant date and shall have a minimum vesting period of one
year from the date of grant.
Each option granted under the Plan will be evidenced by a written
option agreement between the Company and the optionee. Incentive stock options
may be granted only to employees (as defined by the Internal Revenue Code). The
option price of any incentive stock option may not be less than 100% of the fair
market value per share on the date of grant of the option; provided, however,
that any incentive stock option granted under the Plan to a person owning more
than 10% of the total combined voting power of the Common Stock will have an
option price of not less than 110% of the fair market value per share on the
date of grant of the incentive stock option. Each non-qualified stock option
granted under the Plan will be at a price no less than 85% of the fair market
value per share on the date of grant thereof, except that the automatic stock
option grants to disinterested directors will be at a price
16
<PAGE>
equal to the fair market value per share on the date of grant. The exercise
period of options granted under the Plan may not exceed ten years from the date
of grant thereof. Incentive stock options granted to a person owning more than
10% of the total combined voting power of the Common Stock cannot be exercisable
for no more than five years. No portion of any option will be exercisable prior
to the first anniversary of the grant date.
An option may not be exercised unless the optionee then is an employee,
officer, or director of the Company or a subsidiary of the Company, and unless
the optionee has remained continuously as an employee, officer, or director of
the Company since the date of grant of the option. If the optionee ceases to be
an employee, officer, or director of the Company or subsidiary of the Company
other than by reason of death, disability, retirement, or for cause, all options
granted to such optionee, fully vested to such optionee but not yet exercised,
will terminate 90 days after the date the optionee ceases to be an employee,
officer, or director of the Company. All options which are not vested to an
optionee, under the conditions stated in this paragraph for which employment
ceases, will immediately terminate on the date the optionee ceases employment or
association.
As of March 31, 1999, options have been granted under this Plan as
follows:
<TABLE>
<CAPTION>
DATE OF NUMBER OF OPTIONS EXERCISE EXPIRATION
GRANT OPTIONEE PRICE VESTED DATE
<S> <C> <C> <C> <C> <C>
02/17/98 Employees and 300,000 $.15 Yes 02/17/2003
Independent Contractors
06/01/98 Employees and 125,000 $.75 (1)<F1>, (2)<F2> 06/01/2003
Independent Contractors
09/11/98 Independent Contractor 10,000 $.51 (1)<F1> 09/11/2003
09/21/98 Employees and 175,000 $.425 (1)<F1>, (2)<F2> 09/21/2003
Independent Contractors
12/01/98 Independent Contractor 25,000 $1.25 (2)<F2> 12/01/2003
12/31/98 Independent Contractors 646,499 $1.00 Yes 12/31/2001
02/01/99 Employees and 130,000 $2.00 (1)<F1>, (2)<F2> 02/01/2002
Independent Contractors
02/15/99 Employee 25,000 $2.00 (1)<F1> 02/15/2002
- ---------------
<FN>
<F1>
(1) To vest one year from date of grant for employees.
<F2>
(2) To vest one year from date of grant for independent contractors so long
as the volume of transactions initiated by the optionee for the Company
one year from date of grant is no less than the volume of transactions
at the time of grant.
</FN>
</TABLE>
OTHER OPTIONS
In addition to the stock options granted pursuant to the 1997 Stock
Option Plan, the Company has granted options as follows:
<TABLE>
<CAPTION>
DATE OF NUMBER OF EXERCISE EXPIRATION
GRANT OPTIONEE OPTIONS PRICE VESTED DATE
<S> <C> <C> <C> <C> <C>
02/24/98 Cambridge Management 300,000 $.32 Yes 03/26/2002
Associates, LLP
07/06/98 Arnold Greenberg 50,000 $.875 Yes 07/06/2000
07/08/98 John Abadie 25,000 $.875 Yes 07/08/2000
</TABLE>
17
<PAGE>
Other stock options have been granted to officers and directors in
connection with guarantees and other financial transactions. See "Securities
Ownership of Principal Stockholders and Management" and "Certain Relationships
and Related Transactions."
SECURITIES OWNERSHIP OF PRINCIPAL
STOCKHOLDERS AND MANAGEMENT
Mike Stuart and Mark Moldenhauer may be deemed to be promoters for the
purposes of this offering.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of May 14, 1999:
<TABLE>
<CAPTION>
PERCENT OF CLASS (1)<F1>
NUMBER OF SHARES OWNED BEFORE AFTER
NAME AND ADDRESS OF OWNER CONVERSION CONVERSION (2)<F2>
<S> <C> <C> <C>
Mark Moldenhauer 4,820,000(3)<F3>(4)<F4>(5)<F5> 20.5% 19.4%
8135 E. Butherus #3
Scottsdale, AZ 85260
Eastlane Trading Limited 2,535,302(6)<F6> 12.0% 11.3%
c/o S&W Cremin, McCarthy & Co.
28 Harcourt Street
Dublin 2, Ireland
Dennis E. Hecker 1,855,000 9.2% 8.6%
500 Ford Road
Minneapolis, MN 55426
Mike Stuart 1,820,000(4)<F4>(5)<F5> 8.8% 8.3%
8135 E. Butherus #3
Scottsdale, AZ 85260
Jeff Erskine 1,790,000(4)<F4> 8.8% 8.3%
8135 E. Butherus #3
Scottsdale, AZ 85260
John Michael Carrante 1,690,000 8.4% 7.9%
8135 E. Butherus #3
Scottsdale, AZ 85260
Joseph M. Seaverns & Candace L. Seaverns 1,690,000(7)<F7> 8.4% 7.9%
Family Living Trust U/A Dated 6/21/93
10158 E. Topaz Drive
Scottsdale, AZ 85258
Silhouette Investments Ltd. 1,679,832(8)<F8> 8.2% 7.7%
P.O. Box 22009
Capri Centre
Kelowna, BC V1Y 2N9 Canada
Flagstone Automotive Inc. 1,559,844(9)<F9> 7.6% 7.2%
15111 N. Hayden Road
Scottsdale, AZ 85260
Roger L. Butterwick 850,000(5)<F5>(10)<F10> 4.1% 3.8%
258 S. Sandstone Street
Gilbert, AZ 85296
18
<PAGE>
<CAPTION>
PERCENT OF CLASS (1)<F1>
NUMBER OF SHARES OWNED BEFORE AFTER
NAME AND ADDRESS OF OWNER CONVERSION CONVERSION (2)<F2>
<S> <C> <C> <C>
All officers and directors as a group 7,490,000(3)<F3>(10)<F10>(11)<F11> 30.4% 28.9%
(3 persons)
- ---------------------
<FN>
<F1>
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days
from May 14, 1999, these additional shares are deemed to be outstanding
for the purpose of computing the percentage of Common Stock owned by
such persons, but are not deemed to be outstanding for the purpose of
computing the percentage owned by any other person. Percentages are
based on 20,218,417 shares outstanding before the offering and
21,464,758 shares outstanding after the offering, which assumes the
conversion of the Shares using the floor price of $0.41 per share and
the issuance of the 100,000 Warrant Shares. See "Plan of Distribution."
<F2>
(2) Assumes the conversion of the Shares using the floor price of $0.41 per
share and the issuance of the 100,000 Warrant Shares. See "Description
of Securities - Series B Preferred Stock."
<F3>
(3) Includes 3,000,000 shares issuable upon the conversion of a promissory
note in the amount of $300,000 at a conversion price of $.10 per share.
See `Certain Relationships and Related Transactions."
<F4>
(4) Includes 100,000 shares issuable upon the exercise of certain options.
See "Certain Relationships and Related Transactions."
<F5>
(5) Includes 250,000 shares issuable upon the exercise of certain options.
See "Certain Relationships and Related Transactions."
<F6>
(6) Includes 959,904 shares issuable upon the exercise of certain warrants.
See "Certain Relationships and Related Transactions."
<F7>
(7) Includes 320,000 shares owned of record by Joe Seaverns.
<F8>
(8) Includes 279,972 shares issuable upon the exercise of certain warrants.
<F9>
(9) Includes 259,974 shares issuable upon the exercise of certain warrants.
<F10>
(10) Includes 100,000 shares held of record by Cambridge Consulting Group,
an entity controlled by Mr. Butterwick. Includes 500,000 shares
issuable upon the exercise of certain options. See "Certain
Relationships and Related Transactions."
<F11>
(11) Includes 950,000 shares issuable upon the exercise of certain options.
See "Certain Relationships and Related Transactions."
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon inception of the Company, 9,000,000 restricted shares of Common
Stock were issued to the founders of the Company for total consideration of
$30,000 as follows:
Jeff Erskine 1,820,000 shares
Mike Stuart 1,500,000 shares
Mark Moldenhauer 1,500,000 shares
Joe Seaverns 320,000 shares
Candy Seaverns 1,500,000 shares
Victor Felice 540,000 shares
John Carrante 1,820,000 shares
Jeff Erskine, Mike Stuart, and Mark Moldenhauer and their respective
spouses personally guaranteed the operating lease dated July 24, 1997, pursuant
to which the Company leases its office and garage facilities in
19
<PAGE>
Scottsdale, Arizona. The lease expires September 30, 2002. See "Business -
Facilities" and Note L of Notes to Financial Statements.
From inception (September 22, 1997) through December 31, 1998, the
Company had entered into various lending arrangements involving officers,
directors and other affiliated entities owned or controlled by officers,
directors and other key personnel of the Company totaling $3,682,751. At March
31, 1998 and December 31, 1998, the balances outstanding on these notes were
$832,000 and $3,402,759, respectively. The total interest paid to these entities
on all financing activities for the periods ended March 31, 1998 and December
31, 1998 were $66,416 and $142,730, respectively.
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
09/22/97 Evelyn Felice $400,000 loan, 12% interest
per annum, payable monthly,
due September 22, 1999,
collateralized by used car
inventory, personally
guaranteed by Jeff Erskine,
Mike Stuart, and John
Carrante
10/17/97 Mark Moldenhauer $150,000 loan, 12% interest
per annum, payable monthly,
due November 17, 1999,
collateralized by used car
inventory, personally
guaranteed by Jeff Erskine,
Mike Stuart, and John
Carrante
12/15/97 Pinnacle Financial $200,000 loan, 12% interest
per annum, payable monthly,
due Corporation December
15, 1998, collateralized by
used car inventory
01/15/98 Mark Moldenhauer $300,000 loan, 12% interest
per annum, payable monthly,
due January 15, 1999,
collateralized by used car
inventory, convertible into
shares of Common Stock at
$.10 per share
03/31/98 Mark Moldenhauer $102,000 loan, 12% interest
per annum, payable monthly,
due upon 30 days' notice,
collateralized by used car
inventory
04/07/98 Mark Moldenhauer $300,000 loan, 12% interest
per annum, payable monthly,
due upon 30 days' notice,
collateralized by used car
inventory
06/01/98 Eastlane Trading Limited $250,000 loan, 12% interest
per annum, payable on
request, due April 1, 2000,
collateralized by used car
inventory
06/30/98 Dove Motors $100,000 loan, 12% interest
per annum, payable upon
demand
07/28/98 Pinnacle Financial $50,500 loan, 12% interest
per annum, payable upon
demand
07/30/98 Pinnacle Financial $30,000 loan, 12% interest
per annum, payable upon
demand
09/01/98 Mike and Debbie Stuart $50,000 loan, 12% interest
per annum, payable monthly,
due October 1, 1999,
collateralized by used car
inventory
09/11/98 Pinnacle Financial $117,500 loan, 12% interest
per annum, payable monthly,
due October 11, 1999,
collateralized by used car
inventory
09/18/98 Pinnacle Financial $400,000 loan, 12% interest
per annum, payable monthly,
due October 30, 1998
(extended and due upon
demand), collateralized by
used car inventory
10/20/98 Eastlane Trading Limited $1,000,000 loan, 12%
interest per annum, payable
on request, due April 1,
2000, collateralized by
used car inventory
20
<PAGE>
DATE OF
TRANSACTION RELATED PARTY TRANSACTION
11/18/98 Eastlane Trading Limited $232,259 loan, 12% interest
per annum, payable on
request, due April 1, 2000,
collateralized by used car
inventory
On February 2, 1998, the Company sold 6,750 shares of Series A
Preferred Stock to Eastlane Trading Limited for $675,000. Each share is
convertible into 1,111 shares of Common Stock. For each share of Common Stock
issued upon conversion of the Series A Preferred Stock, one warrant to purchase
Common Stock is issued. Five warrants are exercisable to purchase one share of
Common Stock at $.25 per share. As of March 31, 1999, all 6,750 shares of Series
A Preferred Stock had been converted into 7,499,250 shares of Common Stock, and
warrants exercisable to purchase 1,499,850 shares were issued and outstanding.
During the period ended March 31, 1998, the Company consummated a total
of $2,055,000 of vehicle sale and purchase transactions with two entities owned
by officers, directors and other major stockholders of the Company. The amount
of each sale or purchase was for a value equivalent of what would have been
attained by an independent third party. At March 31, 1998, the Company had
recorded in accounts receivable $37,522 due from one of these entities. Likewise
at March 31, 1998, the Company had recorded an account payable of $15,999 to
another related entity. At December 31, 1998, these accounts had been paid in
full.
During the period ending March 31, 1998, the Company paid $4,000 for
professional services to MRM Consultants, an entity owned by Mark Moldenhauer.
At March 31, 1998 and December 31, 1998, he was owed $11,500 and $-0-,
respectively.
On May 5, 1998, the Company obtained a line of credit from its
commercial bank in the amount of $500,000. The note was secured by a first lien
on all inventory, accounts receivable, equipment, and general intangibles and
personally guaranteed by Messrs. Erskine, Stuart and Moldenhauer. In addition,
Mr. Moldenhauer agreed to subordinate his loans made to the Company to the
bank's line of credit. On May 7, 1998, the Company granted each of Messrs.
Erskine, Stuart, and Moldenhauer two-year options to purchase 100,000 restricted
shares of Common Stock at a price of $.75 per share. As of December 31, 1998,
the full $500,000 credit line had been utilized. On March 26, 1999, the note was
paid.
On March 26, 1999, the Company obtained a $3,000,000 line of credit
from a financial institution. The note is due March 31, 2000, and is secured by
a first lien on all inventory, accounts receivable, equipment, and general
intangibles. Messrs. Stuart, Moldenhauer, and Butterwick personally guaranteed
the note. On December 31, 1998, the Company granted each of Messrs. Stuart,
Moldenhauer, and Butterwick three-year options to purchase 250,000 restricted
shares of Common Stock at a price of $1.00 per share.
AUTO NETWORK GROUP OF NEW MEXICO, INC. ("ANNM") TRANSACTIONS. On June
1, 1998, ANNM entered into a lease for its facility in Albuquerque, New Mexico,
with G & B Investments LLC, an entity owned and controlled by Bruce Burton and
Jules Gollins. The lease expires on May 31, 1999. Messrs. Burton and Gollins are
two of the principals who manage the ANNM operations. See "Business -
Facilities" and Notes L and O of Notes to Financial Statements.
Also on June 1, 1998, the Company entered into a Purchase of Goodwill
Agreement with JBS, LLC, an entity whose members comprise the management team of
ANNM. In consideration for the goodwill which ANNM is receiving from JBS, JBS
was granted a total of 800,000 restricted shares of the Company's Common Stock
valued at $.20 per share as follows: 266,667 shares issued upon execution of the
Agreement, held in escrow, and subject to forfeiture if ANNM is not doing
business as of June 1, 1999; 266,667 shares to be earned for the period June 1,
1998 through March 31, 1999 if pre-tax earnings of ANNM are at least $60,000;
and 266,666 shares to be earned for the period April 1, 1999 through March 31,
2000 if pre-tax earnings of ANNM are at least $120,000. In addition, JBS may
earn options to purchase restricted shares of the Company's Common Stock at the
rate of 5 options for every dollar of pre-tax earnings of ANNM in excess of
$60,000 for the period ending March 31, 1999, and 5 options for every dollar of
pre-tax earnings of ANNM in excess of $120,000 for the year ended March 31,
2000. The options are to be exercisable for a period of 3 years from date of
grant at the bid price as of March 31, 1999 or 2000, respectively.
21
<PAGE>
On June 1, 1998, the Company loaned $250,000 to ANNM. The related
promissory note is due June 30, 2000 and earns interest at 12% per annum,
payable monthly.
PINNACLE DEALER SERVICES, INC. (APDS@) TRANSACTIONS. On August 20,
1998, the Company acquired Pinnacle Dealer Services, Inc. ("PDS"), an Arizona
corporation owned and controlled by Debbie Stuart (the wife of Mike Stuart),
Mark Moldenhauer, and Cambridge Consulting Group, LLP for 300,000 restricted
shares of Common Stock.
WALDEN REMARKETING TRANSACTIONS. As of March 31, 1999, the Company
acquired Walden Remarketing Services, Inc. ("Walden Remarketing"), a Minnesota
corporation by issuing the shareholders of Walden Remarketing a total of
2,050,000 restricted shares of Common Stock, cash of $125,000 and promissory
notes in the aggregate principal amount of $425,000. The promissory notes accrue
interest at the rate of 12% per annum and require the Company to make 18 equal
monthly payments of principal and interest beginning May 1, 1999.
In connection with the acquisition of Walden Remarketing, Dennis E.
Hecker, the principal shareholder of that company, provided a personal guaranty
with respect to the full disclosure of liabilities of that company.
On April 20, 1999, the Company entered into a Consulting Agreement with
Dennis E. Hecker as part of the Company's acquisition of Walden Remarketing. Mr.
Hecker has agreed to provide consulting services to the Company for a period of
three years ending April 20, 2002. The Company has agreed to grant Mr. Hecker an
option to purchase 3,000,000 shares of the Company's Common Stock at $3.00 per
share. The options, which expire April 20, 2009, vest according to a schedule
that is based on the trading price of the Common Stock. The Company has agreed
to register the shares issuable upon exercise of the options. As of this date,
none of the options have vested.
SELLING STOCKHOLDERS
SERIES B PREFERRED STOCK
The following table sets forth certain information regarding beneficial
ownership of certain shares of the Company's Series B Preferred Stock as of May
14, 1999. The Company is registering shares of Common Stock issuable upon
conversion of the Series B Preferred Stock (the "Securities"). The shares are
being registered to permit public secondary trading of such shares, and each of
the selling stockholders of the Company (the "Selling Stockholders") may offer
the Common Stock for resale from time to time. See "Plan of Distribution."
Assuming that the Selling Stockholders convert all of their Series B Preferred
Stock into Common Stock and sell all of their Common Stock, the Selling
Stockholders will not own any Common Stock of the Company. None of the Selling
Stockholders has had any position, office, or material relationship with the
Company within the past three years.
<TABLE>
SERIES B PREFERRED STOCK COMMON STOCK ISSUABLE
SELLING STOCKHOLDER OWNED UPON CONVERSION*<F1>
<S> <C> <C>
Indenture of Trust, James F. Cool Trustee 25,000 shares 609,756 shares
Phoenix Financial Ltd. 10,000 shares 243,902 shares
Glicine Societe Anonyme 10,000 shares 243,902 shares
Windsor Capital Finance, Inc. 2,000 shares 48,780 shares
<FN>
<F1>
* Assumes the conversion of the Shares using the floor price of $0.41 per share. See "Description of
Securities Series B Preferred Stock."
</FN>
</TABLE>
The Securities offered hereby by the Selling Stockholders will be
acquired through the conversion of Series B Preferred Stock. The Selling
Stockholders purchased the Series B Preferred Stock in a private placement. The
Company agreed to register the Securities for resale by the Selling Stockholders
to permit such resales from time to time in the market or in
privately-negotiated transactions. The Selling Stockholders have agreed that
they will convert no more than 2,500 shares of Series B Preferred Stock per
week.
The Company has agreed to bear certain expenses (other than broker
discounts and commissions, if any) in connection with the registration of the
Securities.
22
<PAGE>
WARRANTS
The Company issued warrants to purchase 100,000 shares of Common Stock
to Anthony & Company, Inc., dba Anthony Advisors, in connection with the
Company's offering of Series B Preferred Stock. The warrants, which are
exercisable at $1.00 per share through August 10,2001, contain registration
rights. The Company has agreed to bear certain expenses (other than broker
discounts and commissions, if any) in connection with the registration of the
shares issuable upon exercise of the warrants (the "Warrant Shares").
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 100,000,000
shares of common stock, no par value (the "Common Stock"), and 1,000,000 shares
of preferred stock, $0.10 par value per share. The following summary does not
purport to be complete. You may wish to refer to the Company's Articles of
Incorporation and Bylaws, copies of which are available for inspection. See
"Available Information." As of May 14, 1999, there were issued and outstanding
20,218,417 shares of Common Stock and 47,000 shares of Series B Preferred Stock.
COMMON STOCK
Each share of Common Stock has one vote with respect to all matters
voted upon by the shareholders.
Holders of Common Stock are entitled to receive dividends, when and if
declared by the Board of Directors, out of funds of the Company legally
available therefor. The Company has never declared a dividend on its Common
Stock and has no present intention of declaring any dividends in the future.
Holders of Common Stock do not have any preemptive rights or other
rights to subscribe for additional shares, or any conversion rights. Upon a
liquidation, dissolution, or winding up of the affairs of the Company, holders
of the Common Stock will be entitled to share ratably in the assets available
for distribution to such stockholders after the payment of all liabilities.
All outstanding shares of Common Stock, and shares of Common Stock
issuable upon conversion of the Series B Preferred Stock, when issued and paid
for, will be fully paid and not liable for further call or assessment.
PREFERRED STOCK
Under the Company's Articles of Incorporation, the Company is
authorized to issue up to 1,000,000 shares of preferred stock, in one or more
series, with such rights, preferences, qualifications, limitations, and
restrictions as shall be set forth in the Statement pursuant to Section 10-602
of the Arizona Business Corporation Act authorizing the issuance of such stock.
The Company has established a Series A Preferred Stock consisting of 6,750
shares and a Series B Preferred Stock consisting of 250,000 shares. No shares of
Series A Preferred Stock are outstanding. There are 47,000 shares of Series B
Preferred Stock issued and outstanding.
SERIES B PREFERRED STOCK
CONVERSION. Each share of Series B Preferred Stock is convertible into
shares of the Company's Common Stock using a conversion price equal to 65% of
the average closing bid price for the Common Stock for the 10 trading days
immediately preceding the date of conversion:
# OF SHARES OF PREFERRED STOCK X $10 = # of shares of
------------------------------------ Common Stock
65% of average closing bid price
Instead of issuing fractional shares, the number of shares will be
rounded up to the nearest whole share.
The minimum conversion price is $0.41 per share provided that the
Company continues to generate profits on a quarterly basis, there are no
material adverse changes, and the Company does not raise any additional capital
23
<PAGE>
that will result in dilution of the per share net tangible book value (except
for options, warrants, and convertible securities outstanding as of the date of
this Prospectus).
This Prospectus covers the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock.
LIQUIDATION PREFERENCE. In the event of liquidation, dissolution, or
the winding up of the Company, whether voluntary or involuntary, any holder of
the Series B Preferred Stock shall, for each share of Series B Preferred Stock,
be entitled to receive a distribution of $10.00 out of the assets of the Company
prior to any distribution of assets with respect to any other shares of capital
stock of the Company.
OPTIONAL REDEMPTION. The Company shall have the right and option upon
notice to the holders of the Series B Preferred Stock to call, redeem, and
acquire any or all of the shares of Series B Preferred Stock at a price equal to
$11.00 per share, at any time to the extent such shares have not previously
converted to Common Stock pursuant to the terms described above; provided,
however, that the holders of the Series B Preferred Stock shall, in any event,
have the right during the 30-day period immediately following the date of the
Notice of Redemption, which shall fix the date for redemption (the "Redemption
Date"), to convert their shares of Series B Preferred Stock in accordance with
the terms described above. If the shares are converted during such 30-day
period, this call option shall be deemed not to have been exercised by the
Company with respect to such shares so converted. Said Notice of Redemption
shall require the holders to surrender to the Company, on or before the
Redemption Date, to the Company's transfer agent, the certificates representing
the shares of Series B Preferred Stock to be redeemed. Notwithstanding the fact
the certificates representing the shares called for redemption have not been
surrendered for redemption and cancellation on or after the Redemption Date,
such shares shall be deemed to be expired and all rights of the holders thereof
shall cease and terminate.
VOTING AND PREEMPTIVE RIGHTS. The holders of the Series B Preferred
Stock shall have no voting rights except to the extent required by the Arizona
Business Corporation Act and the Series B Preferred Stock shall be entitled to
no preemptive rights.
TRANSFER AGENT
The transfer agent for the Company's Common and Preferred Stock is
Standard Registrar & Transfer Agency, P.O. Box 14411, Albuquerque, New Mexico
87191.
PLAN OF DISTRIBUTION
All or a portion of the Securities offered hereby by the Selling
Stockholders may be delivered and/or sold in transactions from time to time on
the over-the-counter market, in negotiated transactions, or a combination of
such methods of sale. These transactions will be at market prices prevailing at
the time, at prices related to such prevailing prices, or at negotiated prices.
The Selling Stockholders may effect such transactions by selling to or through
one or more broker-dealers, and such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the Selling
Stockholders. The Selling Stockholders and any broker-dealers that participate
in the distribution may under certain circumstances be deemed to be
"underwriters" within the meaning of the Securities Act. Any commissions
received by such broker-dealers and any profits realized on the resale of
Securities by them may be deemed to be underwriting discounts and commissions
under the Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the Selling Stockholders (and, if they act as agent for
the purchaser of such Securities, from such purchaser). Broker-dealers may agree
with the Selling Stockholders to sell a specified number of Securities at a
stipulated price per share. To the extent such a broker-dealer is unable to do
so acting as agent for the Selling Stockholders, it may purchase as principal
any unsold Securities at the price required to fulfill the broker-dealer
commitment to the Selling Stockholders. Broker-dealers who acquire Securities as
principal may thereafter resell such Securities from time to time in
transactions (which may involve crosses and block transactions and which may
involve sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices. In
24
<PAGE>
connection with such resales broker-dealers may pay to or receive from the
purchasers of such Securities commissions computed as described above. To the
extent required under the Securities Act, a supplemental prospectus will be
filed, disclosing (a) the name of any such broker-dealers; (b) the number of
Securities involved; (c) the price at which such Securities are to be sold; (d)
the commissions paid or discounts or concessions allowed to such broker-dealers,
where applicable; (e) that such broker-dealers did not conduct any investigation
to verify the information set out or incorporated by reference in this
Prospectus, as supplemented; and (f) other facts material to the transaction.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale of Securities may not
simultaneously engage in market making activities with respect to the Securities
of the Company for a period of two business days prior to the commencement of
such distribution. In addition and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act, and
the rules and regulations thereunder, including, without limitation, Regulation
M, which provisions may limit the timing of purchases and sales of the
Securities by the Selling Stockholders.
The Selling Stockholders will pay all commissions and certain other
expenses associated with the sale of the Securities by them. The Securities
offered hereby are being registered pursuant to contractual obligations of the
Company, and the Company has paid the expenses of the preparation of this
Prospectus.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 14, 1999, the Company has 20,218,417 shares of Common Stock
and 47,000 shares of Series B Preferred Stock outstanding. Of the 20,218,417
shares of Common Stock, 8,501,750 shares are freely tradable without restriction
under the Securities Act of 1933, as amended (the "Act") and 11,716,667 shares
are restricted. Of the restricted shares, 11,421,667 are held by "affiliates" of
the Company. An "affiliate" of an issuer is a person that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer. Shares held by an "affiliate" may be sold only
if registered under the Act or pursuant to an applicable exemption from
registration, including the applicable provisions of Rule 144. With respect to
the remaining 295,000 restricted shares, none are currently eligible for sale
under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year is entitled to sell, within any three-month period, that number
of shares that does not exceed the greater of one percent of the then
outstanding shares or the average weekly trading volume of the then outstanding
shares during the four calendar weeks preceding each such sale. Furthermore, a
person who is not deemed an "affiliate" of the Company and who has beneficially
owned shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume limitations described above.
There are also outstanding as of May 14, 1999, warrants and options to
purchase 4,661,349 shares of Common Stock, a promissory note which can be
converted into 3,000,000 shares of Common Stock, and 47,000 shares of Series B
Preferred Stock which are convertible into a maximum of 1,146,341 shares of
Common Stock. See "Management - Stock Option Plan," "Management - Other
Options," "Certain Relationships and Related Transactions," and "Description of
Securities - Series B Preferred Stock."
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings and no such
proceedings are known to be contemplated.
25
<PAGE>
EXPERTS
The consolidated financial statements of the Company for the period
ended March 31, 1998 have been included herein in reliance upon the report of
Price Kong & Company, P.A., independent certified public accountants, whose
report has been included in this Memorandum upon the authority of that firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the AExchange
Act@). The Company has filed with the Securities and Exchange Commission (the
ACommission@) a Registration Statement on Form S-1 (including amendments
thereto, the ARegistration Statement@) under the Securities Act with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities, you should review the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus regarding the contents of
any contract or document filed as an exhibit to the Registration Statement are
not necessarily complete. You should review the copy of such contract or
document so filed.
You can inspect the Registration Statement and the exhibits and the
schedules thereto filed with the Commission, without charge, at the office of
the Commission at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549.
You can also obtain copies of these materials from the Public Reference Section
of the Commission at 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed
rates. The Commission maintains a web site on the Internet that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Commission at HTTP://WWW.SEC.GOV.
The Company has a web site on the Internet at AutoTradeCenter.com.
REPORTS TO STOCKHOLDERS
As a result of filing the Registration Statement, the Company will
become subject to the reporting requirements of the Exchange Act, and will be
required to file periodic reports, proxy statements, and other information with
the Commission. The Company will furnish its shareholders with annual reports
containing audited financial statements certified by independent public
accountants following the end of each fiscal year, proxy statements, and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year following the end of such fiscal quarter.
26
<PAGE>
<PAGE>
CONTENTS
Page
Report of Certified Public Accountants 1
Balance Sheet 2
Income Statement 3
Statement of Cash Flow 4
Statement of Changes in Stockholders' Equity 5
Notes to Financial Statements 6
<PAGE>
[Letterhead of Price Kond & Company, P.A.]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Auto Network USA, Inc.
We have audited the accompanying balance sheet of Auto Network USA, Inc. an
Arizona corporation as of March 31, 1998, and the related statements of income,
stockholders' equity, and cash flows for the period from inception (July 10,
1997) to March 31, 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Auto Network USA, Inc. as of
March 31, 1998, and the results of its operations and its cash flows for the
initial period then ended in conformity with generally accepted accounting
principles.
/s/ Price Kong & Co.
Price Kong & Company, P.A.,
Phoenix, Arizona
August 6, 1998
<PAGE>
AUTO NETWORK USA, INC.
BALANCE SHEET
MARCH 31, 1998
ASSETS
Current assets:
Cash $ -
Accounts receivable-trade 1,667,801
Account receivable-related party 37,522
Inventory 2,182,898
Prepaid expenses 5,000
-------------
Total current assets 3,893,221
-------------
Property and equipment at cost,
net of accumulated depreciation of $3,277 53,948
-------------
Other assets 14,676
-------------
Total assets 3,961,845
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade 1,904,520
Accounts payable-related party 11,500
Notes payable - related parties 682,000
Broker commissions payable 65,558
Accrued liabilities 23,934
Total current liabilities 2,687,512
-------------
Deferred income taxes 3,465
Long-term debt - related party 150,000
Long-term debt - Other 381,000
Total liabilities 534,465
-------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, Series A; $.10
par value; 1,000,000 shares authorized;
6,750 shares issued, 3,848 shares outstanding 382,251
Common stock, no par value; 100,000,000 shares
authorized; 13,226,622 shares outstanding 345,233
Retained earnings 12,384
-------------
Total stockholders' equity 739,868
-------------
Total liabilities and stockholders' equity $ 3,961,845
=============
See the accompanying notes to financial statements.
2
<PAGE>
AUTO NETWORK USA, INC.
INCOME STATEMENT
FROM JULY 10, 1997 (INCEPTION)
THROUGH MARCH 31, 1998
Net sales $ 31,581,117
Cost of sales 30,280,247
--------------
Gross profit 1,300,870
--------------
Operating expenses:
Selling 905,303
General and administrative 274,388
Depreciation and amortization 3,429
--------------
Total operating expenses 1,183,120
--------------
Income from operations 117,750
Other income (expense):
Miscellaneous 12,553
Interest expense (114,404)
--------------
Total other income (expense)-net (101,851)
--------------
Income before taxes 15,899
Income tax expense 3,515
--------------
Net income $ 12,384
==============
Earnings per Common Share $ .001
==============
Earnings per Common Share-assuming full dilution $ .001
==============
See the accompanying notes to financial statements.
3
<PAGE>
<TABLE>
AUTO NETWORK USA, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JULY 10, 1997 (INCEPTION) THROUGH MARCH 31, 1998
<CAPTION>
Preferred Common
Stock Stock Retained
Shares Amount Shares Amount Earnings Total
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning
balance, July
10, 1997
(inception) -
Issued common
stock to
founders 9,000,000 $ 30,000 $ 30,000
December 1997
- - Issued
common stock
pursuant to Rule
504 of
Regulation D 1,002,500 25,062 25,062
February 1998 -
Issued
convertible
Series A
preferred stock 6,750 $ 675,000 675,000
March 1998 -
converted
preferred shares
into common
shares: 1,111 to 1 (2,902) (290,171) 3,224,122 290,171 -
Preferred Stock
Offering Costs (2,578) (2,578)
Net income
from July
10,1997
(inception)
through March
31, 1998 $ 12,384 12,384
-------------------------------------------------------------------------------------------------------
Ending balance,
March 31, 1998 3,848 $ 382,251 13,226,622 $ 345,233 $ 12,384 $ 739,868
=======================================================================================================
</TABLE>
See the accompanying notes to financial statements.
4
<PAGE>
AUTO NETWORK USA, INC.
STATEMENT OF CASH FLOWS
FROM JULY 10, 1997(INCEPTION)THROUGH MARCH 31, 1998
Cash flows from operating activities:
Net income $ 12,384
Adjustment to reconcile net income to net cash provided by
operating activities - Depreciation and amortization 3,429
(Increase) decrease in:
Accounts receivable (1,705,323)
Inventory (2,182,898)
Prepaid expenses (5,000)
Other assets (12,700)
Increase(decrease) in:
Accounts payable 1,916,020
Broker commissions payable 65,558
Accrued liabilities 23,933
Deferred income taxes 3,465
-----------------
Net cash provided by (used in)operating activities (1,881,132)
-----------------
Cash flows from investing activities:
Purchase of property and leasehold improvements (57,225)
Investment in start-up and organization costs (2,128)
-----------------
Net cash provided by (used in) investing activities (59,353)
-----------------
Cash flows from financing activities:
Proceeds from borrowings 1,601,000
Repayment of borrowings (769,000)
Proceeds from long-term debt 381,000
Proceeds from issuance of convertible preferred stock 672,422
Proceeds from issuance of common stock 55,063
-----------------
Net cash provided by financing activities 1,940,485
-----------------
Net change in cash -
Beginning cash balance, July 10, 1997 (inception) -
-----------------
Ending cash balance, March 31, 1998 $ -
=================
Supplemental disclosures:
Conversion of preferred stock into common stock $ 290,171
Interest paid $ 107,960
=================
See the accompanying notes to financial statements.
5
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCORPORATION AND NATURE OF BUSINESS
Auto Network USA, Inc. (the Company) was incorporated pursuant to the laws of
the State of Arizona on July 10, 1997 and began operations on September 22,
1997. The Company is principally engaged in the business of acquiring late-model
used vehicles, typically from franchised and independent auto dealers, and
reselling them to other used-car dealers throughout the United States; this
activity is generally referred to as the wholesale automobile business. March
31, is the Company's fiscal year end.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires that the basis for
estimating the fair value of instruments be disclosed. The Company's financial
instruments include cash, , accounts receivable, accounts payable, notes payable
and long term debt. The estimated fair value amounts have been determined by the
Company at March 31, 1998, using available market information and valuation
methodologies described below. Considerable judgement is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates may not be indicative of the amounts that could be realized in a
current market exchange. The use of different market assumptions or valuation
methodologies could have a material effect on the estimated fair value amounts.
The carrying values of cash, accounts receivable, accounts payable, notes
payable, and accrued liabilities approximate fair values due to the short-term
maturities of these instruments.
The carrying value of all significant loans and other debt approximate fair
value because their interest rates were negotiated at the current rates
available at the time. Management states that no significant changes have
occurred subsequently.
6
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH ITEMS
Cash and cash items include all highly liquid debt instruments purchased with a
maturity of three months or less at the date of acquisition.
INVENTORY
Inventory consists entirely of used vehicles that are stated at the lower of
cost or market. The cost of used vehicles is determined on a specific
identification basis.
DEPRECIATION AND AMORTIZATION
Equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the assets' estimated useful lives.
Organization expenses are stated at cost less accumulated amortization, which is
computed using the straight-line method over a five-year period.
REVENUE RECOGNITION
Revenue and the corresponding cost of the sale are recognized when vehicles are
sold to customers evidenced by a sale and a purchase order, respectively. The
Company pays for the vehicle and receives payment from its customers when the
vehicle title is presented. It is not unusual for a title to lag several days
behind the recordation of the vehicle purchase and physical delivery;
correspondingly, a vehicle may be sold and delivered to a customer prior to the
delivery of the title and the receipt of cash.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing the net income available to
shareholders holding common stock by the weighted number of shares outstanding.
The weighted number of shares outstanding for the period is 9,834,300. All
common stock converted and convertible from preferred stock issued during the
period are antidilutive; therefore, they are not used in the computation of
diluted earnings per share.
7
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and to operating loss carryforwards, measured by enacted
tax rates for years in which taxes are expected to be paid or recovered in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" (See Note I). As of March 31, 1998, depreciation
between financial statement and income tax accounting on property and equipment
are the only significant timing differences.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
Amount
-----------
Trade accounts receivable $1,667,801
Related party receivable 37,522
-----------
1,705,323
Allowance for doubtful accounts 0
-----------
Total $1,705,323
===========
The related party account receivable arose from transactions with Scottsdale Car
Company. Management has not established an allowance for doubtful accounts
because substantially all receivables are collateralized by titles to
automobiles. Additionally, the Company looks to the independent brokers for
collection.
NOTE C - INVENTORY
At March 31, 1998, the Company had 140 used vehicles being held in inventory at
a cost of $2,182,898. The cost of each vehicle includes the purchase price plus
transportation and fix-up expenses. In the occasional situation where the cost
of a vehicle exceeds net realizable value, no reduction to net realizable value
is made since the broker is charged for this excess at the time of sale
8
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Accumulated Net Book
Category Life/Method Cost Depreciation Value
- ------------------------- ------------ ----------- ------------- ----------
Computers and equipment 3 years/SL $ 25,207 $ 1,377 $23,830
Vehicles 3 years/SL 6,678 557 6,121
Furniture and fixtures 7 years/SL 8,712 597 8,115
Leasehold improvements 5 years/SL 16,628 746 15,882
=========== ============= ==========
$ 57,225 $ 3,277 $53,948
=========== ============= ==========
Depreciation expense was $3,277 for the period ended March 31, 1998.
NOTE E - OTHER ASSETS
Other assets consist of the following:
Amount
----------
Deposits $12,700
Organizational costs, at cost net of
accumulated amortization of $152 1,976
----------
$14,676
==========
Amortization expense was $152 for the period ended March 31, 1998.
9
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE F- ACCOUNTS PAYABLE
Accounts payable consist of the following:
Amount
------------
Trade accounts payable $1,900,984
Bank overdraft 3,536
------------
Total accounts payable $1,904,520
============
NOTE G - NOTES PAYABLE
Notes payable consists of the following at March 31, 1998:
OFFICER:
o Note payable to officer, 12% interest per annum,
payable monthly, due January 15, 1999. (refer to $ 300,000
1. and 2. below)
o Note payable to officer, 12% interest per annum,
payable monthly, due upon 30 days notice. (refer 102,000
to 1. below)
------------
402,000
------------
AFFILIATES:
o Note payable to an entity controlled by two officers
and directors of the Company, 12% interest per
annum, payable monthly, due December 15, 1998. 200,000
(refer to 1. below)
o Unsecured obligation to a related party who buys and
sells vehicles for the Company, 12% interest per
annum, payable monthly, due on demand (refer to 1. 80,000
below)
------------
280,000
------------
Total notes payable $ 682,000
============
1. Collateralized by used car inventory.
2. Convertible, at the option of note holder, into shares of the Company's
common stock at a conversion price of $0.10 per share. The option expires
30 days after the term of the note.
The weighted average interest rate for short-term borrowings at March 31, 1998
was 12%.
10
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE H - LONG-TERM DEBT
Long-term debt consists of the remaining balance on a note payable to an
unrelated third party due September 22, 1999 in the amount of $381,000 and a
note payable to an officer\director, due November 17, 1999 in the amount of
$150,000. Interest earned on the notes is 12% per annum, payable monthly. These
notes are collateralized by titles to vehicles, and guarantees of an officer and
two independent brokers, respectively. There are no installments due during the
ensuing twelve-month period.
NOTE I - INCOME TAXES
The Company's effective tax rate equals the statutory tax rate. The provision
for income taxes for the period ending March 31, 1998 was $3,515, inclusive of
both federal and state income taxes. The components of income tax expense for
the period ending March 31, 1998 is as follows:
Federal State Total
-------- -------- --------
Currently payable $ -0- $ 50 $ 50
Deferred 1,951 1,514 3,465
-------- -------- --------
Total $ 1,951 $ 1,564 $ 3,515
======== ======== ========
Depreciation is the only temporary difference for which deferred income taxes of
$3,465 are recognized as of March 31, 1998.
The following is a reconciliation of income tax at the statutory rate to the
Company's effective rate:
Computed at the expected statutory rate $ 5,506 34%
Surtax exemptions (3,020) (19)
State income tax-net of federal tax benefit 1,242 8
Other 237 1
------- ---
Income tax expense/Effective rate $ 3,515 24%
======= ===
11
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE J- ECONOMIC RISK AND DEPENDENCY
The Company utilizes independent brokers in the purchase and sale of used
vehicles. For the period ending March 31, 1998, a major portion of the Company's
sales was generated by less than half of these brokers. Consequently, loss of
the services of one of more of these high volume producers could have a
significant impact upon the Company's financial results. As the Company
continues its expansion plans, the addition of independent brokers should
mitigate this risk and dependency.
NOTE K - COMMITMENTS AND CONTINGENCIES
The Company entered into an agreement on March 5, 1998 with RCG Capital Markets
Group, Inc. to provide financial consulting services to the Company commencing
March 16, 1998 for a term of eighteen months. RCG Capital Markets Group is to
receive $2,000 per month for the first 12 months and $5,500 per month for the
remaining six months. Miscellaneous out-of-pocket expenses will be reimbursed. A
retainer of $5,000 has been issued for these expenses. Additionally, options
were granted at $.50 each for 350,000 shares of common stock. One-half of these
options vested upon execution of the agreement. The remaining half will vest
after one year.
NOTE L - OPERATING LEASES
The Company leases its office and garage facilities in Scottsdale, Arizona under
an operating lease expiring September 30, 2002. As more fully explained in Note
N, the Company also opened a similar facility in Albuquerque, New Mexico on June
1, 1998 and entered into an operating lease with a related party expiring on May
31, 1999. Both of these leases require the Company to pay all maintenance,
insurance, and taxes on the leased property. The following schedule shows the
future minimum lease payments required as of March 31, 1998 by year under the
operating lease for Scottsdale:
Year ending March 31, 1999 $ 165,478
2000 171,422
2001 178,050
2002 183,152
2003 92,836
-----------
$ 790,938
The Company (Lessee) is responsible for paying any increases in real property
taxes on the Scottsdale facility over the base year property taxes.
Six related parties guaranteed the Scottsdale facility lease.
12
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE L - OPERATING LEASES (CONTINUED)
The Company sub-leases a portion of its Scottsdale facility to an independent
third party on a monthly basis for $2,000 per month which is included in
miscellaneous revenue. Rental expense for the period ending March 31, 1998 was
$75,860.
NOTE M - STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of its $0.10 par value
preferred stock on terms and conditions determined by the Board of Directors at
date of issuance.
On February 2, 1998, the Company issued 6,750 shares of Series A Preferred Stock
("Series A") for $675,000 pursuant to Section 4(2) of the Securities Act of
1933. Each share of Series A, which is limited to the initial issuance of 6,750
shares, is convertible into 1,111 shares of the Company's common stock at the
sole discretion of the holder. In March 1998, 2,902 preferred shares were
converted into 3,224,122 common shares.
The amount payable on shares of Series A upon the liquidation, disolution or
winding-up of the affairs of the Company is $100 per share or $384,415 in excess
of the par value based on 3,848 preferred shares outstanding at March 31, 1998.
Each share of Series A has one vote per share.
STOCK OPTIONS
The Company granted at fair market value, 1,000,000 stock options through March
31, 1998 pursuant to the Company's September 25, 1997 stock option plan. All
employees, officers, independent brokers, consultants and directors are eligible
to participate in the plan. Total shares reserved for issuance under the plan
were 2,000,000. Optioned shares vest within 1 year from date of grant, and
expire after 5 years from date of grant. Options granted to independent brokers
are subject to the maintenance of specified sales volumes. All of the shares
issued pursuant to the stock options are restricted shares pursuant to Rule 144
of the Securities and Exchange Commission. The weighted average exercise price
of options outstanding at March 31, 1998 was $.32 per share, with a range from
$.15 to $.50 per share.
13
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE M - STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
For each share of common stock issued upon conversion of Series A Preferred
Stock, one warrant to purchase common stock will be issued. Five warrants shall
be exercisable to purchase one share of common stock at $.25 per share. The
warrants shall expire one year from date of issuance
Of the total of 6,750 preferred shares issued as of March 31, 1998, 2,902 shares
of Series A Preferred shares were converted into 3,224,122 shares of common
stock, therefore, 3,224,122 warrants are outstanding.
NOTE N- RELATED PARTY TRANSACTIONS
During the period ended March 31, 1998, the Company had entered into various
lending arrangements with officers, directors and other affiliated entities
owned or controlled by officers, directors and other key personnel of the
Company totaling $1,601,000. As more fully detailed in Note F, at March 31, 1998
the balance outstanding on these notes was $832,000. The total interest paid to
these entities on all financing activities for the period ended March 31, 1998
was $66,416.
During the period ended March 31, 1998, the Company consummated a total of
approximately $800,000 of vehicle sales and $1,255,000 of vehicle purchases with
two entities owned by officers\directors\stockholders of the Company. The
amounts transacted were for values equivalent to what would have been attained
if transacted with independent third parties. At March 31, 1998, the Company had
an account receivable of $37,522 from one of these entities.
During the period ending March 31, 1998, the Company paid $4,000 for
professional services to MRM Consultants, an entity owned by an officer\director
of the Company. This same person was owed $11,500 as of March 31, 1998.
14
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE O - SUBSEQUENT EVENTS
NOTE PAYABLE
On April 7, 1998, the Company obtained $300,000 from an officer\director for
which it signed a note that accrues interest at 12% per annum, payable monthly.
The note is due upon 30 days written notice and is collateralized by used car
inventory.
On June 1, 1998 the Company obtained $250,000 from Eastlane Trading, Ltd., an
independent third party, and signed a note that earns interest at 12% per annum,
payable monthly. The note is due June 1, 1999.
LINE OF CREDIT
On May 5, 1998, the Company obtained a line of credit from its commercial bank
in the amount of $500,000. The note is due June 5, 1999 and is collateralized by
all inventory, accounts receivable, equipment and general intangibles. Company
officers and directors also personally guaranteed the note. As of August 6,
1998, the full $500,000 credit line had been utilized.
ALBUQUERQUE FACILITY
On May 18, 1998 Auto Network USA of New Mexico, Inc. ("ANET-NM") was formed, a
wholly owned subsidiary. On June 1, 1998, ANET-NM issued 100 shares of its
common stock to Auto Network USA, Inc. for $100. In addition, effective June 1,
1998, the Company entered into various financial agreements that effectively
allowed the Company to begin operating a wholesale used car sales facility in
Albuquerque, New Mexico. These agreements are as follows:
1) The Company entered into a Purchase of Goodwill Agreement with JBS, LLC
("JBS"), whose members comprise the management team in Albuquerque. As part
of the inducement for signing the agreement, JBS was granted a total of
800,000 restricted shares of Auto Network USA, Inc., that were valued at
$0.20 per share. The shares are earned by JBS as follows:
15
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE O - SUBSEQUENT EVENTS (CONTINUED)
a) Upon signing the agreement 266,667 shares of common stock were issued to
an escrow agent and are subject to forfeiture only if ANET-NM is not doing
business as of June 1, 1999.
b) Up to 266,667 shares may be earned for the period beginning June 1, 1998
through March 31, 1999 and up to 266,666 shares for the year ended March
31, 2000 if ANET-NM achieves agreed upon pre-tax earnings for each of
those periods.
As an additional incentive, JBS received stock options for the purchase of
additional shares of the Company's common stock. These options will vest at a
rate of five (5) options for every dollar of pre-tax earnings achieved by
ANET-NM in excess of the benchmarks established for each of the periods
beginning June 1, 1998 through March 31, 1999 and for the year ended March
31, 2000. The options shall be exercisable for a period of three (3) years
from and after their grant date, at the bid price of the Company's common
stock at March 31, 1999 and March 31, 2000, respectively.
2) Effective June 1, 1998 ANET-NM entered into a lease agreement with G & B
Investments, LLC, an entity owned by two of the principals managing the
Albuquerque operations. The lease terminates on May 31, 1999 but is
automatically renewed unless a 30 day cancellation notice is received by
either party. The lease is an operating lease whereby ANET-NM is responsible
for all operating costs. The amount of the lease is $2,500 per month.
3) Auto Network USA, Inc. loaned ANET-NM $250,000 carrying back a note
receivable due June 30, 2000. The note earns interest at 12% per annum,
payable monthly.
16
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE O - SUBSEQUENT EVENTS (CONTINUED)
4) Auto Network USA, Inc. signed a note payable to Burton Motors Ltd. Co.
("Burton"), an entity controlled by the principals managing the Albuquerque
operations, for $250,000 due June 30, 2000 upon the infusion of $250,000 into
ANET-NM by Burton. The note earns interest at 15% per annum, payable monthly.
The note is unsecured and is subordinated to other debt of Auto Network USA,
Inc. The note may be converted to Auto Network USA, Inc. common stock of at
the option of Burton at a price equal to the closing bid price at date of
conversion.
The amount of the goodwill created by the above transaction will be
capitalized and amortized on a straight-line basis over a 10-year benefit
period. The Company periodically assesses the recoverability of the cost of
its goodwill based upon a review of projected non-discounted cash flows of
the related operating entity among other criteria. These cash flow estimates
are prepared and reviewed by management in connection with the Company's
annual long-range planning process.
CONSULTING AGREEMENT
Auto Network USA, Inc. entered into an agreement on July 8, 1998 with an
individual to serve as a consultant and advisor to the Board of Directors. The
term of the agreement is six months with an option to extend the agreement for
an additional six months upon mutual consent of the parties. Options on 100,000
shares of the common stock are exercisable at $0.875 and shall vest as follows:
1) The first 25,000 options shall vest upon signing.
2) The second 25,000 options shall vest upon closing a financing
arrangement with an institution for at least
$1,000,000.
3) The third 25,000 options shall vest immediately upon renewal
of the agreement after its initial six-month term.
4) The fourth and remaining 25,000 options shall vest during the
second six-month term, if extended, if additional funding is
obtained from a banking source different than 2) above.
17
<PAGE>
AUTO NETWORK USA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE O - SUBSEQUENT EVENTS (CONTINUED)
Auto Network USA, Inc. and Pinnacle Financial Corporation (a related party)
entered into an agreement with an individual for advisory services related to
the wholesale automobile industry, financing, capital markets and other general
business matters. He will be reimbursed $2,000 per month during the term of the
agreement plus incurred out of pocket expenses. In addition, he will be granted
an option for two years to purchase up to 50,000 shares of common stock for
$0.875.
ACQUISITION OF SUBSIDIARY
On July 20, 1998 the Board of Directors approved the acquisition of Pinnacle
Dealer Services, Inc. for 300,000 shares of restricted common stock of the
Company. Pinnacle Dealer Services, Inc. was a newly formed, wholly owned
subsidiary of Pinnacle Financial Corporation, a related party. Pinnacle Dealer
Services, Inc. has entered into an agreement with a financing source whereby
lines of credit will be made available to dealers/customer for vehicles
purchased through Auto Network USA, Inc. No value was ascribed to the 300,000
shares issued since the transaction is being recorded on the historical basis of
accounting, there were no costs involved in the formation of this newly acquired
entity.
18
<PAGE>
AUTO NETWORK GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
ASSETS
Current assets:
Cash $ 140,513
Accounts receivable-trade 3,888,690
Accounts receivable-employees and related parties (41)
Inventory 4,469,319
Prepaid expenses 40,407
Other current assets 2,530
Total current assets 8,541,418
------------------
Property and equipment, net of accumulated
Depreciation of $7,802 120,354
------------------
Other assets 64,669
------------------
Total assets $ 8,726,441
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 2,905,922
Accounts payable-employees and related parties 40,254
Notes payable-related party 1,569,500
Notes payable 500,000
Broker's reserves 183,415
Accrued liabilities 89,338
Income taxes payable 9,470
------------------
Total current liabilities 5,297,899
Deferred income taxes -
Long-term debt - related party 315,000
Long-term debt - Other 1,833,259
------------------
Total liabilities 7,446,158
------------------
Stockholders' equity:
Convertible preferred stock, Series A; $0.10
par value; 1,000,000 shares authorized;
6,750 issued, 3,848 shares outstanding 382,251
Convertible preferred stock, Series B; $10.00
par value; 250,000 shares authorized;
47,000 issued, 47,000 shares outstanding 377,669
Common stock, no par value; 100,000,000 shares
authorized; 13,793,289 shares outstanding 398,567
Retained earnings 121,797
------------------
Total stockholders' equity 1,280,283
Total liabilities and stockholders' equity $ 8,726,441
==================
<PAGE>
AUTO NETWORK GROUP, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
Net sales $ 69,600,122
Cost of sales 66,688,743
---------------
Gross profit 2,911,378
---------------
Operating expenses:
Selling 1,840,031
General and administrative 634,642
Depreciation and amortization 19,871
---------------
Total operating expenses 2,494,544
---------------
Income from operations 416,834
---------------
Other income (expense):
Miscellaneous 36,735
Interest expense (278,413)
---------------
Total other income (expense) (241,678)
---------------
Income before income taxes 175,156
Income tax expense 65,743
Net income $ 109,413
===============
Earnings per Common Share $ 0.008
===============
Earnings per Common Share - assuming full dilution $ 0.008
===============
<PAGE>
<TABLE>
AUTO NETWORK GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended December 31, 1998
(Unaudited)
<CAPTION>
Series A, Convertible Series B, Convertible Common Retained
Preferred Stock Preferred Stock Stock Earnings Total
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance @ March 31, 1998 3,848 $382,251 - - 13,226,622 $345,233 $ 12,384 $ 739,868
Shares Issued June 1,1998 for
Goodwill 266,667 53,333 53,333
Shares issued August 26, 1998
for purchase of subsidiary 300,000 - -
Shares issued in November
1998 for purchase of
preferred stock 35,000 $281,242 281,242
Shares issued in December
1998 for purchase of
preferred stock 12,000 96,426 96,426
Net income for the nine
months ended December 31,
1998 109,413 109,413
Balance @ December 31, 1998 3,848 $382,251 47,000 $377,668 13,793,289 $398,566 $121,797 $1,280,282
</TABLE>
<PAGE>
[BACK COVER OF PROSPECTUS]
Dealer Prospectus Delivery Obligation
Until _____________, 1999, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with the
securities being registered are as follows:
Securities and Exchange Commission filing fee........$ 144.66
Accounting fees and expenses.........................
Blue sky fees and expenses...........................
Legal fees and expenses..............................
Transfer agent fees and expenses.....................
Printing expenses....................................
Miscellaneous expenses...............................
Total................................................$
All amounts are estimates except the SEC filing fee and NASD
filing fee. The Selling Stockholders will be bearing the cost of their own
brokerage fees and commissions and their own legal and accounting fees.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Arizona Business Corporation Act and Article 9 of the Registrant's
Articles of Incorporation permit the Registrant to indemnify its officers and
directors and certain other persons against expenses in defense of a suit to
which they are parties by reason of such office, so long as the persons
conducted themselves in good faith and the persons reasonably believed that
their conduct was in the corporation's best interests, not opposed to the
corporation's best interests, or unlawful. Indemnification is not permitted in
connection with a proceeding by or in the right of the corporation in which the
officer or director was adjudged liable to the corporation or in connection with
any other proceeding charging that the officer or director derived an improper
personal benefit, whether or not involving action in an official capacity, in
which proceeding the officer or director was adjudged liable on the basis that
he or she derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the registrant's inception, it has issued and sold securities
which were not registered under the Securities Act of 1933, as follows:
<TABLE>
COMMON STOCK:
<CAPTION>
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
8/97 Jeff Erskine, Mike Stuart, Mark 9,000,000 shares $.003333 per share $30,000 cash
Moldenhauer, Joe Seaverns, Candy
Seaverns, Victor Felice, and John
Carrante
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
12/97 34 persons 1,002,500 shares $0.025 per share $25,062.50 cash
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
2/98 - 3/99 Eastlane Trading Limited, 7,499,250 shares (and Conversion of 6,750 shares of Series A
Silhouette Investments Ltd., and warrants to purchase Preferred Stock
Flagstone Automotive Inc. 1,499,850 shares at
$.25 per share)
- ------------ ----------------------------------- ----------------------- ---------------------------------------------
3/99 Shareholders of Walden 2,050,000 shares These shares were issued in exchange for the
Remarketing Services, Inc. shares of Walden Remarketing Services, Inc.
- ------------ ----------------------------------- ----------------------- ---------------------------------------------
4/99 M&A West, Inc. 100,000 shares $2.00 per share $200,000 cash
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
</TABLE>
II-1
<PAGE>
No underwriters were used in the above transactions. The registrant
relied upon the exemption from registration contained in Section 4(2) as to the
first transaction and acquisition of Walden Remarketing Services, and Rule 504
as to the other transactions. With regard to the first transaction for founders'
stock and Walden Remarketing Services acquisition, the purchasers were deemed to
be sophisticated with respect to the investment in the securities due to their
financial condition and involvement in the registrant's business. Restrictive
legends were placed on the stock certificates evidencing the shares issued in
the Section 4(2) transaction.
<TABLE>
SERIES A PREFERRED STOCK:
<CAPTION>
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
2/98 Eastlane Trading Limited 6,750 shares $100 per share $675,000 cash
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
</TABLE>
No underwriters were used in the above transaction. The registrant
relied upon the exemption from registration contained in Section 4(2) of the
Securities Act of 1933. The purchaser was deemed to be sophisticated with
respect to this investment in securities of the registrant by virtue of its
financial condition and previous investment experience. A restrictive legend was
placed on the stock certificates evidencing the Series A Preferred Stock.
<TABLE>
SERIES B PREFERRED STOCK:
<CAPTION>
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
DATE PERSON OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
11/98 - 3 accredited and 1 non-accredited 47,000 shares $10 per share $470,000 cash
12/98 investors
- ------------ ----------------------------------- ----------------------- ---------------------- ----------------------
</TABLE>
The registrant entered into a Consulting Agreement with Anthony &
Company, Inc. dba Anthony Advisors (the AConsultant@). Under the terms of the
Consulting Agreement, the registrant appointed the Consultant as its exclusive
agent for the purpose of introducing to the registrant persons interested in
investing in the Series B Preferred Stock. The Consultant was not authorized to
negotiate the terms of the transaction with any introduced investor on behalf of
the registrant or to execute the transaction on behalf of the registrant. For
its services, the registrant agreed to pay the Consultant a fee of $440,000 and
warrants to purchase up to 300,000 shares of the registrant's Common Stock at
$.50 per share. The registrant relied upon the exemption from registration
contained in Rule 506 of Regulation D.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as exhibits to this
registration statement:
REGULATION S-K
NUMBER DOCUMENT
2.1 Agreement and Plan of Reorganization between Auto Network
Group, Inc. and Walden Remarketing Services, Inc.
3.1 Articles of Incorporation, as amended
3.2 Bylaws
4.1 Statement Pursuant To Section 10-602 of The Arizona Business
Corporation Act of Auto Network USA, Inc. Regarding Series A
Preferred Stock
4.2 Statement Pursuant To Section 10-602 of The Arizona Business
Corporation Act of Auto Network USA, Inc. Regarding Series B
Preferred Stock
4.3 Warrant to Purchase Common Stock Issued to Anthony & Company,
Inc.
5.1 Opinion regarding legality
10.1 Stock Option Plan
10.2 Evelyn Felice loan documents
10.3 Mark Moldenhauer loan documents
10.4 Pinnacle Financial Corporation loan documents 10.5 Eastlane
Trading Limited loan documents
10.6 Norwest Bank loan documents
II-2
<PAGE>
REGULATION S-K
NUMBER DOCUMENT
10.7 Mike and Debbie Stuart loan documents
10.8 Purchase of Goodwill Agreement with JBS, LLC
10.9 Promissory Notes used for acquisition of Walden Remarketing
Services, Inc.(to be filed by amendment).
10.10 Consulting Agreement with Dennis E. Hecker dated April 20,
1999
10.11 Non-Qualified Stock Option Agreement with Dennis E. Hecker
dated April 20, 1999
21 Subsidiaries of the registrant
23 Consent of Price Kong & Company, P.A.
27 Financial Data Schedule
(b) The following financial statement schedules are filed with
this registration statement: None
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event 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 total dollar value of 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 not 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.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale,
State of Arizona, on May 17, 1999.
AUTOTRADECENTER.COM INC.
By:/S/MIKE STUART
Mike Stuart, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/S/MIKE STUART President and a director MAY 17, 1999
- --------------------------------------- (Principal Executive Officer) --------------------------------------
Mike Stuart
Vice President, Secretary and a MAY 17, 1999
/S/MARK MOLDENHAUER Director --------------------------------------
- ---------------------------------------
Mark Moldenhauer
Treasurer
(Principal Financial and Accounting MAY 17, 1999
/S/ROGER L. BUTTERWICK Officer) --------------------------------------
- ---------------------------------------
Roger L. Butterwick
</TABLE>
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
AUTO NETWORK GROUP, INC.
AND
WALDEN REMARKETING SERVICES, INC.
THIS AGREEMENT AND PLAN OF REORGANIZATION, made and entered into as of the
31st day of March, 1999, by and between Auto Network Group, Inc., a Arizona
corporation ("ANET"), and Walden Remarketing Services, Inc., a Minnesota,
corporation ("WALDEN").
WHEREAS, the Boards of Directors of ANET and WALDEN have determined that
it is in the best interests of ANET and WALDEN and their respective shareholders
to consummate a strategic combination of the companies;
WHEREAS, the strategic combination contemplated by this Agreement will be
effected by the merger of WALDEN with and into ANET with the shareholders of
WALDEN receiving in exchange for their shares of WALDEN common stock an
aggregate of 2,050,000 shares authorized by unissued shares of common stock, no
par value, of ANET, an aggregate of $125,000 in cash and $425,000 in notes of
ANET (the "Merger"); and
WHEREAS, ANET and WALDEN desire that the Merger be made on the terms and
subject to the conditions set forth in this Agreement and qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
representations contained herein, THE PARTIES HERETO AGREE AS FOLLOWS:
ARTICLE I
1.1 THE MERGER. Subject to all of the terms and conditions of this
Agreement, WALDEN will merge with and into ANET and ANET shall be the surviving
corporation.. As a result of the Merger, each share of WALDEN common stock shall
be converted and exchangeable into 2,562,5 shares of ANET common stock, $156.25
in cash and $531.25 in notes. The notes will be in the form of Exhibit 1.1
attached hereto (the "Notes").
1.2 EXEMPTION FROM REGISTRATION. The parties hereto intend that the common
stock to be issued by ANET to the shareholders of WALDEN shall be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Act"), pursuant to Section 4(2) and/or 3(b) of the Act and the rules and
regulations promulgated thereunder. ANET agrees that it shall provide
registration rights to the shareholders of WALDEN pursuant to the registration
17277/3 1
<PAGE>
rights agreement containing the terms set forth on Exhibit 1.2 attached hereto
(the "Registration Rights Agreement").
1.3 INVESTMENT INTENT. Prior to the consummation of the Merger, the
shareholders of WALDEN shall execute letters of acceptance in the form of
Exhibit 1.3 attached hereto (the "Investment Intent Agreement") containing among
other things, representations and warranties relating to investment intent and
investor status, restrictions on transferability and restrictive legends, such
that the counsel for both ANET and WALDEN shall be satisfied that the exchange
of shares as contemplated by this Agreement will be exempt from the registration
requirements of the Act.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF WALDEN
WALDEN hereby represents and warrants to ANET that:
2.1 ORGANIZATION. WALDEN is a corporation duly organized, validly
existing, and in good standing under the laws of Minnesota, and has all
necessary corporate powers to own its properties and to carry on its business as
now owned and operated by it, and is duly qualified to do business and is in
good standing in each of the jurisdictions where its business requires
qualification.
2.2 CAPITAL. The authorized capital stock of WALDEN consists of 1,000,000
shares of common stock, $.01 par value, of which 800 shares are currently issued
and outstanding. All of the issued and outstanding shares of WALDEN are duly and
validly issued, fully paid, and non-assessable.
2.3 SUBSIDIARIES. As of the date hereof, WALDEN does not have any
subsidiaries or own any interest in any other enterprise (whether or not such
enterprise is a corporation) except as disclosed herein.
2.4 DIRECTORS AND OFFICERS. Exhibit 2.4 to this Agreement, the text of
which is hereby incorporated herein by reference, contains the names and titles
of all directors and officers of WALDEN as of the date of this Agreement.
2.5 FINANCIAL STATEMENTS. Exhibit 2.5 to this Agreement, the text of which
is hereby incorporated herein by reference, consists of the unaudited financial
statements of WALDEN's remarketing business as of December 31, 1998 and February
28, 1999, containing the unaudited balance sheets and income statements of
WALDEN's remarketing business. The financial statements have been prepared in
accordance with generally accepted accounting principles consistently followed
by WALDEN throughout the period indicated, and fairly present the financial
position of WALDEN's remarketing business as of the date of the balance sheet.
17277/3 2
<PAGE>
2.6 ABSENCE OF CHANGES. Since the date of the balance sheet included in
Exhibit 2. 5, there has not been any change in the financial condition or
operations of WALDEN, except for (a) changes in the ordinary course of business,
which changes have not in the aggregate been materially adverse, and (b) the
Distributions as defined and described in Exhibit 2.6.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date of the balance
sheet included in Exhibit 2.5, WALDEN did not have any material debt, liability,
or obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, that is not reflected in such balance sheet,
except for those that are subject to the Distributions. Mr. Dennis E. Hecker
agrees to provide his personal guarantee on any and all liabilities that may
arise from activities of WALDEN that may have arisen prior to the effective date
of the acquisition that are not disclosed on the financial statements referenced
above or did not arise in the ordinary course of WALDEN's remarketing business
after the date of such financial statements.
2.8 INVESTIGATION OF FINANCIAL CONDITION. Without in any manner reducing
or otherwise mitigating the representations contained herein, ANET and/or its
attorneys shall have the opportunity to meet with accountants and attorneys to
discuss the financial condition of WALDEN. WALDEN shall make available to ANET
and or its attorneys all books and records of WALDEN once reasonable notice of
such request has been given.
2.9 COMPLIANCE WITH LAWS. WALDEN has complied with, and is not in
violation of, applicable federal, state or local statutes, laws and regulations
(including, without limitation) any applicable building, zoning or other law,
ordinance regulation) affecting its properties or the operation of its business.
2.10 LITIGATION. WALDEN is not a party to any legal action, arbitration,
administrative or other proceeding, or governmental investigation pending or, to
the best knowledge of WALDEN, threatened against or affecting WALDEN or its
business, assets or financial condition. WALDEN is not in default with respect
to any order, writ, injunction or decree of any federal, state, local or foreign
court, department, agency or instrumentality. WALDEN is not engaged in any legal
action to recover monies due to it.
2.11 AUTHORITY. The Board of Directors of WALDEN has authorized the
execution of this Agreement and the consummation of transactions contemplated
herein, and WALDEN has full power and authority to execute, deliver and perform
this Agreement and this Agreement in a legal, valid and binding obligation of
WALDEN, and is enforceable in accordance with its terms and conditions.
2.12 ABILITY TO CARRY OUT OBLIGATIONS. The execution and delivery of this
Agreement by WALDEN and the performance by WALDEN of its obligations hereunder
in the time and manner contemplated will not cause, constitute or conflict with
or result in (a) any breach or violation of any of the provisions of or
constitute a default under any license, indenture, mortgage, charter,
instruments, articles of incorporation, bylaws, or other agreement or instrument
to which WALDEN is a party, or by which it may be bound, nor will any consents,
approvals or authorizations of any party be required for the consummation of the
transactions
17277/3 3
<PAGE>
contemplated by this Agreement, except as set forth on Exhibit 2.12, (b) an
event that would permit any party to any agreement or instrument to terminate it
or to accelerate the maturity of any indebtedness or other obligation of WALDEN,
or (c) any event that would result in the creation or imposition of any lien,
charge, or encumbrance on any asset of WALDEN, for the consummation of the
transactions contemplated by this Agreement, except as set forth on Exhibit
2.12.
2.13 FULL DISCLOSURE. None of the representations and warranties made by
WALDEN herein, or in any exhibit, certificate furnished or to be furnished by
WALDEN, or on its behalf, contains or will contain any untrue statement of
material fact, or omit any material fact the omission of which would be
misleading.
2.14 ASSETS. WALDEN has good and marketable title to all of its property
reflected on the balance sheets referred to in Section 2.5, free and clear of
any and all liens, claims and encumbrances of any nature, form or description.
2.15 INDEMNIFICATION. WALDEN agrees to defend and hold ANET harmless
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies, including
interest, penalties, and reasonable attorney fees, that it shall incur or
suffer, which arise out of, result from or relate to any breach of, or failure
by WALDEN to perform any of its respective representations, warranties,
covenants and agreements in this Agreement or in any exhibit or other instrument
furnished or to be furnished by WALDEN under this Agreement.
ARTICLE III
ANET represents and warrants to WALDEN that:
3.1 ORGANIZATION. ANET is a corporation duly organized, validly existing,
and in good standing under the laws of the state of Arizona, has all necessary
corporate powers to own its properties and to carry on its business as now owned
and operated by it, and is duly qualified to do business and is in good standing
in each of the jurisdictions where its business requires qualification.
3.2 CAPITAL. The authorized capital stock of ANET consists of 100,000,000
shares of common stock, of which 18,068,417 shares are outstanding. All of the
issued and outstanding shares are duly and validly issued, fully paid and
non-assessable. There are no outstanding subscriptions, options, rights,
warrants, convertible securities, or other agreements or commitments obligating
ANET to issue or to transfer any additional shares of its capital stock of any
class, except as set forth on Exhibit 3.2.
3.3 SUBSIDIARIES. ANET does own subsidiaries and does have interests in
any enterprises which are included in its financial statements (whether or not
such enterprise is a corporation).
17277/3 4
<PAGE>
3.4 DIRECTORS AND OFFICERS. Exhibit 3.4, annexed hereto and hereby
incorporated herein by reference, contains the names and title of all directors
and of ricers of ANET as of the date of this Agreement.
3.5 FINANCIAL STATEMENTS. Exhibit 3.5, annexed hereto and hereby
incorporated herein by reference, consists of the unaudited financial statements
of ANET as of December 31, 1998 and February 28, 1999 containing the balance
sheets and income statements of ANET. The financial statements have been
prepared in accordance with generally accepted accounting principles end
practices consistently followed by ANET throughout the period indicated, and
fairly present the financial position of ANET as of the date of the balance
sheet.
3.6 ABSENCE OF CHANGES. Since February 28, 1999,there has not been any
change in the financial condition or operations of ANET, except for changes in
the ordinary course of business, which changes have not in the aggregate been
materially adverse.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. As of February 28, 1999, ANET did
not have any material debt, liability, or obligation of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
that is not reflected in ANET's balance sheet as of February 28, 1999.
3.8 INVESTIGATION OF FINANCIAL CONDITION. Without in any manner reducing
or otherwise mitigating the representations contained herein, WALDEN shall have
the opportunity to meet with ANET's accountants and attorneys to discuss the
financial condition of ANET. ANET shall make available to WALDEN all books and
records of ANET once reasonable notice of such request has been given.
3.9 COMPLIANCE WITH LAWS. ANET has complied with, and is not in violation
of, applicable federal, state or local statutes, laws and regulations
(including, without limitation, any applicable building, zoning, or other law,
ordinance, or regulation) affecting its properties or the operation of its
business.
3.10 LITIGATION. ANET is not a party to any legal action, arbitration,
administrative, or other proceeding, or governmental investigation pending or,
to the best knowledge of ANET, threatened against or affecting ANET or its
business, assets, or financial condition. ANET is not in default with respect to
any order, writ, injunction, or decree of any federal, state, local, or foreign
court, department agency, or instrumentality. ANET is not engaged in any legal
action to recover moneys due to it.
3.11 AUTHORITY. The Board of Directors and shareholders of ANET have
authorized the execution of this Agreement and the transactions contemplated
herein, and ANET has full power and authority to execute, deliver and perform
this Agreement and this Agreement is the legal, valid and binding obligation of
ANET, and is enforceable in accordance with its terms and conditions.
17277/3 5
<PAGE>
3.12 ABILITY TO CARRY OUT OBLIGATIONS. The execution and delivery of this
Agreement by ANET and the performance by ANET of its obligations hereunder will
not cause, constitute, or conflict with or result in (a) any breach or violation
of any of the provisions of or constitute a default under any license,
indenture, mortgage, charger, instrument, certificate of incorporation, bylaw,
or other agreement or instrument to which ANET is a party, or by which it may be
bound, nor waive any consents or authorizations of any part other than those
hereto be required, (b) an event that would permit any party to any agreement or
instrument to terminate it or to accelerate the maturity of any indebtedness or
other obligation of ANET, or (c) an event that would result in the creation or
imposition of any lien, charge, or encumbrance on any asset of ANET.
3.13 FULL DISCLOSURE. None of the representations and warranties made by
ANET herein, or in any exhibit, certificate or memorandum furnished or to be
furnished by ANET, or on its behalf, contains or will contain any untrue
statement of material fact, or omit any material fact the omission of which
would be misleading.
3.14 ASSETS. ANET has good and marketable title to all of its property
free and clear of any and all liens, claims and encumbrances.
3.15 INDEMNIFICATION. ANET agrees to indemnify, defend and hold WALDEN
harmless against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties, and reasonable attorney fees, that they shall
incur and suffer, which arise out of, result from or relate to any breach of, or
failure by ANET to perform any of its representations, warranties' covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or to be furnished by ANET under this Agreement.
ARTICLE IV
COVENANTS
4.1 INVESTIGATIVE RIGHTS. From the date of this Agreement until the
Closing Date, each party shall provide to the other party, and such other
party's counsels, accountants, auditors, and other authorized representatives,
access during normal business hours and upon reasonable advance written notice
to all of each party's properties, books, contracts, commitments, and records
for the purpose of examining the same. Each party shall provide the other party
with all information concerning each party's affairs as the other party may
reasonably request.
4.2 CONDUCT OF BUSINESS. Prior to the Closing, ANET and WALDEN shall each
conduct its business in the normal course, and shall not sell, pledge, or assign
any assets, without the prior approval of the other party, except in the regular
course of business, except for the Distributions by WALDEN. Neither ANET or
WALDEN shall amend its Articles of Incorporation (except as described herein) or
Bylaws, declare dividends, redeem or sell stock or other securities, incur
additional liabilities, acquire or dispose of fixed assets, change employment
terms, enter into any material or long-term contract, guarantee obligations of
any
17277/3 6
<PAGE>
third party, settle or discharge any balance sheet receivable for less than
its stated amount, pay more on any liability than its stated amount, or enter
into any other transaction other than in the regular course of business.
4.3 REQUIRED CORPORATE ACTION BY WALDEN. WALDEN shall cause a meeting of
its shareholders to be duly called and held as soon as practicable for the
purpose of voting on the approval of this Agreement.
4.4 PUBLIC ANNOUNCEMENTS. Prior to closing, no public announcement of the
execution of this Agreement or the transactions contemplated hereby shall be
made unless WALDEN and ANET both consent.
4.5 TAX-FREE REORGANIZATION. The parties agree that the Merger will
constitute a tax-free reorganization under Section 368(a) of the Code and will
take all actions as may be necessary to effect and defend such tax-free
reorganization treatment.
ARTICLE V
CONDITIONS PRECEDENT TO ANET'S PERFORMANCE
5.1 CONDITIONS. ANET's obligations hereunder shall be subject to the
satisfaction, at or before the Closing, of all the conditions set forth in this
Article V. ANET may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by ANET of any other condition of or any of ANET's
other rights or remedies, at law or in equity, if WALDEN shall be in default of
any of their representations, warranties, or covenants under this Agreement.
5.2 ACCURACY OF REPRESENTATIONS. Except as otherwise permitted by this
Agreement, all representations and warranties by WALDEN in this Agreement or in
any written statement that shall be delivered to ANET by WALDEN under this
Agreement shall be true and accurate on and as of the Closing Date as though
made at that time.
5.3 PERFORMANCE. WALDEN shall have performed, satisfied, and complied with
all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it, on or before the Closing Date.
5.4 ABSENCE OF LITIGATION. No action, suit, or proceeding before any court
or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against ANET on or before the Closing Date.
5.5 APPROVALS AND CONSENTS. WALDEN shall have obtained the consents and
approvals referred to on Exhibit 2.12.
17277/3 7
<PAGE>
5.6 FINANCIAL CONDITION OF WALDEN. On the Closing Date, the assets and
liabilities of WALDEN shall not be significantly different than the amounts
shown on its balance sheet included in Exhibit 2.5 hereto except for changes in
the ordinary course of business.
ARTICLE VI
CONDITIONS PRECEDENT TO WALDEN'S PERFORMANCE
6.1 CONDITIONS. WALDEN's obligations hereunder shall subject to the
satisfaction, at or before the Closing, of all the conditions set forth in this
Article VI. WALDEN may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by WALDEN of any other condition of or any of WALDEN's
rights or remedies, at law or in equity, if ANET shall be in default of any of
its representations, warranties, or covenants under this Agreement.
6.2 ACCURACY OF REPRESENTATIONS. Except as otherwise permitted by this
Agreement, all representations and warranties by ANET in this Agreement or in
any written statement that shall be delivered to WALDEN by ANET under this
Agreement shall be true and accurate on and as of the Closing Date as though
made at that time.
6.3 PERFORMANCE. ANET shall have performed, satisfied, and complied with
all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it, on or before the Closing Date.
6.4 ABSENCE OF LITIGATION. No action, suit or proceeding before any court
or any governmental body or authority' pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against WALDEN on or before the Closing date.
6.5 APPROVALS AND CONSENTS. WALDEN shall have obtained the consents and
approvals referred to on Exhibit 2.12.
6.6 FINANCIAL CONDITION OF ANET. On the Closing Date, the assets and
liabilities of ANET shall not be significantly different than the amounts shown
on its balance sheet included in Exhibit 2.5 hereto except for changes in the
ordinary course of business.
ARTICLE VII
CLOSING
7.1 CLOSING. Subject to the conditions set forth in Article V and VI, the
Closing of this transaction shall be held at the of offices of Auto Network
Group, Inc., 8135 E. Butherus, Suite 3, Scottsdale, AZ 85260 or such other place
as shall be mutually agreed by the parties. At
17277/3 8
<PAGE>
the Closing, the following documents, in form reasonably acceptable to counsel
to the parties or as set forth hereby shall be delivered:
By ANET:
A. An officer's certificate, dated the Closing Date, that all
representations, warranties, covenants, and conditions set forth in this
Agreement on behalf of ANET are true and correct as of, or have been fully
performed and complied with by the Closing date.
B. A signed Consent and/or Minutes of the Directors of ANET approving this
Agreement and each matter to be approved by the Directors of ANET under this
Agreement.
C. The Registration Rights Agreement signed by ANET.
D. A signed Articles of Merger to effect the merger of WALDEN with and
into ANET.
By WALDEN:
A. An officer's certificate' dated the Closing Date, that all
representations, warranties, covenants, and conditions set forth in this
Agreement on behalf of WALDEN are true and correct as of, or have been fully
performed and complied with by the Closing Date.
B. A signed Consent or Minutes of the Directors and Shareholders of WALDEN
approving this Agreement and each matter to be approved by the Directors of
WALDEN under this Agreement.
C. Signed Investment Agreements from the shareholders of WALDEN.
D. A guaranty as contemplated by Section 2.7 signed by Dennis E. Hecker.
E. A signed Articles of Merger to effect the merger of WALDEN with and
into ANET.
7.2 ISSUANCE OF ANET STOCK. As promptly as practicable after the Closing
Date, each holder of an outstanding certificate or certificates representing
shares of WALDEN common stock shall surrender the same to ANET, and shall
receive, in exchange, a certificate or certificates representing the number of
shares of ANET common stock for which the shares of WALDEN common stock
represented by the certificate or certificates shall have been exchanged.
17277/3 9
<PAGE>
ARTICLE VIII
REMEDIES
8.l DISPUTES. Any dispute that might arise over the enforcement,
interpretation or execution of this Agreement prior to the Closing and which is
not amicably settled will be submitted to arbitration in Denver, Colorado,
before a panel of arbitrators selected as follows:
Within ten (10) days of demand by either party for arbitration, each party
will select one (1) arbitrator and those two arbitrators wait select a term
arbitrator and those three (3) persons shall constitute the panel of
arbitrators. The arbitrators will conduct the hearings on continuous business
days, and their decisions wait be by majority vote. All costs of the arbitrators
will be shared equally, but the arbitrators are authorized to award costs and
counsel fees to the prevailing party, if necessary. All documents to be brought
into evidence will be produced within 10 days of notice of request for
arbitration.
8.2 COSTS. If any legal action or any arbitration or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Agreement, the successful or prevailing party or parties shall be
entitled to recover reasonable attorney's fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may be
entitled.
8.3 TERMINATION. In addition to the other remedies, any of the parties
hereto may on the Closing Date terminate this Agreement, without liability:
(i) If the Merger has not been consummated by April 15, 1999; or
(ii) If ANET and WALDEN mutually agree in writing to terminate this
Agreement; or
(iii) If any bona fide action or proceeding shall be pending against any
of the parties hereto on the Closing Date that could result in an unfavorable
judgment, decree, or order that would prevent or make unlawful the carrying out
of this Agreement or if any agency of the federal or of any state government
shall have objected at or before the Closing Date to this acquisition or to any
other action required by or in connection with the Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 CAPTIONS AND HEADINGS. The Article and paragraph headings throughout
this Agreement are for convenience and reference only, and shall in no way be
deemed to define, limit, or add to the meaning of any provision of this
Agreement.
17277/3 10
<PAGE>
9.2 NON-WAIVER. Except as otherwise expressly provided herein, no waiver
of any covenant, condition, or provision of this Agreement shall be deemed to
have been made unless expressly in writing and signed by the party against whom
such waiver is charged; and (i) the failure of any party to insist in any one or
more cases upon the performance of any of the provisions, covenants, or
conditions of this Agreement or to exercise any option herein contained shall
not be construed as a waiver or relinquishment for the fixture of any such
provisions, covenants, or conditions, (ii) the acceptance of performance of
anything required by this Agreement to be performed with knowledge of the breach
or failure of a covenant, condition, or provisions hereof shall not be deemed a
waiver of such breach or failure, and (ii) no waiver by any party of one breach
by another party shall be construed as a waiver with respect to any other or
subsequent breach.
9.3 TIME OF ESSENCE. Time is of the essence of this Agreement and of each
and every provision hereof.
9.4 CHOICE OF LAW. This Agreement and its application shall be governed by
the laws of the State of Arizona.
9.5 COUNTERPARTS. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.6 NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is to be given by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
For ANET:
Mark Moldenhauer
Auto Network Group, Inc.
8135 E. Butherus, Suite 3
Scottsdale, AZ 85260
For WALDEN:
Dennis Hecker, President
Walden Remarketing Services, Inc.
500 Ford Road
Minneapolis, MN 55426
9.7 BINDING EFFECT. This Agreement shall inure to and be binding upon the
heirs, executors, personal representatives, successors and assigns of each of
the parties to this
17277/3 11
<PAGE>
Agreement. The WALDEN shareholders are third party beneficiaries of the
representations, warranties and covenants of ANET contained in this Agreement
and the Exhibits hereto.
9.8 EFFECT OF CLOSING. All representations, warranties, covenants, and
agreements of the parties contained in this Agreement, or in any instrument,
certificate, opinion, or other writing provided for in it, shall survive the
Closing of this Agreement.
9.9 MUTUAL COOPERATION. The parties hereto shall cooperate with each other
to achieve the purpose of this Agreement, and shall execute such other and
further actions as may be necessary or convenient to effect the transaction
described herein.
9.10 ANNOUNCEMENTS. Subject to Section 4.6, ANET and WALDEN will consult
and cooperate with each other as to the timing and content of any announcements
of the transactions contemplated hereby to the general public or to employees,
customers or suppliers.
9.11 EXPENSES. Each party will pay its own legal, accounting and any other
out-of-pocket expenses reasonably incurred in connection with this transaction,
whether or not the transaction contemplated hereby is consummated.
9.12 EXHIBITS. As of the execution hereof, the parties hereto have
provided each other with the Exhibits provided for herein above, including any
items referenced therein or required to be attached thereto. Any material
changes to the Exhibits shall be immediately disclosed to the other party.
9.13 EFFECTIVE DATE. This Agreement is to be deemed effective on March 31,
1999.
IN WITNESS WHEREOF, the parties hereto hereby set their hands as of the
day and year first above written.
WALDEN REMARKETING SERVICES, INC.
By:/S/DENNIS E. HECKER
Dennis E. Hecker, President
AUTO NETWORK GROUP, INC.
By:/S/MARK MOLDENHAUER
Mark Moldenhauer, President
17277/3 12
<PAGE>
ARTICLES OF AMENDMENT [Arizona Secretary
TO of state stamp]
ARTICLES OF INCORPORATION
OF
AUTO NETWORK GROUP, INC.
Pursuant to the provisions of Section 10-1003 of the Arizona Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is Auto Network Group, Inc.
SECOND: The following amendment to the Articles of Incorporation was
adopted by the shareholders of the corporation at their meeting
on March 31, 1999, in the manner prescribed by law:
"1. NAME. The name of the corporation is and shall be
AutoTradeCenter.com Inc."
THIRD: The number of shares of stock outstanding at the time of such
adoption was 13,793,289 shares of Common Stock and 3,848 shares of
Series A Preferred Stock; and the number of shares entitled to vote
on the amendment was 13,793,289 shares of Common Stock and 3,848
shares of Series A Preferred Stock.
FOURTH: The number of shares of each class or series entitled to vote
thereon as a class or series voted for or against such amendment,
respectively, was:
Number of shares
Number of Shares of Number of shares voted in voted against
COMMON STOCK PRESENT FAVOR OF AMENDMENT AMENDMENT
9,477,180 9,477,180 0
Number of Shares of Number of shares
Series A Preferred Number of shares voted in voted against
STOCK PRESENT FAVOR OF AMENDMENT AMENDMENT
3,848 3,848 0
AUTO NETWORK GROUP, INC.
Dated:
By:4/20/99 /S/MIKE STUART
Mike Stuart, President
Attest:/S/MARK MOLDENHAUER
Mark Moldenhauer, Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AUTO NETWORK USA, INC.
Pursuant to the provisions of Section 10-1003 of the Arizona Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is Auto Network USA, Inc.
SECOND: The following amendment to the Articles of Incorporation was
adopted by the shareholders of the corporation at their
meeting on October 15, 1998, in the manner prescribed by law:
"1. NAME. The name of the corporation is and shall be
Auto Network Group, Inc."
THIRD: The number of shares of stock outstanding at the time of such
adoption was 13,793,289 shares of Common Stock and 3,848
shares of Series A Preferred Stock; and the number of shares
entitled to vote on the amendment was 13,793,289 shares of
Common Stock and 3,848 shares of Series A Preferred Stock.
FOURTH: The number of shares of each class or series entitled to vote
thereon as a class or series voted for or against such
amendment, respectively, was:
Common Stock Number for Number Against
Present 11,074,167 -0-
------------ -------------- ----------------
Series A Preferred Number for Number Against
Stock Present 11,074,167 -0-
------------ -------------- ----------------
AUTO NETWORK USA, INC.
Dated:10-21-98 By:/S/MIKE STUART
Mike Stuart, President
Attest:
/S/MARK MOLDENHAUER
Mark Moldenhauer, Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AUTO NETWORK USA, INC.
Pursuant to the provisions of Section 10-1003 of the Arizona Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is Auto Network USA, Inc.
SECOND: The document attached hereto as Exhibit "A" sets forth the
amendment to the Articles of Incorporation which was adopted
by the shareholders of the corporation at their meeting on
February 14, 1998, in manner prescribed by law.
THIRD: The number of shares of stock outstanding at the time of such
adoption was 10,002,500 shares of Common Stock; and the number
of shares entitled to vote on the amendment was 10,002,500
shares of Common Stock.
FOURTH: The designation and number of outstanding shares of each class
or series entitled to vote thereon, as a class or series, was
as follows: None.
FIFTH: The number of shares of each class or series entitled to vote
thereon as a class or series voted for or against such
amendment, respectively, was:
Common Stock Number for Number Against
10,002,500 9,000,000 -0-
_______________ _______________ _______________
Dated:FEBRUARY 14, 1998
AUTO NETWORK USA, INC.
By: /S/MIKE STUART
Attest: Mike Stuart, President
/S/JEFF ERSKINE
Jeff Erskine, Secretary
<PAGE>
Exhibit A
Section 2 of the Articles of Incorporation of Auto Network USA, Inc. is hereby
amended to state the following:
2. AUTHORIZED CAPITAL. The amount of total authorized capital stock
which the Corporation shall have authority to issue is one hundred million
(100,000,000) shares of common stock, no par value, and one million (1,000,000)
shares of preferred stock, each with $0.10 par value. To the fullest extent
permitted by the laws of the State of Arizona (currently set forth in Section
10- 602 of the Arizona Business Corporation Act), as the same now exists or may
hereafter be amended or supplemented, the Board of Directors may fix and
determine the designations, rights, preferences or other variations of each
class or series within each class of capital stock of the Corporation.
<PAGE>
ARTICLES OF INCORPORATION
OF
AUTO NETWORK USA, INC.
an Arizona business corporation
We, the undersigned, have this day associated ourselves for the purpose of
forming a corporation under the laws of the State of Arizona, and for that
purpose do hereby adopt the following Articles of Incorporation:
1. NAME. The name of the corporation is and shall be Auto Network USA,
Inc.
2. AUTHORIZED CAPITAL. The authorized capital stock of this corporation
shall be one hundred million (100,000,000) shares of no par common voting stock
and one million (1,000,000) shares of $0.10 par value preferred stock.
3. BOARD OF DIRECTORS. The initial Board of Directors shall consist of
four (4) Directors. The persons who are to serve as the directors until the
first annual meeting of the shareholders or until their successors are elected
and qualified and their addresses are:
Mike Stuart
15001 N. Hayden Rd., Ste 111
Scottsdale, AZ 85260
Mark Moldenhauer
3401 W. 38th Ave.
Denver, CO 80211
Jeff Erskine
26031 N. Palomino Trail
Scottsdale, AZ 85255
Joe Seaverns
10158 E. Topaz
Scottsdale, AZ 85258
The number of persons to serve on the Board of Directors shall be fixed by
the Bylaws.
4. INITIAL BUSINESS. The corporation initially intends to conduct the
business of automotive sales.
<PAGE>
5. STATUTORY AGENT. The name and address of the initial statutory agent of
the corporation is: Mike Stuart, 15001 N. Hayden Rd., Ste 111, Scottsdale, AZ
85260.
6. KNOWN PLACE OF BUSINESS. The known place of business of the corporation
shall be 15001 N. Hayden, Suite 111, Scottsdale, AZ 85260.
7. LIMITATION OF DIRECTORS' LIABILITY. To the fullest extent permitted by
the Arizona Revised Statutes as the same exists or may hereafter be amended, a
director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages, for any action taken or any failure to take
any action as a director. No repeal, amendment or modification in this Article,
whether direct or indirect, shall eliminate or reduce its effect with respect to
any act or omission of a director of the corporation occurring prior to such
repeal, amendment or modification.
8. INCORPORATORS. The incorporators and their names and addresses are:
Mike Stuart
15001 N. Hayden Rd., Ste 111
Scottsdale, AZ 85260
Mark Moldenhauer
3401 W. 38th Ave.
Denver, CO 80211
Jeff Erskine
26031 N. Palomino Trail
Scottsdale, AZ 85255
Joe Seaverns
10158 E. Topaz
Scottsdale, AZ 85258
9. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS. The
corporation shall indemnify any person who incurs expenses or liabilities by
reason of the fact that he or she is or was an officer, director, employee or
agent of the corporation or is or was serving at the request of the corporation
as an officer, director, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. This indemnification shall be
mandatory in all circumstances in which indemnification is permitted by law.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands this 9TH day of JULY,
1997.
/S/ MIKE STUART
Mike Stuart
/S/ MARK MOLDENHAUER
Mark Moldenhauer
/S/ JEFF ERSKINE
Jeff Erskine
/S/ JOE SEAVERNS
Joe Seaverns
BYLAWS
OF
AUTO NETWORK USA, INC.
ARTICLE I
LOCATION AND CORPORATE SEAL
SECTION 1. PRINCIPAL OFFICE OF THE CORPORATION.
The known place of business of the corporation shall be its
principal office.
SECTION 2. OTHER OFFICES.
The corporation may also maintain offices at such other place or
places, either within or without the State of Arizona, as may be designated
from time to time by the Board of Directors, and the business of the
corporation may be transacted at such other offices with the same effect as
that conducted at the principal office.
SECTION 3. SEAL.
A corporate seal shall not be requisite to the validity of any
instrument executed by or on behalf of the corporation but, nevertheless, if
in any instance a corporate seal be used, it shall be a circle having on the
circumference the name "Auto Network USA, Inc." and in the center thereof the
terms "Corporate Seal Arizona".
ARTICLE II
SHAREHOLDERS' MEETINGS
SECTION 1. SHAREHOLDERS' MEETING.
All meetings of shareholders shall be held at such place as may
be fixed from time to time by the Board of Directors or, in the absence of
directors, by the President or Secretary of the corporation, either within or
without the State of Arizona, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS.
The annual shareholders' meeting shall be held on the date and at
the time and place fixed from time to time by the board of directors; provided,
however, that each annual meeting shall be held on a date that is within the
earlier of six (6) months after the close of the last fiscal year or fifteen
(15) months after the last annual meeting.
SECTION 3. SPECIAL MEETINGS OF SHAREHOLDERS.
Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by the President or Secretary at the request, in
writing, of a majority of the Board of Directors, or at the request, in
writing, of shareholders owning not less than one-tenth of all the shares
entitled to vote at such meeting. Such request shall state the purpose or
purposes of the proposed meeting.
<PAGE>
SECTION 4. LIST OF SHAREHOLDERS
The officer who has charge of the stock ledger of the corporation
shall prepare and make a complete list of the shareholders entitled to vote
at the meeting, or any adjournment thereof, arranged in alphabetical order,
and showing the address and the number of shares registered in the name of
each shareholder, and such list shall be produced and kept open at the time
and place of the meeting during the whole time thereof, and may be inspected
by any shareholder present.
SECTION 5. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS.
(a) In order to make a determination of shareholders (1) entitled to
notice of or to vote at any shareholders' meeting or at any adjournment of a
shareholders' meeting, (2) entitled to demand a special shareholders' meeting,
(3) entitled to take any other action, (4) entitled to receive payment of a
share dividend or a distribution, or (5) for any other purpose, the board of
directors may fix a future date as the record date for such determination of
shareholders. The record date may be fixed not more than seventy (70) days
before the date of the proposed action.
(b) Unless otherwise specified when the record date is fixed, the
time of day for determination of shareholders shall be as of the Corporation's
close of business on the record date.
(c) A determination of shareholders entitled to be given notice of
or to vote at a shareholders' meeting is effective for any adjournment of the
meeting unless the board of directors fixes a new record date, which the board
shall do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting.
(d) If no record date is otherwise fixed, the record date for
determining shareholders entitled to be given notice of and to vote at an annual
meeting or special shareholders' meeting is the day before the first notice is
given to shareholders.
(e) If a court orders a meeting adjournment to a date more than one
hundred twenty (120) days after the date fixed for the original meeting, it may
provide that the original record date continues in effect or it may fix a new
record date.
(f) The record date for determining shareholders entitled to take
action without a meeting pursuant to Article II, Section 10 is the date the
first shareholder signs the consent.
SECTION 6. NOTICE TO SHAREHOLDERS.
(a) The secretary shall give notice to shareholders of the date,
time, and place of each annual and special shareholders' meeting no fewer than
ten (10) nor more than sixty (60) days before the date of the meeting; except as
otherwise required by the Arizona Business Corporation Act, the secretary shall
be required to give such notice only to shareholders entitled to vote at the
meeting.
(b) Notice of an annual shareholders' meeting need not include a
description of the purpose or purposes for which the meeting is called unless a
purpose of the meeting is to consider an amendment to the articles of
incorporation, a restatement of the articles of incorporation, a plan of merger
or share exchange, disposition of substantially all of the property of the
Corporation, or dissolution of the Corporation.
(c) Notice of a special shareholders' meeting shall include a
description of the purpose or purposes for which the meeting is called.
<PAGE>
(d) Notice of a shareholders' meeting shall be in writing and shall
be given:
(1) by deposit in the United States mail, properly addressed
to the shareholder's address shown in the Corporation's current record of
shareholders, first class postage prepaid, and, if so given, shall be
effective when mailed; or
(2) by telegraph, teletype, facsimile, or other form of wire
or wireless communication or by mail, or private carrier, and, if so
given, shall be effective at the earliest of the following:
(A) When received;
(B) Five days after its deposit in the United States
mail as evidenced by the postmark, if mailed postpaid and correctly
addressed; or
(C) On the date shown on the return receipt, if sent by
registered or certified mail, return receipt requested, and if the
receipt is signed by or on behalf of the addressee.
(e) If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time, or place is announced at the meeting before
adjournment; provided, however, if a new record date for the adjourned meeting
is fixed pursuant to Article II, Section 5(c), notice of the adjourned meeting
shall be given to persons who are shareholders as of the new record date.
SECTION 7. QUORUM AND ADJOURNMENT.
The holders of two-thirds of the shares issued and outstanding,
and entitled to vote at the meeting, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote at the meeting, present or represented by proxy, shall have power to
adjourn the meeting to another time or place, without notice other than
announcement at a meeting at which adjournment is taken, until a quorum shall
be present or represented. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting.
SECTION 8. MAJORITY REQUIRED.
When a quorum is present at the meeting, the vote of the holders
of a majority of the voting power present, whether in person or represented
by proxy, shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of statute or of the
Articles of Incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
SECTION 9. VOTING
At every meeting of the shareholders, each shareholder shall be
entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such shareholder, but no proxy shall be
voted or acted upon after eleven (11) months from its date, unless the proxy
provides for a longer period.
<PAGE>
SECTION 10. ACTION WITHOUT MEETING.
Any action required or permitted to be taken at any annual or
special meeting of shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action
so taken, shall be signed by the holders of all of the outstanding shares
entitled to vote with respect to the subject matter of the action.
SECTION 11. WAIVER OF NOTICE.
Attendance of a shareholder at a meeting shall constitute waiver
of notice of such meeting, except when such attendance at the meeting is for
the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Any shareholder may waive
notice of any annual or special meeting of shareholders by executing a
written notice of waiver either before or after the time of the meeting.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER.
The number of directors which shall constitute the whole Board
shall be at least one (1) and no more than five (5). The directors shall be
elected at the annual meeting of the shareholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until
his or her successor is elected and qualified. Directors need not be
shareholders.
SECTION 2. VACANCIES.
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by the
affirmative vote of a majority of the remaining directors then in office,
though not less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and
until their successors are duly elected and qualified, unless sooner
displaced. If there are no directors in office, then an election of
directors may be held in the manner provided herein.
SECTION 3. POWERS.
The business and affairs of the corporation shall be managed by
its Board of Directors, which may exercise all such powers by the corporation
and do all such lawful acts as are not by statute, the Articles of
Incorporation, or these Bylaws, directed or required to be exercised or done
by the Shareholders.
SECTION 4. PLACE OF MEETINGS.
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Arizona.
SECTION 5. ANNUAL MEETINGS.
The first meeting of each newly elected Board of Directors shall
be held immediately following the annual meeting of shareholders and in the
same place as the annual meeting of shareholders, and no notice to the newly
elected directors of such meeting shall be necessary in order to legally hold
the meeting, providing a quorum is present. In the event such meeting is not
held, the meeting may be held at such time and place as shall be specified in
a notice given as hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver of all directors.
<PAGE>
SECTION 6. REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be
determined by the Board.
SECTION 7. SPECIAL MEETINGS.
Special meetings of the Board may be called by the President or
the Secretary on two (2) day's notice to each director, either personally, by
mail, by telegram, by facsimile machine, or by telephone; special meetings
shall be called by the President or Secretary in like manner and on like
notices on the written request of two (2) directors, where more than one (1)
director serves on the Board.
SECTION 8. QUORUM.
A majority of the membership of the Board of Directors shall
constitute a quorum and the concurrence of a majority of those present shall
be sufficient to conduct the business of the Board, except as may be
otherwise specifically provided by statute or by the Articles of
Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the directors then present may adjourn the meeting to another
time or place, without notice other than announcement at the meeting, until a
quorum shall be present.
SECTION 9. ACTION WITHOUT MEETING.
Unless otherwise restricted by the Articles of Incorporation or
by these Bylaws, any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors.
SECTION 10. COMPENSATION
The directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation
for attending committee meetings. The amount or rate of such compensation of
members of the Board of Directors shall be established by the Board of
Directors and shall be set forth in the minutes of the Board.
SECTION 11. WAIVER OF NOTICE.
Attendance of a director at a meeting shall constitute waiver of
notice of such meeting, except when the person attends the meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Any director may waive notice of
any annual, regular or special meeting of directors by executing a written
notice of waiver either before or after the time of the meeting.
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. DESIGNATION OF TITLES.
The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Vice-President, a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board,
additional Vice-Presidents, and one or more Assistant Secretaries and
Assistant Treasurers. Any number of offices, except the offices of President
and Secretary, may be held by the same person, unless the Articles of
Incorporation or these Bylaws otherwise provide.
SECTION 2. APPOINTMENT OF OFFICERS.
The Board of Directors at its first meeting after each annual
meeting of shareholders shall choose a President, one or more
Vice-Presidents, a Secretary and a Treasurer, and may choose a Chairman of
the Board, each of whom shall serve at the pleasure of the Board of
Directors. The Board of Directors at any time may appoint such other
officers and agents as it shall deem necessary to hold offices at the
pleasure of the Board of Directors and to exercise such powers and perform
such duties as shall be determined from time to time by the Board
SECTION 3. SALARIES.
The salaries of the officers shall be fixed from time to time by
the Board of Directors, and no officer shall be prevented from receiving such
salary by reason of the fact that he or she is also a director of the
corporation. The salaries of the officers or the rate at which salaries are
fixed shall be set forth in the minutes of the meetings of the Board of
Directors.
SECTION 4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise may be filled by the Board of Directors at any
time.
SECTION 5. CHAIRMAN OF THE BOARD.
The Chairman of the Board, if one shall have been appointed and
be serving, shall preside at all meetings of the Board of Directors and shall
perform such other duties as from time to time may be assigned to him or .
her.
SECTION 6. PRESIDENT.
The President shall preside at all meetings of shareholders, and
if a Chairman of the Board shall not have been appointed or, having been
appointed, shall not be serving or be absent, the President shall preside at
all meetings of the Board of Directors. He or she shall sign all deeds and
conveyances, all contracts and agreements, and all other instruments
requiring execution on behalf of the corporation, and shall act as operating
and directing head of the corporation, subject to policies established by the
Board of Directors.
<PAGE>
SECTION 7. VICE-PRESIDENT.
There shall be as many Vice-Presidents as shall be determined by
the Board of Directors from time to time and they shall perform such duties
as from time to time may be assigned to them. Any one of the
Vice--Presidents, as authorized by the Board, shall have all the powers and
perform all duties of the President in case of the temporary absence of the
President or in case of his or her temporary inability to act. In case of
the permanent absence or inability of the President to act, the office shall
be declared vacant by the Board of Directors and a successor chosen by the
Board.
SECTION 8. SECRETARY.
The Secretary shall see that the minutes of all meetings of
shareholders of the Board of Directors, and of any standing committees are
kept. He or she shall be the custodian of the corporate seal and shall affix
it to all proper instruments when deemed advisable by him or her. He or she
shall have charge of all the books and records of the corporation except the
books of account, and in general shall perform all duties incident to the
office of Secretary of a corporation and such other duties as may be assigned
to him or her.
SECTION 9. TREASURER.
The Treasurer shall have general custody of all the funds and
securities of the corporation except such as may be required by law to be
deposited with any state official. He or she shall see to the deposit of
the funds of the corporation in such bank or banks as the Board of Directors
may designate. Regular books of account shall be kept under his or her
direction and supervision, and he or she shall render financial statements to
the President, directors and shareholders at proper times. The Treasurer
shall have charge of the preparation and filing of such reports, financial
statements, and returns as may be required by law. He or she shall give to
the corporation such fidelity bond as may be required, by the Board or
President, and the premium therefor shall be paid by the corporation as an
operating expense.
SECTION 10. ASSISTANT SECRETARIES.
There may be such number of Assistant Secretaries as shall be
determined by the Board of Directors from time to time and such persons shall
perform such functions as from time to time may be assigned to them. No
Assistant Secretary shall have power or authority to collect, account for, or
pay over any tax imposed by any federal, state or city government.
SECTION 11. ASSISTANT TREASURERS.
There may be such number of Assistant Treasurers as from time to
time the Board of Directors may fix, and such person shall perform such
functions as from time to time may be assigned to them. No Assistant
Treasurer shall have the power or authority to collect, account for, or pay
over the tax imposed by any federal, state or city government.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in
such form as shall be determined by the Board of Directors. Such
certificates shall be signed by the President and by the Secretary, or by
such other officers authorized by law and by the Board of Directors so to
do. All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock ledger books of the corporation.
<PAGE>
In case any officer who has signed or whose facsimile signature
has been used on a certificate has ceased to be an officer before the
certificate has been delivered, such certificate may, nevertheless, be
adopted and issued and delivered by the corporation as though such officer
had not ceased to hold such office.
SECTION 2. TRANSFER OF SHARES.
Transfer of shares shall be made only upon the transfer books of
the corporation and before a new certificate is issued, the old certificate
shall be surrendered for cancellation. Such transfers shall be made only by
the holder of record thereof, or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the corporation.
SECTION 3. REGISTERED SHAREHOLDERS.
Registered shareholders only shall be entitled to be treated by
the corporation as the holder in fact of the stock standing in their
respective names, and the corporation shall not be bound to recognize any
equitable or other claim or interest in any share on the part of any other
person, whether or not it shall have express or other notice thereof, except
as expressly provided by the laws of Arizona.
SECTION 4. LOST CERTIFICATE.
In case of loss or destruction of any certificate of stock,
another may be issued in its place upon proof of such loss or destruction,
and upon the giving of a satisfactory bond of indemnity to the corporation
and/or to the transfer agent and registrar of such stock, in such sum as the
Board of Directors may provide.
SECTION 5. REGULATIONS.
The Board of Directors shall have power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer, conversion and registration of certificates of shares of the
capital stock of the corporation, but consistent with the laws of Arizona,
the Articles of Incorporation of the corporation and these Bylaws.
ARTICLE VI
REPEAL, ALTERATION OR AMENDMENT
These Bylaws may be repealed, altered or amended, or substitute
Bylaws may be adopted at any time only by a majority of the Board of
Directors.
<PAGE>
STATEMENT PURSUANT TO SECTION 10-602
OF THE ARIZONA BUSINESS CORPORATION ACT OF
AUTO NETWORK USA, INC.
We, Mike Stuart and Jeff Erskine, being the President and Secretary,
respectively, of AUTO NETWORK USA, INC., a corporation organized and existing
under the laws of Arizona (the "Corporation"), DO HEREBY CERTIFY that, pursuant
to authority conferred upon the Board of Directors by the Articles of
Incorporation and Section 10-602 of the Arizona Business Corporation Act, the
Board of Directors, by unanimous written consent dated February 2, 1998, adopted
the following resolution providing for the issuance of a series of Preferred
Stock:
RESOLVED, that upon the shareholders having adopted and
approved the amendment to the Articles of Incorporation
thereby vesting in the Board of Directors the requisite
authority, a series of Preferred Stock shall be established,
the distinctive designation of which shall be "Series A
Preferred Stock" (such series being hereinafter called
"Series A"), and the preferences and relative, participating,
optional or other special rights of Series A, and the
qualifications, limitations or restrictions thereof shall be
as follows:
(i) The number of shares which shall constitute Series A
shall be 6,750 which number of shares may be increased or
decreased (but not below the number of shares thereof then
outstanding) from time to time by resolution of the Board of
Directors.
(ii) Each share of Series A shall be convertible into
1,111 shares of Common Stock of the Corporation at any time
beginning March 1, 1998, at the option of the holder.
(iii) The amount payable on shares of Series A upon the
liquidation, dissolution or winding-up of the affairs of the
Corporation shall be $100 per share.
(iv) Each share of Series A shall be entitled to one vote
per share.
(v) The shares of Series A shall not have any relative
powers, preferences and rights, nor any qualifications,
limitations or restrictions thereof, other than as set forth
herein or in the Statement Pursuant to Section 10-602 of the
Arizona Business Corporation Act.
IN WITNESS WHEREOF, we have hereunto set our hands and seals as President and
Secretary, respectively, of the Corporation this 16th day of February, 1998, and
we hereby affirm that the foregoing Certificate is our act and deed and the act
and deed of the Corporation and that the facts stated therein are true.
/s/MIKE STUART /S/JEFF ERSKINE
Mike Stuart, President Jeff Erskine, Secretary
K:\FMM\AUTONET\SERIESA.STM
<PAGE>
STATEMENT PURSUANT TO SECTION 10-602
OF THE ARIZONA BUSINESS CORPORATION ACT OF
AUTO NETWORK GROUP, INC.
We, Mike Stuart and Mark Moldenhauer, being the President and Secretary,
respectively, of AUTO NETWORK GROUP, INC., a corporation organized and existing
under the laws of Arizona (the "Corporation"), DO HEREBY CERTIFY that, pursuant
to authority conferred upon the Board of Directors by the Articles of
Incorporation and Section 10-602 of the Arizona Business Corporation Act, the
Board of Directors, by unanimous written consent dated September 30, 1998,
adopted the following resolution providing for the issuance of a series of
Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors,
a series of Preferred Stock shall be established, the distinctive
designation of which shall be "Series B Convertible Preferred Stock" (such
shares sometimes referred to herein as the "Preferred Shares" or the
"Series B Preferred Stock), and the preferences and relative,
participating, optional or other special rights of Series B Preferred
Stock, and the qualifications, limitations or restrictions thereof shall
be as follows:
(I) NUMBER OF SHARES. The number of shares which shall constitute the
Series B Preferred Stock shall be 250,000 which number of shares may be
increased or decreased (but not below the number of shares thereof then
outstanding) from time to time by resolution of the Board of Directors.
(II) CONVERSION PROVISIONS. The holders of shares of Series B Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
(1) Each share of Series B Preferred Stock shall be
convertible, at the option of its holder, at any time, into a number of
shares of Common Stock of the Corporation at the initial conversion price
(the "Conversion Price") which shall be Sixty-Five Percent (65%) of the
average Market Price of the Common Stock for the 10 trading days
immediately prior to the Conversion Date (defined below), increased
proportionately for any reverse stock split and decreased proportionately
for any forward stock split or stock dividend. For purposes of this
Section II(a)(1), Market Price for any date shall be the closing bid price
of the Common Stock on such date, as reported by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or the OTC
Bulletin Board, as the case may be.
(2) The minimum Conversion Price shall be $0.41 per share
provided that the Corporation continues to generate profits on a quarterly
basis, there are no material adverse changes, and the Corporation does not
raise any additional capital that will result in dilution of the per share
net tangible book value (except for options, warrants, and convertible
securities outstanding as of the date of the Offering Memorandum which
offers the Series B Preferred Stock.
(3) No fractional shares of Common Stock shall be issued upon
conversion of the Series B Preferred Stock, and in lieu thereof the number
of shares of Common Stock issuable for the Preferred Shares converted
shall be rounded up to the nearest whole number.
(4) In order to convert the Preferred Shares into shares of
Common Stock, the holder of the Preferred Shares shall (i) complete,
execute, and deliver to the Corporation the conversion certificate
attached hereto as Exhibit A (the "Notice of Conversion"); and (ii)
surrender the certificate or certificates representing the Preferred Share
being converted (the "Converted Certificate") to the Corporation. The
Notice of Conversion shall be effective and in full force and effect if
delivered to the Corporation by facsimile transmission at (602) 951-8375;
provided that the original Notice of Conversion and the Converted
Certificate are delivered to the Corporation within three (3) business
days thereafter at 8135 East Butherus, Suite 3, Scottsdale, Arizona 85260,
or such other address as the Corporation shall have. If such delivery is
made, the date on which notice of conversion is given (the "Conversion
Date") shall be deemed to be the date set forth therefor in the Notice of
Conversion; and the person or persons entitled to receive the shares of
Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of the
Conversion Date. If the original Notice of Conversion and the Converted
Certificate are not delivered to the Corporation within three (3) business
days following the Conversion Date, the Notice of Conversion shall become
null and void as if it were never given and the Corporation shall, within
two (2) business days thereafter, return to the holder by overnight
courier any
<PAGE>
Converted Certificate that may have been submitted in connection with any
such conversion. In the event that any Converted Certificate submitted
represents a number of Preferred Shares that is greater than the number of
such shares that is being converted pursuant to the Notice of Conversion
delivered in connection therewith, the Corporation shall deliver, together
with the certificates for the shares of Common Stock issuable upon such
conversion as provided herein, a certificate representing the remaining
number of Preferred Shares not converted.
(5) Upon receipt of a Notice of Conversion, the Corporation
shall absolutely and unconditionally be obligated to cause a certificate
or certificates representing the number of shares of Common Stock to which
a converting holder of Preferred Shares shall be entitled as provided
herein, which shares shall constitute fully paid and nonassessable shares
of Common Stock that are freely transferable on the books and records of
the Corporation and its transfer agents, to be issued to, delivered by
overnight courier to, and received by such holder by the third (3rd)
business day following the Conversion Date. Such delivery shall be made at
such address as such holder may designate therefor in its Notice of
Conversion or in its written instructions submitted together therewith.
(6) No less than 500 shares of Series B Preferred Stock may be
converted at any one time, unless the holder then holds less than 500
shares and converts all shares at that time.
(b) ADJUSTMENTS TO CONVERSION PRICE.
(1) RECLASSIFICATION, EXCHANGE, AND SUBSTITUTION. If the
Common Stock issuable on conversion of the Series B Preferred Stock shall
be changed into the same or a different number of shares of any other
class or classes of stock, whether by capital reorganization,
reclassification, reverse stock split or forward stock split, or stock
dividend or otherwise (other than a subdivision or combination of shares
provided for above), the holders of the Series B Preferred Stock shall,
upon its conversion, be entitled to receive, in lieu of the Common Stock
which the holders would have become entitled to receive but for such
change, a number of shares of such other class or classes of stock that
would have been subject to receipt by the holders if they had exercised
their rights of conversion of the Series B Preferred Stock immediately
before that change.
(2) REORGANIZATIONS, MERGERS, CONSOLIDATIONS, OR SALE OF
ASSETS. If at any time there shall be a capital reorganization of the
Corporation's common stock (other than a subdivision, combination,
reclassification, or exchange of shares provided for elsewhere in this
Section II) or merger of the Corporation into another corporation, or the
sale of the Corporation's properties and assets as, or substantially as,
an entirety to any other person, then, as a part of such reorganization,
merger, or sale, lawful provision shall be made so that the holders of the
Series B Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series B Preferred Stock, the number of shares of stock
of other securities or property of the Corporation, or of the successor
corporation resulting from such merger, to which holders of the Common
Stock deliverable upon conversion of the Series B Preferred Stock would
have been entitled on such capital reorganization, merger, or sale if the
Series B Preferred Stock had been converted immediately before that
capital reorganization, merger, or sale to the end that the provisions of
this paragraph (b)(2) (including adjustment of the Conversion Price then
in effect and number of shares purchasable upon conversion of the Series B
Preferred Stock) shall be applicable after that event as nearly
equivalently as may be practicable.
(c) NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, merger, dissolution, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in the carrying out of all the provisions of
this Section II and in the taking of all such action as may be necessary
or appropriate in order to protect the Conversion Rights of the holders of
the Series B Preferred Stock against impairment.
(d) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for any shares of
Series B Preferred Stock, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series B Preferred Stock
affected thereby a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at
any time of any holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if
<PAGE>
any, of other property which at the time would be received upon the
conversion of such holder's shares of Series B Preferred Stock.
(e) NOTICES OF RECORD DATE. In the event of the establishment by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the
Corporation shall mail to each holder of Series B Preferred Stock at least
twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend or distribution and the amount and character of such dividend or
distribution.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock such number of
its shares of Common Stock as shall from time to time be sufficient, based
on the Conversion Price then in effect, to effect the conversion of all
then outstanding shares of the Series B Preferred Stock. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, then, in addition to all rights, claims, and damages to
which the holders of the Series B Preferred Stock shall be entitled to
receive at law or in equity as a result of such failure by the Corporation
to fulfill its obligations to the holders hereunder, the Corporation will
take any and all corporate or other action as may, in the opinion of
counsel, be helpful, appropriate, or necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(g) NOTICES. Any notices required by the provisions hereof to be
given to the holders of shares of Series B Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid and return
receipt requested, and addressed to each holder of record at its address
appearing on the books of the Corporation or to such other address of such
holder or its representative as such holder may direct.
(III) LIQUIDATION PROVISION. In the event of liquidation, dissolution, or
the winding up of the Corporation, whether voluntary or involuntary, any
holder of the Series B Preferred Stock shall, for each share of Series B
Preferred Stock, be entitled to receive a distribution of $10.00 out of
the assets of the Corporation, on an equal preference basis to the Series
A Preferred Stock, but prior to any distribution of assets with respect to
any other shares of capital stock of the Corporation.
(IV) REDEMPTION PROVISIONS. The Corporation shall have the right and
option upon notice to the holders of the Series B Preferred Stock to call,
redeem, and acquire any or all of the shares of Series B Preferred Stock
at a price equal to $11.00 per share, at any time to the extent such
shares have not previously converted to Common Stock pursuant to the terms
described above; provided, however, that the holders of the Series B
Preferred Stock shall, in any event, have the right during the 30-day
period immediately following the date of the Notice of Redemption, which
shall fix the date for redemption (the "Redemption Date"), to convert
their shares of Series B Preferred Stock in accordance with the terms
described above. If the shares are converted during such 30-day period,
this call option shall be deemed not to have been exercised by the
Corporation with respect to such shares so converted. Said Notice of
Redemption shall require the holders to surrender to the Corporation, on
or before the Redemption Date, to the Corporation's transfer agent, the
certificates representing the shares of Series B Preferred Stock to be
redeemed. Notwithstanding the fact the certificates representing the
shares called for redemption have not been surrendered for redemption and
cancellation on or after the Redemption Date, such shares shall be deemed
to be expired and all rights of the holders thereof shall cease and
terminate.
(V) VOTING PROVISIONS. Except as otherwise expressly provided or required
by the Arizona Business Corporation Act, the Series B Preferred Stock
shall have no voting rights.
(VI) PREEMPTIVE RIGHTS PROVISIONS. The Series B Preferred Stock shall no
preemptive rights.
(VII) NO OTHER POWERS, PREFERENCES, OR RIGHTS. The shares of Series B
Preferred Stock shall not have any relative powers, preferences and
rights, nor any qualifications, limitations or restrictions thereof, other
than as set forth herein or in the Statement Pursuant to Section 10-602 of
the Arizona Business Corporation Act.
<PAGE>
(VIII) REGISTRATION OF COMMON STOCK ISSUABLE UPON CONVERSION. At its
expense, the Corporation will file within 30 days of the closing of an
offering, and will use its best efforts to cause to become effective by
acceleration as soon as practicable, a registration statement on Form S-1
under the Securities Act of 1933 and all applicable Blue Sky laws covering
the sale of the Common Stock issuable upon conversion of the Preferred
Stock. The registration shall not in any way limit a holder's rights in
connection with the shares of Common Stock issuable upon conversion of the
Preferred Stock from selling such shares (i) pursuant to Rule 144 or (ii)
pursuant to any other exemption from registration under the Securities Act
of 1933.
IN WITNESS WHEREOF, we have hereunto set our hands and seals as President
and Secretary, respectively, of the Corporation this 30th day of
September, 1998, and we hereby affirm that the foregoing Certificate is
our act and deed and the act and deed of the Corporation and that the
facts stated therein are true.
/S/ MIKE STUART /S/MARK MOLDENHAUER
Mike Stuart, President Mark Moldenhauer, Secretary
EXHIBIT A
WARRANT CERTIFICATE NO. W-01
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE OFFERED FOR SALE,
SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT MADE UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION, WHICH EXEMPTION IS AVAILABLE IN THE OPINION OF COUNSEL TO THE
COMPANY.
EXERCISABLE ON OR AFTER AUGUST 10, 1998, AND VOID AFTER
5:00 P.M. MOUNTAIN TIME AUGUST 10, 2001
CERTIFICATE FOR 100,000 WARRANTS
WARRANTS TO PURCHASE COMMON STOCK OF
AUTO NETWORK GROUP, INC. UNDER
THE LAWS OF THE STATE OF ARIZONA
THIS CERTIFIES that ANTHONY & COMPANY, INC., DBA ANTHONY ADVISORS
("Holder") or assigns, is the owner of the number of Warrants set forth above,
each of which represents the right to purchase from AUTOTRADECENTER.COM INC., an
Arizona corporation (the "Company"), at any time on or after August 10, 1998,
but not later than 5:00 p.m. Mountain Time, August 10, 2001 (the "Expiration
Date"), upon compliance with and subject to the conditions set forth herein, one
share for each Warrant (subject to adjustments referred to below) of the Common
Stock of the Company, no par value per share (such shares or other securities or
property purchasable upon exercise of the Warrants being herein called the
"Shares").
Upon any exercise of less than all the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Holder a new Warrant
Certificate in respect of the Warrants as to which this Warrant Certificate was
not exercised.
This Warrant is subject to the following provisions, terms and
conditions:
1. EXERCISE; TRANSFERABILITY. The rights represented by this
Warrant may be exercised by the Holder hereof, in whole or in part (but not as
to a fractional share of Common Stock), by written notice of exercise delivered
to the Company ten (10) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and by paying in full, in cash or by certified or official
bank check payable to the order of the Company, the purchase price of $0.50 per
share (subject to adjustments as noted subsequently).
THIS WARRANT MAY NOT BE TRANSFERRED OR DIVIDED INTO TWO OR
MORE WARRANTS OF SMALLER DENOMINATIONS, NOR MAY ANY COMMON STOCK ISSUED PURSUANT
TO EXERCISE OF THIS WARRANT BE TRANSFERRED UNLESS THIS WARRANT OR SHARES HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT")
AND APPLICABLE STATE LAWS, OR UNLESS THE HOLDER OF THE CERTIFICATE OBTAINS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED
TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION PURSUANT TO EXEMPTIONS UNDER THE
SECURITIES ACT AND APPLICABLE STATE LAWS.
2. ISSUANCE OF SHARES. The Company agrees that the shares
purchased hereby shall be deemed to be issued to the record Holder hereof as of
the close of business on the date on which this Warrant shall have been
surrendered and the payment made for such shares as aforesaid. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the Holder hereof within a reasonable
time, not exceeding ten (10) days after the rights
<PAGE>
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the number of shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be delivered to the Holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. COVENANTS OF COMPANY. The Company covenants and agrees that
all shares which may be issued upon the exercise of the rights represented by
this Warrant will, upon issuance, be duly authorized and issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof, and without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be required to assure that the par value per share of the Common Stock is at all
times equal to or less than the then effective purchase price per share of the
Common Stock issuable pursuant to this Warrant. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of its Common
Stock to provide for the exercise of the rights represented by this Warrant.
4. ADJUSTMENTS. The above provisions are, however, subject to the
following provisions:
a) In case the Company shall at anytime hereafter subdivide or
combine the outstanding shares of Common Stock or declare a dividend
payable in Common Stock, the exercise price of this Warrant in effect
immediately prior to the subdivision, combination or record date for
such dividend payable in Common Stock shall forthwith be
proportionately increased, in the case of combination, or decreased, in
the case of subdivision or dividend payable in Common Stock, and each
share of Common Stock purchasable upon exercise of the Warrant shall be
changed to the number determined by dividing the then current exercise
price by the exercise price as adjusted after the subdivision,
combination, or dividend payable in Common Stock.
b) No fractional shares of Common Stock are to be issued upon
the exercise of the Warrant, but the Company shall pay a cash
adjustment in respect of any fraction of a share which would otherwise
be issuable in an amount equal to the same fraction of the market price
per share of Common Stock on the date of exercise as determined in good
faith by the Company.
c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
Holder hereof shall hereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or
assets as may be issued and payable with respect to or in exchange for
a number of outstanding shares of such Common Stock equal to the number
of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the
number of share purchasable upon the
2
<PAGE>
exercise of this Warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation, merger, or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the registered Holder hereof at the last address of such
holder appearing on the books of the Company, the obligation to deliver
to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled
to purchase.
d) Upon any adjustment of the Warrant purchase price, then and
in each such case, the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered holder
of this Warrant at the address of such holder as shown on the books of
the Company, which notice shall state the Warrant purchase price
resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
5. COMMON STOCK. As used herein, the term "Common Stock" means
the Company's presently authorized shares of Common Stock and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to fixed a sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder
hereof to any voting rights or other rights as a stockholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF SHARES. The Holder
of this Warrant, by acceptance hereof, agrees to give written notice to the
Company before transferring this Warrant, or transferring any Common Stock
issued upon the exercise hereof, of such holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company counsel,
and if in the opinion of such counsel, the proposed transfer complies with
federal and state securities laws and may be effected without registration or
qualification (under any federal or state law), the Company, as promptly as
practicable, shall notify such holder of such opinion, whereupon such holder
shall be entitled to transfer this Warrant or to transfer shares of Common Stock
received upon the previous exercise of this Warrant, provided that an
appropriate legend may be endorsed on this Warrant or the certificates for such
shares respecting restrictions upon transfer thereof which is necessary or
advisable in the opinion of counsel to the Company to prevent further transfers
which would be in violation of Section 5 of the Securities Act of 1933.
If, in the opinion of Company's counsel referred to in this
paragraph 7, the proposed transfer or disposition of shares described in the
written notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of Common Stock
issued on the exercise hereof, the Company shall promptly give written notice
thereof to the Holder hereof, and the Holder will limit its activities in
respect to such as, in the opinion of such counsel, are permitted by law.
8. REGISTRATION RIGHTS.
a) PIGGYBACK RIGHTS. If at any time prior to the Expiration Date the
Company proposes to claim an exemption under Section 3(b) for a public
offering of any of its securities or pursuant to the exemption from
such registration provided by Regulation A any of its securities, or
pursuant to a registration of its shares (except by a Form S-8, S-4 or
other inappropriate form for registration), it shall, each time the
Company determines to proceed with the actual preparation and filing of
a registration statement, give written notice to all registered holders
of Warrants, and all registered holders of shares of Common Stock
acquired upon the exercise of Warrants, of its intention to do
3
<PAGE>
so and, on the written request of the holders of at least 50% of the
shares issued or issuable upon exercise of the Warrants given within
twenty (20) days after receipt of any such notice (which request shall
specify the Warrants or shares of Common Stock intended to be sold or
disposed of by such registered holder and describe the nature of any
proposed sale or other disposition thereof), the Company will use its
best efforts to cause all such Warrants and/or shares, the registered
holders of which shall have requested the registration or qualification
thereof, to be included in such notification or registration statement
proposed to be filed by the Company; provided, however, that no such
inclusion shall be required (i) if the Shares may then be sold by the
holder thereof without limitation under Rule 144(k), or comparable
successor rule of the Securities and Exchange Commission, or (ii) if
the managing underwriter of such offering reasonably determines that
including such Shares would unreasonably interfere with such offering.
The Company will pay all expenses of registration. The Warrant holders
shall pay all commissions or discounts applicable to the sale of the
included Shares, together with any expenses of counsel retained by them
in connection with their sale of the Shares. If any such registration
shall be underwritten in whole or in part, the Company may require that
the shares requested for inclusion pursuant to this section be included
in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters.
b) (i) The Company shall comply with the
requirements of paragraph 8(a) at its own expense, excluding
underwriting commissions, discounts, transfer taxes, or
similar expenses or an underwriter's expense allowance
attributable to the Warrants and/or Purchased Stock.
(ii) The Company's obligation under said
paragraph 8(a) shall be conditioned as to each public
offering, upon a timely receipt by the Company in writing of:
(A) Information as to the terms of such
public offering furnished by or on behalf of each
holder intending to make a public distribution of his
or its Warrants, Purchased Stock, or stock underlying
the Warrants; and,
(B) Such other information as the
Company may reasonably require from such holder(s),
or any underwriter for any of them, for inclusion in
such registration statement or Regulation A Offering
Statement or post-effective amendment.
c) REGISTRATION PROCEDURES. If and whenever the Company
is required by the provisions of paragraph 8 to effect the registration
of any shares under the Securities Act, the Company shall:
(i) prepare and file with the Securities and
Exchange Commission a registration statement with respect to
such securities, and use its best efforts to cause such
registration statement to become and remain effective for such
period as may be reasonably necessary to effect the sale of
such securities, not to exceed nine (9) months;
(ii) prepare and file with the Securities and
Exchange Commission such amendments to such registration
statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to
effect the sale of such securities, not to exceed nine (9)
months;
(iii) furnish to the Holder and to the
underwriters of the securities being registered such
reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other
documents as the Holder and underwriters may reasonably
request in order to facilitate the public offering of such
securities;
4
<PAGE>
(iv) use its best efforts to register or qualify
the securities covered by such registration statement under
the state securities or blue sky laws of Missouri and such
additional jurisdictions, not to exceed five in number, as the
underwriters or the holders of a majority of the Purchased
Shares for which registration has been requested may
reasonably request within twenty (20) days following the
original filing of such registration statement, except that
the Company shall not for any purpose be required to execute a
general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein
it is not so qualified; and
(v) prepare and promptly file with the
Securities and Exchange Commission and promptly notify the
Holder of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be
delivered under the Securities Act of 1933, any event shall
have occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of
the circumstances in which they were made, not misleading.
9. MISCELLANEOUS. This Agreement shall inure to the benefit of, and be
binding upon, the successors of the Agent and of the Company. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person, company or corporation, other than the parties hereto and their
successors and the controlling persons in paragraph 7 hereof, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision hereof. The term "successors" shall not include any purchaser of the
Securities merely by reason of such purchase. This Agreement shall be governed
by and construed in accordance with the laws of the State of Arizona.
IN WITNESS WHEREOF, AUTO NETWORK GROUP, INC. has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated May 6, 1999.
AUTOTRADECENTER.COM INC.
By /S/MIKE STUART
Its PRESIDENT
5
<PAGE>
May 17, 1999
AutoTradeCenter.com Inc.
8135 East Butherus, Suite 3
Scottsdale, Arizona 85260
Gentlemen:
As counsel for your company, we have reviewed your Articles of Incorporation,
Bylaws, and such other corporate records, documents, and proceedings and such
questions of law as we have deemed relevant for the purpose of this opinion.
We have also examined the Registration Statement of your company on Form S-1
which was initially transmitted for filing with the Securities and Exchange
Commission (the "Commission") on May 17, 1999, covering the registration under
the Securities Act of 1933, as amended, of the following:
(a) 100,000 shares of Common Stock to be issued upon exercise of Common
Stock Purchase Warrants; and
(b) up to 1,146,341 shares of Common Stock to be issued upon conversion of
outstand ing shares of Series B Preferred Stock; and
including the exhibits and form of prospectus (the "Prospectus") filed
therewith.
On the basis of such examination, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Arizona with all requisite
corporate power and authority to own, lease, license, and use its
properties and assets and to carry on the businesses in which it is now
engaged.
2. The Company has an authorized capitalization as set forth in the
Prospectus.
<PAGE>
AutoTradeCenter.com Inc.
May 17, 1999
Page 2
3. The shares of Common Stock of the Company to be issued upon the
exercise of the Warrants are validly authorized and, assuming (a) the
shares of Common Stock so issuable will be validly authorized on the
dates of exercise, (b) on the dates of exercise, the Warrants will be
enforceable as to the Company in accordance with their terms, and (c)
no change occurs in the applicable law and the pertinent facts, when
the pertinent provisions of such "blue sky" and securities laws as may
be applicable have been complied with and (d) the Warrants are
exercised in accor dance with their terms, the shares of Common Stock
so issuable will be validly issued, fully paid, and nonassessable.
4. The shares of Common Stock of the Company to be issued upon conversion
of the Series B Preferred Stock of the Company are validly authorized
and, assuming (a) the shares of Common Stock so issuable will be
validly authorized on the dates of conversion, (b) no change occurs in
the applicable law of the pertinent facts when the pertinent provisions
of such "blue sky" and securities laws as may be applicable have been
complied with, and (c) such shares of Series B Preferred Stock are
converted in accordance with the terms of the Statement Pursuant to
Section 10-602 Regarding the Series B Preferred Stock, the shares of
Common Stock so issuable will be validly issued, fully paid, and
nonassessable.
We hereby consent to the use of our name in the Registration Statement and
Prospectus in the section captioned "Legal Matters," and we also consent to the
filing of this opinion as an exhibit thereto. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Commission thereunder.
Very truly yours,
/S/DILL DILL CARR STONBRAKER
& HUTCHINGS, P.C.
DILL DILL CARR STONBRAKER
& HUTCHINGS, P.C.
<PAGE>
AUTO NETWORK USA, INC.
1997 STOCK OPTION PLAN
1. PURPOSE; EFFECTIVENESS OF THE PLAN.
(a) The purpose of this Plan is to advance the interests of the
Company and its stockholders by helping the Company obtain and
retain the services of employees, officers, consultants, and
directors, upon whose judgment, initiative and efforts the
Company is substantially dependent, and to provide those
persons with further incentives to advance the interests of
the Company.
(b) This Plan will become effective on the date of its adoption by
the Board, provided the Plan is approved by the stockholders
of the Company (excluding holders of shares of Stock issued by
the Company pursuant to the exercise of options granted under
this Plan) within twelve months before or after that date. If
the Plan is not so approved by the stockholders of the
Company, any options granted under this Plan will be rescinded
and will be void. This Plan will remain in effect until it is
terminated by the Board or the Committee (as defined
hereafter) under section 9 hereof, except that no ISO (as
defined herein) will be granted after the tenth anniversary of
the date of this Plan's adoption by the Board. This Plan will
be governed by, and construed in accordance with, the laws of
the State of Arizona.
2. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the following defined terms
(together with other capitalized terms defined elsewhere in this Plan)
will govern the construction of this Plan, and of any stock option
agreements entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions
set forth in Section 424(d) of the Code at the time he or she
is granted an Option, stock possessing more than ten percent
(10%) of the total combined voting power or value of all
classes of stock of the Company and/or of its subsidiaries;
(b) "1933 Act" means the federal Securities Act of 1933, as
amended;
(c) "Board" means the Board of Directors of the Company;
(d) "Called for under an Option," or words to similar effect,
means issuable pursuant to the exercise of an Option;
<PAGE>
(e) "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to
refer to Sections of the Code as enacted at the time of this
Plan's adoption by the Board and as subsequently amended, or
to any substantially similar successor provisions of the Code
resulting from recodification, renumbering or otherwise);
(f) "Committee" means a committee of two or more Disinterested
Directors, appointed by the Board, to administer and interpret
this Plan; provided that the term "Committee" will refer to
the Board during such times as no Committee is appointed by
the Board;
(g) "Company" means Auto Network USA, Inc., an Arizona
corporation;
(h) "Disability" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code;
(i) "Disinterested Director" means a member of the Board who is
not during the period of one year prior to his or her service
as an administrator of the Plan, or during the period of such
service, granted or awarded Stock, options to acquire Stock,
or similar equity securities of the Company under this Plan or
any similar plan of the Company, other than the grant of a
Formula Option pursuant to section 6(m) of this Plan;
(j) "Eligible Participants" means persons who, at a particular
time, are employees, officers, consultants, or directors of
the Company or its subsidiaries;
(k) "Fair Market Value" means, with respect to the Stock and as of
the date an ISO or a Formula Option is granted hereunder, the
market price per share of such Stock determined by the
Committee, consistent with the requirements of Section 422 of
the Code and to the extent consistent therewith, as follows:
(i) If the Stock was traded on a stock exchange on the
date in question, then the Fair Market Value will be
equal to the closing price reported by the applicable
composite-transactions report for such date;
(ii) If the Stock was traded over-the-counter on the date
in question and was classified as a national market
issue, then the Fair Market Value will be equal to
the last-transaction price quoted by the NASDAQ
system for such date;
(iii) If the Stock was traded over-the-counter on the date
in question but was not classified as a national
market issue, then the Fair Market Value will be
equal to the average of the last reported
representative bid and asked prices quoted by the
NASDAQ system for such date; and
1997 Stock Option Plan 2
<PAGE>
(iv) If none of the foregoing provisions is applicable,
then the Fair Market Value will be determined by the
Committee in good faith on such basis as it deems
appropriate.
(l) "Formula Option" means an NSO granted to members of the
Committee pursuant to section 6(m) hereof;
(m) "ISO" has the same meaning as "incentive stock option," as
defined in Section 422 of the Code;
(n) "Just Cause Termination" means a termination by the Company of
an Optionee's employment by and/or service to the Company (or
if the Optionee is a director, removal of the Optionee from
the Board by action of the stockholders or, if permitted by
applicable law and the Bylaws of the Company, the other
directors), in connection with the good faith determination of
the Company's board of directors (or of the Company's
stockholders if the Optionee is a director and the removal of
the Optionee from the Board is by action of the stockholders,
but in either case excluding the vote of the Optionee if he or
she is a director or a stockholder) that the Optionee has
engaged in any acts involving dishonesty or moral turpitude or
in any acts that materially and adversely affect the business,
affairs or reputation of the Company or its subsidiaries;
(o) "NSO" means any option granted under this Plan whether
designated by the Committee as a "non-qualified stock option,"
a "non-statutory stock option" or otherwise, other than an
option designated by the Committee as an ISO, or any option so
designated but which, for any reason, fails to qualify as an
ISO pursuant to Section 422 of the Code and the rules and
regulations thereunder;
(p) "Option" means an option granted pursuant to this Plan
entitling the option holder to acquire shares of Stock issued
by the Company pursuant to the valid exercise of the option;
(q) "Option Agreement" means an agreement between the Company and
an Optionee, in form and substance satisfactory to the
Committee in its sole discretion, consistent with this Plan;
(r) "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of
the Option Stock called for under such Option;
(s) "Option Stock" means Stock issued or issuable by the Company
pursuant to the valid exercise of an Option;
1997 Stock Option Plan 3
<PAGE>
(t) "Optionee" means an Eligible Participant to whom Options are
granted hereunder, and any transferee thereof pursuant to a
Transfer authorized under this Plan;
(u) "Plan" means this 1997 Stock Option Plan of the Company;
(v) "QDRO" has the same meaning as "qualified domestic relations
order" as defined in Section 414(p) of the Code;
(w) "Stock" means shares of the Company's Common Stock, no par
value;
(x) "Subsidiary" has the same meaning as "Subsidiary Corporation"
as defined in Section 424(f) of the Code;
(y) "Transfer," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment,
transfer, conveyance, pledge, hypothecation, encumbrance,
disposal, loan, gift, attachment or levy of such Option Stock,
including without limitation an assignment for the benefit of
creditors of the Optionee, a transfer by operation of law,
such as a transfer by will or under the laws of descent and
distribution, an execution of judgment against the Option
Stock or the acquisition of record or beneficial ownership
thereof by a lender or creditor, a transfer pursuant to a
QDRO, or to any decree of divorce, dissolution or separate
maintenance, any property settlement, any separation agreement
or any other agreement with a spouse (except for estate
planning purposes) under which a part or all of the shares of
Option Stock are transferred or awarded to the spouse of the
Optionee or are required to be sold; or a transfer resulting
from the filing by the Optionee of a petition for relief, or
the filing of an involuntary petition against such Optionee,
under the bankruptcy laws of the United States or of any other
nation.
3. ELIGIBILITY.
The Company may grant Options under this Plan only to persons who are
Eligible Participants as of the time of such grant. Subject to the
provisions of sections 4(d), 5 and 6 hereof, there is no limitation on
the number of Options that may be granted to an Eligible Participant.
4. ADMINISTRATION.
(a) COMMITTEE. The Committee, if appointed by the Board, will
administer this Plan. If the Board, in its discretion, does
not appoint such a Committee, the Board itself will administer
this Plan and take such other actions as the Committee is
authorized to take hereunder; provided that the Board may take
such actions hereunder in the same manner as the Board may
take other actions under the Company's Articles of
Incorporation and Bylaws generally.
1997 Stock Option Plan 4
<PAGE>
(b) AUTHORITY AND DISCRETION OF COMMITTEE. The Committee will have
full and final authority in its discretion, at any time and
from time to time, subject only to the express terms,
conditions and other provisions of the Company's Articles of
Incorporation, Bylaws and this Plan, and the specific
limitations on such discretion set forth herein:
(i) to select and approve the persons who will be granted
Options under this Plan from among the Eligible
Participants, and to grant to any person so selected
one or more Options to purchase such number of shares
of Option Stock as the Committee may determine;
(ii) to determine the period or periods of time during
which Options may be exercised, the Option Price and
the duration of such Options, and other matters to be
determined by the Committee in connection with
specific Option grants and Options Agreements as
specified under this Plan;
(iii) to interpret this Plan, to prescribe, amend and
rescind rules and regulations relating to this Plan,
and to make all other determinations necessary or
advisable for the operation and administration of
this Plan; and
(iv) to delegate all or a portion of its authority under
subsections (i) and (ii) of this section 4(b) to one
or more directors of the Company who are executive
officers of the Company, but only in connection with
Options granted to Eligible Participants who are not
subject to the reporting and liability provisions of
Section 16 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder,
and subject to such restrictions and limitations
(such as the aggregate number of shares of Option
Stock called for by such Options that may be granted)
as the Committee may decide to impose on such
delegate directors.
(c) LIMITATION ON AUTHORITY. Notwithstanding the foregoing, or any
other provision of this Plan, the Committee will have no
authority:
(i) to grant Options to any of its members, whether or
not approved by the Board; and
(ii) to determine any matters, or exercise any discretion,
in connection with the Formula Options under section
6(m) hereof, to the extent that the power to make
such determinations or to exercise such discretion
would cause one or more members of the Committee no
longer to be "Disinterested Directors" within the
meaning of section 2(i) above.
1997 Stock Option Plan 5
<PAGE>
(d) DESIGNATION OF OPTIONS. Except as otherwise provided herein,
the Committee will designate any Option granted hereunder
either as an ISO or as an NSO. To the extent that the Fair
Market Value (determined at the time the Option is granted) of
Stock with respect to which all ISOs are exercisable for the
first time by any individual during any calendar year
(pursuant to this Plan and all other plans of the Company
and/or its subsidiaries) exceeds $100,000, such option will be
treated as an NSO. Notwithstanding the general eligibility
provisions of section 3 hereof, the Committee may grant ISOs
only to persons who are employees of the Company and/or its
subsidiaries.
(e) OPTION AGREEMENTS. Options will be deemed granted hereunder
only upon the execution and delivery of an Option Agreement by
the Optionee and a duly authorized officer of the Company.
Options will not be deemed granted hereunder merely upon the
authorization of such grant by the Committee.
5. SHARES RESERVED FOR OPTIONS.
(a) OPTION POOL. The aggregate number of shares of Option Stock
that may be issued pursuant to the exercise of Options granted
under this Plan initially will not exceed One Million
(1,000,000) (the "Option Pool"), provided that such number
automatically shall be adjusted annually on the beginning of
the Company's fiscal year to a number equal to 10% of the
number of shares of Stock of the Company outstanding at the
end of the Company's last completed fiscal year, or 1,000,000
shares, whichever is greater, and provided further that such
number will be increased by the number of shares of Option
Stock that the Company subsequently may reacquire through
repurchase or otherwise. Shares of Option Stock that would
have been issuable pursuant to Options, but that are no longer
issuable because all or part of those Options have terminated
or expired, will be deemed not to have been issued for
purposes of computing the number of shares of Option Stock
remaining in the Option Pool and available for issuance.
(b) ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change
in the outstanding Stock of the Company as a result of a stock
split, reverse stock split, stock dividend, recapitalization,
combination or reclassification, appropriate proportionate
adjustments will be made in:
(i) the aggregate number of shares of Option Stock in the
Option Pool that may be issued pursuant to the
exercise of Options granted hereunder;
(ii) the Option Price and the number of shares of Option
Stock called for in each outstanding Option granted
hereunder; and
1997 Stock Option Plan 6
<PAGE>
(iii) other rights and matters determined on a per share
basis under this Plan or any Option Agreement
hereunder. Any such adjustments will be made only by
the Board, and when so made will be effective,
conclusive and binding for all purposes with respect
to this Plan and all Options then outstanding. No
such adjustments will be required by reason of the
issuance or sale by the Company for cash or other
consideration of additional shares of its Stock or
securities convertible into or exchangeable for
shares of its Stock.
6. TERMS OF STOCK OPTION AGREEMENTS.
Each Option granted pursuant to this Plan will be evidenced by an
agreement (an "Option Agreement") between the Company and the person to
whom such Option is granted, in form and substance satisfactory to the
Committee in its sole discretion, consistent with this Plan. Without
limiting the foregoing, each Option Agreement (unless otherwise stated
therein) will be deemed to include the following terms and conditions:
(a) COVENANTS OF OPTIONEE. At the discretion of the Committee, the
person to whom an Option is granted hereunder, as a condition
to the granting of the Option, must execute and deliver to the
Company a confidential information agreement approved by the
Committee. Nothing contained in this Plan, any Option
Agreement or in any other agreement executed in connection
with the granting of an Option under this Plan will confer
upon any Optionee any right with respect to the continuation
of his or her status as an employee of, consultant or
independent contractor to, or director of, the Company or its
subsidiaries.
(b) VESTING PERIODS. Except as otherwise provided herein, each
Option Agreement may specify the period or periods of time
within which each Option or portion thereof will first become
exercisable (the "Vesting Period") with respect to the total
number of shares of Option Stock called for thereunder (the
"Total Award Option Stock"). Such Vesting Periods will be
fixed by the Committee in its discretion, and may be
accelerated or shortened by the Committee in its discretion.
(c) EXERCISE OF THE OPTION.
(i) MECHANICS AND NOTICE. An Option may be exercised to
the extent exercisable (1) by giving written notice
of exercise to the Company, specifying the number of
full shares of Option Stock to be purchased and
accompanied by full payment of the Option Price
thereof and the amount of withholding taxes pursuant
to subsection 6(c)(ii) below; and (2) by giving
assurances satisfactory to the Company that the
shares of Option Stock to be purchased upon such
exercise are being purchased for investment and not
with a view to resale in connection with any
distribution of such shares in violation of the 1933
Act; provided, however, that in the event the Option
Stock called for
1997 Stock Option Plan 7
<PAGE>
under the Option is registered under the 1933 Act, or
in the event resale of such Option Stock without such
registration would otherwise be permissible, this
second condition will be inoperative if, in the
opinion of counsel for the Company, such condition is
not required under the 1933 Act, or any other
applicable law, regulation or rule of any
governmental agency.
(ii) WITHHOLDING TAXES. As a condition to the issuance of
the shares of Option Stock upon full or partial
exercise of an NSO granted under this Plan, the
Optionee will pay to the Company in cash, or in such
other form as the Committee may determine in its
discretion, the amount of the Company's tax
withholding liability required in connection with
such exercise. For purposes of this subsection
6(c)(ii), "tax withholding liability" will mean all
federal and state income taxes, social security tax,
and any other taxes applicable to the compensation
income arising from the transaction required by
applicable law to be withheld by the Company.
(d) PAYMENT OF OPTION PRICE. Each Option Agreement will specify
the Option Price with respect to the exercise of Option Stock
thereunder, to be fixed by the Committee in its discretion,
but in no event will the Option Price for an ISO granted
hereunder be less than the Fair Market Value (or, in case the
Optionee is a 10% Stockholder, one hundred ten percent (110%)
of such Fair Market Value) of the Option Stock at the time
such ISO is granted, and in no event will the Option Price for
an NSO granted hereunder be less than eighty-five percent
(85%) of Fair Market Value. The Option Price will be payable
to the Company in United States dollars in cash or by check
or, such other legal consideration as may be approved by the
Committee, in its discretion.
(i) For example, the Committee, in its discretion, may
permit a particular Optionee to pay all or a portion
of the Option Price, and/or the tax withholding
liability set forth in subsection 6(c)(ii) above,
with respect to the exercise of an Option either by
surrendering shares of Stock already owned by such
Optionee or by withholding shares of Option Stock,
provided that the Committee determines that the fair
market value of such surrendered Stock or withheld
Option Stock is equal to the corresponding portion of
such Option Price and/or tax withholding liability,
as the case may be, to be paid for therewith.
(ii) If the Committee permits an Optionee to pay any
portion of the Option Price and/or tax withholding
liability with shares of Stock with respect to the
exercise of an Option (the "Underlying Option") as
provided in subsection 6(d)(i) above, then the
Committee, in its discretion, may grant to such
Optionee (but only if Optionee remains an Eligible
Participant at that time) additional NSOs, the number
of shares of Option Stock called for thereunder
1997 Stock Option Plan 8
<PAGE>
to be equal to all or a portion of the Stock so
surrendered or withheld (a "Replacement Option").
Each Replacement Option will be evidenced by an
Option Agreement. Unless otherwise set forth therein,
each Replacement Option will be immediately
exercisable upon such grant (without any Vesting
Period) and will be coterminous with the Underlying
Option. The Committee, in its sole discretion, may
establish such other terms and conditions for
Replacement Options as it deems appropriate.
(e) TERMINATION OF THE OPTION. Except as otherwise provided
herein, each Option Agreement will specify the period of time,
to be fixed by the Committee in its discretion, during which
the Option granted therein will be exercisable, not to exceed
ten years from the date of grant in the case of an ISO (the
"Option Period"); provided that the Option Period will not
exceed five years from the date of grant in the case of an ISO
granted to a 10% Stockholder. To the extent not previously
exercised, each Option will terminate upon the expiration of
the Option Period specified in the Option Agreement; provided,
however, that each such Option will terminate, if earlier:
(i) ninety days after the date that the Optionee ceases
to be an Eligible Participant for any reason, other
than by reason of death or disability or a Just Cause
Termination;
(ii) twelve months after the date that the Optionee ceases
to be an Eligible Participant by reason of such
person's death or disability; or
(iii) immediately as of the date that the Optionee ceases
to be an Eligible Participant by reason of a Just
Cause Termination.
In the event of a sale or all or substantially all of the
assets of the Company, or a merger or consolidation or other
reorganization in which the Company is not the surviving
corporation, or in which the Company becomes a subsidiary of
another corporation (any of the foregoing events, a "Corporate
Transaction"), then notwithstanding anything else herein, the
right to exercise all then outstanding Options will vest
immediately prior to such Corporate Transaction and will
terminate immediately after such Corporate Transaction;
provided, however, that if the Board, in its sole discretion,
determines that such immediate vesting of the right to
exercise outstanding Options is not in the best interests of
the Company, then the successor corporation must agree to
assume the outstanding Options or substitute therefor
comparable options of such successor corporation or a parent
or subsidiary of such successor corporation.
1997 Stock Option Plan 9
<PAGE>
(f) OPTIONS NONTRANSFERABLE. No Option will be transferable by the
Optionee otherwise than by will or the laws of descent and
distribution, or in the case of an NSO, pursuant to a QDRO.
During the lifetime of the Optionee, the Option will be
exercisable only by him or her, or the transferee of an NSO if
it was transferred pursuant to a QDRO.
(g) QUALIFICATION OF STOCK. The right to exercise an Option will
be further subject to the requirement that if at any time the
Board determines, in its discretion, that the listing,
registration or qualification of the shares of Option Stock
called for thereunder upon any securities exchange or under
any state or federal law, or the consent or approval of any
governmental regulatory authority, is necessary or desirable
as a condition of or in connection with the granting of such
Option or the purchase of shares of Option Stock thereunder,
the Option may not be exercised, in whole or in part, unless
and until such listing, registration, qualification, consent
or approval is effected or obtained free of any conditions not
acceptable to the Board, in its discretion.
(h) ADDITIONAL RESTRICTIONS ON TRANSFER. By accepting Options
and/or Option Stock under this Plan, the Optionee will be
deemed to represent, warrant and agree as follows:
(i) SECURITIES ACT OF 1933. The Optionee understands that
the shares of Option Stock have not been registered
under the 1933 Act, and that such shares are not
freely tradeable and must be held indefinitely unless
such shares are either registered under the 1933 Act
or an exemption from such registration is available.
The Optionee understands that the Company is under no
obligation to register the shares of Option Stock.
(ii) OTHER APPLICABLE LAWS. The Optionee further
understands that Transfer of the Option Stock
requires full compliance with the provisions of all
applicable laws.
(iii) INVESTMENT INTENT. Unless a registration statement is
in effect with respect to the sale of Option Stock
obtained through exercise of Options granted
hereunder: (1) Upon exercise of any Option, the
Optionee will purchase the Option Stock for his or
her own account and not with a view to distribution
within the meaning of the 1933 Act, other than as may
be effected in compliance with the 1933 Act and the
rules and regulations promulgated thereunder; (2) no
one else will have any beneficial interest in the
Option Stock; and (3) he or she has no present
intention of disposing of the Option Stock at any
particular time.
1997 Stock Option Plan 10
<PAGE>
(i) COMPLIANCE WITH LAW. Notwithstanding any other provision of
this Plan, Options may be granted pursuant to this Plan, and
Option Stock may be issued pursuant to the exercise thereof by
an Optionee, only after there has been compliance with all
applicable federal and state securities laws, and all of the
same will be subject to this overriding condition. The Company
will not be required to register or qualify Option Stock with
the Securities and Exchange Commission or any State agency,
except that the Company will register with, or as required by
local law, file for and secure an exemption from such
registration requirements from, the applicable securities
administrator and other officials of each jurisdiction in
which an Eligible Participant would be granted an Option
hereunder prior to such grant.
(j) STOCK CERTIFICATES. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all
legends required by law and necessary to effectuate this
Plan's provisions. The Company may place a "stop transfer"
order against shares of the Option Stock until all
restrictions and conditions set forth in this Plan and in the
legends referred to in this section 6(k) have been complied
with.
(k) NOTICES. Any notice to be given to the Company under the terms
of an Option Agreement will be addressed to the Company at its
principal executive office, Attention: Corporate Secretary, or
at such other address as the Company may designate in writing.
Any notice to be given to an Optionee will be addressed to the
Optionee at the address provided to the Company by the
Optionee. Any such notice will be deemed to have been duly
given if and when enclosed in a properly sealed envelope,
addressed as aforesaid, registered and deposited, postage and
registry fee prepaid, in a post office or branch post office
regularly maintained
(l) OTHER PROVISIONS. The Option Agreement may contain such other
terms, provisions and conditions, including such special
forfeiture conditions, rights of repurchase, rights of first
refusal and other restrictions on Transfer of Option Stock
issued upon exercise of any Options granted hereunder, not
inconsistent with this Plan, as may be determined by the
Committee in its sole discretion.
(m) FORMULA OPTIONS. On the date on which the Board appoints, or
the stockholders of the Company elect, a person who is not an
employee of the Company as a member of the Board for the first
time, such director will be granted a Formula Option to
purchase up to $10,000 of shares of Stock, based on the Fair
Market Value at the time the Option is granted. Immediately
after the completion of each annual meeting of the
stockholders of the Company, each member of the Board who is
not an employee of the Company will be awarded a Formula
Option to purchase up to 10,000 shares of Stock. Formula
Options will have an Option Price equal to the Fair Market
Value of the Stock as of the date of such grant. Except as
otherwise specifically provided in this section 6(m), the
terms of this Plan, including the vesting provisions
1997 Stock Option Plan 11
<PAGE>
of section 6(b), will apply to all Formula Options granted
pursuant to this section 6(m).
7. PROCEEDS FROM SALE OF STOCK.
Cash proceeds from the sale of shares of Option Stock issued from time
to time upon the exercise of Options granted pursuant to this Plan will
be added to the general funds of the Company and as such will be used
from time to time for general corporate purposes.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of this
Plan, and except with respect to Formula Options, the Committee may
modify, extend or renew outstanding Options granted under this Plan, or
accept the surrender of outstanding Options (to the extent not
theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, however, no modification of any Option
will, without the consent of the holder of the Option, alter or impair
any rights or obligations under any Option theretofore granted under
this Plan.
9. AMENDMENT AND DISCONTINUANCE.
The Board may amend, suspend or discontinue this Plan at any time or
from time to time; provided that no action of the Board will cause ISOs
granted under this Plan not to comply with Section 422 of the Code
unless the Board specifically declares such action to be made for that
purpose and provided further that no such action may, without the
approval of the stockholders of the Company, materially increase (other
than by reason of an adjustment pursuant to section 5(b) hereof) the
maximum aggregate number of shares of Option Stock in the Option Pool
that may be issued under Options granted pursuant to this Plan or
materially increase the benefits accruing to Plan participants or
materially modify eligibility requirements for the participants.
Provided, further, that the provisions of section 6(m) hereof may not
be amended more often than once during any six (6) month period, other
than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules and regulations thereunder. Moreover,
no such action may alter or impair any Option previously granted under
this Plan without the consent of the holder of such Option.
10. PLAN COMPLIANCE WITH RULE 16B-3.
With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, transactions under this plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors
under the 1934 Act. To the extent any provision of the plan or action
by the plan administrators fails so to comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
plan administrators.
1997 Stock Option Plan 12
<PAGE>
11. COPIES OF PLAN.
A copy of this Plan will be delivered to each Optionee at or before the
time he or she executes an Option Agreement.
***
Date Plan Adopted by Board of Directors: September 25, 1997
Date Plan Approved by Stockholders: August 5, 1997
STKOPT.PLN
1997 Stock Option Plan 13
<PAGE>
PROMISSORY NOTE
$400,000.00 Dated September 22, 1997
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 22nd day of September, 1997
by and between Auto Network USA, Inc., an Arizona corporation having its office
at 8135 E. Butherus, Suite 3, Scottsdale, Arizona 85260 AND Jeff Erskine, an
individual residing at 26031 N. Palomino Trail, Scottsdale, Arizona 85255, both
personally and for and on behalf of Auto Network USA, Inc., AND Mike Stuart, an
individual residing at 9118 E. Topeka Dr., Scottsdale, Arizona 85255, AND John
Carrante, an individual, residing at 9634 N. 120th Street, Scottsdale, Arizona
85259, hereinafter referred to as the BORROWERS, AND,
Evelyn Felice, whose address is 5404 E. New River Road, Cave Creek, AZ 8533
1, hereinafter referred to as the LENDER.
Borrowers hereby jointly and severally promise to pay to the order of
Evelyn Felice the sum of four hundred thousand dollars ($400,000.00), together
with interest thereon at the rate of twelve percent (12%) per annum on the
unpaid balance. Said sum shall be paid as follows:
Interest payments of four thousand hundred dollars ($4,000.00) payable in
arrears on the 22nd day of each month beginning October 22, 1997; and,
The principal amount of $400,000.00 shall be payable on September 22, 1999
unless such termination of this Note shall occur in which case all principal
amount shall become immediately due and payable.
This note may be prepaid, in full, at any time, without penalty. The
proceeds from this Note shall at all times be solely used to acquire motor
vehicles for resale and their titles shall also serve as security and as
collateral against the eventual repayment of this Note. Lender shall have the
right to verify and confirm this collateral at any time and violation of this
security shall be cause for the immediate termination of this Note.
In the event this Note shall be in default, and placed with an attorney for
collection, then the undersigned agree to pay all reasonable attorney fees and
costs of collection. All payments hereunder shall be made to such address as
shown above or as may from time to time be designated by Pinnacle. Default
interest shall be at eighteen percent (18%) per annum.
The undersigned and all other parties to this Note, whether as endorsers,
guarantors or sureties, agree to remain fully bound hereunder until this note
shall be fully
<PAGE>
PROMISSORY NOTE PAGE 2
paid and waive demand, presentment and protest and all notices thereto and
further agree to remain bound, notwithstanding any extension, renewal,
modification, waiver, or other indulgence by any holder or upon the discharge or
release of any obligor hereunder or to this note, or upon the exchange,
substitution, or release of any collateral granted as security for this note. No
modification or indulgence by any holder hereof shall be binding unless in
writing; and any indulgence on any one occasion shall not be an indulgence for
any other or future occasion. Any modification or change of terms, hereunder
granted by any holder hereof, shall be valid and binding upon each of the
undersigned, notwithstanding the acknowledgment of any of the undersigned, and
each of the undersigned does hereby irrevocably grant to each of the others a
power of attorney to enter into any such modification on their behalf. The
rights of any holder hereof shall be cumulative and not necessarily successive.
This note shall take effect as a sealed instrument and shall be construed,
governed and enforced in accordance with the laws of the State first appearing
at the head of this note. The undersigned hereby execute this note as principals
and not as sureties.
/S/ VICTOR FELICE /S/ JEFF ERSKINE
Witness Auto Network USA, Inc.
Jeff Erskine, President
INDIVIDUAL BORROWERS AND GUARANTORS
We the undersigned jointly and severally guaranty the prompt and punctual
payment of all moneys due under the aforesaid note and agree to remain
bound until fully paid.
/S/ VICTOR FELICE /S/ JEFF ERSKINE
Witness Jeff Erskine,
Individual Guarantor
/S/ CHANDRA KASKAS /S/ MIKE STUART
Witness Mike Stuart,
Individual Guarantor
Witness
/S/ JOHN CARRANTE
Witness John Carrante,
Individual Guarantor
PROMISSORY NOTE
$150,000.00 Dated October 17, 1997
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 17th day of
October, 1997 by and between Auto Network USA, Inc., an Arizona corporation
having its office at 8135 E. Butherus, Suite 3, Scottsdale, Arizona 85260
AND Jeff Erskine, an individual residing at 26031 N. Palomino Trail,
Scottsdale, Arizona 85255, both personally and for and on behalf of Auto
Network USA, Inc., AND Mike Stuart, an individual residing at 9118 E. Topeka
Dr., Scottsdale, Arizona 85255, AND John Carrante, an individual, residing
at 9634 N. 120th Street, Scottsdale, Arizona 85259, hereinafter referred to
as the BORROWERS, AND,
Mark Moldenhauer whose address is 13215 Braun Road, Golden, Colorado
8040 1, hereinafter referred to as the LENDER.
Borrowers hereby jointly and severally promise to pay to the order of
Mark Moldenhauer the sum of One hundred FIFTY thousand dollars
($150,000-00), together with interest thereon at the rate of twelve percent
(I 2%) per annum on the unpaid balance. Said sum shall be paid as follows:
Interest payments of one thousand five hundred dollars ($1,500.00)
payable in arrears on the ]7th day of each month beginning November 17,
1997; and,
The principal amount of $150,000.00 shall be payable on November 17,
1999 unless such termination of this Note shall occur in which case all
principal amount shall become immediately due and payable.
This note may be prepaid, in full, at any time, without penalty. The
proceeds from this Note shall at all times be solely used to
acquire motor vehicles for resale and their titles shall also serve as
security and as collateral against the eventual repayment of this Note.
Lender shall have the right to verify and confirm this collateral at any
time and violation of this security shall be cause for the immediate
termination of this Note.
This Note shall be immediately due and payable upon the failure to
make any payment due herein and/or upon the resignation or removal of Mr.
Stuart as a Director of Auto Network USA, Inc..
In the event this Note shall be in default, and placed with an
attorney for collection, then the undersigned agree to pay all reasonable
attorney fees and costs of collection. All payments hereunder shall be made
to such address as shown above or as may from time to time be designated by
Lender. Default interest shall be at eighteen percent (I 8%) per annum.
The undersigned and all other parties to this Note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder
until this note shall be fully
<PAGE>
PROMISSORY Note PAGE 2
paid and waive demand, Presentment and Protest and all notices thereto and
further agree to remain bound, notwithstanding any extension, renewal,
modification, waiver, their indulgence by any holder or upon the discharge or
release of any obligor hereunder or to this note, or upon the exchange,
substitution, or release of any collateral granted as security for this note.
No modification or indulgence by any holder hereof shall be binding unless in
writing; and any indulgence on any one occasion shall not be an indulgence
for any other or future occasion. Any modification or change of terms,
hereunder granted by any holder hereof, shall be valid and binding upon each
of the undersigned, notwithstanding the acknowledgment of any of the
undersigned, and each of the undersigned does hereby irrevocably grant to
each of the others a power of attorney to enter into any such modification on
their behalf. The rights of any holder hereof shall be cumulative and not
necessarily successive. This note shall take effect as a sealed instrument
and shall be cons ' trued, governed and enforced in accordance with the laws
of the State(*first appearing at the head of this note. The undersigned
hereby execute this note as principals and not as sureties.
Signed in the presence of-
/S/ DEBBIE STUART /S/ JEFF ERSKINE
Witness AutoNetwork USA, Inc.
Jeff Erskine,
President
INDIVIDUAL BORROWERS AND GUARANTORS
We the undersigned jointly and severally guaranty the prompt and
punctual payment of all moneys due under the aforesaid note and agree to remain
bound until fully paid.
Signed in the presence of:
/S/ DEBBIE STUART /S/ JEFF ERSKINE
Witness Jeff Erskine, Individual
Guarantor
/S/ DEBBIE STUART /S/ MIKE STUART
Witness Mike Stuart, Individual
Guarantor
/S/ DEBBIE STUART /S/ JOHN CARRANTE
Witness John Carrante, Individual
Guarantor
<PAGE>
PROMISSORY NOTE
$300,000.00 Dated: January 15, 1998
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 15th day of
January, 1998 by and between Auto Network USA, Inc., an Arizona
corporation having its office at 8135 E. Butherus, Suite 3, Scottsdale,
Arizona 85260, AND,
Mark Moldenhauer, whose address is 13215 Braun Road, Golden, Co 8040 1,
hereinafter referred to as the LENDER.
Borrowers hereby jointly and severally promise to pay to the order of
Mark Moldenhauer the sum of three hundred thousand dollars ($300,000.00),
together with interest thereon at the rate of twelve percent (I 2%) per annum
on the unpaid balance. Said sum shall be paid as follows:
Interest payments of three thousand hundred dollars ($3,000.00) payable
in arrears on the ]5th day of each month beginning February 15, 1998, and,
The principal amount of $300,000.00 shall be payable on January 15, 1999
unless such termination of this Note shall occur in which case all principal
amount shall become immediately due and payable.
This Note replaces the Note between the parties dated December 15, 1997.
This note may be prepaid, in full, at any time, without penalty. The
proceeds from this Note shall at all times be solely used to
acquire motor vehicles for resale and their titles shall also serve as
security and as collateral against the eventual repayment of this Note.
Pinnacle shall have the right to verify and confirm this collateral at any
time and violation of this security shall be cause for the immediate
termination of this Note.
At the Lender's sole option, at any time, this Note shall be convertible
into Auto Network USA, Inc. common stock at a rate of $0. 1 0 per share. Said
conversion extend for the term of thirty days after the ten-n of this Note.
This Note and option is transferable at the Lender's sole discretion.
In the event this Note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. All payments hereunder shall be made to such address
as shown above or as may from time to time be designated by Pinnacle. Default
interest shall be at eighteen percent (I 8%) per annum.
The undersigned and all other parties to this Note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder until
this note shall be fully
<PAGE>
PROMISSORY NOTE PAGE 2
paid and waive demand, presentment and protest and all notices thereto and
further agree to remain bound, notwithstanding any extension, renewal,
modification, waiver, or other indulgence by any holder or upon the discharge
or release of any obligor hereunder or to this note, or upon the exchange,
substitution, or release of any collateral granted as security for this note.
No modification or indulgence by any holder hereof shall be binding unless in
writing; and any indulgence on any one occasion shall not be an indulgence for
any other or future occasion. Any modification or change of terms, hereunder
granted by any holder hereof, shall be valid and binding upon each of the
undersigned, notwithstanding the acknowledgment of any of the undersigned, and
each of the undersigned does hereby irrevocably grant to each of the others a
power of attorney to enter into any such modification on their behalf The
rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed INSTRUMENT AND SHALL BE
CONSTRUED, GOVERNED AND ENFORCED IN accordance with the laws of the State
first appearing at the head of this note. The undersigned hereby execute this
note as principals and not as sureties.
Signed in the presence of:
/S/ JEFF ERSKINE /S/ MIKE STUART
Witness Auto Network USA, Inc.
Jeff Erskine Mike Stuart, President
<PAGE>
SECURED PROMISSORY NOTE
$102,000.00 Dated March 31, 1998
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 31st day of March, 1998
by and between Auto Network USA, Inc., an Arizona corporation having its office
at 8135 E. Butherus, Suite 3, Scottsdale, Arizona 85260, hereinafter referred to
as the BORROWER, AND
Mark Moldenhauer whose address is 13215 Braun Road, Golden, Colorado
80401, hereinafter referred to as the LENDER.
Borrower hereby promises to pay to the order of Mark Moldenhauer the sum
of One Hundred Two Thousand Dollars ($102,000.00), together with interest
thereon at the rate of twelve percent (12%) per annum on the unpaid balance.
Said sum shall be paid as follows:
The principal amount of $102,000.00 and interest in the amount of
$1,020.00 for a total of $103,020.00 shall be due and payable on April 30, 1998
unless such termination of this Note shall occur in which case all principal
amount shall become immediately due and payable.
This note may be prepaid, in full, at any time, without penalty. This Note
may be extended at the option of the Lender on a month to month basis with prior
written approval.
The proceeds from this Note shall at all times be solely used to acquire
motor vehicles for resale and their titles shall also serve as security and as
collateral against the eventual repayment of this Note. Lender shall have the
right to verify and confirm this collateral at any time and violation of this
security shall be cause for the immediate termination of this Note.
This Note shall be immediately due and payable upon the failure to make
any payment due herein and/or upon the resignation or removal of Mr.
Stuart as a Director of Auto Network USA, Inc..
In the event this Note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. All payments hereunder shall be made to such address as
shown above or as may from time to time be designated by Lender. Default
interest shall be at eighteen percent (18%) per annum.
The undersigned and all other parties to this Note, whether as endorsers,
guarantors or sureties, agree to remain fully bound hereunder until this note
shall be fully
<PAGE>
PROMISSORY NOTE PAGE 2
paid and waive demand, presentment and protest and all notices thereto and
further agree to remain bound, notwithstanding any extension, renewal,
modification, waiver, or other indulgence by any holder or upon the discharge or
release of any obligor hereunder or to this note, or upon the exchange,
substitution, or release of any collateral granted as security for this note. No
modification or indulgence by any holder hereof shall be binding unless in
writing; and any indulgence on any one occasion shall not be an indulgence for
any other or future occasion. Any modification or change of terms, hereunder
granted by any holder hereof, shall be valid and binding upon each of the
undersigned, notwithstanding the acknowledgment of any of the undersigned, and
each of the undersigned does hereby irrevocably grant to each of the others a
power of attorney to enter into any such modification on their behalf. The
rights of any holder hereof shall be cumulative and not necessarily successive.
This note shall take effect as a sealed instrument and shall be construed,
governed and enforced in accordance with the laws of the State first appearing
at the head of this note. The undersigned hereby execute this note as principals
and not as sureties.
Signed in the presence of:
/S/DEBBIE STUART /S/ MIKE STUART
Witness Auto Network USA, Inc.
Mike Stuart, President
<PAGE>
SECURED PROMISSORY NOTE
$300,000.00 Dated April 7, 1998
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 7th day of April, 1998
by and between Auto Network USA, Inc., an Arizona corporation having its office
at 8135 E. Butherus, Suite 3, Scottsdale, Arizona 85260, hereinafter referred to
as the BORROWER, AND
Mark Moldenhauer whose address is 13215 Braun Road, Golden, Colorado 8040
1, hereinafter referred to as the LENDER.
Borrower hereby promises to pay to the order of Mark Moldenhauer the sum
of Three Hundred Thousand Dollars ($300,000.00), together with interest thereon
at the rate of twelve percent (12%) per annum on the unpaid balance.
Said sum shall be paid as FOLLOWS:
The principal amount of $300,000.00 and interest in the amount of
$3,000.00 for a total of $303,000 shall be due and payable on May 7, 1998 unless
such termination of this Note shall occur in which case all principal amount
shall become immediately due and payable.
This note may be prepaid, in full, at any time, without penalty. This Note
may be extended at the option of the Lender on a month to month basis with prior
written approval.
The proceeds from this Note shall at all times be solely used to acquire
motor vehicles for resale and their titles shall also serve as security and as
collateral against the eventual repayment of this Note. Lender shall have the
right to verify and confirm this collateral at any time and violation of this
security shall be cause for the immediate termination of this Note.
This Note shall be immediately due and payable upon the failure to make
any payment due herein and/or upon the resignation or removal of Mr. Stuart
as a Director of Auto Network USA, Inc..
In the event this Note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. All payments hereunder shall be made to such address as
shown above or as may from time to time be designated by Lender. Default
interest shall be at eighteen percent (I 8%) per annum.
The undersigned and all other parties to this Note, whether as endorsers,
guarantors or sureties, agree to remain fully bound hereunder until this note
shall be fully
<PAGE>
PROMISSORY NOTE PAGE 2
paid and waive demand, presentment and protest and all notices thereto and '
further agree to remain bound, notwithstanding any extension, renewal,
modification, waiver, or other indulgence by any holder or upon the discharge or
release of any obligor hereunder or to this note, or upon the exchange,
substitution, or release of any collateral granted as security for this note. No
modification or indulgence by any holder hereof shall be binding unless in
writing; and any indulgence on any one occasion shall not be an indulgence for
any other or future occasion. Any modification or change of terms, hereunder
granted by any holder hereof, shall be valid and binding upon each of the
undersigned, notwithstanding the acknowledgment of any of the undersigned, and
each of the undersigned does hereby irrevocably grant to each of the others a
power of attorney to enter into any such modification on their behalf The rights
of any holder hereof shall be cumulative and not necessarily successive. This
note shall take effect as a sealed instrument and shall be construed, governed
and enforced in accordance with the laws of the State first appearing at the
head of this note. The undersigned hereby execute this note as principals and
not as sureties.
Signed in the presence of:
/S/ ROGER BUTTERWICK /S/ MIKE STUART
Witness Auto Network USA, Inc.
Mike Stuart, President
<PAGE>
PROMISSORY NOTE
$200,000.00 Dated: December 15, 1997
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the ]5th day of
December, 1997 by and between Auto Network USA, Inc., an Arizona
corporation having its office at 8135 E. Butherus, Suite 3, Scottsdale,
Arizona 85260 , AND,
Pinnacle Financial Corporation, whose address is 15001 North Hayden
Road, Suite 111, Scottsdale, Arizona 85260, hereinafter referred to as the
Lender.
Borrowers hereby jointly and severally promise to pay to the order of
Lender the sum of two hundred thousand dollars ($200,000.00), together with
interest thereon at the rate of twelve percent (12%) per annum on the
unpaid balance. Said sum shall be paid as follows:
Interest payments of two thousand dollars ($2,000.00) payable in
arrears on the ]5th day of each month beginning January 15, 1998; and,
The principal amount of $200,000.00 shall be payable on December 15,
1998 unless such termination of this Note shall occur in which case all
principal amount shall become immediately due and payable.
This note may be prepaid, in full, at any time, without penalty.
The proceeds from this Note shall at all times be solely used to
acquire motor vehicles for resale and their titles shall also serve as
security and as collateral against the eventual repayment of this Note.
Pinnacle shall have the right to verify and confirm this collateral at any
time and violation of this security shall be cause for the immediate
termination of this Note.
In the event this Note shall be in default, and placed with an
attorney for collection, then the undersigned agree to pay all reasonable
attorney fees and costs of collection. All payments hereunder shall be
made to such address as shown above or as may from time to time be
designated by Pinnacle. Default interest shall be at eighteen percent (I
8%) per annum.
The undersigned and all other parties to this Note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder
until this note shall be fully
<PAGE>
Promissory Note page 2
paid and waive demand, presentment and protest and all notices thereto and
further agree
to remain bound, notwithstanding any extension, renewal, modification,
waiver, or other
indulgence by any holder or upon the discharge or release of any obligor
hereunder or to this note, or upon the exchange, substitution, or release of
any collateral granted as security for this note. No modification or
indulgence by any holder hereof shall be binding unless in writing; and any
indulgence on any one occasion shall not be an Indulgence for any other or
future occasion. Any modification or change of terms, hereunder granted by
any holder hereof, shall be valid and binding upon each of the undersigned,
notwithstanding the acknowledgment of any of the undersigned, and each of the
undersigned does hereby irrevocably grant to each of the others a power of
attorney to enter into any such modification on their behalf. The rights of
any holder hereof shall be cumulative and not necessarily successive. This
note shall take effect as a sealed instrument and shall be construed,
governed and enforced in accordance with the laws of the State first
appearing at the head of this note. The undersigned hereby execute this note
as principals and not as sureties.
Signed in the presence of:
/s/ Mark Moldenhauer /s/ Mike Stuart
Witness Auto Network USA, Inc.
Mike Stuart, President
<PAGE>
PROMISSORY NOTE
$117,500.00 Dated September 11, 1998
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the 11th day of September,
1998 by and between Auto Network USA, Inc., an Arizona corporation having its
office at 8135 E. Butherus, Suite 3, Scottsdale, Arizona, hereinafter referred
to as the Borrower, AND,
Pinnacle Financial Corporation, whose address is Post Office Box 14606,
Scottsdale, Arizona 85267, hereinafter referred to as the Lender.
Borrower hereby promises to pay Lender the sum of One Hundred Seventeen
Thousand Five hundred Dollars ($117,500.00), together with interest thereon at
the rate of twelve percent (12%) per annum on the unpaid balance. Said SUM shall
be paid as follows:
Interest payments shall be payable in arrears on the 3CP of each month,
beginning September 30, 1998 and shall be due as follows: One payment of $744.23
due on September 30, 1998. Beginning with the October 30, 1998 interest payment
and each month thereafter, interest payments shall be $1,175.00.
The principal amount of $117,500.00 shall be due and payable on October 11,
1999 unless such termination of this Note shall occur in which case all
principal amount shall be-come immediately due and payable.
This note may be prepaid, in full at any time, without penalty. This Note
may be extended at the option of the Lender on a month to month basis.
The proceeds from this Note shall at all times be solely used to acquire
motor vehicles for resale and their titles shall also serve as security and as
collateral against the eventual repayment of this Note. Lender shall have the
right to verify and confirm this collateral at any time and violation of this
security shall be cause for the immediate termination of this Note.
This Note shall be immediately due and payable upon the failure to make
any payment due herein and/or upon the resignation or removal of Mr.
Mike Stuart as a Director of Auto Network USA, Inc.
In the event this Note shall be in default, and placed with an attorney for
collection, then the undersigned agree to pay all reasonable attorney ' fees and
costs of collection. All payments hereunder shall be made to such address as
shown above or as may from time to time be designated by Lender. Default
interest shall be at eighteen percent (1 8%) per annum.
This note shall take effect as a sealed instrument and shall be construed,
governed and enforced in accordance with the laws of the State of Arizona
Signed in the presence of
/S/MARK MOLDENHAUER /S/ MIKE STUART
Witness Auto Network USA, Inc
Mike Stuart, President
AMENDED AND RESTATED PROMISSORY NOTE
$1,482,259.00 Scottsdale,Arizona
November 21, 1998
FOR VALUE RECEIVED, AUTO NETWORK GROUP, INC., an Arizona
corporation formerly known as Auto Network USA, Inc. (the "Maker"), promises
to pay, in lawful money of the United States, to Eastlane Trading Limited, a
corporation formed under the laws of Ireland, the sum of ONE MILLION FOUR
HUNDRED EIGHTY TWO THOUSAND TWO HUNDRED FIFTY NINE and no/hundreds DOLLARS
($1,482,259.00) and to pay interest on the first day of each month (unless
otherwise requested by Holder) beginning July 1, 1998 on principal accruing
from June 1, 1998 on the sum of $250,000; from October 20, 1998 on the sum of
$1,250,000; and from the date hereof on the full principal balance, all at
the rate of twelve percent (12%) per annum. All principal and accrued but
unpaid interest hereunder shall be due on April 1, 2000. Payments shall be
made to c/o Cremin McCarthy & Co., 28 Harcourt Street, Dublin 2, Ireland.
At any time prior to acceptance of payment in full of the
outstanding balance hereo@ holder, by notice to Maker, may (but without any
obligation to do so) convert the balance of principal and accrued but unpaid
interest hereunder into common capital shares of Maker; this conversion shall
entitle holder to one (1) share of the common capital stock of Maker for
cancellation of each $1.03 of Maker's debt to holder.
Time is of the essence hereof. In the event of any default in the
payment of any amount due hereunder, the unpaid principal sum of this
Promissory Note and accrued interest remaining unpaid may at any time
thereafter, at the holder's option and without further notice or demand, may
be declared and become due and payable forthwith, and Maker shall pay any and
all costs, expenses, and fees, including reasonable attorneys' fees, incurred
in collecting or enforcing payment hereunder. Default interest on the sums
due hereunder, including such attorneys' fees, shall accrue at the rate of
eighteen percent (I 8%) per annum. Holder shall also have the right to
accelerate the outstanding balance hereof without notice or demand and in the
event that either Michael Stuart or Mark Moldenhauer cease to be officers
and/or directors of Maker.
At no time shall Maker be obligated or required to pay interest on
the principal balance of this Note at a rate which would subject the holder
hereof to either civil or criminal liability as a result of being in excess
of the maximum rate which Maker is permitted by law to contract or agree to
pay. If by the terms of this Note Maker is at any time required or obligated
to pay interest on the principal balance of this Note at a rate in excess of
such maximum rate, the rate of interest under this Note shall be deemed to be
reduced immediately to such maximum rate for so long as (and only for so long
as) the rate hereunder is in excess of such maximum rate, and interest paid
hereunder in
<PAGE>
excess of such maximum rate shall be applied to and shall be deemed to have
been payment in reduction of the principal balance of this Note or, if the
principal balance shall have been paid, shall be refunded to Maker.
Maker hereby acknowledges that the loan for which payment is
promised hereby has been made and win be used only for business or commercial
purposes other than agricultural purposes and hereby covenants that the
proceeds hereof will be used only for such purposes. This Note may be
modified or amended only by an agreement in writing signed by the party
against whom enforcement of such modification or amendment is sought. Maker
(and the undersigned representative of Maker, if this Note is executed by a
representative) represents that Maker has fun power, authority, and legal
right to execute and deliver this Note and the debt hereunder constitutes a
valid and binding obligation of Maker. The laws of the State of Arizona
govern the interpretation and enforcement of this Note. This Note amends and
restates in fiffl the Promissory Note dated November 20, 1998, from Auto
Network USA, Inc. to Eastlane Trading Limited, a corporation.
IN WITNESS WHEREOF, Maker has executed the foregoing Promissory
Note as of the date and year first written above.
AUTO NETWORK GROUP, INC.,
an Arizona corporation
By /S/ MICHAEL STUART
Michael Stuart, its President
ACCEPTED BY EASTLANE TRADING
By /S/ P.W. GARRETT
P.W. Garrett, Director
CREDIT AND SECURITY AGREEMENT
Dated as of March 26, 1999
AUTO NETWORK GROUP, INC., an Arizona corporation (the "Borrower"),
and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising out
of the sale or lease of goods or rendition of services by the Borrower on an
open account or deferred payment basis.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means Pinnacle Dealer Services,
Inc., Auto Network of New Mexico, Inc., Autotradecenterinc.com and any other
Person controlled by, controlling or under common control with the Borrower,
including (without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "control," when used with respect to any specified Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"Availability" means the positive difference, if any, between
(i) the Borrowing Base, and (ii) the outstanding principal balance of the
Revolving Note.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in Phoenix,
Arizona.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota as its "base rate" or, if such bank
ceases to announce a rate so designated, any similar successor rate designated
by the Lender.
SKR:bss 287918.06 3/22/99
<PAGE>
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in accordance with
GAAP.
"Borrowing Base" means, at any time and subject to change from
time to time in Lender's sole discretion, the lesser of:
(a) the Maximum Line; or
(b) the lesser of 85% of Eligible Accounts.
"Broker Guarantee" means a guarantee executed and delivered
by a broker to Borrower.
"Capital Expenditures" for a period means any expenditure of
money for the lease, purchase or other acquisition of any capital asset, or for
the lease of any other asset whether payable currently or in the future.
"Collateral" means all of the Borrower's Equipment, Motor
Vehicles, General Intangibles, Inventory, Receivables, Accounts, all sums on
deposit in any Collateral Account, and any items in any lockbox; together with
(i) all substitutions and replacements for and products of any of the foregoing;
(ii) proceeds of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
tangible goods; and (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning given in the
Collateral Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower, Norwest Bank Arizona,
NA and the Lender.
"Commitment" means the Lender's commitment to make Advances to
or for the Borrower's account pursuant to Article II.
"Credit Facility" means the discretionary credit facility
being made available to the Borrower by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that Person
as of the date as of which Debt is to be determined. For purposes of determining
a Person's aggregate Debt at any time, "Debt" shall also include the aggregate
payments required to be made by such Person at any time under any lease that is
considered a capitalized lease under GAAP.
"Debt Service Coverage Ratio" means the ratio of (i) the sum
of (A) Funds from Operations and (B) Interest Expense MINUS (C) unfinanced
Capital Expenditures to (ii) the sum of (A) Current Maturities of Long Term Debt
and (B) Interest Expense.
SKR:bss 287918.06 3/22/99 2
<PAGE>
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has occurred
and ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three percent
(3%) over the Floating Rate, which rate shall change when and as the Floating
Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts over the later of (A) 30
days past invoice date, or (B) 30 days from payment by Borrower of its purchase
price for the automobile giving rise to the Account;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as applicable, by the Borrower
to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for which the
Borrower has provided evidence satisfactory to the Lender that (A) the Lender
has a first priority perfected security interest and (B) such Accounts may be
enforced by the Lender directly against such unit of government under all
applicable laws);
(v) Accounts owed by an account debtor located outside
the United States which are not (A) backed by a bank letter of credit naming the
Lender as beneficiary or assigned to the Lender, in the Lender's possession and
acceptable to the Lender in all respects, in its sole discretion, (B) covered by
a foreign receivables insurance policy acceptable to the Lender in its sole
discretion;
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
SKR:bss 287918.06 3/22/99 3
<PAGE>
(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender including without
limitation any payment or performance bond;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if 10% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii)or (ix) above;
(xii) Accounts generated by the sale of Motor Vehicles
for which Lender has not received a copy of the certificate of title validly
executed by the seller which (i) shows no lienholder, or (ii) is not accompanied
by copies of all lien releases;
(xiii) Accounts generated by the sale of Motor Vehicles
which have not yet been purchased;
(xiv) Accounts owed by an account debtor regardless of
whether otherwise eligible, in excess of 15% of total Accounts; and
(xv) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Eastlane Debt" has the meaning specified in Section 4.1(r).
"Environmental Laws" has the meaning specified in Section
5.12.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith or
hereafter furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus one and one-half percent (1.5%), which annual rate shall change
when and as the Base Rate changes.
"Funding Date" has the meaning given in Section 2.1.
SKR:bss 287918.06 3/22/99 4
<PAGE>
"Funds From Operations" for a given period means the sum of
(i) Net Income, (ii) depreciation and amortization, (iii) deferred income taxes,
and (iv) other non-cash items, each as determined for such period in accordance
with GAAP.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the financial
statements described in Section 5.5, except for any change in accounting
practices to the extent that, due to a promulgation of the Financial Accounting
Standards Board changing or implementing any new accounting standard, the
Borrower either (i) is required to implement such change, or (ii) for future
periods will be required to and for the current period may in accordance with
generally accepted accounting principles implement such change, for its
financial statements to be in conformity with generally accepted accounting
principles (any such change is herein referred to as a "Required GAAP Change"),
provided that (1) the Borrower shall fully disclose in such financial statements
any such Required GAAP Change and the effects of the Required GAAP Change on the
Borrower's income, retained earnings or other accounts, as applicable, and (2)
the Borrower's financial covenants set forth in Sections 6.12, 6.13, 6.14 and
7.10 shall be adjusted as necessary to reflect the effects of such Required GAAP
Change.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Guarantors" means Mike Stuart, Debbie Stuart; Mike
Moldenhauer; Hope Moldenhauer; Roger Butterwick and Sherry Butterwick.
"Hazardous Substance" has the meaning given in Section 5.12.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
"Loan Documents" means this Agreement, the Note and the
Security Documents.
"Maturity Date" means March 31, 2000.
"Maximum Line" means $3,000,000.00.
"Minimum Interest Charge" has the meaning given in Section
2.2(b).
"Motor Vehicles" means motor vehicles for which ownership is
evidenced by a Certificate of Title.
SKR:bss 287918.06 3/22/99 5
<PAGE>
"Net Income" means fiscal year-to-date after-tax net income
from continuing operations as determined in accordance with GAAP.
"Net Loss" means fiscal year-to-date after tax net loss from
continuing operations as determined in accordance with GAAP.
"Norwest Bank Minnesota" means Norwest Bank Minnesota,
National Association.
"Note" means the Revolving Note.
"Obligations" means the Note and each and every other debt,
liability and obligation of every type and description which the Borrower may
now or at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises in
a transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising under
this Agreement, the Note or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter entered
into.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without limitation) the
premises legally described in Exhibit C attached hereto.
"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out of a
loan, out of the overpayment of taxes or other liabilities, or otherwise arises
under any contract or agreement, whether such right to payment is created,
generated or earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to payment
is or is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including all
liens and security interests) which the Borrower may at any time have by law or
agreement against any account debtor or other obligor obligated to make any such
payment or against any property of such account debtor or other obligor; all
including but not limited to all present and future accounts, contract rights,
loans and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
SKR:bss 287918.06 3/22/99 6
<PAGE>
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of Exhibit A
hereto, as the same may hereafter be amended, supplemented or restated from time
to time, and any note or notes issued in substitution therefor, as the same may
hereafter be amended, supplemented or restated from time to time and any note or
notes issued in substitution therefor.
"Security Documents" means this Agreement, the Collateral
Account Agreement and any other document delivered to the Lender from time to
time to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subordinated Debt" means the principal amount of indebtedness
owed by Borrower for which the Lender has received a valid Subordination
Agreement.
"Subordination Agreements" means the Debt Subordination
Agreements of even date herewith, executed by Mark Moldenhauer, Hope
Moldenhauer, Pinnacle Financial Corporation, Mike Stuart and Debbie Stuart, in
the Lender's favor and acknowledged by the Borrower, and any other subordination
agreement accepted by the Lender from time to time, as the same may hereafter be
amended, supplemented or restated from time to time.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the Borrower, by
the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or (iii) the
date the Lender demands payment of the Obligations.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
Section 1.2 CROSS REFERENCES. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
SKR:bss 287918.06 3/22/99 7
<PAGE>
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 REVOLVING ADVANCES. The Lender may, in its sole
discretion, make advances to the Borrower from time to time from the date all of
the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to
the Termination Date, on the terms and subject to the conditions herein set
forth (the "Revolving Advances"). The Lender shall not consider any request for
a Revolving Advance if, after giving effect to such requested Revolving Advance,
the sum of the outstanding and unpaid Revolving Advances would exceed the
Borrowing Base. The Borrower's obligation to pay the Revolving Advances shall be
evidenced by the Revolving Note and shall be secured by the Collateral as
provided in Article III. Within the limits set forth in this Section 2.1, the
Borrower may request Revolving Advances, prepay pursuant to Section 2.7 and
request additional Revolving Advances. The Borrower agrees to comply with the
following procedures in requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving
Advance to the Lender before 11:00 a.m. (Phoenix time) of the day of the
requested Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount thereof.
Each request shall be by (i) any officer of either of the entities constituting
the Borrower; or (ii) any person designated as the Borrower's agent by any
officer of either of the entities constituting the Borrower in a writing
delivered to the Lender; or (iii) any person whom the Lender reasonably believes
to be an officer of the Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with Norwest Bank Arizona, NA unless the Lender and the Borrower
shall agree in writing to another manner of disbursement. Upon the Lender's
request, the Borrower shall promptly confirm each telephonic request for an
Advance by executing and delivering an appropriate confirmation certificate to
the Lender. The Borrower shall repay all Advances even if the Lender does not
receive such confirmation and even if the person requesting an Advance was not
in fact authorized to do so. Any request for an Advance, whether written or
telephonic, shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the time of the
request.
Section 2.2 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
PARTICIPATIONS; USURY. Interest accruing on the Note shall be due and payable in
arrears on the first day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.2(c),
2.2(e) and 2.2(f), the outstanding principal balance of the Revolving Note shall
bear interest at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to Section 2.2(a), the Borrower shall pay to the Lender
interest of not less than $7,500.00 per calendar month (the "Minimum Interest
Charge") during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge
SKR:bss 287918.06 3/22/99 8
<PAGE>
and the amount of interest otherwise calculated under Sections 2.2(a) and 2.2(c)
on the date and in the manner provided in Section 2.4.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its other
rights and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods designated by
the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall be
obligated to the Lender to pay the full amount of all interest calculated under
Section 2.2(a), along with all other fees, charges and other amounts due under
this Agreement, regardless if such Person elects to accept interest with respect
to its participation at a lower rate than the Floating Rate, or otherwise elects
to accept less than its pro rata share of such fees, charges and other amounts
due under this Agreement.
(e) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate permitted by
law. Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and other charges exceed the applicable limits imposed by
the usury laws of the State of Arizona. If any payments in the nature of
interest, additional interest and other charges made under any Loan Document are
held to be in excess of the applicable limits imposed by the usury laws of the
State of Arizona, it is agreed that any such amount held to be in excess shall
be considered payment of principal hereunder, and the indebtedness evidenced
hereby shall be reduced by such amount so that the total liability for payments
in the nature of interest, additional interest and other charges shall not
exceed the applicable limits imposed by the usury laws of the State of Arizona,
in compliance with the desires of the Borrower and the Lender. This provision
shall never be superseded or waived and shall control every other provision of
the Loan Documents and all agreements between the Borrower and the Lender, or
their successors and assigns.
(f) SAVINGS CLAUSE. The Borrower agrees that the interest rate
contracted for includes the interest rate set forth herein plus any other
charges or fees set forth herein and costs and expenses incident to this
transaction paid by the Borrower to the extent that some are deemed interest
under applicable law.
Section 2.3 FEES.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $25,000.00 due and
payable upon the execution of this Agreement.
(b) UNUSED LINE FEE. For the purposes of this Section 2.3(b),
"Unused Amount" means the Maximum Line reduced by outstanding Revolving
Advances. The Borrower agrees to pay to the Lender an unused line fee at the
rate of one-quarter of one percent (0.25%) per annum on the average daily Unused
Amount from the date of this Agreement to and
SKR:bss 287918.06 3/22/99 9
<PAGE>
including the Termination Date, due and payable monthly in arrears on the first
day of the month and on the Termination Date.
(c) AUDIT FEES. The Borrower hereby agrees to pay the Lender,
on demand, audit fees in connection with any audits or inspections conducted by
the Lender of any Collateral or the Borrower's operations or business at the
rates established from time to time by the Lender as its audit fees (which fees
are currently $60 per hour per auditor), together with all actual out-of-pocket
costs and expenses incurred in conducting any such audit or inspection.
(d) ADMINISTRATION FEE. The Borrower agrees to pay the Lender
a loan administration fee in the amount of $1,000.00 per month, due and payable
in advance on the first day of each month.
Section 2.4 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND
PAYABLE. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
Section 2.5 DISCRETIONARY NATURE OF THIS FACILITY; TERMINATION BY
THE LENDER; AUTOMATIC RENEWAL. This Agreement contains the terms and conditions
upon which the Lender presently expects to make Advances to the Borrower. Each
Advance by the Lender to the Borrower shall be in the Lender's sole discretion,
and the Lender need not show that an adverse change has occurred in the
Borrower's condition, financial or otherwise, or that any of the conditions of
Article IV have not been met, in order to refuse to make any requested Advance
or to demand payment of the Obligations. The Lender may at any time terminate
the Credit Facility whereupon the Lender shall no longer consider requests for
Advances under this Agreement. Unless terminated by the Lender at any time or by
the Borrower pursuant to Section 2.7, the Credit Facility shall remain in effect
until the Maturity Date.
Section 2.6 CAPITAL ADEQUACY. If any Related Lender determines at
any time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.6:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or the
interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the force of
law, that applies to any Related Lender. Such rules include rules requiring
financial institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters of
credit.
(b) "Return", for any period, means the return as determined
by such Related Lender on the Advances based upon its total capital requirements
and a reasonable attribution formula that takes account of the Capital Adequacy
Rules then in effect. Return may be calculated for each calendar quarter and for
the shorter period between the end of a calendar quarter and the date of
termination in whole of this Agreement.
SKR:bss 287918.06 3/22/99 10
<PAGE>
(c) "Rule Change" means any change in any Capital Adequacy
Rule occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the Closing Date are scheduled to
take place under the existing Capital Adequacy Rules or any increases in the
capital that any Related Lender is required to maintain to the extent that the
increases are required due to a regulatory authority's assessment of the
financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the
Lender, any parent corporation of the Lender and any assignee of any interest of
the Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.6, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.7 VOLUNTARY PREPAYMENT; TERMINATION OF THE CREDIT FACILITY
BY THE BORROWER. Except as otherwise provided herein, the Borrower may prepay
the Advances in whole at any time or from time to time in part. The Borrower may
terminate the Credit Facility at any time if it (i) gives the Lender at least 30
days' prior written notice and (ii) pays the Lender termination fees in
accordance with Section 2.8. Subject to termination of the Credit Facility and
payment and performance of all Obligations, the Lender shall release or
terminate the Security Interest and the Security Documents to which the Borrower
is entitled by law.
Section 2.8 TERMINATION FEES; WAIVER OF TERMINATION FEES.
(a) TERMINATION FEES. If the Credit Facility is terminated (i)
for any reason as of a date other than a Maturity Date, or (ii) by the Borrower
as of a Maturity Date but without the Lender having received written notice of
such termination from the Borrower at least 90 days before such Maturity Date,
the Borrower shall pay to the Lender a fee in an amount equal to one percent
(1%) of the Maximum Line.
(b) WAIVER/REDUCTION OF TERMINATION FEES.
(i) The Borrower will not be required to pay the
termination fees otherwise due under this Section 2.8 if such termination is
made because of a refinancing by an affiliate of the Lender.
(ii) The termination fee otherwise due under this
Section 2.8 shall be reduced to an amount equal to one-half of one percent
(0.5%) of the Maximum Line, if but only if, (i) on the date of said termination
there is not a then existing Event of Default or Default Period, (ii) the
termination is made between January 1, 2000 and March 31, 2000, and (iii) Lender
has declined, during such period, to enter into an inventory financing
transaction with Borrower.
Section 2.9 MANDATORY PREPAYMENT. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing
SKR:bss 287918.06 3/22/99 11
<PAGE>
Base, the Borrower shall immediately prepay the Revolving Advances to the extent
necessary to eliminate such excess. Any payment received by the Lender under
this Section 2.9 or under Section 2.7 may be applied to the Obligations, in such
order and in such amounts as the Lender, in its discretion, may from time to
time determine. For each day or portion thereof that the Revolving Advances
shall exceed the Borrowing Base, the Borrower shall pay to the Lender an
overadvance charge (which charge shall be in addition to and not in lieu of any
other interest, fees, or charges payable by Borrower hereunder) in the amount of
$100.00; provided, however, that if such day occurs during a Default Period, the
overadvance charge for such day shall be $200.00.
Section 2.10 PAYMENT. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations 2 Banking
Days after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for an additional three Banking Days
before applying them to the Obligations. Notwithstanding anything in Section
2.1, the Borrower hereby authorizes the Lender, in its discretion at any time or
from time to time without the Borrower's request and even if the conditions set
forth in Section 4.2 would not be satisfied, to make a Revolving Advance in an
amount equal to the portion of the Obligations from time to time due and
payable.
Section 2.11 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.12 USE OF PROCEEDS. The Borrower shall use the proceeds of
Advances (i) to repay all outstanding indebtedness owed to First International
Bank, and (ii) for ordinary working capital purposes.
Section 2.13 LIABILITY RECORDS. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. The
Lender may at any time (whether or not a Default Period then exists) notify any
account debtor or other person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender. The Borrower will
SKR:bss 287918.06 3/22/99 12
<PAGE>
join in giving such notice if the Lender so requests. At any time after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, in the Lender's name or in the Borrower's name,
(a) demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
Section 3.3 ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all such goods
to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of the
Premises, the Borrower shall reimburse the Lender promptly for the full amount
thereof. In addition, the Borrower will pay, or reimburse the Lender for, all
taxes, fees, duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
SKR:bss 287918.06 3/22/99 13
<PAGE>
Section 3.5 LICENSE. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Auto Network Group, Inc.
8135 East Butherus
Scottsdale, AZ 85260
Federal Tax Identification No. 86-0879572
Name and address of Secured Party:
Norwest Business Credit, Inc.
Norwest Tower, M.S. 9025
3300 North Central Avenue
Phoenix, AZ 85012-2501
Federal Tax Identification No. 41-1237652
Section 3.7 SETOFF. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1 CONDITIONS PRECEDENT TO LENDER'S WILLINGNESS TO CONSIDER
MAKING THE INITIAL REVOLVING ADVANCE. The Lender's willingness to consider
making the initial Revolving Advance hereunder shall be subject to the condition
precedent that (i) after (1) giving effect to the initial Revolving Advance, (2)
paying in full all indebtedness owed to First International Bank, and (3)
reserving for trade payables older than 30 days from invoice date, book
overdrafts and closing costs, there is not less than $500,000.00 in excess
Availability, and (ii) the Lender shall have received all of the following, each
in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
SKR:bss 287918.06 3/22/99 14
<PAGE>
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) A true and correct copy of any and all mortgages pursuant
to which the Borrower has mortgaged the Premises, together with a mortgagee's
disclaimer and consent with respect to each such mortgage.
(e) A true and correct copy of any and all agreements pursuant
to which the Borrower's property is in the possession of any Person other than
the Borrower, together with, in the case of any goods held by such Person for
resale, (i) a consignee's acknowledgment and waiver of liens, (ii) UCC financing
statements sufficient to protect the Borrower's and the Lender's interests in
such goods, and (iii) UCC searches showing that no other secured party has filed
a financing statement against such Person and covering property similar to the
Borrower's other than the Borrower, or if there exists any such secured party,
evidence that each such secured party has received notice from the Borrower and
the Lender sufficient to protect the Borrower's and the Lender's interests in
the Borrower's goods from any claim by such secured party.
(f) An acknowledgment and waiver of liens from each warehouse
in which the Borrower is storing Inventory.
(g) A true and correct copy of any and all agreements pursuant
to which the Borrower's property is in the possession of any Person other than
the Borrower, together with, (i) an acknowledgment and waiver of liens from each
subcontractor who has possession of the Borrower's goods from time to time, (ii)
UCC financing statements sufficient to protect the Borrower's and the Lender's
interests in such goods, and (iii) UCC searches showing that no other secured
party has filed a financing statement covering such Person's property other than
the Borrower, or if there exists any such secured party, evidence that each such
secured party has received notice from the Borrower and the Lender sufficient to
protect the Borrower's and the Lender's interests in the Borrower's goods from
any claim by such secured party.
(h) An acknowledgment and agreement from each licensor in
favor of the Lender, together with a true, correct and complete copy of all
license agreements.
(i) Assignment of Broker Guarantees, properly executed by each
broker issuing a Broker Guarantee.
(j) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Arizona, NA.
(k) The Subordination Agreements, properly executed by Mark
Moldenhauer, Hope Moldenhauer, Pinnacle Financial Corporation, Mike Stuart and
Debbie Stuart, and acknowledged by the Borrower.
(l) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no
SKR:bss 287918.06 3/22/99 15
<PAGE>
financing statements or assignments of patents, trademarks or copyrights have
been filed and remain in effect against the Borrower except those financing
statements and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing that upon
receipt of proceeds of the Advances, they will deliver UCC releases and/or
terminations and releases of such assignments of patents, trademarks or
copyrights satisfactory to the Lender, and (iii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest, to the extent
the Security Interest is capable of being perfected by filing.
(m) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's directors and,
if required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's articles of incorporation and bylaws,
and (iii) the signatures of the Borrower's officers or agents authorized to
execute and deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on the Borrower's behalf.
(n) A current certificate issued by the Corporation Commission
of Arizona certifying that Borrower is in compliance with all applicable
organizational requirements of the State of Arizona.
(o) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(p) A certificate of an officer of Borrower confirming, in his
personal capacity, the representations and warranties set forth in Article V.
(q) An opinion of counsel to the Borrower, addressed to the
Lender.
(r) Evidence satisfactory to Lender that the maturity date of
the debt in the principal amount of $1,482,259.00 owed by Borrower to Eastlane
Trading Company (the "Eastlane Debt") has been extended to a date which is
beyond the Maturity Date.
(s) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(t) A separate guaranty, properly executed by each Guarantor,
pursuant to which each Guarantor unconditionally guarantees the full and prompt
payment of all Obligations.
(u) An opinion of counsel to each Guarantor, addressed to the
Lender.
(v) Payment of the fees and commissions due through the date
of the initial Advance under Section 2.3 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section 9.6,
including all legal expenses incurred through the date of this Agreement.
SKR:bss 287918.06 3/22/99 16
<PAGE>
(w) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender will
not consider any request for an Advance unless on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. Borrower
is a corporation, duly organized, validly existing and in good standing under
the laws of the State of Arizona and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto.
The Borrower's tax identification numbers are correctly set forth in Section 3.6
hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust,
SKR:bss 287918.06 3/22/99 17
<PAGE>
pledge, lien, security interest or other charge or encumbrance of any nature
(other than the Security Interest) upon or with respect to any of the properties
now owned or hereafter acquired by the Borrower.
Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon
due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4, the
Borrower has no Subsidiaries.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender consolidated audited financial statements of
the Borrower for the fiscal year ended March 31, 1998 and consolidated unaudited
financial statements of the Borrower for the fiscal year-to-date period ended
January 31, 1999, and those statements fairly present the Borrower's financial
condition on the dates thereof and the results of its operations and cash flows
for the periods then ended and were prepared in accordance with generally
accepted accounting principles. Since the date of the most recent financial
statements, there has been no material adverse change in the Borrower's
business, properties or condition (financial or otherwise).
Section 5.6 LITIGATION. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 REGULATION U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 TAXES. The Borrower and its Affiliates have paid or
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 TITLES AND LIENS. Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances,
SKR:bss 287918.06 3/22/99 18
<PAGE>
except for Permitted Liens. No financing statement naming the Borrower as debtor
is on file in any office except to perfect only Permitted Liens.
Section 5.10 PLANS. Except as disclosed to the Lender in writing
prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may become
payable to participants or beneficiaries of any such Plan).
Section 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state, local
or other governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials listed in,
regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or quantity
as to create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked, discharged,
emitted or released in, on or under the Premises in such a way as to create any
such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any liability
under any Environmental Law.
SKR:bss 287918.06 3/22/99 19
<PAGE>
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings, hearings
or litigation, relating in any way to the Premises or the Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law or
any license, permit or other authorization issued pursuant thereto. To the
Borrower's best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations required
pursuant to any Environmental Law and necessary for the lawful and efficient
operation of such businesses are in the Borrower's possession and are in full
force and effect. No permit required under any Environmental Law is scheduled to
expire within 12 months and there is no threat that any such permit will be
withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or any
similar federal, state or local list, schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents describing
or relating in any way to the Premises or Borrower's businesses.
Section 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 FINANCING STATEMENTS. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
SKR:bss 287918.06 3/22/99 20
<PAGE>
Section 5.16 FINANCIAL SOLVENCY. Both before and after giving effect
to all of the transactions contemplated in the Loan Documents, none of the
Borrower or its Affiliates:
(a) was or will be insolvent, as that term is used and defined
in Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to
engage in a business or a transaction for which any remaining assets of the
Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or by taking
any action with respect thereto, intends to, nor believes that it will, incur
debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or by taking
any action with respect thereto, intends to hinder, delay or defraud either its
present or future creditors; and
(e) at this time contemplates filing a petition in bankruptcy
or for an arrangement or reorganization or similar proceeding under any law any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject of any
actual, pending or threatened bankruptcy, insolvency or similar proceedings
under any law of any jurisdiction.
Section 5.17 FELICE REPAYMENT. On or before September 30, 1999,
Borrower shall repay in full all amounts owed by Borrower to Evelyn Felice,
which repayment shall be made using funds from additional equity infusions
and/or new Subordinated Debt.
ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower, the Borrower's consolidating
and consolidated audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and acceptable
to the Lender, which annual financial statements shall include the Borrower's
balance sheet as of the end of such fiscal year and the related statements of
the Borrower's income, retained earnings and cash flows for the fiscal year then
ended, prepared, if the Lender so requests, on a consolidating and consolidated
basis to include any Affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with
SKR:bss 287918.06 3/22/99 21
<PAGE>
(i) copies of all management letters prepared by such accountants; (ii) a report
signed by such accountants stating that in making the investigations necessary
for said opinion they obtained no knowledge, except as specifically stated, of
any Default or Event of Default hereunder and all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the Borrower is
in compliance with the requirements set forth in Sections 6.12, 6.13, 6.14 and
7.10; and (iii) a certificate of Borrower's chief financial officer stating that
such financial statements have been prepared in accordance with GAAP and whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within 20 days after
the end of each month, a consolidating and consolidated unaudited/internal
balance sheet and statements of income and retained earnings of the Borrower as
at the end of and for such month and for the year to date period then ended,
prepared, on a consolidating and consolidated basis to include any Affiliates,
in reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end audit adjustments; and accompanied by a
certificate of Borrower's chief financial officer, substantially in the form of
Exhibit B hereto stating (i) that such financial statements have been prepared
in accordance with GAAP, subject to year-end audit adjustments, (ii) whether or
not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto, and (iii) all relevant facts
in reasonable detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Sections 6.12,
6.13, 6.14 and 7.10;
(c) within 15 days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable (each listed by Vehicle Identification
Number and vendor), an inventory certification report, and a calculation of the
Borrower's Accounts, Eligible Accounts and Inventory as at the end of such month
or shorter time period;
(d) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief financial officer as
being the most accurate projections available and identical to the projections
used by the Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its discretion
require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section 5.12
or which seek a monetary recovery against the Borrower in excess of $20,000.00;
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains knowledge of
the occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed
SKR:bss 287918.06 3/22/99 22
<PAGE>
statement by a responsible officer of the Borrower of the steps being taken by
the Borrower to cure the effect of such breach, default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the Borrower's chief financial
officer setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the Borrower's chief financial officer setting forth details as
to such failure and the action which the Borrower proposes to take with respect
thereto, together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers; (ii) credit memos; (iii) any
goods returned to or recovered by the Borrower; and (iv) any change in the
persons constituting the Borrower's officers and directors;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) as soon as possible, and in any event by not later than 30
days after the last non-delinquent filing date for such taxes, copies of the tax
returns and all schedules thereto for each Guarantor, and not later than 30 days
after each anniversary date of this Agreement an updated personal financial
statement of each Guarantor;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which could
materially and adversely affect the Borrower's business or its financial
condition; and
(o) from time to time, with reasonable promptness, any and all
purchase agreements entered into by Borrower (whether as buyer or seller), Motor
Vehicle certificates of title, Motor Vehicle lien releases, copies of checks or
drafts for Motor Vehicle purchases, receivables schedules, collection reports,
deposit records, equipment schedules,
SKR:bss 287918.06 3/22/99 23
<PAGE>
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as the
Lender may request.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time and
from time to time send or require the Borrower to send requests for verification
of accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws, and will not generate, use, transport, treat, store
or dispose of any Hazardous Substances in such a manner as to create any
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
SKR:bss 287918.06 3/22/99 24
<PAGE>
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
Lender's judgment, desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
Section 6.7 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 PRESERVATION OF EXISTENCE. The Borrower will preserve
and maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 COLLATERAL ACCOUNT.
(a) The Borrower shall deposit all payments on Receivables
into the Collateral Account. Until so deposited, the Borrower shall hold all
such payments in trust for and as the property of the Lender and shall not
commingle such payments with any of its other funds or property.
SKR:bss 287918.06 3/22/99 25
<PAGE>
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except after
full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the Obligations. The
Lender from time to time at its discretion may, after allowing 2 Banking Days,
apply deposited funds in the Collateral Account to the payment of the
Obligations, in any order or manner of application satisfactory to the Lender,
by transferring such funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the Borrower
will immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or such
bank at its discretion may charge any uncollected item to the Borrower's
commercial account or other account. The Borrower shall be liable as an endorser
on all items deposited in the Collateral Account, whether or not in fact
endorsed by the Borrower.
(e) If a Default or Default Period exists and upon demand of
the Lender, the Borrower shall establish one or more lockbox accounts as
directed by the Lender with such banks or depository institutions as shall be
satisfactory to the Lender and shall irrevocably direct all present and future
Account Debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to such lockbox account. All of the
Borrower's invoices, account statements and other written or oral communications
directing, instructing, demanding or requesting payment of any Account or any
other amount constituting Collateral shall conspicuously direct that all
payments be made to such lockbox and shall include such lockbox address or
addresses. All payments received in such lockbox accounts shall be processed to
the Collateral Accounts.
Section 6.11 PERFORMANCE BY THE LENDER. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute,
SKR:bss 287918.06 3/22/99 26
<PAGE>
deliver, endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11.
Section 6.12 NET WORTH. The Borrower covenants that, as of January
31, 1999, Borrower and all of its Subsidiaries had a consolidated aggregate Book
Net Worth plus Subordinated Debt of $2,863,723.00. The Borrower covenants that
said consolidated aggregate Book Net Worth plus Subordinated Debt as of the end
of each future fiscal quarter end shall increase by not less than the amounts
set forth below as measured from the immediately preceding fiscal quarter ending
consolidated aggregate Book Net Worth plus Subordinated Debt.
QUARTER ENDING NET WORTH PLUS
SUBORDINATED DEBT INCREASE
March 31, 1999 $25,000.00
June 30, 1999 $50,000.00
September 30, 1999 $75,000.00
December 31, 1999 $100,000.00
March 31, 2000 $125,000.00
Section 6.13 NET INCOME. The Borrower covenants that beginning with
the fiscal quarter ending March 31, 1999, and continuing each fiscal quarter
thereafter, Borrower and all of its Subsidiaries shall achieve a consolidated
aggregate Net Income of at least the amount set forth below for each fiscal
quarter as measured from the immediately preceding fiscal quarter end.
QUARTER ENDING NET INCOME
March 31, 1999 $25,000.00
June 30, 1999 $50,000.00
September 30, 1999 $75,000.00
December 31, 1999 $100,000.00
March 31, 2000 $125,000.00
Notwithstanding anything to the contrary, Borrower and all of its subsidiaries
shall achieve a consolidated aggregate Net Income of not less than (i)
$125,000.00 for the fiscal year ending March 31, 1999, and (ii) $200,000.00 for
each fiscal year thereafter.
Section 6.14 STOP LOSS. The Borrower covenants that beginning with
December, 1998 and continuing for each month thereafter, Borrower and all of its
subsidiaries shall not achieve a consolidated aggregate Net Loss in any month as
measured from the last day of the immediately preceding month.
SKR:bss 287918.06 3/22/99 27
<PAGE>
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower agrees that, without the
Lender's prior written consent:
Section 7.1 LIENS. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; EXCLUDING, HOWEVER, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents, covenants,
restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the Borrower's business or operations as presently
conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in Schedule
7.1 hereto, securing indebtedness for borrowed money permitted under Section
7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding the cost or
fair market value thereof so long as no Default Period is then in existence and
none would exist immediately after such acquisition.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of credit issued
on the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
Section 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary course of
business; and
SKR:bss 287918.06 3/22/99 28
<PAGE>
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in existence on
the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without limitation
any partnership or joint venture, except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of America
having a maturity of one year or less, commercial paper issued by U.S.
corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's officers
and employees not exceeding at any one time an aggregate of $1,000.00; and
(iii) advances in the form of progress payments, prepaid
rent not exceeding one month or security deposits.
(b) The Borrower will not create or permit to exist any
Subsidiary.
Section 7.5 DIVIDENDS. Except as set forth below, the Borrower will
not declare or pay any dividends (other than dividends payable solely in stock
of the Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
SKR:bss 287918.06 3/22/99 29
<PAGE>
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will
not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur Capital Expenditures of more than $100,000.00 in the aggregate
during any fiscal year.
Section 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 DISCOUNTS, ETC. The Borrower will not, after notice
from the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 OTHER DEFAULTS. The Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15 PLACE OF BUSINESS; NAME. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 ORGANIZATIONAL DOCUMENTS. The Borrower will not amend
its certificate of incorporation, articles of incorporation or bylaws. The
Borrower will not become an S Corporation.
Section 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 10% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned
SKR:bss 287918.06 3/22/99 30
<PAGE>
in the year of payment provided the monthly salaries of Mark Moldenhauer and
Mike Stuart may be increased to $10,000 per month provided such increase shall
cause no other Default.
Section 7.18 CHANGE IN OWNERSHIP. The Borrower will not issue or
sell any stock of the Borrower, and will not permit or suffer to occur the sale,
transfer, assignment, pledge or other disposition of any of the issued and
outstanding shares of stock of the Borrower if the result shall be to vest
majority ownership of Borrower or control of the majority of any class of voting
stock of Borrower in any Person or Persons other than those Persons who
constitute the majority of shareholders of Borrower as of the date of this
Agreement.
Section 7.19 PAYMENTS TO AFFILIATES. Borrower shall not, without the
express written consent of Lender, which consent may be granted or withheld in
Lender's sole discretion, make any transfer, conveyance, loan or payment of any
kind to any Affiliate.
Section 7.20 PAYMENT OF EASTLANE DEBT. Borrower shall not make any
payments other then accrued unpaid interest on the Eastlane Debt.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become
due and payable;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) Either Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay its or his debts as
they mature, or make an assignment for the benefit of creditors; or either
Borrower or any Guarantor shall apply for or consent to the appointment of any
receiver, trustee, or similar officer for it or him or for all or any
substantial part of its or his property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of Borrower or
such Guarantors, as the case may be; or either Borrower or any Guarantor shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against either Borrower or any such
Guarantor; or any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the property of
Borrower or any Guarantor;
(e) A petition shall be filed by or against Borrower or any
Guarantor under the United States Bankruptcy Code naming Borrower or such
Guarantor as debtor;
SKR:bss 287918.06 3/22/99 31
<PAGE>
(f) Any representation or warranty made by Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or by
Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective;
(g) The rendering against Borrower of a final judgment, decree
or order for the payment of money in excess of $20,000.00 and the continuance of
such judgment, decree or order unsatisfied and in effect for any period of 30
consecutive days without a stay of execution;
(h) A default under any bond, debenture, note or other
evidence of indebtedness of Borrower owed to any Person other than the Lender,
or under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease of
any of the Premises, and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture, other instrument or
lease;
(i) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or Borrower shall have filed for a distress termination of
any Plan under Title IV of ERISA; or Borrower shall have failed to make any
quarterly contribution required with respect to any Plan under Section 412(m) of
the Internal Revenue Code of 1986, as amended, which the Lender determines in
good faith may by itself, or in combination with any such failures that the
Lender may determine are likely to occur in the future, result in the imposition
of a lien on Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing any obligations of the
Borrower hereunder or under any note;
(k) Borrower shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
Lender's prior written consent;
(l) Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due (other than any tax deficiency which
is being contested in good faith and by proper proceedings and for which it
shall have set aside on its books adequate reserves therefor) or notice of any
state or federal tax liens shall be filed or issued;
(m) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
SKR:bss 287918.06 3/22/99 32
<PAGE>
(n) Any Guarantor shall repudiate, purport to revoke or fail
to perform any such Guarantor's obligations under such Guarantor's guaranty in
favor of the Lender, any individual Guarantor shall die or any other Guarantor
shall cease to exist;
(o) Borrower shall take or participate in any action which
would be prohibited under the provisions of any Subordination Agreement or make
any payment on the Subordinated Indebtedness (as defined in the Subordination
Agreements) that any Person was not entitled to receive under the provisions of
the Subordination Agreements;
(p) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2 RIGHTS AND REMEDIES. During any Default Period, the
Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which the Borrower
hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower to
the payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which Borrower hereby expressly waives) and the
right to sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, Borrower will on demand assemble the Collateral and
make it available to the Lender at a place to be designated by the Lender which
is reasonably convenient to the parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance,
SKR:bss 287918.06 3/22/99 33
<PAGE>
such notice shall be deemed commercially reasonable if given (in the manner
specified in Section 9.3) at least ten calendar days before the date of intended
disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to Borrower:
Auto Network Group, Inc.
8135 East Butherus, Suite 3
Scottsdale, AZ 85260
Telecopier: 602-951-8375
Attention: Mark Moldenhauer
If to the Lender:
Norwest Business Credit, Inc.
Norwest Tower, M.S. 9025
3300 North Central Avenue
Phoenix, AZ 85012-2501
Telecopier: 602-263-6215
Attention: Darcy Della Flora
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have
SKR:bss 287918.06 3/22/99 34
<PAGE>
been given on (a) the date received if personally delivered, (b) when deposited
in the mail if delivered by mail, (c) the date sent if sent by overnight
courier, or (d) the date of transmission if delivered by telecopy, except that
notices or requests to the Lender pursuant to any of the provisions of Article
II shall not be effective until received by the Lender.
Section 9.4 FURTHER DOCUMENTS. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 COLLATERAL. This Agreement does not contemplate a sale
of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents, and any other document or agreement related hereto or thereto, and
the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 9.7 INDEMNITY. In addition to the payment of expenses
pursuant to Section 9.6, Borrower agrees to indemnify, defend and hold harmless
the Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee
may be subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation of the
covenant contained in Section 6.4(b); and
SKR:bss 287918.06 3/22/99 35
<PAGE>
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8 PARTICIPANTS. The Lender and its participants, if any,
are not partners or joint venturers, and the Lender shall not have any liability
or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.9 EXECUTION IN COUNTERPARTS. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
SKR:bss 287918.06 3/22/99 36
<PAGE>
Section 9.11 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 HEADINGS. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 9.13 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY
TRIAL. The Loan Documents shall be governed by and construed in accordance with
the substantive laws (other than conflict laws) of the State of Arizona. The
parties hereto hereby (i) consents to the personal jurisdiction of the state and
federal courts located in the State of Arizona in connection with any
controversy related to this Agreement; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated by
the Lender or the Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the Superior Court of Maricopa County,
Arizona or the United States District Court, District of Arizona; and (iv)
agrees that a final judgment in any such suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
NORWEST BUSINESS CREDIT, INC.
By /S/TIMOTHY R. CARSTENS
Its V.P.
AUTO NETWORK GROUP, INC., an Arizona
corporation
By /S/MIKE STUART
Its PRES
SKR:bss 287918.06 3/22/99 37
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
- ------------------------------------------------------------------------------
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and
Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
SKR:bss 287918.06 3/22/99 38
<PAGE>
REVOLVING NOTE
$3,000,000.00 Phoenix, Arizona
MARCH 26, 1999
For value received, the undersigned, AUTO NETWORK GROUP, INC., an
Arizona corporation ("Borrower"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below), to the order of NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in
Phoenix, Arizona, or at any other place designated at any time by the holder
hereof, in lawful money of the United States of America and in immediately
available funds, the principal sum of THREE MILLION AND NO/100 DOLLARS
($3,000,000.00) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit Agreement
(defined below) together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual number
of days elapsed and a 360-day year, from the date hereof until this Note is
fully paid at the rate from time to time in effect under the Credit and Security
Agreement of even date herewith (as the same may hereafter be amended,
supplemented or restated from time to time, the "Credit Agreement") by and
between the Lender and the Borrower. The principal hereof and interest accruing
thereon shall be due and payable as provided in the Credit Agreement. This Note
may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Revolving Note referred to in the Credit Agreement. This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or more
other security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
AUTO NETWORK GROUP, INC., an Arizona
corporation
By /S/MIKE STUART
Its PRESIDENT
SKR:mep 288877.01 3/25/99
<PAGE>
COLLATERAL ACCOUNT AGREEMENT
MARCH 26, 1999
TO: Norwest Business Credit, Inc.
Norwest Tower, M.S. 9025
3300 North Central Avenue
Phoenix, AZ 85012-2501
Re: Account No. 944-010-5977 opened under the name "Norwest
Business Credit, Inc. - Collateral Account for Auto Network
Group, Inc. maintained by Norwest Bank Arizona, National
Association (the "Bank")
Ladies and Gentlemen:
Auto Network Group, Inc., an Arizona corporation, (the "Client"),
and the Bank are writing to confirm that they have agreed as follows:
1. The Client will deposit in the referenced Account (the
"Collateral Account") all collections of receivables and other cash proceeds of
the collateral security granted to Norwest Business Credit, Inc., a Minnesota
corporation (the "Lender").
2. The Collateral Account will be operated and maintained
exclusively for the Lender's benefit. Amounts deposited in the Collateral
Account shall not bear interest and shall not be subject to withdrawal by the
Client, except after full payment and discharge of all the Client's obligations
to the Lender and termination of all related credit facilities. The Client shall
have no right to make or countermand withdrawals from the Collateral Account.
3. The Client hereby pledges to and grants the Lender a
security interest in all funds on deposit in the Collateral Account from time to
time and all proceeds thereof, to secure payment of all of the Client's
obligations to the Lender whether now existing or hereafter arising.
4. After allowing 2 days for collection of items deposited
in the Collateral Account, the Bank is authorized and agrees to transmit
deposited funds in the amount of the deposit to Norwest Bank Minnesota, National
Association for the Lender's account, account No. 635-501-0053.
5. If any item deposited in the Collateral Account is
returned unpaid, the Bank will so notify the Lender and the Client.
6. The Client hereby grants the Bank the right to charge
the general checking account maintained by the Client with the Bank for any item
deposited in the Collateral Account which is returned unpaid. The Bank, however,
shall have no right to charge or offset amounts in the Collateral Account for
items returned unpaid. Without limiting the
TEH:bss 288180.03 3/22/99 1
<PAGE>
generality of the foregoing, the Bank hereby waives any right of setoff it may
have with respect to the Collateral Account.
7. By accepting this Agreement, the Lender agrees to
indemnify and reimburse the Bank, within ten (10) days after demand, for any
item deposited in the Collateral Account which is returned unpaid and for which
the Borrower does not indemnify the Bank provided that the Bank shall notify the
Lender within five business days of the day the Bank learns that any item shall
be or has been returned unpaid (whichever occurs first).
8. The Client may not terminate this Agreement without
obtaining the Lender's prior written consent. The Bank may not terminate this
Agreement without 60 days' prior written notice to the Lender. The Lender may
terminate this Agreement at any time, with or without cause.
9. This Agreement shall be enforceable against the Client
and the Bank by the Lender and the Lender's participants, successors and
assigns. The Client and the Bank waive notice of the Lender's acceptance hereof.
10. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument This Agreement shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Arizona. Each party consents to the personal jurisdiction of the state and
federal courts located in the State of Arizona in connection with any
controversy related to this Agreement waives any argument that venue in any such
forum is not convenient, and agrees that any litigation initiated by any of them
in connection with this Agreement shall be venued in either the Superior Court
of Maricopa County, Arizona, or the United States District Court, District of
Arizona. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
NORWEST BANK ARIZONA,
NATIONAL ASSOCIATION
By /S/JACKLYN KNOLL
Its V.P.
TEH:bss 288180.03 3/22/99 2
<PAGE>
AUTO NETWORK GROUP, INC., an Arizona
corporation
By /S/MIKE STUART
Its PRESIDENT
ACCEPTED:
NORWEST BUSINESS CREDIT, INC.
By /S/TIMOTHY R. CARSTENS
Its V.P.
TEH:bss 288180.03 3/22/99 3
<PAGE>
CERTIFICATE OF AUTHORITY
I, Mark Moldenhauer, do hereby certify that I am Secretary of Auto
Network Group, Inc., a corporation organized under the laws of the State of
Arizona; that the following is a true, complete and correct copy of resolutions
duly adopted (check one):
_
|_| at a meeting of the board of directors of said corporation duly and
properly called and held on the 26TH day of MARCH, 1999, at which
a quorum was present and acting throughout;
_
|_| by unanimous written action duly and lawfully taken, subscribed
by all the directors of said corporation;
and I further certify that said resolutions are now in full force and effect:
First Resolution
RESOLVED that the President, each Vice President, the Secretary, the
Treasurer and each other officer and agent of this corporation, acting
alone or acting with others, be and each of them hereby is authorized:
(i) To borrow money and obtain other credit or financial
accommodations, in any amount, from Norwest Business Credit, Inc.
(herein, with its participants, successors and assigns called the
"Lender") for and on behalf of and in the name of this corporation;
(ii) To sign, execute and deliver loan or credit agreements,
promissory notes, acceptances or other evidences of indebtedness
therefor, or in renewal or amendment thereof, in such amounts and
for such time, at such rates of interest and upon such terms as such
officer or agent may approve, such approval to be conclusively
evidenced by such officer or agent's signature thereon;
(iii) To discount, sell, assign, transfer, mortgage, or pledge to
the Lender, or create security interests in, the real property,
goods, instruments, documents of title, securities, chattel paper,
accounts, contract rights or other intangibles or any other property
now or hereafter owned by this corporation, either absolutely, with
or without recourse, for such consideration as such officer or agent
may deem to be appropriate or as security for the payment or
performance of any debts, liabilities or obligations owed to the
Lender;
(iv) To do such other acts and things, make such other agreements
and execute and deliver such other contracts or writings as such
officer or agent may deem to be appropriate in connection with any
of the foregoing.
TEH:sic 288211.02 2/23/99 1
<PAGE>
Second Resolution
RESOLVED FURTHER that (without limiting the generality of the foregoing
resolution) each officer and agent referred to in the foregoing
resolution, acting alone or acting with others, be and is hereby
authorized and directed to execute, deliver and perform the following
instruments and agreements:
(a) Credit and Security Agreement, by and between this corporation
and the Lender, in the form finally approved and executed by any of the
officers authorized above.
(b) All other Loan Documents (as defined in said Credit and Security
Agreement), in the form finally approved and executed by any of the
officers authorized above.
Third Resolution
RESOLVED FURTHER that the Secretary or an Assistant Secretary shall
certify to the Lender the names and signatures of the persons who
presently are duly elected, qualified and acting as the officers or agents
referred to in the foregoing resolutions, and the Secretary or an
Assistant Secretary shall from time to time hereafter, upon a change in
the facts so certified, immediately certify to the Lender the names and
signatures of the persons then authorized to sign or to act; the Lender
shall be fully protected in relying on such certificates and on the
obligation of the Secretary or an Assistant Secretary (set forth above)
immediately to certify to the Lender any change in any facts so certified;
and the Lender shall be indemnified and saved harmless by this corporation
from any claims, demands, expenses, loss or damage resulting from or
growing out of honoring or relying on the signature or other authority
(whether or not properly used) of any officer or person whose name and
signature was so certified, or refusing to honor any signature or
authority not so certified.
Fourth Resolution
RESOLVED FURTHER that the foregoing resolutions are in addition to, and do
not limit and shall not be limited by, any resolutions heretofore or
hereafter adopted by this corporation for the conduct of business with the
Lender; and the foregoing resolutions shall continue in force until
express written notice of their prospective rescission or modification, as
to future transactions not then undertaken or committed for, has been
received by the Lender.
Fifth Resolution
RESOLVED FURTHER that any and all transactions by or on behalf of this
corporation with the Lender prior to the adoption of these resolutions be
and the same hereby are in all respects ratified, approved and confirmed.
TEH:sic 288211.02 2/23/99 2
<PAGE>
I further certify that the board of directors of said corporation
has, and at the time of adoption of the foregoing resolutions had, full power
and lawful authority to adopt the foregoing resolutions and to confer the powers
therein granted to the persons named and that such persons have full power and
authority to exercise same. I further certify that the signatures appearing
below are the authentic and official signatures of the officers and agents
referred to in the foregoing resolutions, that the persons named below as
officers have been duly elected to and now hold the offices in said corporation
set forth opposite their respective names, and that the persons named as agents
below have been duly authorized to sign and to act on behalf of said corporation
pursuant to the foregoing resolutions:
Name Title Sample Signature
Mike Stuart President ____________________
Mark Moldenhauer Secretary ____________________
_________________ ____________________ ____________________
I further certify (check one):
_
|_| that the foregoing resolutions were duly approved by the
shareholders of said corporation at a meeting duly and properly
called and held on the _____ day of _____________, 1999, at which a
quorum was present and acting throughout, or otherwise as permitted
by law;
_
|_| that the foregoing resolutions are effective and binding on said
corporation without approval by its shareholders.
I further certify that the forms of Credit and Security Agreement
and the other Loan Documents, and any other writings identified in the Second
Resolution set forth above, executed on behalf of said corporation by its
President and delivered to the Lender are the agreements and writings referred
to in and approved by the Second Resolution set forth above.
I further certify that attached hereto as Exhibits A and B,
respectively, are true, correct and complete copies of the articles of
incorporation and bylaws of said corporation, which articles and bylaws are in
full force and effect and have not been altered, amended or revised. I further
certify that attached hereto as Exhibit C is a Certificate of Good Standing of
the Company not more than ten days old.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 26TH day
of MARCH, 1999.
/S/MARK MOLDENHAUER
-------------------------------------
Secretary, Auto Network Group, Inc.,
an Arizona corporation
Attest by One Other Officer
/S/MIKE STUART
TEH:sic 288211.02 2/23/99 3
<PAGE>
GUARANTY
Phoenix, Arizona
APRIL 2, 1999
This Guaranty, dated as of APRIL 2, 1999 is made by Roger
Butterwick and Sherry Butterwick (collectively, the "Guarantor") for the benefit
of Norwest Business Credit, Inc., a Minnesota corporation (with its
participants, successors and assigns, the "Lender").
The Lender and Auto Network Group, Inc., an Arizona corporation,
formerly known as Auto Network USA, Inc. (the "Borrower"), are parties to a
Credit and Security Agreement of even date herewith (the "Credit Agreement")
pursuant to which the Lender may make advances and extend other financial
accommodations to the Borrower. From time to time additional subsidiaries of
Borrower may be added to the Credit Agreement as borrowers upon the agreement of
Lender and Borrower and shall thereafter be included in the definition of
Borrower for all purposes hereunder.
As a condition to extending such credit to the Borrower, the Lender
has required the execution and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, hereby agrees as follows:
1. DEFINITIONS. All terms defined in the Credit Agreement that are not otherwise
defined herein shall have the meanings given them in the Credit Agreement.
2. INDEBTEDNESS GUARANTEED. The Guarantor hereby absolutely and unconditionally
guarantees to the Lender the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to the
Lender by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to the
Lender or owed to others by reason of participations granted to or interests
acquired or created for or sold to them by the Lender, in each case whether now
existing or hereafter arising, whether arising directly in a transaction or
event involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrower as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured, due
or not due, contractual, tortious or statutory, liquidated or unliquidated,
arising by agreement or imposed by law or otherwise (all of said sums being
hereinafter called the "Indebtedness").
3. UNCONDITIONAL GUARANTY. No act or thing need occur to establish the liability
of the Guarantor hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or
SKR:bss 296389.02 3/22/99 1
<PAGE>
modify, reduce, limit or release the Guarantor's liability hereunder. This is an
absolute, unconditional and continuing guaranty of payment of the Indebtedness
and shall continue to be in force and be binding upon the Guarantor, whether or
not all of the Indebtedness is paid in full, until this Guaranty is revoked
prospectively as to future transactions, by written notice actually received by
the Lender, and such revocation shall not be effective as to the amount of
Indebtedness existing or committed for at the time of actual receipt of such
notice by the Lender, or as to any renewals, extensions, refinancings or
refundings thereof. The death or incompetence of the Guarantor shall not revoke
this Guaranty, except upon actual receipt of written notice thereof by the
Lender and only prospectively, as to future transactions, as herein set forth.
4. DEATH OR INSOLVENCY OF GUARANTOR. If the Guarantor shall die or shall be or
become insolvent (however defined), then the Lender shall have the right to
declare immediately due and payable, and the Guarantor will forthwith pay to the
Lender, the full amount of all of the Indebtedness whether due and payable or
unmatured. If the Guarantor voluntarily commences or there is commenced
involuntarily against the Guarantor a case under the United States Bankruptcy
Code, the full amount of all of the Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.
5. LIMITED GUARANTY. Notwithstanding the aggregate amount of the Indebtedness
which may from time to time be outstanding, the liability of the Guarantor
hereunder shall be limited to a principal amount of $250,000.00, plus accrued
interest thereon and all attorneys' fees, collection costs and enforcement
expenses referable thereto. The Indebtedness may be created and continued in any
amount, whether or not in excess of such principal amount, without affecting or
impairing the Guarantor's liability hereunder, and the Lender may pay (or allow
for the payment of) the excess out of any sums received by or available to the
Lender on account of the Indebtedness from the Borrower or any other person
(except the Guarantor), from their properties, out of any collateral security or
from any other source, and such payment (or allowance) shall not reduce, affect
or impair the Guarantor's liability hereunder. Any payment made by the Guarantor
under this Guaranty shall be effective to reduce or discharge such liability
only if accompanied by a written transmittal document, received by the Lender,
advising the Lender that such payment is made under this Guaranty for such
purpose.
6. SUBROGATION, ETC. The Guarantor hereby waives all rights that the Guarantor
may now have or hereafter acquire, whether by subrogation, contribution,
reimbursement, recourse, exoneration, contract or otherwise, to recover from the
Borrower or from any property of the Borrower any sums paid under this Guaranty.
The Guarantor will not exercise or enforce any right of contribution to recover
any such sums from any person who is a co-obligor with the Borrower or a
guarantor or surety of the Indebtedness or from any property of any such person
until all of the Indebtedness shall have been fully paid and discharged.
7. ENFORCEMENT EXPENSES. The Guarantor will pay or reimburse the Lender for all
costs, expenses and attorneys' fees paid or incurred by the Lender in
endeavoring to collect and enforce the Indebtedness and in enforcing this
Guaranty.
8. LENDER'S RIGHTS. The Lender shall not be obligated by reason of its
acceptance of this Guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the Guarantor and the
Borrower has been changed or
SKR:bss 296389.02 3/22/99 2
<PAGE>
ended and whether or not this Guaranty has been revoked, the Lender may enter
into transactions resulting in the creation or continuance of the Indebtedness
and may otherwise agree, consent to or suffer the creation or continuance of any
of the Indebtedness, without any consent or approval by the Guarantor and
without any prior or subsequent notice to the Guarantor. The Guarantor's
liability shall not be affected or impaired by any of the following acts or
things (which the Lender is expressly authorized to do, omit or suffer from time
to time, both before and after revocation of this Guaranty, without consent or
approval by or notice to the Guarantor): (i) any acceptance of collateral
security, guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (x) any
election by the Lender under Section 1111(b) of the United States Bankruptcy
Code. The Guarantor waives any and all defenses and discharges available to a
surety, guarantor or accommodation co-obligor.
9. WAIVERS BY GUARANTOR. The Guarantor waives any and all defenses, claims,
setoffs and discharges of the Borrower, or any other obligor, pertaining to the
Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge or
disallowance in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to the Borrower or any other person
liable in respect of any of the Indebtedness, or any setoff available against
the Lender to the Borrower or any other such person, whether or not on account
of a related transaction. The Guarantor expressly agrees that the Guarantor
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage or security interest securing the Indebtedness, whether or not the
liability of the Borrower or any other obligor for such deficiency is discharged
pursuant to statute or judicial decision. The liability of the Guarantor shall
not be affected or impaired by any voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all the assets,
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of, or other similar
SKR:bss 296389.02 3/22/99 3
<PAGE>
event or proceeding affecting, the Borrower or any of its assets. The Guarantor
will not assert, plead or enforce against the Lender any claim, defense or
setoff available to the Guarantor against the Borrower. The Guarantor waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any instrument evidencing the Indebtedness. The Lender shall not be required
first to resort for payment of the Indebtedness to the Borrower or other
persons, or their properties, or first to enforce, realize upon or exhaust any
collateral security for the Indebtedness, before enforcing this Guaranty.
Guarantor waives the benefits of Arizona Revised Statutes Sections 12-1641,
12-1642, 33-814 and 12-1566.
10. IF PAYMENTS SET ASIDE, ETC. If any payment applied by the Lender to the
Indebtedness is thereafter set aside, recovered, rescinded or required to be
returned for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of the Borrower or any other obligor), the
Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. ADDITIONAL OBLIGATION OF GUARANTOR. The Guarantor's liability under this
Guaranty is in addition to and shall be cumulative with all other liabilities of
the Guarantor to the Lender as guarantor, surety, endorser, accommodation
co-obligor or otherwise of any of the Indebtedness or obligation of the
Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
12. FINANCIAL INFORMATION. The Guarantor will provide to the Lender annually a
personal financial statement prepared as of the anniversary date of this
Guaranty listing all assets, liabilities and net worth of the Guarantor and
shall forward the same to Lender not later than 30 days after each anniversary
date of this Guaranty. The Guarantor will also provide to the Lender copies of
his federal and state tax returns and all schedules thereto and will forward the
tax returns to the Lender each year not later than 30 days after the last
non-delinquent filing date for such taxes. The Guarantor acknowledges and agrees
that the Lender may at any time and from time to time without notice to the
Guarantor, investigate the Guarantor's background, personal and credit history
and perform other due diligence concerning the Guarantor and his
creditworthiness.
13. NO DUTIES OWED BY LENDER. The Guarantor acknowledges and agrees that the
Lender (i) has not made any representations or warranties with respect to, (ii)
does not assume any responsibility to the Guarantor for, and (iii) has no duty
to provide information to the Guarantor regarding, the enforceability of any of
the Indebtedness or the financial condition of the Borrower or any guarantor.
The Guarantor has independently determined the creditworthiness of the Borrower
and the enforceability of the Indebtedness and until the Indebtedness is paid in
full will independently and without reliance on the Lender continue to make such
determinations.
14. MISCELLANEOUS. This Guaranty shall be effective upon delivery to the Lender,
without further act, condition or acceptance by the Lender, shall be binding
upon the Guarantor and the heirs, representatives, successors and assigns of the
Guarantor and shall
SKR:bss 296389.02 3/22/99 4
<PAGE>
inure to the benefit of the Lender and its participants, successors and assigns.
Any invalidity or unenforceability of any provision or application of this
Guaranty shall not affect other lawful provisions and application thereof, and
to this end the provisions of this Guaranty are declared to be severable. This
Guaranty may not be waived, modified, amended, terminated, released or otherwise
changed except by a writing signed by the Guarantor and the Lender. This
Guaranty shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Arizona. The Guarantor hereby
(i) consents to the personal jurisdiction of the state and federal courts
located in the State of Arizona in connection with any controversy related to
this Guaranty; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Guarantor in connection with this Guaranty shall be venued in either the
Superior Court of Maricopa County, Arizona, or the United States District Court,
District of Arizona; and (iv) agrees that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
15. WAIVER OF JURY TRIAL. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF, BASED
ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor as of the date first written above.
/S/ROGER BUTTERWICK
------------------------------------------
Roger Butterwick
/S/SHERRY BUTTERWICK
------------------------------------------
Sherry Butterwick
Address:
SKR:bss 296389.02 3/22/99 5
<PAGE>
STATE OF ARIZONA
COUNTY OF MARICOPA
The foregoing instrument was acknowledged before me the 2 day of
APRIL, 1999, by Roger Butterwick and Sherry Butterwick, husband and wife.
(Seal and Expiration Date)
[SEAL] /S/SUSAN B. BLUNDEN
------------------------------
Notary Public
<PAGE>
GUARANTY
Phoenix, Arizona
MARCH 26, 1999
This Guaranty, dated as of MARCH 26, 1999 is made by Mark
Moldenhauer and Hope Moldenhauer (collectively, the "Guarantor") for the benefit
of Norwest Business Credit, Inc., a Minnesota corporation (with its
participants, successors and assigns, the "Lender").
The Lender and Auto Network Group, Inc., an Arizona corporation,
formerly known as Auto Network USA, Inc. (the "Borrower"), are parties to a
Credit and Security Agreement of even date herewith (the "Credit Agreement")
pursuant to which the Lender may make advances and extend other financial
accommodations to the Borrower. From time to time additional subsidiaries of
Borrower may be added to the Credit Agreement as borrowers upon the agreement of
Lender and Borrower and shall thereafter be included in the definition of
Borrower for all purposes hereunder.
As a condition to extending such credit to the Borrower, the Lender
has required the execution and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, hereby agrees as follows:
1. DEFINITIONS. All terms defined in the Credit Agreement that are not otherwise
defined herein shall have the meanings given them in the Credit Agreement.
2. INDEBTEDNESS GUARANTEED. The Guarantor hereby absolutely and unconditionally
guarantees to the Lender the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of (i) the
Obligations and (ii) each and every other sum now or hereafter owing to the
Lender by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to the
Lender or owed to others by reason of participations granted to or interests
acquired or created for or sold to them by the Lender, in each case whether now
existing or hereafter arising, whether arising directly in a transaction or
event involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrower as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured, due
or not due, contractual, tortious or statutory, liquidated or unliquidated,
arising by agreement or imposed by law or otherwise (all of said sums being
hereinafter called the "Indebtedness").
3. UNCONDITIONAL GUARANTY. No act or thing need occur to establish the liability
of the Guarantor hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder
SKR:sic 288056.02 2/23/99 1
<PAGE>
or modify, reduce, limit or release the Guarantor's liability hereunder. This is
an absolute, unconditional and continuing guaranty of payment of the
Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Lender, and such revocation shall not be effective as
to the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Lender, or as to any renewals, extensions,
refinancings or refundings thereof. The death or incompetence of the Guarantor
shall not revoke this Guaranty, except upon actual receipt of written notice
thereof by the Lender and only prospectively, as to future transactions, as
herein set forth.
4. DEATH OR INSOLVENCY OF GUARANTOR. If the Guarantor shall die or shall be or
become insolvent (however defined), then the Lender shall have the right to
declare immediately due and payable, and the Guarantor will forthwith pay to the
Lender, the full amount of all of the Indebtedness whether due and payable or
unmatured. If the Guarantor voluntarily commences or there is commenced
involuntarily against the Guarantor a case under the United States Bankruptcy
Code, the full amount of all of the Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.
5. LIMITED GUARANTY. Notwithstanding the aggregate amount of the Indebtedness
which may from time to time be outstanding, the liability of the Guarantor
hereunder shall be limited to a principal amount of $250,000.00, plus accrued
interest thereon and all attorneys' fees, collection costs and enforcement
expenses referable thereto. The Indebtedness may be created and continued in any
amount, whether or not in excess of such principal amount, without affecting or
impairing the Guarantor's liability hereunder, and the Lender may pay (or allow
for the payment of) the excess out of any sums received by or available to the
Lender on account of the Indebtedness from the Borrower or any other person
(except the Guarantor), from their properties, out of any collateral security or
from any other source, and such payment (or allowance) shall not reduce, affect
or impair the Guarantor's liability hereunder. Any payment made by the Guarantor
under this Guaranty shall be effective to reduce or discharge such liability
only if accompanied by a written transmittal document, received by the Lender,
advising the Lender that such payment is made under this Guaranty for such
purpose.
6. SUBROGATION, ETC. The Guarantor hereby waives all rights that the Guarantor
may now have or hereafter acquire, whether by subrogation, contribution,
reimbursement, recourse, exoneration, contract or otherwise, to recover from the
Borrower or from any property of the Borrower any sums paid under this Guaranty.
The Guarantor will not exercise or enforce any right of contribution to recover
any such sums from any person who is a co-obligor with the Borrower or a
guarantor or surety of the Indebtedness or from any property of any such person
until all of the Indebtedness shall have been fully paid and discharged.
7. ENFORCEMENT EXPENSES. The Guarantor will pay or reimburse the Lender for all
costs, expenses and attorneys' fees paid or incurred by the Lender in
endeavoring to collect and enforce the Indebtedness and in enforcing this
Guaranty.
8. LENDER'S RIGHTS. The Lender shall not be obligated by reason of its
acceptance of this Guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the Guarantor and the
Borrower has been changed
SKR:sic 288056.02 2/23/99 2
<PAGE>
or ended and whether or not this Guaranty has been revoked, the Lender may enter
into transactions resulting in the creation or continuance of the Indebtedness
and may otherwise agree, consent to or suffer the creation or continuance of any
of the Indebtedness, without any consent or approval by the Guarantor and
without any prior or subsequent notice to the Guarantor. The Guarantor's
liability shall not be affected or impaired by any of the following acts or
things (which the Lender is expressly authorized to do, omit or suffer from time
to time, both before and after revocation of this Guaranty, without consent or
approval by or notice to the Guarantor): (i) any acceptance of collateral
security, guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (x) any
election by the Lender under Section 1111(b) of the United States Bankruptcy
Code. The Guarantor waives any and all defenses and discharges available to a
surety, guarantor or accommodation co-obligor.
9. WAIVERS BY GUARANTOR. The Guarantor waives any and all defenses, claims,
setoffs and discharges of the Borrower, or any other obligor, pertaining to the
Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge or
disallowance in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to the Borrower or any other person
liable in respect of any of the Indebtedness, or any setoff available against
the Lender to the Borrower or any other such person, whether or not on account
of a related transaction. The Guarantor expressly agrees that the Guarantor
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage or security interest securing the Indebtedness, whether or not the
liability of the Borrower or any other obligor for such deficiency is discharged
pursuant to statute or judicial decision. The liability of the Guarantor shall
not be affected or impaired by any voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all the assets,
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of, or other similar
SKR:sic 288056.02 2/23/99 3
<PAGE>
event or proceeding affecting, the Borrower or any of its assets. The Guarantor
will not assert, plead or enforce against the Lender any claim, defense or
setoff available to the Guarantor against the Borrower. The Guarantor waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any instrument evidencing the Indebtedness. The Lender shall not be required
first to resort for payment of the Indebtedness to the Borrower or other
persons, or their properties, or first to enforce, realize upon or exhaust any
collateral security for the Indebtedness, before enforcing this Guaranty.
Guarantor waives the benefits of Arizona Revised Statutes Sections 12-1641,
12-1642, 33-814 and 12-1566.
10. IF PAYMENTS SET ASIDE, ETC. If any payment applied by the Lender to the
Indebtedness is thereafter set aside, recovered, rescinded or required to be
returned for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of the Borrower or any other obligor), the
Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. ADDITIONAL OBLIGATION OF GUARANTOR. The Guarantor's liability under this
Guaranty is in addition to and shall be cumulative with all other liabilities of
the Guarantor to the Lender as guarantor, surety, endorser, accommodation
co-obligor or otherwise of any of the Indebtedness or obligation of the
Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
12. FINANCIAL INFORMATION. The Guarantor will provide to the Lender annually a
personal financial statement prepared as of the anniversary date of this
Guaranty listing all assets, liabilities and net worth of the Guarantor and
shall forward the same to Lender not later than 30 days after each anniversary
date of this Guaranty. The Guarantor will also provide to the Lender copies of
his federal and state tax returns and all schedules thereto and will forward the
tax returns to the Lender each year not later than 30 days after the last
non-delinquent filing date for such taxes. The Guarantor acknowledges and agrees
that the Lender may at any time and from time to time without notice to the
Guarantor, investigate the Guarantor's background, personal and credit history
and perform other due diligence concerning the Guarantor and his
creditworthiness.
13. NO DUTIES OWED BY LENDER. The Guarantor acknowledges and agrees that the
Lender (i) has not made any representations or warranties with respect to, (ii)
does not assume any responsibility to the Guarantor for, and (iii) has no duty
to provide information to the Guarantor regarding, the enforceability of any of
the Indebtedness or the financial condition of the Borrower or any guarantor.
The Guarantor has independently determined the creditworthiness of the Borrower
and the enforceability of the Indebtedness and until the Indebtedness is paid in
full will independently and without reliance on the Lender continue to make such
determinations.
14. MISCELLANEOUS. This Guaranty shall be effective upon delivery to the Lender,
without further act, condition or acceptance by the Lender, shall be binding
upon the Guarantor and the heirs, representatives, successors and assigns of the
Guarantor and shall
SKR:sic 288056.02 2/23/99 4
<PAGE>
inure to the benefit of the Lender and its participants, successors and assigns.
Any invalidity or unenforceability of any provision or application of this
Guaranty shall not affect other lawful provisions and application thereof, and
to this end the provisions of this Guaranty are declared to be severable. This
Guaranty may not be waived, modified, amended, terminated, released or otherwise
changed except by a writing signed by the Guarantor and the Lender. This
Guaranty shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Arizona. The Guarantor hereby
(i) consents to the personal jurisdiction of the state and federal courts
located in the State of Arizona in connection with any controversy related to
this Guaranty; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Guarantor in connection with this Guaranty shall be venued in either the
Superior Court of Maricopa County, Arizona, or the United States District Court,
District of Arizona; and (iv) agrees that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
15. WAIVER OF JURY TRIAL. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF, BASED
ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor as of the date first written above.
/S/MARK MOLDENHAUER
------------------------------------------
Mark Moldenhauer
/S/HOPE MOLDENHAUER
------------------------------------------
Hope Moldenhauer
Address:
5925 East Restin Road
Cave Creek, AZ 85331
SKR:sic 288056.02 2/23/99 5
<PAGE>
STATE OF ARIZONA
COUNTY OF MARICOPA
The foregoing instrument was acknowledged before me the 26 day of
MARCH, 1999, by Mark Moldenhauer and Hope Moldenhauer, husband and wife.
(Seal and Expiration Date)
[SEAL] SUSAN B. BLUNDEN
------------------------------
Notary Public
<PAGE>
GUARANTY
Phoenix, Arizona
MARCH 26, 1999
This Guaranty, dated as of MARCH 26, 1999 is made by Mike Stuart
and Debbie Stuart (collectively, the "Guarantor") for the benefit of Norwest
Business Credit, Inc., a Minnesota corporation (with its participants,
successors and assigns, the "Lender").
The Lender and Auto Network Group, Inc., an Arizona corporation,
formerly known as Auto Network USA, Inc. (the "Borrower"), are parties to a
Credit and Security Agreement of even date herewith (the "Credit Agreement")
pursuant to which the Lender may make advances and extend other financial
accommodations to the Borrower. From time to time additional subsidiaries of
Borrower may be added to the Credit Agreement as borrowers upon the agreement of
Lender and Borrower and shall thereafter be included in the definition of
Borrower for all purposes hereunder.
As a condition to extending such credit to the Borrower, the Lender
has required the execution and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, hereby agrees as follows:
1. DEFINITIONS. All terms defined in the Credit Agreement that are
not otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. INDEBTEDNESS GUARANTEED. The Guarantor hereby absolutely and
unconditionally guarantees to the Lender the full and prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of (i)
the Obligations and (ii) each and every other sum now or hereafter owing to the
Lender by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to the
Lender or owed to others by reason of participations granted to or interests
acquired or created for or sold to them by the Lender, in each case whether now
existing or hereafter arising, whether arising directly in a transaction or
event involving the Lender or acquired by the Lender from another by purchase or
assignment or as collateral security, whether owed by the Borrower as drawer,
maker, endorser, accommodation party, guarantor, principal, surety or as a
member of any partnership, syndicate, association or group or in any other
capacity, whether absolute or contingent, direct or indirect, primary or
secondary, sole, joint, several or joint and several, secured or unsecured, due
or not due, contractual, tortious or statutory, liquidated or unliquidated,
arising by agreement or imposed by law or otherwise (all of said sums being
hereinafter called the "Indebtedness").
3. UNCONDITIONAL GUARANTY. No act or thing need occur to establish
the liability of the Guarantor hereunder, and no act or thing, except full
payment and discharge of all of the Indebtedness, shall in any way exonerate the
Guarantor hereunder or
SKR:sic 288055.02 2/23/99 1
<PAGE>
modify, reduce, limit or release the Guarantor's liability hereunder. This is an
absolute, unconditional and continuing guaranty of payment of the Indebtedness
and shall continue to be in force and be binding upon the Guarantor, whether or
not all of the Indebtedness is paid in full, until this Guaranty is revoked
prospectively as to future transactions, by written notice actually received by
the Lender, and such revocation shall not be effective as to the amount of
Indebtedness existing or committed for at the time of actual receipt of such
notice by the Lender, or as to any renewals, extensions, refinancings or
refundings thereof. The death or incompetence of the Guarantor shall not revoke
this Guaranty, except upon actual receipt of written notice thereof by the
Lender and only prospectively, as to future transactions, as herein set forth.
4. DEATH OR INSOLVENCY OF GUARANTOR. If the Guarantor shall die or
shall be or become insolvent (however defined), then the Lender shall have the
right to declare immediately due and payable, and the Guarantor will forthwith
pay to the Lender, the full amount of all of the Indebtedness whether due and
payable or unmatured. If the Guarantor voluntarily commences or there is
commenced involuntarily against the Guarantor a case under the United States
Bankruptcy Code, the full amount of all of the Indebtedness, whether due and
payable or unmatured, shall be immediately due and payable without demand or
notice thereof.
5. LIMITED GUARANTY. Notwithstanding the aggregate amount of the
Indebtedness which may from time to time be outstanding, the liability of the
Guarantor hereunder shall be limited to a principal amount of $250,000.00, plus
accrued interest thereon and all attorneys' fees, collection costs and
enforcement expenses referable thereto. The Indebtedness may be created and
continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the Guarantor's liability hereunder, and the
Lender may pay (or allow for the payment of) the excess out of any sums received
by or available to the Lender on account of the Indebtedness from the Borrower
or any other person (except the Guarantor), from their properties, out of any
collateral security or from any other source, and such payment (or allowance)
shall not reduce, affect or impair the Guarantor's liability hereunder. Any
payment made by the Guarantor under this Guaranty shall be effective to reduce
or discharge such liability only if accompanied by a written transmittal
document, received by the Lender, advising the Lender that such payment is made
under this Guaranty for such purpose.
6. SUBROGATION, ETC. The Guarantor hereby waives all rights that the
Guarantor may now have or hereafter acquire, whether by subrogation,
contribution, reimbursement, recourse, exoneration, contract or otherwise, to
recover from the Borrower or from any property of the Borrower any sums paid
under this Guaranty. The Guarantor will not exercise or enforce any right of
contribution to recover any such sums from any person who is a co-obligor with
the Borrower or a guarantor or surety of the Indebtedness or from any property
of any such person until all of the Indebtedness shall have been fully paid and
discharged.
7. ENFORCEMENT EXPENSES. The Guarantor will pay or reimburse the
Lender for all costs, expenses and attorneys' fees paid or incurred by the
Lender in endeavoring to collect and enforce the Indebtedness and in enforcing
this Guaranty.
8. LENDER'S RIGHTS. The Lender shall not be obligated by reason of
its acceptance of this Guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the Guarantor and the
Borrower has been changed
SKR:sic 288055.02 2/23/99 2
<PAGE>
or ended and whether or not this Guaranty has been revoked, the Lender may enter
into transactions resulting in the creation or continuance of the Indebtedness
and may otherwise agree, consent to or suffer the creation or continuance of any
of the Indebtedness, without any consent or approval by the Guarantor and
without any prior or subsequent notice to the Guarantor. The Guarantor's
liability shall not be affected or impaired by any of the following acts or
things (which the Lender is expressly authorized to do, omit or suffer from time
to time, both before and after revocation of this Guaranty, without consent or
approval by or notice to the Guarantor): (i) any acceptance of collateral
security, guarantors, accommodation parties or sureties for any or all of the
Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities, if any, or other contractual terms applicable to any
of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (x) any
election by the Lender under Section 1111(b) of the United States Bankruptcy
Code. The Guarantor waives any and all defenses and discharges available to a
surety, guarantor or accommodation co-obligor.
9. WAIVERS BY GUARANTOR. The Guarantor waives any and all defenses,
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge or
disallowance in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to the Borrower or any other person
liable in respect of any of the Indebtedness, or any setoff available against
the Lender to the Borrower or any other such person, whether or not on account
of a related transaction. The Guarantor expressly agrees that the Guarantor
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage or security interest securing the Indebtedness, whether or not the
liability of the Borrower or any other obligor for such deficiency is discharged
pursuant to statute or judicial decision. The liability of the Guarantor shall
not be affected or impaired by any voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all the assets,
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of, or other similar
SKR:sic 288055.02 2/23/99 3
<PAGE>
event or proceeding affecting, the Borrower or any of its assets. The Guarantor
will not assert, plead or enforce against the Lender any claim, defense or
setoff available to the Guarantor against the Borrower. The Guarantor waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any instrument evidencing the Indebtedness. The Lender shall not be required
first to resort for payment of the Indebtedness to the Borrower or other
persons, or their properties, or first to enforce, realize upon or exhaust any
collateral security for the Indebtedness, before enforcing this Guaranty.
Guarantor waives the benefits of Arizona Revised Statutes Sections 12-1641,
12-1642, 33-814 and 12-1566.
10. IF PAYMENTS SET ASIDE, ETC. If any payment applied by the Lender
to the Indebtedness is thereafter set aside, recovered, rescinded or required to
be returned for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of the Borrower or any other obligor), the
Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. ADDITIONAL OBLIGATION OF GUARANTOR. The Guarantor's liability
under this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Indebtedness or obligation
of the Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
12. FINANCIAL INFORMATION. The Guarantor will provide to the Lender
annually a personal financial statement prepared as of the anniversary date of
this Guaranty listing all assets, liabilities and net worth of the Guarantor and
shall forward the same to Lender not later than 30 days after each anniversary
date of this Guaranty. The Guarantor will also provide to the Lender copies of
his federal and state tax returns and all schedules thereto and will forward the
tax returns to the Lender each year not later than 30 days after the last
non-delinquent filing date for such taxes. The Guarantor acknowledges and agrees
that the Lender may at any time and from time to time without notice to the
Guarantor, investigate the Guarantor's background, personal and credit history
and perform other due diligence concerning the Guarantor and his
creditworthiness.
13. NO DUTIES OWED BY LENDER. The Guarantor acknowledges and agrees
that the Lender (i) has not made any representations or warranties with respect
to, (ii) does not assume any responsibility to the Guarantor for, and (iii) has
no duty to provide information to the Guarantor regarding, the enforceability of
any of the Indebtedness or the financial condition of the Borrower or any
guarantor. The Guarantor has independently determined the creditworthiness of
the Borrower and the enforceability of the Indebtedness and until the
Indebtedness is paid in full will independently and without reliance on the
Lender continue to make such determinations.
14. MISCELLANEOUS. This Guaranty shall be effective upon delivery to
the Lender, without further act, condition or acceptance by the Lender, shall be
binding upon the Guarantor and the heirs, representatives, successors and
assigns of the Guarantor and shall
SKR:sic 288055.02 2/23/99 4
<PAGE>
inure to the benefit of the Lender and its participants, successors and assigns.
Any invalidity or unenforceability of any provision or application of this
Guaranty shall not affect other lawful provisions and application thereof, and
to this end the provisions of this Guaranty are declared to be severable. This
Guaranty may not be waived, modified, amended, terminated, released or otherwise
changed except by a writing signed by the Guarantor and the Lender. This
Guaranty shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Arizona. The Guarantor hereby
(i) consents to the personal jurisdiction of the state and federal courts
located in the State of Arizona in connection with any controversy related to
this Guaranty; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Guarantor in connection with this Guaranty shall be venued in either the
Superior Court of Maricopa County, Arizona, or the United States District Court,
District of Arizona; and (iv) agrees that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
15. WAIVER OF JURY TRIAL. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor as of the date first written above.
/S/MIKE STUART
------------------------------------------
Mike Stuart
/S/DEBBIE STUART
------------------------------------------
Debbie Stuart
Address:
9118 East Topeka
Scottsdale, AZ 85255
SKR:sic 288055.02 2/23/99 5
<PAGE>
STATE OF ARIZONA
COUNTY OF MARICOPA
The foregoing instrument was acknowledged before me the 26 day of
MARCH, 1999, by Mike Stuart and Debbie Stuart, husband and wife.
(Seal and Expiration Date)
[SEAL] /S/CHRISTINE M. OLACH
------------------------------
Notary Public
SKR:sic 288055.02 2/23/99 6
<PAGE>
SUBORDINATION AGREEMENT
This Agreement, dated as of MARCH 26, 1999, is made by Mark
Moldenhauer and Hope Moldenhauer (collectively, the "Subordinated Creditor"),
for the benefit of Norwest Business Credit, Inc., a Minnesota corporation (the
"Lender").
Auto Network Group, Inc., an Arizona corporation, formerly known as
Auto Network U.S.A., Inc. (the "Borrower"), and any future subsidiaries of
Borrower are now or hereafter may be indebted to the Lender on account of loans
or other extensions of credit or financial accommodations from the Lender to the
Borrower, or any Subsidiary, or to any other person under the guaranty or
endorsement of the Borrower, or any Subsidiary.
The Subordinated Creditor has made or may make loans or grant other
financial accommodations to the Borrower.
As a condition to making any loan or extension of credit to the
Borrower, the Lender has required that the Subordinated Creditor subordinate the
payment of the Subordinated Creditor's loans and other financial accommodations
to the payment of any and all indebtedness of the Borrower, and the Subsidiaries
to the Lender. Assisting the Borrower in obtaining credit accommodations from
the Lender and subordinating his interests pursuant to the terms of this
Agreement are in the Subordinated Creditor's best interest.
ACCORDINGLY, in consideration of the loans and other financial
accommodations that have been made and may hereafter be made by the Lender for
the benefit of the Borrower, and the Subsidiaries, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Subordinated Creditor hereby agrees as follows:
1. DEFINITIONS. As used herein, the following terms have the
meanings set forth below:
"Borrower Default" means a Default or Event of Default as defined in
any agreement or instrument evidencing, governing, or issued in connection
with Lender Indebtedness, including, but not limited to, the Credit and
Security Agreement dated as of __________, 1999, by and between the
Borrower, and the Lender as the same may hereafter be amended,
supplemented or restated from time to time, or any default under or breach
of any such agreement or instrument.
"Lender Indebtedness" means each and every debt, liability and
obligation of every type and description which the Borrower, or any
Subsidiary may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several, all interest
thereon, all renewals, extensions and modifications thereof and any notes
issued in whole or partial substitution therefor.
SKR:maw 288005.03 2/25/99 1
<PAGE>
"Subordinated Indebtedness" means all obligations arising under the
Subordinated Note and each and every other debt, liability and obligation
of every type and description which the Borrower, or any Subsidiary may
now or at any time hereafter owe to the Subordinated Creditor, whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several.
"Subordinated Note" means collectively the following notes, together
with all renewals, extensions and modifications thereof and any note or
notes issued in substitution therefor: (a) Promissory Note made by the
Borrower, Jeff Erskine, Mike Stuart and John Carrante to the order of
Creditor, dated as of October 17, 1997 in the original principal amount of
$150,000.00; (b) Promissory Note made by the Borrower to the order of
Creditor, dated as of April 7, 1998, in the original principal amount of
$300,000.00; (c) Promissory Note made by the Borrower to the order of
Creditor, dated as of January 15, 1998 in the original principal amount of
$300,000.00; (d) Promissory Note made by the Borrower to the order of
Creditor, dated as of March 31, 1998, in the original principal amount of
$102,000.00.
2. SUBORDINATION. The payment of all of the Subordinated
Indebtedness is hereby expressly subordinated to the extent and in the manner
hereinafter set forth to the payment in full of the Lender Indebtedness; and
regardless of any priority otherwise available to the Subordinated Creditor by
law or by agreement, the Lender shall hold a first security interest in all
collateral securing payment of the Lender Indebtedness (the "Collateral"), and
any security interest claimed therein (including any proceeds thereof) by the
Subordinated Creditor shall be and remain fully subordinate for all purposes to
the security interest of the Lender therein for all purposes whatsoever.
3. PAYMENTS. Until all of the Lender Indebtedness has been paid in
full, the Subordinated Creditor shall not, without the Lender's prior written
consent, demand, receive or accept any principal payment from the Borrower in
respect of the Subordinated Indebtedness, or exercise any right of or permit any
setoff in respect of the Subordinated Indebtedness, except that the Subordinated
Creditor may accept scheduled payments (but not prepayments) of interest
required to be paid under the Subordinated Note, so long as no Borrower Default
has occurred and is continuing or will occur as a result of or immediately
following any such payment. Without the Lender's prior written consent, the
Subordinated Creditor shall not demand, receive or accept any interest payment
from the Borrower in respect of the Subordinated Indebtedness so long as any
Borrower Default exists or if a Borrower Default will occur as a result of or
immediately following such interest payment.
4. RECEIPT OF PROHIBITED PAYMENTS. If the Subordinated Creditor
receives any payment on the Subordinated Indebtedness that the Subordinated
Creditor is not entitled to receive under the provisions of this Agreement, the
Subordinated Creditor will hold the amount so received in trust for the Lender
and will forthwith turn over such payment to the Lender in the form received
(except for the endorsement of the Subordinated Creditor where necessary) for
application to then-existing Lender Indebtedness (whether or not due), in such
manner of application as the Lender may deem appropriate. If the Subordinated
Creditor exercises any right
SKR:maw 288005.03 2/25/99 2
<PAGE>
of setoff which the Subordinated Creditor is not permitted to exercise under the
provisions of this Agreement, the Subordinated Creditor will promptly pay over
to the Lender, in immediately available funds, an amount equal to the amount of
the claims or obligations offset. If the Subordinated Creditor fails to make any
endorsement required under this Agreement, the Lender, or any of its officers or
employees or agents on behalf of the Lender, is hereby irrevocably appointed as
the attorney-in-fact (which appointment is coupled with an interest) for the
Subordinated Creditor to make such endorsement in the Subordinated Creditor's
name.
5. ACTION ON SUBORDINATED DEBT. The Subordinated Creditor will not
commence any action or proceeding against the Borrower, or any Subsidiary to
recover all or any part of the Subordinated Indebtedness, or join with any
creditor (unless the Lender shall so join) in bringing any proceeding against
the Borrower, or any Subsidiary under any bankruptcy, reorganization,
readjustment of debt, arrangement of debt receivership, liquidation or
insolvency law or statute of the federal or any state government, or take
possession of, sell, or dispose of any Collateral, or exercise or enforce any
right or remedy available to the Subordinated Creditor with respect to any such
Collateral, unless and until the Lender Indebtedness has been paid in full.
6. ACTION CONCERNING COLLATERAL.
(a) Notwithstanding any security interest now held or hereafter
acquired by the Subordinated Creditor, the Lender may take possession of,
sell, dispose of, and otherwise deal with all or any part of the
Collateral, and may enforce any right or remedy available to it with
respect to the Collateral, all without notice to or consent of the
Subordinated Creditor except as specifically required by applicable law.
(b) In addition, and without limiting the generality of the
foregoing, if a Borrower Default has occurred and is continuing and the
Borrower, or any Subsidiary intends to sell any Collateral to an unrelated
third party outside the ordinary course of business, the Subordinated
Creditor shall, upon the Lender's request, execute and deliver to such
purchaser such instruments as may reasonably be necessary to terminate and
release any security interest or lien the Subordinated Creditor has in the
Collateral to be sold.
(c) The Lender shall have no duty to preserve, protect, care for,
insure, take possession of, collect, dispose of, or otherwise realize upon
any of the Collateral, and in no event shall the Lender be deemed the
Subordinated Creditor's agent with respect to the Collateral. All proceeds
received by the Lender with respect to any Collateral may be applied,
first, to pay or reimburse the Lender for all costs and expenses
(including reasonable attorneys' fees) incurred by the Lender in
connection with the collection of such proceeds, and, second, to any
indebtedness secured by the Lender's security interest in that Collateral
in any order that it may choose.
7. BANKRUPTCY AND INSOLVENCY. In the event of any receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization
or arrangement with creditors, whether or not pursuant to bankruptcy law, the
sale of all or substantially all of the assets of the Borrower, or any
Subsidiary dissolution, liquidation or any other marshalling of the assets or
liabilities of the Borrower, or any Subsidiary the Subordinated Creditor will
file all claims, proofs of claim or other instruments of similar character
necessary to enforce the obligations of the Borrower, and the Subsidiaries in
respect of the Subordinated Indebtedness and will hold in
SKR:maw 288005.03 2/25/99 3
<PAGE>
trust for the Lender and promptly pay over to the Lender in the form received
(except for the endorsement of the Subordinated Creditor where necessary) for
application to the then-existing Lender Indebtedness, any and all moneys,
dividends or other assets received in any such proceedings on account of the
Subordinated Indebtedness, unless and until the Lender Indebtedness has been
paid in full. If the Subordinated Creditor shall fail to take any such action,
the Lender, as attorney-in-fact for the Subordinated Creditor, may take such
action on the Subordinated Creditor's behalf. The Subordinated Creditor hereby
irrevocably appoints the Lender, or any of its officers or employees on behalf
of the Lender, as the attorney-in-fact for the Subordinated Creditor (which
appointment is coupled with an interest) with the power but not the duty to
demand, sue for, collect and receive any and all such moneys, dividends or other
assets and give acquittance therefor and to file any claim, proof of claim or
other instrument of similar character, to vote claims comprising Subordinated
Indebtedness to accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension and to take such other
action in the Lender's own name or in the name of the Subordinated Creditor as
the Lender may deem necessary or advisable for the enforcement of the agreements
contained herein; and the Subordinated Creditor will execute and deliver to the
Lender such other and further powers-of-attorney or instruments as the Lender
may request in order to accomplish the foregoing.
8. RESTRICTIVE LEGEND; TRANSFER OF SUBORDINATED INDEBTEDNESS. The
Subordinated Creditor will cause the Subordinated Note and all other notes,
bonds, debentures or other instruments evidencing the Subordinated Indebtedness
or any part thereof to contain a specific statement thereon to the effect that
the indebtedness thereby evidenced is subject to the provisions of this
Agreement, and the Subordinated Creditor will mark its books conspicuously to
evidence the subordination effected hereby. Attached hereto is a true and
correct copy of the Subordinated Note bearing such legend. At the request of the
Lender, the Subordinated Creditor shall deposit with the Lender the Subordinated
Note and all of the other notes, bonds, debentures or other instruments
evidencing the Subordinated Indebtedness, which notes, bonds, debentures or
other instruments may be held by the Lender so long as any Lender Indebtedness
remains outstanding. The Subordinated Creditor is the lawful holder of the
Subordinated Note and has not transferred any interest therein to any other
person. Without the prior written consent of the Lender, the Subordinated
Creditor will not assign, transfer or pledge to any other person any of the
Subordinated Indebtedness or agree to a discharge or forgiveness of the same so
long as there remains outstanding any of the Lender Indebtedness.
9. CONTINUING EFFECT. This Agreement shall constitute a continuing
agreement of subordination, and the Lender may, without notice to or consent by
the Subordinated Creditor, modify any term of the Lender Indebtedness in
reliance upon this Agreement. Without limiting the generality of the foregoing,
the Lender may, at any time and from time to time, either before or after
receipt of any such notice of revocation, without the consent of or notice to
the Subordinated Creditor and without incurring responsibility to the
Subordinated Creditor or impairing or releasing any of the Lender's rights or
any of the Subordinated Creditor's obligations hereunder:
(a) change the interest rate or change the amount of payment or
extend the time for payment or renew or otherwise alter the terms of any
Lender Indebtedness or any instrument evidencing the same in any manner;
SKR:maw 288005.03 2/25/99 4
<PAGE>
(b) sell, exchange, release or otherwise deal with any property at
any time securing payment of the Lender Indebtedness or any part thereof;
(c) release anyone liable in any manner for the payment or
collection of the Lender Indebtedness or any part thereof;
(d) exercise or refrain from exercising any right against the
Borrower, the Subsidiaries or any other person (including the Subordinated
Creditor); and
(e) apply any sums received by the Lender, by whomsoever paid and
however realized, to the Lender Indebtedness in such manner as the Lender
shall deem appropriate.
10. NO COMMITMENT. None of the provisions of this Agreement shall be
deemed or construed to constitute or imply any commitment or obligation on the
part of the Lender to make any future loans or other extensions of credit or
financial accommodations to the Borrower, or any of the Subsidiaries.
11. NOTICE. All notices and other communications hereunder shall be
in writing and shall be (i) personally delivered, (ii) transmitted by registered
mail, postage prepaid, or (iii) transmitted by telecopy, in each case addressed
to the party to whom notice is being given at its address as set forth below:
If to the Lender:
Norwest Business Credit, Inc
Norwest Tower, M.S. 9025
3300 North Central Avenue
Phoenix, AZ 85012-2501
Telecopier: 602-263-6215
Attention: Darcy Della Flora
If to the Subordinated Creditor:
Mark Moldenhauer
5925 East Restin Road
Cave Creek, AZ 85331
Telecopier: 602-951-8375
or at such other address as may hereafter be designated in writing by that
party. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the date of posting
if delivered by mail, or (iii) the date of transmission if delivered by
telecopy.
SKR:maw 288005.03 2/25/99 5
<PAGE>
12. CONFLICT IN AGREEMENTS. If the subordination provisions of any
instrument evidencing Subordinated Indebtedness conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship between the
Lender and the Subordinated Creditor.
13. NO WAIVER. No waiver shall be deemed to be made by the Lender of
any of its rights hereunder unless the same shall be in writing signed on behalf
of the Lender, and each such waiver, if any, shall be a waiver only with respect
to the specific matter or matters to which the waiver relates and shall in no
way impair the rights of the Lender or the obligations of the Subordinated
Creditor to the Lender in any other respect at any time.
14. BINDING EFFECT; ACCEPTANCE. This Agreement shall be binding upon
the Subordinated Creditor and the Subordinated Creditor's heirs, legal
representatives, successors and assigns and shall inure to the benefit of the
Lender and its participants, successors and assigns irrespective of whether this
or any similar agreement is executed by any other Subordinated Creditor of the
Borrower, or the Subsidiaries. Notice of acceptance by the Lender of this
Agreement or of reliance by the Lender upon this Agreement is hereby waived by
the Subordinated Creditor.
15. MISCELLANEOUS. The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE; WAIVER OF JURY
Trial. This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Arizona. Each party
consents to the personal jurisdiction of the state and federal courts located in
the State of Arizona in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient,
and agrees that any litigation initiated by any of them in connection with this
Agreement shall be venued in either the Superior Court of Maricopa County,
Arizona or the United States District Court, District of Arizona. THE PARTIES
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS ACKNOWLEDGMENT.
IN WITNESS WHEREOF, the Subordinated Creditor has executed this
Agreement as of the date and year first above-written.
Witness: /S/ROGER BUTTERWICK /S/MARK MOLDENHAUER
Mark Moldenhauer
Witness: /S/ROGER BUTTERWICK /S/HOPE MOLDENHAUER
Hope Moldenhauer
SKR:maw 288005.03 2/25/99 6
<PAGE>
ACKNOWLEDGMENT BY BORROWER
The undersigned, being the Borrower referred to in the foregoing
Agreement, hereby (i) acknowledges receipt of a copy thereof, (ii) agrees to all
of the terms and provisions thereof, (iii) agrees to and with the Lender that it
shall make no payment on the Subordinated Indebtedness that the Subordinated
Creditor would not be entitled to receive under the provisions of the Agreement,
(iv) agrees that any such payment will constitute a default under the Lender
Indebtedness, and (v) agrees to mark its books conspicuously to evidence the
subordination of the Subordinated Indebtedness effected hereby.
AUTO NETWORK GROUP, INC., an Arizona
corporation
By /S/MIKE STUART
Its President
<PAGE>
SKR:maw 288005.03 2/25/99 7
<PAGE>
SUBORDINATION AGREEMENT
This Agreement, dated as of MARCH 26, 1999, is made by Mike Stuart
and Debbie Stuart (collectively, the "Subordinated Creditor"), for the benefit
of Norwest Business Credit, Inc., a Minnesota corporation (the "Lender").
Auto Network Group, Inc., an Arizona corporation, formerly known as
Auto Network U.S.A., Inc. (the "Borrower"), and any future subsidiaries of
Borrower are now or hereafter may be indebted to the Lender on account of loans
or other extensions of credit or financial accommodations from the Lender to the
Borrower, or any Subsidiary, or to any other person under the guaranty or
endorsement of the Borrower, or any Subsidiary.
The Subordinated Creditor has made or may make loans or grant other
financial accommodations to the Borrower.
As a condition to making any loan or extension of credit to the
Borrower, the Lender has required that the Subordinated Creditor subordinate the
payment of the Subordinated Creditor's loans and other financial accommodations
to the payment of any and all indebtedness of the Borrower, and the Subsidiaries
to the Lender. Assisting the Borrower in obtaining credit accommodations from
the Lender and subordinating his interests pursuant to the terms of this
Agreement are in the Subordinated Creditor's best interest.
ACCORDINGLY, in consideration of the loans and other financial
accommodations that have been made and may hereafter be made by the Lender for
the benefit of the Borrower, and the Subsidiaries, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Subordinated Creditor hereby agrees as follows:
1. DEFINITIONS. As used herein, the following terms have the
meanings set forth below:
"Borrower Default" means a Default or Event of Default as defined in
any agreement or instrument evidencing, governing, or issued in connection
with Lender Indebtedness, including, but not limited to, the Credit and
Security Agreement dated as of __________, 1999, by and between the
Borrower, and the Lender as the same may hereafter be amended,
supplemented or restated from time to time, or any default under or breach
of any such agreement or instrument.
"Lender Indebtedness" means each and every debt, liability and
obligation of every type and description which the Borrower, or any
Subsidiary may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several, all interest
thereon, all renewals, extensions and modifications thereof and any notes
issued in whole or partial substitution therefor.
SKR:maw 287995.03 2/25/99 1
<PAGE>
"Subordinated Indebtedness" means all obligations arising under the
Subordinated Note and each and every other debt, liability and obligation
of every type and description which the Borrower, or any Subsidiary may
now or at any time hereafter owe to the Subordinated Creditor, whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several.
"Subordinated Note" means the Borrower's Promissory Note, dated as
of September 1, 1998, payable to the order of the Creditor in the original
principal amount of $50,000.00, together with all renewals, extensions and
modifications thereof and any note or notes issued in substitution
therefor.
2. SUBORDINATION. The payment of all of the Subordinated
Indebtedness is hereby expressly subordinated to the extent and in the manner
hereinafter set forth to the payment in full of the Lender Indebtedness; and
regardless of any priority otherwise available to the Subordinated Creditor by
law or by agreement, the Lender shall hold a first security interest in all
collateral securing payment of the Lender Indebtedness (the "Collateral"), and
any security interest claimed therein (including any proceeds thereof) by the
Subordinated Creditor shall be and remain fully subordinate for all purposes to
the security interest of the Lender therein for all purposes whatsoever.
3. PAYMENTS. Until all of the Lender Indebtedness has been paid in
full, the Subordinated Creditor shall not, without the Lender's prior written
consent, demand, receive or accept any principal payment from the Borrower in
respect of the Subordinated Indebtedness, or exercise any right of or permit any
setoff in respect of the Subordinated Indebtedness, except that the Subordinated
Creditor may accept scheduled payments (but not prepayments) of interest
required to be paid under the Subordinated Note, so long as no Borrower Default
has occurred and is continuing or will occur as a result of or immediately
following any such payment. Without the Lender's prior written consent, the
Subordinated Creditor shall not demand, receive or accept any interest payment
from the Borrower in respect of the Subordinated Indebtedness so long as any
Borrower Default exists or if a Borrower Default will occur as a result of or
immediately following such interest payment.
4. RECEIPT OF PROHIBITED PAYMENTS. If the Subordinated Creditor
receives any payment on the Subordinated Indebtedness that the Subordinated
Creditor is not entitled to receive under the provisions of this Agreement, the
Subordinated Creditor will hold the amount so received in trust for the Lender
and will forthwith turn over such payment to the Lender in the form received
(except for the endorsement of the Subordinated Creditor where necessary) for
application to then-existing Lender Indebtedness (whether or not due), in such
manner of application as the Lender may deem appropriate. If the Subordinated
Creditor exercises any right of setoff which the Subordinated Creditor is not
permitted to exercise under the provisions of this Agreement, the Subordinated
Creditor will promptly pay over to the Lender, in immediately available funds,
an amount equal to the amount of the claims or obligations offset. If the
Subordinated Creditor fails to make any endorsement required under this
Agreement, the Lender, or any of its officers or employees or agents on behalf
of the Lender, is hereby irrevocably
SKR:maw 287995.03 2/25/99 2
<PAGE>
appointed as the attorney-in-fact (which appointment is coupled with an
interest) for the Subordinated Creditor to make such endorsement in the
Subordinated Creditor's name.
5. ACTION ON SUBORDINATED DEBT. The Subordinated Creditor will not
commence any action or proceeding against the Borrower, or any Subsidiary to
recover all or any part of the Subordinated Indebtedness, or join with any
creditor (unless the Lender shall so join) in bringing any proceeding against
the Borrower, or any Subsidiary under any bankruptcy, reorganization,
readjustment of debt, arrangement of debt receivership, liquidation or
insolvency law or statute of the federal or any state government, or take
possession of, sell, or dispose of any Collateral, or exercise or enforce any
right or remedy available to the Subordinated Creditor with respect to any such
Collateral, unless and until the Lender Indebtedness has been paid in full.
6. ACTION CONCERNING COLLATERAL.
(a) Notwithstanding any security interest now held or hereafter
acquired by the Subordinated Creditor, the Lender may take possession of,
sell, dispose of, and otherwise deal with all or any part of the
Collateral, and may enforce any right or remedy available to it with
respect to the Collateral, all without notice to or consent of the
Subordinated Creditor except as specifically required by applicable law.
(b) In addition, and without limiting the generality of the
foregoing, if a Borrower Default has occurred and is continuing and the
Borrower, or any Subsidiary intends to sell any Collateral to an unrelated
third party outside the ordinary course of business, the Subordinated
Creditor shall, upon the Lender's request, execute and deliver to such
purchaser such instruments as may reasonably be necessary to terminate and
release any security interest or lien the Subordinated Creditor has in the
Collateral to be sold.
(c) The Lender shall have no duty to preserve, protect, care for,
insure, take possession of, collect, dispose of, or otherwise realize upon
any of the Collateral, and in no event shall the Lender be deemed the
Subordinated Creditor's agent with respect to the Collateral. All proceeds
received by the Lender with respect to any Collateral may be applied,
first, to pay or reimburse the Lender for all costs and expenses
(including reasonable attorneys' fees) incurred by the Lender in
connection with the collection of such proceeds, and, second, to any
indebtedness secured by the Lender's security interest in that Collateral
in any order that it may choose.
7. BANKRUPTCY AND INSOLVENCY. In the event of any receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization
or arrangement with creditors, whether or not pursuant to bankruptcy law, the
sale of all or substantially all of the assets of the Borrower, or any
Subsidiary dissolution, liquidation or any other marshalling of the assets or
liabilities of the Borrower, or any Subsidiary the Subordinated Creditor will
file all claims, proofs of claim or other instruments of similar character
necessary to enforce the obligations of the Borrower, and the Subsidiaries in
respect of the Subordinated Indebtedness and will hold in trust for the Lender
and promptly pay over to the Lender in the form received (except for the
endorsement of the Subordinated Creditor where necessary) for application to the
then-existing Lender Indebtedness, any and all moneys, dividends or other assets
received in any such proceedings on account of the Subordinated Indebtedness,
unless and until the Lender Indebtedness has been paid in full. If the
Subordinated Creditor shall fail to take any such action,
SKR:maw 287995.03 2/25/99 3
<PAGE>
the Lender, as attorney-in-fact for the Subordinated Creditor, may take such
action on the Subordinated Creditor's behalf. The Subordinated Creditor hereby
irrevocably appoints the Lender, or any of its officers or employees on behalf
of the Lender, as the attorney-in-fact for the Subordinated Creditor (which
appointment is coupled with an interest) with the power but not the duty to
demand, sue for, collect and receive any and all such moneys, dividends or other
assets and give acquittance therefor and to file any claim, proof of claim or
other instrument of similar character, to vote claims comprising Subordinated
Indebtedness to accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension and to take such other
action in the Lender's own name or in the name of the Subordinated Creditor as
the Lender may deem necessary or advisable for the enforcement of the agreements
contained herein; and the Subordinated Creditor will execute and deliver to the
Lender such other and further powers-of-attorney or instruments as the Lender
may request in order to accomplish the foregoing.
8. RESTRICTIVE LEGEND; TRANSFER OF SUBORDINATED INDEBTEDNESS. The
Subordinated Creditor will cause the Subordinated Note and all other notes,
bonds, debentures or other instruments evidencing the Subordinated Indebtedness
or any part thereof to contain a specific statement thereon to the effect that
the indebtedness thereby evidenced is subject to the provisions of this
Agreement, and the Subordinated Creditor will mark its books conspicuously to
evidence the subordination effected hereby. Attached hereto is a true and
correct copy of the Subordinated Note bearing such legend. At the request of the
Lender, the Subordinated Creditor shall deposit with the Lender the Subordinated
Note and all of the other notes, bonds, debentures or other instruments
evidencing the Subordinated Indebtedness, which notes, bonds, debentures or
other instruments may be held by the Lender so long as any Lender Indebtedness
remains outstanding. The Subordinated Creditor is the lawful holder of the
Subordinated Note and has not transferred any interest therein to any other
person. Without the prior written consent of the Lender, the Subordinated
Creditor will not assign, transfer or pledge to any other person any of the
Subordinated Indebtedness or agree to a discharge or forgiveness of the same so
long as there remains outstanding any of the Lender Indebtedness.
9. CONTINUING EFFECT. This Agreement shall constitute a continuing
agreement of subordination, and the Lender may, without notice to or consent by
the Subordinated Creditor, modify any term of the Lender Indebtedness in
reliance upon this Agreement. Without limiting the generality of the foregoing,
the Lender may, at any time and from time to time, either before or after
receipt of any such notice of revocation, without the consent of or notice to
the Subordinated Creditor and without incurring responsibility to the
Subordinated Creditor or impairing or releasing any of the Lender's rights or
any of the Subordinated Creditor's obligations hereunder:
(a) change the interest rate or change the amount of payment or
extend the time for payment or renew or otherwise alter the terms of any
Lender Indebtedness or any instrument evidencing the same in any manner;
(b) sell, exchange, release or otherwise deal with any property at
any time securing payment of the Lender Indebtedness or any part thereof;
SKR:maw 287995.03 2/25/99 4
<PAGE>
(c) release anyone liable in any manner for the payment or
collection of the Lender Indebtedness or any part thereof;
(d) exercise or refrain from exercising any right against the
Borrower, the Subsidiaries or any other person (including the Subordinated
Creditor); and
(e) apply any sums received by the Lender, by whomsoever paid and
however realized, to the Lender Indebtedness in such manner as the Lender
shall deem appropriate.
10. NO COMMITMENT. None of the provisions of this Agreement shall be
deemed or construed to constitute or imply any commitment or obligation on the
part of the Lender to make any future loans or other extensions of credit or
financial accommodations to the Borrower, or any of the Subsidiaries.
11. NOTICE. All notices and other communications hereunder shall be
in writing and shall be (i) personally delivered, (ii) transmitted by registered
mail, postage prepaid, or (iii) transmitted by telecopy, in each case addressed
to the party to whom notice is being given at its address as set forth below:
If to the Lender:
Norwest Business Credit, Inc
Norwest Tower, M.S. 9025
3300 North Central Avenue
Phoenix, AZ 85012-2501
Telecopier: 602-263-6215
Attention: Darcy Della Flora
If to the Subordinated Creditor:
Mike Stuart and Debbie Stuart
9118 East Topeka Drive
Scottsdale, AZ 85255
Telecopier: 602-951-8375
or at such other address as may hereafter be designated in writing by that
party. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the date of posting
if delivered by mail, or (iii) the date of transmission if delivered by
telecopy.
12. CONFLICT IN AGREEMENTS. If the subordination provisions of any
instrument evidencing Subordinated Indebtedness conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship between the
Lender and the Subordinated Creditor.
13. NO WAIVER. No waiver shall be deemed to be made by the Lender of
any of its rights hereunder unless the same shall be in writing signed on behalf
of the Lender, and
SKR:maw 287995.03 2/25/99 5
<PAGE>
each such waiver, if any, shall be a waiver only with respect to the specific
matter or matters to which the waiver relates and shall in no way impair the
rights of the Lender or the obligations of the Subordinated Creditor to the
Lender in any other respect at any time.
14. BINDING EFFECT; ACCEPTANCE. This Agreement shall be binding upon
the Subordinated Creditor and the Subordinated Creditor's heirs, legal
representatives, successors and assigns and shall inure to the benefit of the
Lender and its participants, successors and assigns irrespective of whether this
or any similar agreement is executed by any other Subordinated Creditor of the
Borrower, or the Subsidiaries. Notice of acceptance by the Lender of this
Agreement or of reliance by the Lender upon this Agreement is hereby waived by
the Subordinated Creditor.
15. MISCELLANEOUS. The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE; WAIVER OF JURY
Trial. This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Arizona. Each party
consents to the personal jurisdiction of the state and federal courts located in
the State of Arizona in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient,
and agrees that any litigation initiated by any of them in connection with this
Agreement shall be venued in either the Superior Court of Maricopa County,
Arizona or the United States District Court, District of Arizona. THE PARTIES
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS ACKNOWLEDGMENT.
IN WITNESS WHEREOF, the Subordinated Creditor has executed this
Agreement as of the date and year first above-written.
Witness: /S/CHRISTINE M. OLACH /S/MIKE STUART
Mike Stuart
Witness: /S/CHRISTINE M. OLACH /S/DEBBIE STUART
Debbie Stuart
SKR:maw 287995.03 2/25/99 6
<PAGE>
ACKNOWLEDGMENT BY BORROWER
The undersigned, being the Borrower referred to in the foregoing
Agreement, hereby (i) acknowledges receipt of a copy thereof, (ii) agrees to all
of the terms and provisions thereof, (iii) agrees to and with the Lender that it
shall make no payment on the Subordinated Indebtedness that the Subordinated
Creditor would not be entitled to receive under the provisions of the Agreement,
(iv) agrees that any such payment will constitute a default under the Lender
Indebtedness, and (v) agrees to mark its books conspicuously to evidence the
subordination of the Subordinated Indebtedness effected hereby.
AUTO NETWORK GROUP, INC., an Arizona
corporation
By /S/MIKE STUART
Its President
SKR:maw 287995.03 2/25/99 7
<PAGE>
SUBORDINATION AGREEMENT
This Agreement, dated as of MARCH 26, 1999, is made by Pinnacle
Financial Corporation, an Arizona corporation (the "Subordinated Creditor"), for
the benefit of Norwest Business Credit, Inc., a Minnesota corporation (the
"Lender").
Auto Network Group, Inc., an Arizona corporation, formerly known as
Auto Network U.S.A., Inc. (the "Borrower"), and any future subsidiaries of
Borrower are now or hereafter may be indebted to the Lender on account of loans
or other extensions of credit or financial accommodations from the Lender to the
Borrower, or any Subsidiary, or to any other person under the guaranty or
endorsement of the Borrower, or any Subsidiary.
The Subordinated Creditor has made or may make loans or grant other
financial accommodations to the Borrower.
As a condition to making any loan or extension of credit to the
Borrower, the Lender has required that the Subordinated Creditor subordinate the
payment of the Subordinated Creditor's loans and other financial accommodations
to the payment of any and all indebtedness of the Borrower, and the Subsidiaries
to the Lender. Assisting the Borrower in obtaining credit accommodations from
the Lender and subordinating its interests pursuant to the terms of this
Agreement are in the Subordinated Creditor's best interest.
ACCORDINGLY, in consideration of the loans and other financial
accommodations that have been made and may hereafter be made by the Lender for
the benefit of the Borrower, and the Subsidiaries, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Subordinated Creditor hereby agrees as follows:
1. Definitions. As used herein, the following terms have the
meanings set forth below:
"Borrower Default" means a Default or Event of Default as defined in
any agreement or instrument evidencing, governing, or issued in connection
with Lender Indebtedness, including, but not limited to, the Credit and
Security Agreement dated as of __________, 1999, by and between the
Borrower, and the Lender as the same may hereafter be amended,
supplemented or restated from time to time, or any default under or breach
of any such agreement or instrument.
"Lender Indebtedness" means each and every debt, liability and
obligation of every type and description which the Borrower, or any
Subsidiary may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several, all interest
thereon, all renewals, extensions and modifications thereof and any notes
issued in whole or partial substitution therefor.
SKR:maw 287997.03 2/25/99 1
<PAGE>
"Subordinated Indebtedness" means all obligations arising under the
Subordinated Note and each and every other debt, liability and obligation
of every type and description which the Borrower, or any Subsidiary may
now or at any time hereafter owe to the Subordinated Creditor, whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several.
"Subordinated Note" means collectively the following notes, together
with all renewals, extensions and modifications thereof and any note or
notes issued in substitution therefor: (a) Promissory Note made by the
Borrower to the order of Creditor, dated as of December 15, 1997, in the
original principal amount of $200,000.00; (b) Promissory Note made by the
Borrower to the order of Creditor, dated as of September 18, 1998, in the
original principal amount of $400,000.00; (c) Promissory Note made by the
Borrower to the order of Creditor, dated as of September 11, 1998, in the
original principal amount of $117,500.00.
2. Subordination. The payment of all of the Subordinated
Indebtedness is hereby expressly subordinated to the extent and in the manner
hereinafter set forth to the payment in full of the Lender Indebtedness; and
regardless of any priority otherwise available to the Subordinated Creditor by
law or by agreement, the Lender shall hold a first security interest in all
collateral securing payment of the Lender Indebtedness (the "Collateral"), and
any security interest claimed therein (including any proceeds thereof) by the
Subordinated Creditor shall be and remain fully subordinate for all purposes to
the security interest of the Lender therein for all purposes whatsoever.
3. Payments. Until all of the Lender Indebtedness has been paid in
full, the Subordinated Creditor shall not, without the Lender's prior written
consent, demand, receive or accept any principal payment from the Borrower in
respect of the Subordinated Indebtedness, or exercise any right of or permit any
setoff in respect of the Subordinated Indebtedness, except that the Subordinated
Creditor may accept scheduled payments (but not prepayments) of interest
required to be paid under the Subordinated Note, so long as no Borrower Default
has occurred and is continuing or will occur as a result of or immediately
following any such payment. Without the Lender's prior written consent, the
Subordinated Creditor shall not demand, receive or accept any interest payment
from the Borrower in respect of the Subordinated Indebtedness so long as any
Borrower Default exists or if a Borrower Default will occur as a result of or
immediately following such interest payment.
4. Receipt of Prohibited Payments. If the Subordinated Creditor
receives any payment on the Subordinated Indebtedness that the Subordinated
Creditor is not entitled to receive under the provisions of this Agreement, the
Subordinated Creditor will hold the amount so received in trust for the Lender
and will forthwith turn over such payment to the Lender in the form received
(except for the endorsement of the Subordinated Creditor where necessary) for
application to then-existing Lender Indebtedness (whether or not due), in such
manner of application as the Lender may deem appropriate. If the Subordinated
Creditor exercises any right of setoff which the Subordinated Creditor is not
permitted to exercise under the provisions of this Agreement, the Subordinated
Creditor will promptly pay over to the Lender, in immediately
SKR:maw 287997.03 2/25/99 2
<PAGE>
available funds, an amount equal to the amount of the claims or obligations
offset. If the Subordinated Creditor fails to make any endorsement required
under this Agreement, the Lender, or any of its officers or employees or agents
on behalf of the Lender, is hereby irrevocably appointed as the attorney-in-fact
(which appointment is coupled with an interest) for the Subordinated Creditor to
make such endorsement in the Subordinated Creditor's name.
5. Action on Subordinated Debt. The Subordinated Creditor will not
commence any action or proceeding against the Borrower, or any Subsidiary to
recover all or any part of the Subordinated Indebtedness, or join with any
creditor (unless the Lender shall so join) in bringing any proceeding against
the Borrower, or any Subsidiary under any bankruptcy, reorganization,
readjustment of debt, arrangement of debt receivership, liquidation or
insolvency law or statute of the federal or any state government, or take
possession of, sell, or dispose of any Collateral, or exercise or enforce any
right or remedy available to the Subordinated Creditor with respect to any such
Collateral, unless and until the Lender Indebtedness has been paid in full.
6. Action Concerning Collateral.
(a) Notwithstanding any security interest now held or hereafter
acquired by the Subordinated Creditor, the Lender may take possession of,
sell, dispose of, and otherwise deal with all or any part of the
Collateral, and may enforce any right or remedy available to it with
respect to the Collateral, all without notice to or consent of the
Subordinated Creditor except as specifically required by applicable law.
(b) In addition, and without limiting the generality of the
foregoing, if a Borrower Default has occurred and is continuing and the
Borrower, or any Subsidiary intends to sell any Collateral to an unrelated
third party outside the ordinary course of business, the Subordinated
Creditor shall, upon the Lender's request, execute and deliver to such
purchaser such instruments as may reasonably be necessary to terminate and
release any security interest or lien the Subordinated Creditor has in the
Collateral to be sold.
(c) The Lender shall have no duty to preserve, protect, care for,
insure, take possession of, collect, dispose of, or otherwise realize upon
any of the Collateral, and in no event shall the Lender be deemed the
Subordinated Creditor's agent with respect to the Collateral. All proceeds
received by the Lender with respect to any Collateral may be applied,
first, to pay or reimburse the Lender for all costs and expenses
(including reasonable attorneys' fees) incurred by the Lender in
connection with the collection of such proceeds, and, second, to any
indebtedness secured by the Lender's security interest in that Collateral
in any order that it may choose.
7. Bankruptcy and Insolvency. In the event of any receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization
or arrangement with creditors, whether or not pursuant to bankruptcy law, the
sale of all or substantially all of the assets of the Borrower, or any
Subsidiary dissolution, liquidation or any other marshalling of the assets or
liabilities of the Borrower, or any Subsidiary the Subordinated Creditor will
file all claims, proofs of claim or other instruments of similar character
necessary to enforce the obligations of the Borrower, and the Subsidiaries in
respect of the Subordinated Indebtedness and will hold in trust for the Lender
and promptly pay over to the Lender in the form received (except for the
endorsement of the Subordinated Creditor where necessary) for application to the
then-existing
SKR:maw 287997.03 2/25/99 3
<PAGE>
Lender Indebtedness, any and all moneys, dividends or other assets received in
any such proceedings on account of the Subordinated Indebtedness, unless and
until the Lender Indebtedness has been paid in full. If the Subordinated
Creditor shall fail to take any such action, the Lender, as attorney-in-fact for
the Subordinated Creditor, may take such action on the Subordinated Creditor's
behalf. The Subordinated Creditor hereby irrevocably appoints the Lender, or any
of its officers or employees on behalf of the Lender, as the attorney-in-fact
for the Subordinated Creditor (which appointment is coupled with an interest)
with the power but not the duty to demand, sue for, collect and receive any and
all such moneys, dividends or other assets and give acquittance therefor and to
file any claim, proof of claim or other instrument of similar character, to vote
claims comprising Subordinated Indebtedness to accept or reject any plan of
partial or complete liquidation, reorganization, arrangement, composition or
extension and to take such other action in the Lender's own name or in the name
of the Subordinated Creditor as the Lender may deem necessary or advisable for
the enforcement of the agreements contained herein; and the Subordinated
Creditor will execute and deliver to the Lender such other and further
powers-of-attorney or instruments as the Lender may request in order to
accomplish the foregoing.
8. Restrictive Legend; Transfer of Subordinated Indebtedness. The
Subordinated Creditor will cause the Subordinated Note and all other notes,
bonds, debentures or other instruments evidencing the Subordinated Indebtedness
or any part thereof to contain a specific statement thereon to the effect that
the indebtedness thereby evidenced is subject to the provisions of this
Agreement, and the Subordinated Creditor will mark its books conspicuously to
evidence the subordination effected hereby. Attached hereto is a true and
correct copy of the Subordinated Note bearing such legend. At the request of the
Lender, the Subordinated Creditor shall deposit with the Lender the Subordinated
Note and all of the other notes, bonds, debentures or other instruments
evidencing the Subordinated Indebtedness, which notes, bonds, debentures or
other instruments may be held by the Lender so long as any Lender Indebtedness
remains outstanding. The Subordinated Creditor is the lawful holder of the
Subordinated Note and has not transferred any interest therein to any other
person. Without the prior written consent of the Lender, the Subordinated
Creditor will not assign, transfer or pledge to any other person any of the
Subordinated Indebtedness or agree to a discharge or forgiveness of the same so
long as there remains outstanding any of the Lender Indebtedness.
9. Continuing Effect. This Agreement shall constitute a continuing
agreement of subordination, and the Lender may, without notice to or consent by
the Subordinated Creditor, modify any term of the Lender Indebtedness in
reliance upon this Agreement. Without limiting the generality of the foregoing,
the Lender may, at any time and from time to time, either before or after
receipt of any such notice of revocation, without the consent of or notice to
the Subordinated Creditor and without incurring responsibility to the
Subordinated Creditor or impairing or releasing any of the Lender's rights or
any of the Subordinated Creditor's obligations hereunder:
(a) change the interest rate or change the amount of payment or
extend the time for payment or renew or otherwise alter the terms of any
Lender Indebtedness or any instrument evidencing the same in any manner;
SKR:maw 287997.03 2/25/99 4
<PAGE>
(b) sell, exchange, release or otherwise deal with any property at
any time securing payment of the Lender Indebtedness or any part thereof;
(c) release anyone liable in any manner for the payment or
collection of the Lender Indebtedness or any part thereof;
(d) exercise or refrain from exercising any right against the
Borrower, the Subsidiaries or any other person (including the Subordinated
Creditor); and
(e) apply any sums received by the Lender, by whomsoever paid and
however realized, to the Lender Indebtedness in such manner as the Lender
shall deem appropriate.
10. No Commitment. None of the provisions of this Agreement shall be
deemed or construed to constitute or imply any commitment or obligation on the
part of the Lender to make any future loans or other extensions of credit or
financial accommodations to the Borrower, or any of the Subsidiaries.
11. Notice. All notices and other communications hereunder shall be
in writing and shall be (i) personally delivered, (ii) transmitted by registered
mail, postage prepaid, or (iii) transmitted by telecopy, in each case addressed
to the party to whom notice is being given at its address as set forth below:
If to the Lender:
Norwest Business Credit, Inc
Norwest Tower, M.S. 9025
3300 North Central Avenue
Phoenix, AZ 85012-2501
Telecopier: 602-263-6215
Attention: Darcy Della Flora
If to the Subordinated Creditor:
Pinnacle Financial Corporation
8135 East Butherus, Suite 3
Scottsdale, AZ 85260
Telecopier: 602-951-8375
Attention: Mike Stuart
or at such other address as may hereafter be designated in writing by that
party. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the date of posting
if delivered by mail, or (iii) the date of transmission if delivered by
telecopy.
SKR:maw 287997.03 2/25/99 5
<PAGE>
12. Conflict in Agreements. If the subordination provisions of any
instrument evidencing Subordinated Indebtedness conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship between the
Lender and the Subordinated Creditor.
13. No Waiver. No waiver shall be deemed to be made by the Lender of
any of its rights hereunder unless the same shall be in writing signed on behalf
of the Lender, and each such waiver, if any, shall be a waiver only with respect
to the specific matter or matters to which the waiver relates and shall in no
way impair the rights of the Lender or the obligations of the Subordinated
Creditor to the Lender in any other respect at any time.
14. Binding Effect; Acceptance. This Agreement shall be binding upon
the Subordinated Creditor and the Subordinated Creditor's heirs, legal
representatives, successors and assigns and shall inure to the benefit of the
Lender and its participants, successors and assigns irrespective of whether this
or any similar agreement is executed by any other Subordinated Creditor of the
Borrower, or the Subsidiaries. Notice of acceptance by the Lender of this
Agreement or of reliance by the Lender upon this Agreement is hereby waived by
the Subordinated Creditor.
15. Miscellaneous. The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16. Governing Law; Consent to Jurisdiction and Venue; Waiver of Jury
Trial. This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Arizona. Each party
consents to the personal jurisdiction of the state and federal courts located in
the State of Arizona in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient,
and agrees that any litigation initiated by any of them in connection with this
Agreement shall be venued in either the Superior Court of Maricopa County,
Arizona or the United States District Court, District of Arizona. THE PARTIES
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS ACKNOWLEDGMENT.
IN WITNESS WHEREOF, the Subordinated Creditor has executed this
Agreement as of the date and year first above-written.
PINNACLE FINANCIAL CORPORATION, an
Arizona corporation
Witness: /S/MARY PISCHNER
By /S/MARK MOLDENHAUER
Its SECRETARY
SKR:maw 287997.03 2/25/99 6
<PAGE>
Acknowledgment by Borrower
The undersigned, being the Borrower referred to in the foregoing
Agreement, hereby (i) acknowledges receipt of a copy thereof, (ii) agrees to all
of the terms and provisions thereof, (iii) agrees to and with the Lender that it
shall make no payment on the Subordinated Indebtedness that the Subordinated
Creditor would not be entitled to receive under the provisions of the Agreement,
(iv) agrees that any such payment will constitute a default under the Lender
Indebtedness, and (v) agrees to mark its books conspicuously to evidence the
subordination of the Subordinated Indebtedness effected hereby.
AUTO NETWORK GROUP, INC., an Arizona
corporation
By /S/MIKE STUART
Its President
SKR:maw 287997.03 2/25/99 7
<PAGE>
OFFICER'S CERTIFICATE
TO: Norwest Business Credit, Inc.
Norwest Tower, M.S. 9025
3300 North Central Avenue
Phoenix, Arizona 85012-2501
To induce you to make one or more loans from time to time to Auto
Network Group, Inc., an Arizona corporation, (the "Borrower"), in accordance
with the Credit and Security Agreement dated MARCH 26, 1999, between it and you
(the "Credit and Security Agreement") and all other Loan Documents (as defined
in the Credit and Security Agreement), I hereby represent and warrant to you, in
my individual capacity, that each and every representation and warranty set
forth in Article V of the Credit and Security Agreement is true and correct as
of the date hereof.
Dated: MARCH 26, 1999
Very truly yours,
/S/MIKE STUART
TEH:sic 288185.02 2/23/99
<PAGE>
PROMISSORY NOTE
$50,000.00 Dated September 1, 1998
Principal Amount State of Arizona
This Promissory Note is hereby entered into on the I St day of September,
1998 by and between Auto Network USA, Inc., an Arizona corporation having its
office at 8135 E. Butherus, Suite 3, Scottsdale, Arizona, hereinafter referred
to as the
BORROWER, AND,
Mike and/or Debbie Stuart, whose address is 9118 East Topeka Drive,
Scottsdale, Arizona 85255, hereinafter referred to as the LENDER.
Borrower hereby promises to pay Lender the sum of Fifty Thousand Dollars
($50,000.00), together with interest thereon at the rate of twelve percent (12%)
per annum on the unpaid balance. Said sum shall be paid as follows:
Interest payments of $500.00 payable in affaires on the I" day of each
month beginning October 1, 1998; and,
The principal amount of $50,000.00 shall be due and payable on October 1,
1999 unless such termination of this Note shall occur in which case all
principal amount shall become immediately due and payable.
This note may be prepaid, in full at any time, without penalty. This Note
may be extended at the option of the Lender on a month to month basis.
The proceeds from this Note shall at all times be solely used to acquire
motor vehicles for resale and their titles shall also serve as security and as
collateral against the eventual repayment of this Note. Lender shall have the
right to verify and confirm this collateral at any time and violation of this
security shall be cause for the immediate termination of this Note.
This Note shall be immediately due and payable upon the failure to make
any payment due herein and/or upon the resignation or removal of Mr.
Stuart as a Director of Auto Network USA, Inc.
In the event this Note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. AR payments hereunder shall be made to such address as
shown above or as may from time to time be designated by Lender. Default
interest shall be at eighteen percent (I 8%) per annum.
This note shall take effect as a sealed instrument and shall be construed,
governed and enforced in accordance with the laws of the State of Arizona
Signed in the presence of-
/S/ CHANDRA KASKAS /S/ MARK MOLDENHAUER
Witness Auto Network USA, Inc.
Mark Moldenhauer, Secretary
PURCHASE OF GOODWILL AGREEMENT
THIS PURCHASE OF GOODWILL AGREEMENT (this "Agreement") is entered into
effective this 1st day of June, 1998, by and among AUTO NETWORK USA, INC., an
Arizona corporation ("ANET"), AUTO NETWORK USA OF NEW MEXICO, INC., New Mexico
corporation ("ANET-NM") and JBS, LLC, a New Mexico limited liability company
("JBS").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which is hereby acknowledged by the parties, the parties agree as follows:
1. PURCHASE OF GOODWILL. In consideration for and in exchange for the
goodwill which ANET-NM is receiving from JBS, JBS shall receive stock
in ANET, the parent of ANET-NM, as follows:
(a) Upon execution of this Agreement, 266,667 shares of the voting
common stock of ANET shall be issued to JBS, and held in
escrow, subject to a one (1) year holding period (Rule 144
restriction). These shares are subject to forfeiture only if
ANET-NM is not doing business as of June 1, 1999.
(b) Up to 266,667 shares of the voting common stock of ANET shall
be issued to JBS upon the timely completion of the audit of
ANET-NM as of March 31, 1999 (for the period June 1, 1998
through March 31, 1999). If Pre-Tax Earnings of ANET-NM (as
defined below) equal or exceed $60,000 for this period, all
266,667 shares of the voting common stock of ANET shall be
automatically issued to JBS, subject to a one (1) year holding
period (Rule 144 restriction). If Pre-Tax Earnings of ANET-NM
are less than $30,000 for the period ended March 31, 1999, JBS
shall be deemed to have forfeited the entire 266,667 shares.
If Pre-Tax Earnings of ANET-NM are between $30,000 and
$59,999, JBS shall receive a pro-rata share of the 266,667
shares. By way of example, if Pre-Tax Earnings of ANET-NM are
$45,000, JBS shall earn and be immediately issued 133,333.5
shares of voting common stock of ANET.
(c) Up to 266,666 shares of voting common stock of ANET shall be
issued to JBS upon timely completion of the audit of ANET-NM
as of March 31, 2000 (for the period April 1, 1999 through
March 31, 2000). If Pre-Tax Earnings of ANET-NM equal or
exceed $120,000 for said period, all 266,666 shares shall be
automatically issued to JBS subject to a one (1) year holding
period (Rule 144 restriction). If Pre-Tax Earnings of ANET-NM
are less than $60,000, JBS shall be deemed to have forfeited
the entire 266,666 shares. If Pre-Tax Earnings of ANET-NM are
between $60,000 and $119,999, JBS shall receive a pro-rata
share of the 266,666 shares. By way of example, if Pre-Tas
Earnings of ANET-NM are $90,000, JBS shall earn and be
immediately issued 133,333 shares of voting common stock of
ANET.
The parties agree that goodwill of JBS being acquired by ANET-NM has a fair
market value of TWENTY CENTS ($.20) per share.
<PAGE>
For purposes of (b) and (c) above, "Pre-Tax Earnings" shall be defined as
follows: all income and earnings of ANET-NM, less the direct operating expenses
for ANET-NM including, without limitation: interest expense to ANET, and other
third party lenders; insurance coverage for the vehicles purchased in the
business; rent, utilities and taxes to be paid under a lease to G & B
Investments LLC; cost of personnel; costs of legal and accounting as contracted
by JBS; cleaning and supplies; and telephone expenses. Pre-Tax Earnings shall
NOT include any expenses or allocations by ANET for consulting, managerial,
auditing or otherwise. In other words, ANET-NM's Pre-Tax Earnings shall be
completely separate from those of ANET.
2. RESTRICTIONS ON STOCK. All of the shares of the voting common stock of
ANET to be issued to JBS shall be subject to the Securities and
Exchange Commission Rule 144 one (1) year holding period. Once issued
and earned hereunder, none of the shares of ANET stock issued to JBS
shall be subject to forfeiture or other restrictions. ANET agrees that
the stock earned and issued to JBS represents four percent (4%) of the
outstanding shares of ANET, and shall only be diluted on a pro-rata
basis with all the other shareholders of ANET.
3. ESCROW. The 266,667 shares issued on June 1, 1998 shall be held in
escrow by Allegra A. Hanson, P.C. until the end of the forfeiture
period, June 1, 1999.
4. OPTIONS. As additional consideration for and in exchange for further
services to be provided by JBS, JBS shall receive stock in ANET, the
parent of ANET-NM, as follows:
(a) a multiplier of five (5) options for every dollar of Pre-Tax
Earnings of ANET-NM in excess of $60,000, for the tax year
ended March 31, 1999, to be granted upon completion of a
timely audit; and
(b) a multiplier of five (5) options for every dollar of Pre-Tax
Earnings of ANET-NM in excess of $120,000, for the tax year
ended March 31, 2000, to be granted upon completion of a
timely audit.
The options shall be exercisable for a period of three (3) years from
and after the grant date, at the bid price as of March 31, 1999 or
2000, respectively. The shares represented by this option shall be
subject only to the one (1) year holding period (Rule 144 restriction).
5. MISCELLANEOUS. This Agreement shall remain in full force and effect so
long as ANET-NM remains in business. The parties may mutually agree to
terminate this Agreement at any time. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
Mexico. This Agreement may not be altered, changed, or amended except
by instrument in writing executed by the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first hereinabove set forth.
JBS, LLC "ANET"
a New Mexico Limited Liability Company
AUTO NETWORK USA, INC.
an Arizona corporation
/S/ JULES GOLLINS By: /S/ MARK MOLDENHAUER
Managing Member Secretary
"ANET-NM"
/S/ BRUCE BURTON AUTO NETWORK USA OF
Managing Member NEW MEXICO, INC.
a New Mexico corporation
/S/ STUART M. BAILEY By: /S/ JULES GOLLINS
Managing Member President
<PAGE>
CONSULTING AGREEMENT
THIS AGREEMENT is made and entered into as of April 20, 1999, by and
between AUTO NETWORK GROUP, INC., an Arizona corporation (the "Company") and
DENNIS E. HECKER (the "Consultant").
W I T N E S S E T H:
WHEREAS, on this date, the Company has acquired all of the outstanding
capital stock of Walden Remarketing Services, Inc., a Minnesota corporation
("Walden"), which was founded by Consultant and for which Consultant has been
the principal executive officer;
WHEREAS, Consultant has extensive knowledge of the business, employees and
customers of Walden Seller and will be invaluable in the transition of the
business of Walden to the Company and in maintaining the Company's good
relations with Walden's customers; and
WHEREAS, for their mutual benefit, the Company and Consultant desire to
set forth the terms and conditions of future consulting as provided herein,
NOW, THEREFORE, in consideration of these premises and the mutual
covenants and promises set forth herein, the parties hereby agree as follows:
1. CONSULTING SERVICES. During the three (3) years commencing on the date
hereof (the "Consulting Term"), the Company hereby retains Consultant to provide
consulting services under this Agreement and Consultant hereby agrees to provide
such consulting services and to comply with the other covenants, terms and
conditions of this Agreement. Consultant shall (a) use his reasonable efforts to
maintain the relationships of the customers of Walden with Walden and the
Company, and (b) consult with the Company concerning and provide such other
services in connection with the business of Walden as may be specified from time
to time by the Company's President or any Vice President. During such Consulting
Term, such consulting services requested of Consultant shall not unreasonably
interfere with the other activities of Consultant.
2. COMPENSATION. In consideration of the consulting services of Consultant
under paragraph 1 above, the Company grants Consultant an option to purchase
3,000,000 shares of the Company's common stock at $3.00 per share on the terms
of the non-qualified stock option agreement attached hereto as Exhibit A. The
Company agrees to cause the shares subject to said non-qualified stock option to
be registered on an appropriate registration statement and to maintain the
effectiveness of such registration statement so long as said non-qualified stock
option can be exercised..
3. MISCELLANEOUS.
(a) VALIDITY. Wherever possible, each provision of this Agreement
shall be interpreted so that it is valid under applicable law. In case any one
or more of the provisions of this Agreement is to any extent found to be
invalid, illegal or unenforceable in any respect under applicable law, that
provision shall still be effective to the extent it remains valid and the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be
17342/1
<PAGE>
affected or impaired thereby. If, moreover, any one or more of the restrictions
contained in this Agreement is for any reason held excessively broad, it shall
be construed or re-written (blue-lined) so as to be enforceable to the extent of
the greatest protection to the Company compatible with applicable law.
(b) APPLICABLE LAW. This Agreement is entered into in the State of
Minnesota and shall be construed, interpreted and enforced according to the
statutes, rules of law and court decisions of said State without regard to
conflict of laws principles.
(c) AMENDMENTS. This Agreement may be amended or superseded only by
an agreement in writing between the Company and Consultant.
(d) ATTORNEYS' FEES. If any action at law or in equity, including an
action for declaratory relief, is brought to enforce or interpret the provisions
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and all other costs and expenses of litigation from the other
party, which amounts may be set by the court in the trial of such action or may
be enforced in a separate action brought for that purpose, and which amounts
shall be in addition to any other relief which may be awarded.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties hereto and supersedes all prior understandings,
whether written or oral, between the parties with respect to the consulting
services of Consultant with the Company or Seller. This Agreement shall
supersede any and all previously existing employment, compensation, bonus,
severance or other terms relating to the employment of Consultant with the
Company or Seller.
(f) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and the successors and assign of the
Company and the estate of Consultant. In the event of the death of Consultant,
the Company shall pay any remaining payments under paragraph 2 to Consultant's
estate when the same are due to be paid to Consultant.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
AUTO NETWORK GROUP, INC.
By /S/MARK MOLDENHAUER
Mark Moldenhauer, Vice President
/S/DENNIS E. HECKER
Dennis E. Hecker
17342/1 2
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT made and entered into as of April 20, 1999, by and between
AUTO NETWORK GROUP, INC., an Arizona corporation (the "Company"), and DENNIS E.
HECKER, a Minnesota resident (the "Optionee");
W I T N E S S E T H:
WHEREAS, the Optionee has consented to serving as a consultant to the;
and
WHEREAS, the Company desires to afford the Optionee an opportunity to
purchase shares of its common stock, no par value, (the "Common Stock"),
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee the right
and option (hereinafter called the "Option") to purchase all or any part of an
aggregate of three million (3,000,000) shares of Common Stock (the "Option
Shares") (such number being subject to adjustment as provided in Paragraph 4
hereof) on the terms and conditions herein set forth. The Option is a
non-qualified stock option under the Internal Revenue Code of 1986, as amended.
2. PURCHASE PRICE. Subject to the provisions of Paragraph 4 hereof, the
purchase price for the Option Shares shall be $3.00 per share, which has been
determined to be the fair market value of the Option Shares at the date of grant
of the Option.
3. TERM AND VESTING OF OPTION. The Option shall expire (the "Expiration
Date") on the close of business on the tenth anniversary of the date hereof.
Prior to the Expiration Date, the Optionee shall be entitled to exercise the
Option as to all or any part of the Option Shares which have theretofore become
vested. The Option Shares shall vest and become exercisable as follows: (1)
1,000,000 shares in the event the closing sales price of the Company's Common
Stock during any five (5) consecutive trading days closes at or above $5.00 per
share (adjusted for any stock dividends, stock splits or similar events after
the date hereof); (2) 1,000,000 shares in the event the closing sales price of
the Company's Common Stock during any five (5) consecutive trading days closes
at or above $7.00 per share (adjusted for any stock dividends, stock splits or
similar events after the date hereof); and (3) 1,000,000 shares in the event the
closing sales price of the Company's Common Stock during any five (5)
consecutive trading days closes at or above $10.00 per share (adjusted for any
stock dividends, stock splits or similar events after the date hereof);
provided, however, in the event of (i) the sale of all or substantially all of
the assets of the Company, or (ii) a merger, consolidation or other
reorganization of the Company in which the shareholders of the Company
immediately prior to such merger, consolidation or reorganization constitute
less than fifty-one percent (51%) of the voting power of the surviving
corporation, then all of the shares subject to the Option shall be vested and
exercisable in full upon the occurrence of such event.
4. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If all or any portion of
this Option shall be exercised subsequent to any share dividend,
recapitalization, merger, consolidation, exchange of shares or reorganization as
a result of which shares of any class shall be issued in
17342/1
<PAGE>
respect to outstanding Common Stock, or if Common Stock shall be changed into
the same or a different number of shares of the same or another class or
classes, the person so exercising this Option shall receive, for the aggregate
price paid upon such exercise, the aggregate number and class of shares to which
they would have been entitled if Common Stock (as authorized at the date hereof)
had been purchased at the date hereof for the same aggregate price (on the basis
of the price per share set forth in Paragraph 2 hereof) and had not been
disposed of. No fractional share shall be issued upon any such exercise and the
aggregate price paid shall be appropriately reduced on account of any fractional
share not issued.
5. METHOD EXERCISE. Subject to the terms and conditions of this Agreement,
the Option may be exercised by written notice to the Company at its principal
office and place of business. Such notice shall state the election to exercise
the Option and the number of Option Shares in respect of which it is being
exercised, and shall be signed by the person so exercising the Option. Such
notice shall be accompanied by the payment of the full purchase price of such
Option Shares and the delivery of such payment to the Treasurer of the Company.
The certificate for the Option Shares as to which the Option shall have been so
exercised shall be registered in the name of the person exercising the Option.
If the Optionee shall so request in the notice exercising the Option, the
certificate shall be registered in the name of the Optionee and another person
jointly with right of survivorship, and shall be delivered as provided above to
or upon the written order of the person exercising the Option. In the event the
Option shall be exercised by any person other than Optionee, such notice shall
be accompanied by appropriate proof of the right of such person to exercise the
Option.
6. RESERVATION OF SHARES. The Company shall, at all times during the term
of the Option, reserve and keep available such number of shares of its capital
stock as will be sufficient to satisfy the requirements of this Agreement, and
shall pay all original issue and transfer taxes with respect to the issue and
transfer of Option Shares pursuant hereto, and all other fees and expenses
necessarily incurred by the Company in connection therewith.
7. NO RIGHTS AS STOCKHOLDER. The holder of the Option shall not have any
of the rights of a stockholder with respect to the Option Shares covered by the
Option except to the extent that one or more certificates for shares shall be
delivered to him upon the due exercise of the Option.
8. REGISTRATION. The Company shall register the sale of the shares
issuable upon the exercise of this Option on an appropriate form of Registration
Statement with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and shall maintain the effectiveness of such registration
statement so long as the Option is outstanding.
9. MISCELLANEOUS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, successors, assigns and
representatives and shall be governed by the laws of the State of Minnesota.
Optionee may assign its rights under this Agreement.
17342/1 2
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
AUTO NETWORK GROUP, INC.
By /S/MARK MOLDENHAUER
Mark Moldenhauer, Vice President
/S/DENNIS E. HECKER
Dennis E. Hecker
The subsidiaries of AutoTradeCenter.com Inc., an Arizona corporation, are as
follows:
1. Auto Network Group of New Mexico, Inc., a New Mexico corporation
2. Pinnacle Dealer Services, Inc., an Arizona corporation
3. BusinessTradeCenter.com Inc., an Arizona corporation
4. Walden Remarketing Services, Inc., a Nevada corporation
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
AUTOTRADECENTER.COM INC.
We consent to incorporation by reference in the registration statement dated May
17,1999 on Form S-1 of AUTOTRADECENTER.COM INC. of our report dated August 6,
1998, relating to the balance sheet of AUTO NETWORK USA, INC., an Arizona
corporation as of March 31, 1998, and the related statements of income,
stockholders' equity, and cash flows for the period from inception (July 10,
1997) to March 31, 1998.
Sincerely,
/S/PRICE, KONG & COMPANY, P.A.
Price, Kong & Company, P.A.
Phoenix, Arizona
May 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS, AND THE NOTES THERETO, WHICH MAY BE FOUND
BEGINNING ON PAGE F-1 OF THE COMPANY'S FORM S-1 REGISTRATION STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS OTHER
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 JUL-10-1997
<PERIOD-END> DEC-31-1998 MAR-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 140,513 0
<SECURITIES> 0 0
<RECEIVABLES> 3,888,690 1,667,801
<ALLOWANCES> 0 0
<INVENTORY> 4,469,319 2,182,898
<CURRENT-ASSETS> 8,541,418 3,893,221
<PP&E> 128,156 57,225
<DEPRECIATION> 7,802 3,277
<TOTAL-ASSETS> 8,726,441 3,961,845
<CURRENT-LIABILITIES> 5,297,899 2,687,512
<BONDS> 2,148,259 531,000
0 0
759,920 382,251
<COMMON> 398,567 345,233
<OTHER-SE> 121,797 12,384
<TOTAL-LIABILITY-AND-EQUITY> 8,726,441 3,961,845
<SALES> 69,600,122 31,581,117
<TOTAL-REVENUES> 69,600,122 31,581,117
<CGS> 66,688,743 30,280,247
<TOTAL-COSTS> 66,668,743 30,280,247
<OTHER-EXPENSES> 2,494,544 1,183,120
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 278,413 114,404
<INCOME-PRETAX> 175,156 15,899
<INCOME-TAX> 65,743 3,515
<INCOME-CONTINUING> 109,413 12,384
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 109,413 12,384
<EPS-PRIMARY> 0.008 0.001
<EPS-DILUTED> 0.008 0.001
</TABLE>
