<PAGE>
As filed with the Securities and Exchange Commission on September 22, 1999
SEC Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IMAGENETIX, INC.
(Name of small business issuer in its charter)
COLORADO 2834 84-1352444
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Number) Identification No.)
incorporation or
organization)
11777 BERNARDO PLAZA CT., SUITE 206, SAN DIEGO, CA 92128;
(619) 674-8455 (Address and Telephone Number of Principal Executive Offices)
11777 BERNARDO PLAZA CT., SUITE 206, SAN DIEGO,
CA 92128 (Address of Principal Place of Business)
WILLIAM SPENCER, PRESIDENT, IMAGENETIX, INC.
11777 BERNARDO PLAZA CT., SUITE 206, SAN DIEGO, CA 92128; (619) 674-8455
(Name, Address and Telephone number of agent for service)
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Copies to:
Ronald N. Vance, Esq. Jon D. Sawyer, Esq.
57 West 200 South Krys Boyle Freedman & Sawyer, P.C.
Suite 310 600 17th Street, Suite 2700 South Tower
Salt Lake City, UT 84101 Denver, CO 80202-5427
(801) 359-9300 (303) 893-2300
(801) 359-9310 - FAX (303) 893-2882 - FAX
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit(1) Price(1) Fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock, $.001
par value 383,334 Shares(2) $3.00 $1,150,002 $320
Per Share
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Class A Warrants,
each entitling the
holder to purchase
one share of Common
Stock, issuable upon
exercise of the
Class A Warrants 300,000 $3.00(3) $900,000 $251
Common
Stock, $.001
par value, issuable
upon exercise of
the Class A
Warrants 300,000 Shares(4) --
Class B Warrants, each
entitling the holder
to purchase one share
of Common Stock, issuable
upon exercise of the
Class B Warrants 300,000 $3.05(3) $915,000 $255
Common
Stock, $.001
par value, issuable
upon exercise of
the Class B
Warrants 300,000 Shares(4) --
Underwriter's
Warrants (5) --
Common Stock
$.001 par
value (6) 33,333 Shares $3.60(3) $119,999 $34
----
TOTAL $860
----
----
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457 under the Securities Act of 1933.
(2) Includes 50,000 Shares subject to the Underwriter's over-allotment
option.
(3) Estimated based upon the price upon which the warrants may be
exercised.
(4) Includes, pursuant to Rule 416, an additional indeterminate number
of securities as may be issuable upon the exercise of the Warrants by reason of
the anti-dilution provisions contained herein.
(5) To be issued to the Underwriter.
(6) Issuable upon exercise of Underwriter's Warrants.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Disclosure alternative used (check one): Alternative 1 ____ Alternative 2
__X__
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Page 5
PROSPECTUS
SUBJECT COMPLETION, DATED SEPTEMBER 22, 1999
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.
IMAGENETIX, INC.
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
(619) 674-8455
333,334 Shares of Common Stock
$3.00 Per Share
This is our initial public offering, and no public market currently
exists for our shares. The offering price may not reflect the market price of
our shares after the offering. The underwriter may purchase up to an
additional 50,000 shares at the public offering price, less the underwriting
discount of 10%, within 35 days from the date of this prospectus to cover
over-allotments.
We are offering the shares for cash, except that certain persons to
whom we have issued notes in the aggregate principal amount of $300,000 may
convert the principal amount of, and accrued interest on, the notes into
shares offered in this offering at the rate of one share for each $3.00 of
principal owed. See "Use of Proceeds" beginning on page 10.
The Offering:
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public Price $3.00 $1,000,002
Underwriting Discounts $0.30 $100,000
Proceeds to Imagenetix $2.70 $900,002
</TABLE>
Concurrently with this offering, we are registering for resale
300,000 Class A and 300,000 Class B Warrants, and the shares underlying these
warrants, to be offered by selling security holders. We will not receive any
of the proceeds from the sale of the warrants or the shares underlying the
warrants, except for the exercise price which will be paid to us upon
exercise of the warrants. See "Concurrent Offering" beginning on page 24.
This Offering Is Highly Speculative and Involves Special Risks
Concerning the Company and its Business. See "Risk Factors" beginning on page 4.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
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SPENCER EDWARDS, INC.
________, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary
Where You Can Get More Information
Risk Factors
Forward Looking Statements
Use of Proceeds
Dilution
Plan of Operation
Business
Management
Certain Transactions
Concurrent Offering
Principal Shareholders
Description of Securities
Dividend Policy
Underwriting
Shares Eligible For Future Sale
Legal Matters
Experts
Financial Statements
</TABLE>
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. It is not complete and may not contain all of the
information that is important to you. To understand this offering fully, you
should read the entire prospectus carefully, including the risk factors and
financial statements.
IMAGENETIX
<TABLE>
<S> <C>
Offices: Imagenetix, Inc., 11777 Bernardo
Plaza Court, Suite 206, San Diego,
CA 92128; telephone (619) 674-8455.
Our Business: We are engaged in the development,
formulation and marketing of
nutritional supplements and skin
care products.
Our History: We were organized in January 1999
and commenced principal operations
in February 1999. In March 1999 our
wholly owned California subsidiary,
also Imagenetix, acquired a
controlling interest in the parent
company and took control of
management. Since then the parent
company has acted as a holding
company for the stock of the
subsidiary, and all operations have
been conducted through the
subsidiary.
Current Operations: We are currently generating revenue
and orders from a variety of
distribution channels. Our primary
method of generating revenue and
profits is in targeting and selling
to network marketing companies
unique nutraceuticals. We have
developed several unique products
and an array of value added
marketing services which we believe
are tailor made for the network
marketing channel of distribution.
Management and key personnel carry
over twenty-five (25) years of
experience in successfully
developing and selling nutritional
systems and programs in this channel
of distribution. We have been
successful in garnering several
internationally recognized clients.
We have also developed unique skin
care products which are also
positioned and best suited to be
marketed to
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network marketing companies. We are
also targeting mass market channels of
distribution, and have obtained
orders from companies who have
strong positions in this sector.
Additionally, we have generated
orders and sales with companies that
we believe have a significant
presence in the health food store
channel of distribution, such as
Nature's Way. Our strategy is to
initially provide proprietary and
exclusive products then expand
business with each client once
orders and sales have been captured
and the relationship established.
See "Business--Operations."
Proposed Operations: To augment our primary methods of
generating revenue and profits, we
plan to market select and
proprietary products through our
E-Commerce web site, which is
currently in development. The select
products are those which have been
clinically proven and are exclusive
to the Company. The strategy is to
build a loyal base of E-Commerce
customers under the Imagenetix brand
of speciality products that are not
competitive with our primary client
base.
THE OFFERING
Securities offered 333,334 shares
Shares outstanding at August 30, 1999 1,725,000 shares
Shares outstanding after the offering 2,058,334 shares
Offering price per share $3.00
Total public price $1,000,002
Underwriter's discount $100,000
Net proceeds $820,002
Estimated offering expenses $80,000 (including the Underwriter's
expense allowance)
Over-allotment Up to 50,000 shares. If the full
over-allotment is purchased by the
underwriter, the total public
offering price, underwriting
discount, and net proceeds will be
$1,150,002, $115,000, and $935,002,
respectively.
Warrants outstanding at September 22, 1999 300,000 Class A warrants
300,000 Class B warrants
<PAGE>
Page 10
Use of proceeds: We intend to use the offering
proceeds to expand our marketing and
to fill our backlog orders to
network marketing and direct selling
companies; to repay outstanding
debt; to fund the Internet sales
program; to enhance and expand the
Globestar system; and to provide
working capital for the business.
See "Use of Proceeds."
Risk Factors: Investing in our shares is very
risky, and you should be able to
bear a complete loss of your
investment. See "Risk Factors."
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following financial information reflects the operations of
Imagenetix for the period from January 7, 1999, to June 30, 1999. This
summary financial information has been derived from the consolidated
financial statements of Imagenetix and subsidiary which appear later in this
prospectus. This data should be read in conjunction with those consolidated
financial statements and related notes.
<TABLE>
<CAPTION>
For the Period
For the Three From January 7,
Months Ended 1999 to March
June 30, 1999 31, 1999
------------- ------------------
<S> <C> <C>
Consolidated Statement of Operations Data:
Net sales $ 105,462 $ 84,986
Gross profit 59,974 16,390
Operating loss (43,124) (20,096)
Net loss (46,737) (20,151)
Loss per share (.03) (.01)
Shares used in per share computations 1,799,176 1,800,000
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 26,374 $ 141,154
Working capital (23,800) 35,342
Total assets 439,305 150,434
Total stockholders' equity (deficit) (3,779) 42,791
</TABLE>
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WHERE YOU CAN GET MORE INFORMATION
At your request, we will provide you, without charge, a copy of any
exhibits to our registration statement incorporated by reference in this
prospectus. If you want more information, write or call us at:
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
Telephone: (619) 674-8455
FAX: (619) 674-8460
Our fiscal year ends on March 31st. We intend to furnish our
shareholders annual reports containing audited financial statements and other
appropriate reports. In addition, we intend to become a reporting company and
file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference room in Washington
D.C. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings
are also available to the public on the SEC Internet site at
http\\www.sec.gov.
RISK FACTORS
Investing in Imagenetix' shares is very risky. You should be able to
bear a complete loss of your investment. You should carefully consider the
following factors, among others:
<TABLE>
<S> <C>
We have had losses of Imagenetix' operating subsidiary was organized
$66,888 since in January 1999 and commenced principal
commencing operations operations in February 1999. Since commencing
in February 1999. operations, and through June 30, 1999, it
generated $190,448 in net sales and incurred
losses of $66,888, or $0.04 per share. Our
ability to operate profitably depends on
increasing our sales and distribution outlets,
achieving sufficient gross profit margins, and
a continuing demand for the nutritional
supplements and skin care products offered.
Imagenetix is also subject to business risks
associated with new business enterprises. We
cannot assure you that the company will operate
profitably. See "Financial Statements."
We are relying upon a As of June 30, 1999, we had taken orders from
limited number of four clients. Since then we have increased our
clients and non-payment client base to a total of twelve clients. Our
or late success depends upon expanding the number of
clients and retaining our present limited
client base. With such a
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payment by them would few number of customers, if any one of them
make it difficult to meet were late in payment to us, or failed to pay
our own financial for the products, it is likely that our
obligations. company's growth would be substantially delayed
or that we would be unable to continue
operations since we would be unable to continue
to purchase raw materials or pay manufacturers.
There are also a number of factors which would
inhibit the company's ability to expand its
client base, including acceptance of our
limited line of products. Also, we do not
anticipate ever having a large number of
products in our non-E-Commerce business
activities. See "Business."
Our E-Commerce site is not We are currently generating revenue and orders
fully operational. from multiple channels of distribution. To
achieve higher margins and awareness of our own
company brand, we are planning to implement an
E-Commerce site to launch our speciality
branded products. We have not fully implemented
our E- Commerce site, but anticipate being able
to do so with the funds from this offering. We
plan to drive potential customers to our site
through articles written on the products, one
of which is a nutritional product to assist in
the area of men's sexual health called ViGro.
This product is currently undergoing clinical
testing. There is, however, no assurance that
the results of the clinical studies will be
positive or satisfactory enough to warrant
active marketing of the product. See
"Business."
We rely exclusively on outside All of our products are manufactured by outside
manufacturers for our products. manufacturers with whom we have contracts. Our
profit margins and our ability to deliver our
existing products on a timely basis are
dependent upon the ability of the outside
manufacturers to continue to quickly supply
products as ordered by us. Our ability to grow
is dependent upon these manufacturers to
reformulate existing and additional future
products. The failure of any manufacturer to
supply products as required by us could have a
material adverse effect upon our business,
results of operations, and financial condition.
Also, if we lose any of the present
manufacturers, we would be forced to locate new
manufacturers and establish operating
relationships with them. While we believe there
are other manufacturers available, the loss of
an existing manufacturer would cause delays in
delivery and could effect our ability to fill
orders. See "Business."
We currently have We currently obtain ingredients for our
only one source for Cetyl products from suppliers with whom we have an
existing business relationship and binding
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Myristoleate which is used in contracts. We believe we have dependable
approximately 60% of our alternative sources for all of our product's
products. ingredients, except Cetyl Myristoleate which is
used in four existing formulas. The Cetyl
Myristoleate ingredient is a blend which we co-
developed with the supplier. We expect to rely
upon this ingredient to expand our client base
and increase the number of formulas. We have a
binding purchase agreement to acquire an amount
which management believes represents a dominant
position of the currently supply of Cetyl
Myristoleate. These products presently
constitute approximately 60% of our total
backlog. We believe that in the event adequate
supplies of this ingredient become unavailable
through our current source, this would have a
material adverse effect on our business since
we would be unable to provide these products.
See "Business."
We do not carry our own We require our suppliers and manufacturers to
liability insurance. add us as additional insured parties on their
product liability insurance policies.
Nevertheless, this coverage may not be adequate
to protect us from potential product liability
claims. Such claims, and the legal defense of
such claims, would have a material drain on the
revenues of the company and would have a
detrimental effect on our continued operations.
See "Business."
We are dependent on the Our business is largely dependent on our
continued services of our ability to hire and retain quality personnel,
president, but we do not especially William P. Spencer. We have no
have any employment contract written employment or non-competition
with him. agreements with our officers and directors. Any
officer or director may terminate his position
with no prior notice. We do have a written
Alliance Agreement with Dr. Charles Cochran.
The loss of Messrs. Spencer or Cochran could
have an adverse effect on our business and
prospects. See "Management."
We do not have any key-man We do not maintain any key-man insurance on any
insurance on our officers of our officers or directors.
or directors.
Mr. Spencer will continue to Upon completion of this offering, not giving
control Imagenetix after the effect to the issuance of any over-allotment
offering. shares or shares issuable pursuant to the
warrants, William and Debra Spencer will
continue to own 48.58% of the outstanding stock
of the company. Thus, they will likely continue
to be able to control the company and to elect
all of the directors. See "Principal
Shareholders."
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The names of our A portion of our proposed business involves
products could be very supplying exclusive Company labeled products on
important to our success. an E-Commerce basis. The brand names used for
Although we have applied for such company labeled products could eventually
trade marks on these be important, and we intend to apply for
products, no trade marks federal trademark and trade name protection
have been issued. when appropriate, relying primarily on
trademark law to protect brand names. The
Globestar and ViGro trademarks have been
applied for and registration has been mailed to
the Patent and Trademark Office. We cannot
assure you that any pending trademark
application will result in a registered
trademark, or that any trademark granted will
be effective in thwarting competition or be
held valid if subsequently challenged. Our
failure to obtain trademark protection, or
illegal use by others of any trademarks we may
obtain, may have an adverse effect on our
business, financial condition and operating
results. In addition, the laws of certain
foreign countries do not protect proprietary
rights to the same extent as the laws of the
United States or Canada. See "Business."
Our products are highly Our industry is regulated by a number of
regulated, especially by government agencies, both in the United States
the FDA. and in foreign countries, including the Food
and Drug Administration, the Federal Trade
Commission, the Consumer Product Safety
Commission, the Department of Agriculture, the
Department of Customs, the Patent and Trademark
Office, and the Environmental Protection
Agency. In particular the FDA regulates the
ingredients, manufacture, packaging, storage,
labeling, promotion, distribution and sale of
our products. We believe we are in compliance
with these regulations, but we have no
assurance from any agency of such compliance.
See "Business."
If our shares are not quoted If our shares are not quoted on the OTC
on the Bulletin Board, you Bulletin Board, as anticipated, trading, if
may have difficulty any, would likely be conducted on the so-called
selling your shares and the "pink sheets." Consequently, selling Imagenetix
selling price may be reduced. shares might be more difficult because smaller
quantities of shares might be bought and sold,
transactions could be delayed, and availability
of quotations would be more limited. These
factors could result in lower prices and larger
spreads in the bid and asked prices for our
shares.
Our shares will initially Initially our shares will be subject to Rule
be classified as "penny 15g-9 under the Exchange Act. That rule imposes
additional sales practice
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Page 15
stocks" which may make it requirements on broker-dealers that sell
more difficult to sell your low-priced securities designated as "penny
shares. stocks" to persons other than established
customers and institutional accredited
investors. The SEC's regulations define a
"penny stock" to be any equity security that
has a market price less than $5.00 per share or
with an exercise price of less than $5.00 per
share, subject to certain exceptions. Initially
our stock will be penny stock. We cannot assure
you that our shares will ever qualify for
exemption from these restrictions. For
transactions covered by this rule, a
broker-dealer must make a special suitability
determination for the purchaser and have
received the purchaser's written consent to the
transaction prior to sale. Consequently, the
rule may affect the ability of broker-dealers
to sell our shares and may affect the ability
of holders to sell Imagenetix shares in the
secondary market.
Your stock will be diluted Purchasers of shares will experience immediate
86.67% from the offering and substantial dilution of $2.60 in net
price. tangible book value per share, or approximately
86.67% of the offering price of $3.00 per
share. In contrast, existing shareholders paid
an average price of $.036 per share. See
"Dilution."
We may be using up to We will use up to $300,000 (approximately 30%)
$300,000 of the offering of offering proceeds (or will issue 100,000 of
proceeds to repay the shares of this offering) to repay the
outstanding debts. principal amount and interest of promissory
notes issued in bridge financing, rather than
to expand the business of Imagenetix. See "Use
of Proceeds."
Future sales of our Sales of common stock (including common stock
restricted shares under issued upon the exercise of outstanding
Rule 144 may depress the warrants) in the public market after this
market value of our stock. offering could materially adversely affect the
market price of the common stock. These sales
also might make it more difficult for us to
sell equity securities or equity-related
securities in the future at a time and price
that we deem acceptable, or at all. As of
August 30, 1999, 1,725,000 shares of our common
stock were issued and outstanding, all of which
are "restricted securities" and under certain
circumstances may, in the future, be sold in
compliance with Rule 144 adopted under the
Securities Act. In general, under Rule 144,
subject to the satisfaction of certain other
conditions, a person, including an affiliate of
ours, who
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beneficially owned restricted shares of our
common stock at least one year is entitled to
sell, within any three month period, a number
of shares that does not exceed one percent of
the total number of outstanding shares of the
same class. A person who presently is not an
affiliate of ours, and who has not been an
affiliate of ours for at least three months
immediately preceding the sale, and who has
beneficially owned the shares of common stock
for at least two years, is entitled to sell the
shares under Rule 144 without regard to the
volume limitations described above.
Approximately 500,000 shares of common stock
are eligible for sale in the public market
without restriction upon reliance upon Rule
144(k) under the Securities Act. Of the
remaining 1,255,000 restricted shares
outstanding, 1,010,000 are beneficially owned
by our officers and directors, and as a result
future resales will be subject to the volume
limitations of Rule 144. Of these shares,
1,000,000 are available for resale under Rule
144 in March 2000 and 10,000 are eligible in
June 2000. Of the remaining 245,000 outstanding
shares, 141,500 will be eligible for resale
within ninety days from the date of this
prospectus and 103,500 will be eligible for
resale under Rule 144 in June 2000. All
1,255,000 shares are subject to an
underwriter's lock-up agreement which prevents
sales of the shares for twenty-four months from
the date of this prospectus without the
underwriter's approval. In addition, we
currently have issued and outstanding warrants
to purchase an aggregate of 600,000 shares of
common stock, which warrants are not
exercisable until ninety days after the date of
this Prospectus. No prediction can be made as
to the effect, if any, that sales of the
outstanding shares of common stock, or the
availability of these warrant shares, will have
on the market prices prevailing from time to
time. Nevertheless, the possibility that
substantial amounts of common stock may be sold
in the public market may adversely affect
prevailing market prices for the common stock
and could impair our ability to raise capital
in the future through the sale of equity
securities. Actual sales or the prospect of
future sales of shares of common stock under
Rule 144 may have a depressive effect upon the
price of, and market for, the common stock. See
"Shares Eligible For Future Sale."
</TABLE>
FORWARD LOOKING STATEMENTS
This prospectus contains statements that plan for or anticipate the
future. Forward-looking statements include statements about the future of
personal care and nutritional products,
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Page 17
statements about our future business plans and strategies, and most other
statements that are not historical in nature. In this prospectus
forward-looking statements are generally identified by the words
"anticipate," "plan," "believe," "expect," "estimate," and the like. Although
we believe that any forward-looking statements we make in this prospectus are
reasonable, because forward-looking statements involve future risks and
uncertainties, there are factors that could cause actual results to differ
materially from those expressed or implied. For example, a few of the
uncertainties that could affect the accuracy of forward-looking statements,
besides the specific factors identified in the Risk Factors section of this
prospectus, include the following:
- changes in general economic and business conditions affecting
the personal care and nutrition industry;
- changes in our business strategies; and
- market acceptance of the products in the United States and
foreign markets.
In light of the significant uncertainties inherent in the
forward-looking statements made in this prospectus, particularly in view of
our early stage of operations, the inclusion of this information should not
be regarded as a representation by us or any other person that our objectives
and plans will be achieved.
The Private Securities Litigation Reform Act of 1995, which provides
a "safe harbor" for similar statements by existing public companies, does not
apply to our offerings.
USE OF PROCEEDS
The following table sets forth the use of proceeds and our present
estimate of the allocation of net proceeds of this offering. Our actual
receipts and expenditures may vary from these estimates. Pending use of the
funds, we will invest the net proceeds in investment-grade, short-term,
interest bearing securities.
<TABLE>
<CAPTION>
Offering
Proceeds Percentage
-------- ----------
<S> <C> <C>
Gross Proceeds $1,000,002
Underwriting discounts 100,000 10%
Underwriter's expense allowance 30,000 3%
Other offering expenses 50,000 5%
----------
NET OFFERING PROCEEDS $820,002
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Use of Net Proceeds
Repayment of debt(1) $306,000 30.6%
Working capital(2) 314,002 31.4%
Development and marketing of E-Commerce web site 120,000 12%
Expansion of Globestar System 80,000 8%
---------
TOTAL $820,002
----------
----------
</TABLE>
(1)Within the last year we borrowed $300,000 from certain shareholders
and issued one-year promissory notes with interest at the rate of 10% per annum.
(See "Certain Transactions.") The note holders have the option of converting the
principal amount of, and accrued interest on, such notes into the shares in this
offering at the rate of one share for each $3.00 of principal owed. Accrued
interest on such notes as of the date of this prospectus is approximately
$6,000. We used the proceeds of the loans to purchase raw materials and to pay
product manufacturing costs. Also, if the notes are converted, we will not be
obligated to pay any discount, or Underwriter's expense allowance, on the shares
issued in such conversion. This will mean an additional $39,000 in proceeds to
us which we will apply to our working capital needs. See "Underwriting."
(2)We will use these funds to purchase raw materials to produce our
products and to finance receivables from our customers. See "Business."
DILUTION
Since our inception, and of the total shares outstanding, we have
issued a total of 1,725,000 shares to existing shareholders, at an average price
of $.036 per share. The following table summarizes, as of June 30, 1999, the
relative investments of all existing shareholders and the new investors, after
giving pro forma effect to the sale of the shares in this offering (excluding
the over-allotment shares):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders 1,725,000 83.81% $62,942 5.92% $0.036
New investors 333,334 16.19% $1,000,002 94.08% $3.00
--------- ------ ---------- -----
Total 2,058,334 100% $1,062,944 100%
--------- ------ ---------- -----
</TABLE>
Our financial statements at June 30, 1999, show a net tangible book
value of ($4,794) or ($0.0023) per share. Net tangible book value per share
represents the amount of our tangible assets (total assets less intangible
assets), less total liabilities, divided by the number of shares of common
stock outstanding. Without taking into account any further adjustments in net
tangible book value after June 30, 1999, other than to give effect to the
sale of the 333,334 shares offered hereby (after deduction of underwriting
discount and other offering expenses) the pro forma net tangible book value
of the Company at June 30, 1999, would have been $815,205 or approximately
$0.40 per share of common stock, representing an increase in net tangible
book
<PAGE>
Page 19
value of approximately $0.40 to existing shareholders and a dilution of
approximately $2.60 per share to new investors.
PLAN OF OPERATIONS
General
We commenced our principal activities in January 1999. From the date
of commencement until March 1999, we developed our business plan, located our
principal facilities, developed our initial products, and secured sources for
our products. In accordance with the terms of a funding agreement, we
borrowed $100,000 in March 1999 for operating expenses and another $200,000
in September 1999 for additional operating expenses. We borrowed these funds
from certain of our shareholders. In addition, Mr. and Mrs. Spencer, our
President and Secretary, have loaned a total of $265,000 to us since our
inception to pay for the startup costs and expenses of commencing and
continuing operations. These loans are evidenced by one-year promissory
notes. (See "Certain Transactions.") We intend to allocate $300,000 of the
proceeds of this offering to the repayment of the principal amount of the
debt to these shareholders. No proceeds of this offering will be used to
repay the amounts owed to the President.
At August 23, 1999, we had a backlog of orders in the amount of
$1,026,776. We intend to use approximately $350,000 of the offering proceeds
to acquire the raw materials and pay for the production costs to satisfy a
portion of the backlog orders. The balance of the funds from the offering
will be used to expand the Globestar System and to develop and market our
E-Commerce site. We believe that the equity funding received through this
offering will satisfy our cash requirements for twelve months or longer
without the need to raise additional funds.
Year 2000 Issue
We do not believe that the Year 2000 Issue will have a significant
impact on our business. The "Year 2000 Issue" involves the potential for
system and processing failures of date-related data resulting from
computer-controlled systems using two digits rather than four to define the
applicable year. For example, computer programs that contain time-sensitive
software may recognize a date using two digits of "00" as the year 1900
rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar ordinary business activities.
We believe that our internal software and hardware systems will
function properly with respect to dates in the Year 2000 and thereafter,
especially since our web site and related activities have occurred in 1999
and are sensitive to the Year 2000 Issue. In particular, our computer
manufacturer has disclosed that our system has successfully completed testing
by the National Software Laboratories and is Year 2000 compliant. Any failure
due to the Year 2000 problem is also covered by the manufacturer's warrant.
<PAGE>
Page 20
In addition to reviewing our own internal Year 2000 readiness, we
have contacted our suppliers, manufacturers, and principal clients. We have
also either contacted directly, or reviewed disclosures prepared by, our
utility and telecommunications companies and other companies which provide
key services or equipment to our business. Of our suppliers, manufacturers,
and principal clients, we asked whether or not they had made an assessment of
their readiness for the Year 2000 problem, and if so, whether they believed
the Year 2000 problem would have a material effect on their business, results
of operations, or financial condition. We also asked them to describe any
material issues regarding the Year 2000 problem which might affect, either
directly or indirectly, their ability to continue to conduct business with us
after December 31, 1999, in the same manner as prior to January 1, 2000. Of
those suppliers, manufacturers, or clients which did respond, only one had
not made a Year 2000 readiness assessment; the others, including our supplier
of Cetyl Myristoleate, believed they were Year 2000 compliant. As a
contingency plan, we believe that if for any reason the particular
manufacturer who had not yet completed its readiness assessment is not Year
2000 compliant by December 31, 1999, alternative manufacturers would be
available. Of the utility and telecommunications companies, and others who
provide key equipment or services to us, each has disclosed that it either is
presently Year 2000 compliant or will be before December 31, 1999.
BUSINESS
General
Imagenetix, Inc. was incorporated in the State of Colorado on July
26, 1996, under the name "Internet International Business Management, Inc."
We changed our name to "Imagenetix, Inc." on April 27, 1999.
From our inception in 1996 until March 1999, we had no significant
business operations. In March 1999 we entered into a reverse acquisition
agreement with Imagenetix, a California corporation, incorporated in January
1999 and organized for the purpose of providing nutritional supplement and
skin care products for specific health applications. Mr. and Mrs. Spencer,
current officers and directors of the Colorado corporation, were the only
shareholders of the California corporation at the time of the reorganization.
The agreement provided that we would acquire all of the outstanding stock of
the California corporation and that Mr. and Mrs. Spencer would receive
1,300,000 shares of common stock representing approximately 72% of our
outstanding stock. In connection with the transaction, existing management of
the Colorado company agreed to resign and to appoint the present directors.
In addition, certain shareholders of the Colorado company entered into a
funding agreement to provide $100,000 to the Company at the closing of the
transaction and $200,000 at the time of filing this registration statement.
(See "Plan of Operations" and "Certain Transactions.") The closing of the
transaction was held on March 26, 1999, and all of the foregoing terms were
implemented. The California corporation is now a wholly owned subsidiary of
the Colorado corporation and conducts all of our business. Unless otherwise
indicated in this section, all references to our business refers to the
business operations of the California corporation.
<PAGE>
Page 21
In June 1999 we adopted a 1999 Stock Bonus Plan which authorizes the
Board of Directors to issue up to 211,500 shares to our officers, directors,
employees and consultants. The Plan is intended to aid us in maintaining and
developing a management team, attracting qualified directors, officers, and
employees capable of assisting in our future success, and rewarding those
individuals who have contributed to the success of the Company. In June 1999
we issued 166,500 shares under the Plan to our directors, employees, and
consultants. In order to avoid further dilution of the outstanding shares,
Mr. and Mrs. Spencer canceled 241,500 of the shares received in the
reorganization between the Colorado and the California corporations. This
allowed us to use 211,500 shares for the Stock Bonus Plan and to reserve
30,000 shares for future issuance to Mr. Cochran when he becomes an employee.
See "Management."
Industry Overview
The dietary supplement industry is highly diversified and intensely
competitive. It includes companies that manufacture, distribute, and sell
products that are generally intended to supplement the daily diet with
nutrients that may enhance the body's performance and well being. Dietary
supplements include vitamins, minerals, herbs, botanicals, amino acids, and
compounds derived therefrom. Specific statutory provisions governing the
dietary supplements industry were codified in the Dietary Supplement Health
and Education Act of 1994 ("DSHEA"). DSHEA provides new statutory protections
for dietary supplements. It codifies and strengthens legal protection for
statements of nutritional support that apprise consumers of the effect
dietary supplements have upon the structure or functions of the body.
Dietary supplements are sold primarily through (i) mass market
retailers, including mass merchandisers, drug stores, supermarkets and
discount stores, (ii) health food stores, (iii) mail order companies, and
(iv) direct sales organizations. Our primary marketing thrust is targeted at
direct selling, of which network marketing is a significant segment.
Operations
Our management and key personnel carry over twenty-five (25) years
of experience in developing nutritional systems and marketing programs for
the network marketing channel of distribution. The management team has been
responsible for generating sales from a number of the world's largest direct
selling and network marketing companies. Currently, we have generated sales
and orders from multiple network marketing companies, one of which is Nikken,
a global network marketing company.
Our strategy also includes targeting large companies who sell
primarily through mass market retailers. Two notable companies who specialize
in mass market retailing, from which we have generated purchase orders or
sales, are Natrol and Pharmavite. Additionally, we have built relationships
with companies that sell primarily through health food stores. One such
company is Nature's Way. We have generated significant sales to this company
as well as others in this channel of distribution.
<PAGE>
Page 22
We offer a variety of specialized nutraceutical formulations and
compounds along with proprietary skin care products which are designed to be
sold to network marketing companies. Since commencing operations in February,
we have generated approximately twelve customers for which we prepare
nutritional supplements to be sold by the customer under its own label. Once
initial funding from this offering has taken place, we intend to embark on a
more aggressive marketing campaign of capturing orders, diversifying the
client base, and expanding sales.
Through March 31, 1999, our primary focus was to establish
suppliers, manufacturing agreements, and develop business systems. During
this period we were able to successfully implement our business system by
generating and collecting on sales of approximately $80,000. Since such
quarter end, we have added ten additional clients. Three of these customers
represent in excess of 10% of our total orders and sales to date. The loss of
any of these customers could have a material detrimental effect on our
business. Also, the failure of any of these customers to pay for the products
in a timely manner, could have a negative impact on us since we do not have
significant financial reserves to supplement such a loss. See "Risk Factors."
Products
We currently offer a variety of custom nutraceutical formulas to our
clients as well as competitively priced products, the formulas for which were
designed by the client. In addition, we currently have developed compounds
and formulas which are proprietary to us and are described below.
- Cetyl Myristoleate - We use this compound to produce a number
of dietary supplement formulations for our clients. Ongoing
research may determine the extent of its effects on the body,
including the role it may play in providing support for the
normal functioning of muscles and joints. We can produce a
wide range of formulas using this compound and then market
these formulas through multiple distribution channels.
Currently we have sold formulas using this compound to
channels of distribution which include network marketing and
health food retail stores. Once a formula using this compound
has been developed for a client, the client then markets the
product under its own brand. Using multiple processes to
produce this compound, we are able to offer formulas to our
clients in three forms of delivery: soft gel, hard-shell
capsule, and tablet. Each process employed, from producing the
compound to manufacturing the product, has been co-developed
and co-engineered by our staff in collaboration with the
supplier and manufacturer. We believe Cetyl Myristoleate will
continue to be our principal compound in the foreseeable
future, particularly if clinical research provides a clearer
indication of the role the compound plays in the area of joint
health. We intend to expand the number of clients who use this
compound in formulas and to develop a unique formula for each
specific client.
<PAGE>
Page 23
- Liver Cleanse - This product is a dietary supplement which has
been demonstrated in a medical double-blind placebo study to
assist the human body in improving the functions of the liver.
This product is proprietary to us and was developed by Dr.
Charles Cochran, one of our directors. We currently have
received orders for this product from two network marketing
companies.
- ViGro - This product is a dietary supplement designed to
assist the human body in the area of men's sexual health.
Compounds in this formula have been found to increase blood
testosterone levels, increase formation and development of
sperm and their mobility, decrease blood lipids, and increase
serum nitric oxide levels (vasodilator which relaxes smooth
muscle and increases blood supply to penile tissues). We
developed this product for the purpose of selling it through
our E-Commerce site. We intend to conduct a medically
supervised study to determine the efficacy of this formula. We
intend to sell our ViGro product under our own brand
exclusively on an E-Commerce basis. We do not intend to market
ViGro until clinical evidence demonstrates the effectiveness
of the formula. We have contacted a physician who has
expressed interest in conducting clinical trials, but no firm
agreement has been reached. We cannot predict how long the
clinical trials will take.
We also have developed proprietary skin care products for the face,
which we believe contain unique ingredients designed to be beneficial to the
skin. The skin care products were designed and developed to be sold to network
marketing companies seeking unique skin and beauty care products. The products
consist of exfoliants, moisturizers, and masks. Full product development has
been completed and we are just beginning to market the products to targeted
network marketing companies which would offer such products under their own
private labels.
Raw Materials and Manufacturing
We develop, formulate and design nutritional and skin care systems,
but do not manufacture any of our own products. We currently purchase
ingredients from suppliers that we consider to be the superior suppliers of
such ingredients. We currently have a single source supplier of Cetyl
Myristoleate and an agreement is in place to protect our right to purchase
sufficient quantities of this material to meet our estimated needs through at
least April 2000. Products using Cetyl Myristoleate represent approximately
60% of our total backlog to date. With the exception of Cetyl Myristoleate,
we believe that, in the event we are unable to obtain any ingredients from
our current suppliers, we could obtain substitute ingredients without great
difficulty or prohibitive increases in the cost of goods sold. However, there
can be no assurance that the loss of such a supplier would not have a
material adverse effect on our business and results of operations. See "Risk
Factors."
We rely on a number of manufacturers to produce our personal care and
nutritional products. We have written confidentiality and client exclusivity
agreements with those key
<PAGE>
Page 24
manufacturers. However, we believe that in the event our relationship with
any of our key manufacturers is terminated, we would be able to find suitable
replacement manufacturers. However, there can be no assurance that the loss
of a manufacturer would not have a material adverse effect on our business
and results of operations. See "Risk Factors."
Marketing
Although we have conducted marketing of our products and custom
formulations to a limited number of clients, we have been able to generate
sales and orders from clients which sell through multiple channels of
distribution to large numbers of potential users. Using part of the funds
from this offering, we plan to more aggressively implement the following
three-phase marketing strategy:
The first phase is to continue to offer our proprietary products to
the limited number of existing clients and seek new customers, primarily
those engaged in the network marketing and mass marketing of nutraceutical
products. We would assist such clients in designing nutritional and skin care
systems using our formulations. We would also prepare and design marketing
materials, assist the client in locating spokespersons to help market the
product, and provide an array of other value added services to assist each
client in enhancing and expanding its business.
The second phase of the marketing program would be to offer
additional products to those network and mass marketing companies. The
additional products would include items which they would be currently
offering, but which would be presently furnished through another supplier or
manufacturer. We believe we could furnish these additional products at
competitive prices coupled with providing added services to assist the client
in marketing their nutraceutical and skin care products.
The third phase would be to establish our E-Commerce channel of
distribution. Initially we would offer our ViGro product only through our
own Internet site. Upon successfully implementing our E-Commerce business
with our offering of ViGro, we could add other products to expand this form
of product distribution. We anticipate that potential customers would be
driven to our web site, in part, through articles written on our products in
various publications. According to the research firm, Cyber Dialogue, Inc.,
approximately 40% of American adults online used the Internet to obtain
health information and treatments in 1998.
We anticipate being able to more actively and fully implement and
expand the first two phases of the marketing plan as soon as this offering is
completed. We also intend to commence implementation of the E-Commerce
strategy in part with the funds from this offering and open such site within
three months following completion of this offering.
<PAGE>
Page 25
Globestar
We propose to implement a computer system known as "Globestar" which
will be a proprietary, interactive, multimedia, global inter-linking
computerized system which we could use in marketing to all of our clients. We
have designed and engineered the system. A primary function of the system
will be to instantaneously monitor and update the real-time status of all of
our products and client orders, from inception, to development, and to
delivery.
A preassigned access code will enable clients and manufacturers to
enter into select regions of the Globestar system. This will allow clients
and manufacturers to have real time information on product progress through
an automatically updated sales order system. Through the extensive use of
multi-media and intra-linking programs, Globestar is being designed to
provide for clients hard to find or breakthrough ingredients in the
nutraceutical and skin care industry. In addition to providing clients with
real-time product order updates, Globestar also will provide them the story
behind the development of particular products or compounds that assist in the
marketing of the product. Certain features of the system are in the
development stage and we anticipate that implementation of the initial part
of Globestar could take place by November 1999.
When fully functional, Globestar will also permit authorized
manufacturers and scientists around the world to inflow product information
directly into the Globestar system. This will enable the others to evaluate
and determine the market potential of any product or compound. Globestar will
also permit authorized clients to input requests for new products or
compounds to be reviewed by us. Additional features of Globestar will be
designed to include: (i) access to the lowest raw material pricing through
linkage of direct suppliers and manufacturers; (ii) world-wide online access
for our key clients; (iii) product delivery schedule; and, (iv) assistance in
the registration of products destined for international markets.
Competition
The nutraceutical or skin care products industry is large and
intensely competitive. We compete directly with companies that manufacture
and market nutritional products in each of our product lines, including
companies such as Twin Labs Corporation, Weider Nutrition International,
Inc., IVC Industries, and Perrigo Company. Most of our competitors in the
nutritional supplements market have longer operating histories, greater name
recognition and financial resources than do we. In addition, nutritional
supplements can be purchased in a wide variety of distribution channels.
While we believe that consumers appreciate the convenience of ordering
products from home through the Internet or a sales person, the buying habits
of many consumers accustomed to purchasing products through traditional
retail channels are difficult to change. Our offerings in each product
category are also relatively small compared to the wide variety of products
offered by many other nutritional product companies.
<PAGE>
Page 26
Government Regulation
In both the United States and foreign markets, we are or will be
subject to and affected by extensive laws, governmental regulations, and
similar constraints at the federal, state and local levels. For example, we
will be subject, directly or indirectly, to regulations pertaining to the
following:
- dietary ingredients;
- the manufacturing, packaging, labeling, promotion,
distribution, importation, sale and storage of our products;
- product claims, labeling, and advertising (including direct
claims and advertising by us as well as claims in labeling and
advertising by associates, for which we may be held
responsible);
- transfer pricing and similar regulations that affect the level
of foreign taxable income and customs duties; and
- taxation, which in some instances may impose an obligation on
us to collect the taxes and maintain appropriate records.
The dietary ingredients, manufacturing, packaging, storing,
labeling, advertising, promotion, distribution and sale of our products are
subject to regulation by one or more governmental agencies, including the
Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"),
the Consumer Product Safety Commission, the Department of Agriculture, the
Department of Customs, the Patent and Trademark Office, and the Environmental
Protection Agency. Our activities are, or may be, also regulated by various
agencies of the states, localities and foreign countries in which our
products are manufactured, distributed, and/or sold. The FDA, in particular,
regulates the ingredients, manufacture, packaging, storage, labeling,
promotion, distribution and sale of foods, dietary supplements and OTC drugs,
such as those we distribute. We and our suppliers are required by FDA
regulations to meet relevant current good manufacturing practice ("GMP")
guidelines for the preparation, packing and storage of foods and drugs. The
FDA has published an Advance Notice of Proposed Rule Making, 62 Fed. Reg.
5700 (Feb. 6, 1997) for the establishment of GMPs for dietary supplements,
but it has not yet issued a proposal rule. FDA conducts unannounced
inspections of companies that manufacture, distribute and sell dietary
supplements, issues warning letters for rule violations found during such
inspections and refers matters to the U.S. Attorneys and Justice Department
for prosecution under the Federal Food, Drug, and Cosmetic Act ("FFDCA").
There can be no assurance that FDA will not question our labeling or other
operations in the future.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA")
revised the provisions of the FFDCA governing dietary ingredients and
labeling of dietary supplements. The
<PAGE>
Page 27
legislation creates a new statutory class of "dietary supplements." This new
class includes vitamins, minerals, herbs, botanicals, other dietary
substances to supplement the daily diet, and concentrates, metabolites,
constituents, extracts, and combinations thereof. The legislation requires no
federal premarket approval for the sale of dietary ingredients that were on
the market before October 15, 1994. Dietary ingredients first marketed on or
after October 15, 1994, may not be distributed or marketed in interstate
commerce unless, (i) the manufacturer has proof that the dietary ingredient
has been present in the food supply as an article used for food in a form in
which the food has not been chemically altered, or (ii) the manufacturer
supplies FDA with proof to the agency's satisfaction of the dietary
ingredient's safety. Manufacturers and distributors of dietary supplements
may include statements of nutritional support, including structure and
function claims, on labels, in labeling, and in advertising if (a) the claims
are corroborated by "competent and reliable scientific evidence" consistent
with FTC standards for advertising review; (b) the claims for labels and
labeling are filed in a certified notice with the FDA no later than 30 days
after first market use of the claims; (c) the manufacturer retains
substantiation that the claims are truthful and nonmisleading; (d) each claim
on labels and in labeling is cross-referenced by an asterisk to a mandatory
FDA disclaimer.
The majority of the products marketed, or proposed to be marketed,
by us are classified as dietary supplements under the FFDCA. In September
1997, the FDA issued regulations governing the labeling and marketing of
dietary supplement products. The regulations cover: (i) the identification of
dietary supplements and their nutrition and ingredient labeling; (ii) the
terminology to be used for nutrient content claims, health claims, and
statements of nutritional support, including structure and function claims;
(iii) labeling requirements for dietary supplements for which "high potency"
and "antioxidant" claims are made; (iv) notification procedures for
statements of nutritional support, including structure and function claims,
on dietary supplement labels and in their labeling; and (v) premarket
notification procedures for new dietary ingredients in dietary supplements.
The notification procedures became effective in October 1997, while the new
labeling requirements did not become effective until March 23, 1999.
Dietary supplements are subject to the FFDCA as amended by the
Nutrition, Labeling and Education Act ("NLEA") and DSHEA and are subject to
the regulations of the FDA. Those laws regulate, among other things, health
claims, ingredient labeling, and nutrition content claims characterizing the
level of nutrient in the product. NLEA prohibits the use of any health claim
for dietary supplements, unless the health claim is supported by significant
scientific agreement and is pre-approved by the FDA. In PEARSON V. SHALALA,
64 F3d 650 (D.C. Cir 1999), the United States Court of Appeals for the D.C.
Circuit ruled that the FDA must authorize health claims presented to the
agency in health claims petitions unless they are inherently misleading and
must rely on disclaimers to eliminate any potentially misleading connotation
conveyed by a claim. The court held that even claims not found supported by
significant scientific agreement must be allowed if disclaimers can correct
misleading connotations. The court ruled that the FDA violated the
Administrative Procedure Act by not defining its significant scientific
agreement standard of
<PAGE>
Page 28
review and ordered the FDA to define the standard in a way that would enable
regulatees to perceive the principles which guide agency action.
In foreign markets, prior to commencing operations and prior to
making or permitting sales of our products in the market, we may be required
to obtain an approval, license or certification from the country's ministry
of health or comparable agency. Prior to entering a new market in which a
formal approval, license or certificate is required, we may be required to
work with local authorities in order to obtain the requisite approvals,
license or certification. The approval process generally would require us to
present each product and product ingredient to appropriate regulators and, in
some instances, arrange for testing of products by local technicians for
ingredient analysis. Such approvals may be conditioned on reformulation of
our products or may be unavailable with respect to certain products or
certain ingredients. We must also comply with product labeling and packaging
regulations that vary from country to country.
The FTC, which exercises jurisdiction over the marketing practices
and advertising of all products similar to those we offer, has in the past
several years instituted enforcement actions against several dietary
supplement companies for deceptive marketing and advertising practices. These
enforcement actions have frequently resulted in consent orders and
agreements. In certain instances, these actions have resulted in the
imposition of monetary redress requirements. Importantly, the FTC requires
that "competent and reliable scientific evidence" corroborate each claim of
health benefit made in advertising before the advertising is first made. A
failure to have that evidence on hand at the time an advertisement is first
made violates the Federal Trade Commission Act. While we have not been the
subject to FTC enforcement action for the advertising of its products, there
can be no assurance that the FTC will not question our advertising or other
operations in the future. See "Risk Factors."
We believe we are in compliance with all material government
regulations which apply to our products. However, we are unable to predict
the nature of any future laws, regulations, interpretations or applications,
nor can we predict what effect additional governmental regulations or
administrative orders, when and if promulgated, would have on our business in
the future. Such future changes could, however, require the reformulation or
elimination of certain products; imposition of additional record keeping and
documentation requirements; imposition of new federal reporting and
application requirements; modified methods of importing, manufacturing,
storing, or distributing certain products; and expanded or different labeling
and substantiation requirements for certain products and ingredients. Any or
all of such requirements could have a material adverse effect on our
business, results of operations and financial condition.
Trademarks
We have applied for trademarks for the names "Globestar" and
"ViGro." The application for the "Globestar" trademark was filed in May of
1999, and the application for the "ViGro" trademark was filed in June of
1999. Management anticipates receiving approval of such trademarks within six
months from filing.
<PAGE>
Page 29
Employees
At August 23, 1999, we had four full-time employees, one of whom is
also an executive officer of the Company.
MANAGEMENT
General
The following table sets forth the current officers, directors, and
significant employees of Imagenetix:
<TABLE>
<CAPTION>
Director
Name Age Position(s) Since
<S> <C> <C> <C>
William P. Spencer 47 Director, President, & CEO 1999
Debra L. Spencer 47 Director, Secretary, & Treasurer 1999
Dr. Charles L. Cochran 51 Director 1999
Dr. Peter H. Antoniou 39 Director 1999
Patrick S. Millsap 46 -- --
</TABLE>
Set forth below is the business experience and biographical
information on each of the officers, directors, and significant employees of
Imagenetix:
WILLIAM P. SPENCER has served as the president of Imagenetix since
March 1999 and has served as a director and president of the Subsidiary since
January 1999. From January 1986 until December 1996, he served as chief
operating officer, chief financial officer, and executive vice-president of
Natural Alternatives International, Inc., a company engaged in the
formulation and production of encapsulated vitamins and nutrients. He served
as president of such entity from December 1996 until October 1998, and as a
director from January 1986 until October 1998. Mr. Spencer received a
Bachelor of Science in Finance in 1974, and a Masters in Business
Administration, also in the area of Finance, in 1979 from San Diego State
University.
DEBRA L. SPENCER has served as Secretary and Treasurer of Imagenetix
since March of 1999. Her responsibilities with Imagenetix also include
graphics layout and development of marketing material for the Company's
private label products. From 1994 to February 1999 she was a homemaker. From
1987 to 1993 she served as Vice President, Secretary and Treasurer for a
consumer mail order vitamin company, Vitamin Direct, Inc. She was responsible
for developing marketing material, generating leads as well as maintaining a
high consumer satisfaction ratio for their over 25,000 customers.
DR. CHARLES L. COCHRAN was the owner/operator of a chiropractic clinic
from 1984 until 1996. Since 1970 he has worked as a health care and nutritional
consultant. Dr. Cochran
<PAGE>
Page 30
received his Doctorate of Chiropractic in 1984 from Palmer College of
Chiropractic, Davenport, Iowa.
DR. PETER H. ANTONIOU founded Pomegranate International in 1986 as
an international consulting firm specializing in educational programs, trade
matching activities, and consulting assistance. Since 1994 he has been an
adjunct professor at the Graduate College of Business for U.S. International
University, San Diego, CA; from 1993 to the present he has been an adjunct
professor at the Executive MBA and the Undergraduate College of Business at
CSU San Marcos; and from 1991 to the present he has been an adjunct professor
at the School of Business Administration at Mount St. Mary's College, Los
Angeles, CA. Dr. Antoniou received his Bachelor of Science degree in 1981 in
Business Administration, and his Masters in International Business
Administration in 1982, from the International University Europe, London,
England. He received his Doctorate in Business Administration in 1986 from
the U.S. International University.
PATRICK S. MILLSAP, has been the vice-president of marketing for the
Subsidiary since May 1999. From April 1991 until May 1999 he was employed by
Natural Alternatives International, Inc. as a senior account manager. Mr.
Millsap graduated in 1990 from San Diego State University with a bachelor's
degree in history. He received a certificate of international business from
the University of San Diego in 1996, and is currently studying international
trade and finance at the University of California, San Diego.
Each of our directors is elected to hold office for one year and
until his or her successor is elected and duly qualified. Each of our
officers is appointed to hold office until the first meeting of the Board of
Directors immediately following the annual meeting of shareholders. William
P. Spencer and Debra L. Spencer are husband and wife.
Executive Compensation
Neither Imagenetix nor its subsidiary has a written employment
contract with any of its officers. We pay Mr. Spencer an annual salary of
$100,000 and provide health care insurance for him and his wife. Dr. Cochran
receives royalty payments from us pursuant to an Alliance Agreement. (See
"Certain Transactions.") It is anticipated that Dr. Cochran will become a
full-time employee upon completion of this offering and that he will receive
an annual salary of $100,000.
As consideration for accepting positions as directors, Dr. Cochran
and Dr. Antoniou each received 5,000 shares of Common stock under our 1999
Stock Bonus Plan.
Indemnification of Directors, Officers, and Others
Article 109 of the Colorado Business Corporation Act expressly
authorizes a Colorado corporation to indemnify its directors, officers,
employees, fiduciaries, and agents against claims
<PAGE>
Page 31
or liabilities arising out of such persons' conduct in such capacities if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the Company. In general, these
provisions provide for indemnification in instances when such persons acted
in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the Company. A corporation may also purchase
and maintain liability insurance on behalf of such persons.
Article VIII of our Bylaws provides for the indemnification of the
Company's officers, directors, and employees. We do not maintain any
liability insurance on behalf of any director, officer, or other person
affiliated with us.
Insofar as indemnification by us for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to our
officers and directors pursuant to the foregoing provisions, or otherwise, we
are aware 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.
CERTAIN TRANSACTIONS
During 1999 the following persons loaned us $300,000 pursuant to the
terms of a Funding Agreement entered into in connection with the reverse
acquisition of the Colorado company by the California corporation in March
1999:
<TABLE>
<CAPTION>
Name Amount Loaned
---- -------------
<S> <C>
Claudia A. McAdam $50,000
Great Expectations Family Limited Partnership $50,000
David N. Nemelka $50,000
1st Zamora Corp. $75,000
Greg Puesy $26,250
Barry C. Loder $11,250
Gulfstream 1998 Irrevocable Trust $37,500
</TABLE>
These persons were issued convertible promissory notes which are
convertible into common stock at the rate of one share for each $3.00 of
debt. The shares offered by us under this offering may be used in such
conversion. (See "Use of Proceeds.") The notes bear interest at the rate of
10% per annum. Principal and interest on the notes are due at the time of
release of funds from this offering or one year from the date of each note,
whichever shall first occur. Each of these persons was also granted warrants
at the rate of one A Warrant and one B Warrant for each $1.00 loaned to us.
(See "Description of Securities.") Prior to the date of this offering, Great
Expectations Family Limited Partnership transferred $25,000 of the promissory
note, and the accompanying A and B warrants, issued to it to David N. Nemelka.
<PAGE>
Page 32
Claudia A. McAdam is the spouse of Gary J. McAdam, the founder of
the Colorado corporation. Mr. McAdam is also the general partner of Great
Expectations Family Limited Partnership. 1st Zamora Corp. is a Colorado
corporation controlled by Laura Lee Madsen. Gulfstream 1998 Irrevocable Trust
is a trust created by Henry Fong for his children.
Mr. and Mrs. Spencer, officers, directors, and principal
shareholders of the our company, have loaned $265,000 to us for operating
expenses. This loan is evidenced by promissory notes dated May 25, 1999, for
$100,000, July 20, 1999, for $90,000, and July 28, 1999, for $75,000. The
promissory notes provide for interest at the rate of 10% per annum. The notes
are due and payable not later than May 25, 2000, and July 20, 2000,
respectively. Repayment of the loans will not be made from the selling
proceeds of this offering, but will be made from our profits, if any, or from
the exercise of our outstanding warrants.
Dr. Cochran, one of our directors, has entered into an Alliance
Agreement dated June 16, 1999, with us. This ten-year agreement grants to us
the right to market the products developed by Dr. Cochran, including those
products using Cetyl Myristoleate and ViGro. We have agreed to pay Dr.
Cochran a royalty of 10% of the actual payments received by us from all such
products sold by us. This agreement would terminate upon Dr. Cochran becoming
a full-time employee for us and Dr. Cochran would then transfer all of his
interest in such products to us for 30,000 shares of our common stock. Dr.
Cochran has agreed to become a full-time employee upon completion of this
offering. See "Management."
CONCURRENT OFFERING
The registration statement of which this prospectus forms a part
also includes a prospectus with respect to an offering by certain selling
security holders of 300,000 Class A and 300,000 Class B Warrants, and the
shares of common stock underlying such warrants, which warrants were issued
in connection with funds loaned to us by certain of the selling security
holders. These shares may be sold in the open market, in privately negotiated
transactions, or otherwise directly by the holders thereof. See "Description
of Securities" and "Certain Transactions."
We will not receive any proceeds from the sale of any of the selling
security holders' securities, except in connection with the exercise of the
warrants. (See "Description of Securities.") Sales of such stock or the
potential of such sales may have an adverse effect on the market price of the
shares of common stock offered hereby. See "Risk Factors."
PRINCIPAL SHAREHOLDERS
Voting Securities
The following table sets forth certain information furnished by the
following persons concerning the common stock ownership as of August 30, 1999,
of (i) each person who is known
<PAGE>
Page 33
to us to be the beneficial owner of more than five percent of the common
stock; (ii) all directors and executive officers; and (iii) our directors and
executive officers as a group:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Percent of Class
of Beneficial Owner Ownership(1) ----------------
- ------------------- ------------ Before Offering After Offering(2)
--------------- -----------------
<S> <C> <C> <C>
Management:
William & Debra Spencer 1,000,000(3) 57.97% 48.58%
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
Dr. Charles L. Cochran 5,000 *
226 Lake Court
Aptos, CA 95003
Dr. Peter H. Antoniou 5,000 *
2166 Lemon Ave.
Escondido, CA 92029
Officers and Directors
as a Group (4 Persons) 1,010,000 58.55% 49.07%
Others:
Gary J. McAdam 187,500(4) 10.71% 9%
14 Red Tail Drive
Highlands, CO 80126
1st Zamora Corp. 137,500(5) 7.86% 6.6%
9025 Oakwood Pl.
West Jordan, UT 84088
David N. Nemelka(6) 137,500(6) 7.86% 6.6%
55 West 200 North
Provo, UT 84601
</TABLE>
- ---------------
*Represents less than 1%.
<PAGE>
Page 34
(1)Unless otherwise indicated, this column reflects amounts as to which
the beneficial owner has sole voting power and sole investment power.
(2)Does not include shares to be issued, if any, pursuant to the
Underwriter's over-allotment option.
(3)William and Debra Spencer are husband and wife and are therefore
deemed to share beneficial ownership of these shares.
(4)All of these shares are held indirectly by Mr. McAdam. Of these
shares 162,500 are held directly by GM/CM Family Partnership, Ltd., a family
limited partnership controlled by Mr. McAdam. Claudia A. McAdam, the wife of Mr.
McAdam holds a promissory note from us convertible into approximately 16, 667
shares of common stock and Great Expectations Family LP, a family limited
partnership controlled by Mr. McAdam, also holds a promissory note from us
convertible into approximately 8,333 shares of common stock (see "Use of
Proceeds.") Mr. McAdam is deemed to share beneficial ownership of the foregoing
shares by reason of his relationship to the direct owners of the shares. See
"Certain Transactions."
(5)Of the shares listed, 112,500 are currently outstanding and held in
the name of 1st Zamora Corp. and 25,000 represent the approximate number of
shares which could be issued if the corporation converts its note in the amount
of $75,000. (See "Certain Transactions.") 1st Zamora Corp. is a Colorado
corporation controlled by Laura Lee Madsen, who is deemed to share beneficial
ownership of these shares with the corporation.
(6)Mr. Nemelka is holding these shares for the benefit of his family
limited partnership, Boulder Family Partnership Ltd. Of the shares listed,
112,500 are currently outstanding and held in the name of Mr. Nemelka and 25,000
represent the approximate number of shares which could be issued if he converts
his notes in the aggregate amount of $75,000. (See "Certain Transactions.")
DESCRIPTION OF SECURITIES
Equity Securities
We have two classes of stock, namely common stock, par value $.001
and preferred stock, par value $001. There are 50,000,000 shares of common
stock authorized, of which 1,725,000 shares are outstanding. The holders of
the common stock have equal ratable rights to dividends from funds legally
available therefor, when, as, and if declared by the Board of Directors and
are entitled to share ratably in all of our assets available for distribution
to holders of common stock upon our liquidation, dissolution, or winding up.
Holders of the common stock are entitled to one vote per share on all matters
on which shareholders may vote at all meetings of shareholders. There are no
conversion rights, subscription rights, preemptive rights, cumulative voting
rights, or redemptive rights with respect to the common stock. There are no
sinking fund provisions relating to the common stock. The presently issued
and outstanding shares of common stock are, and upon sale and issuance as set
forth in this prospectus, the shares will be, validly issued, fully paid, and
non-assessable.
<PAGE>
Page 35
We have authorized 5,000,000 shares of preferred stock, none of
which shares is outstanding. Neither the Articles of Incorporation nor the
Board of Directors has determined the preferences, limitations, and relative
rights of the preferred stock. The issuance of any preferred stock may have
the effect of delaying, deferring, or preventing a change in control without
further action by the shareholders and may adversely affect the voting and
other rights of the holders of the common stock. At present we have no plans
to issue any shares of preferred stock.
Warrants
We have issued two classes of warrants, namely the A Warrants and
the B Warrants. The rights and terms of each class of warrants are the same,
except for the exercise price. The exercise price of the A Warrants is $3.00
per share, and the exercise price of the B Warrants is $3.05 per share,
subject to adjustment under certain circumstances. We have outstanding
300,000 A Warrants and 300,000 B Warrants, each warrant entitling the holder
to purchase one share of common stock at the exercise price at any time
commencing ninety days from the date of this prospectus and ending five years
from the date of this prospectus.
If a federal registration statement which includes the warrants, and
the underlying shares, does not remain effective during the period in which
the warrants may be exercised, then the holder may convert the warrant, in
whole or in part, into the number of shares determined by dividing (a) the
aggregate fair market value of the shares of the common stock issuable upon
exercise of the warrant minus the aggregate warrant price of such shares by
(b) the fair market value of one share.
We cannot call or redeem the warrants.
The warrants do not confer upon the holder any voting or preemptive
rights, or any other rights of a stockholder.
The warrant exercise price and the number and kind of shares of
common stock to be obtained upon exercise of the warrants are subject to
adjustment only in the event of a stock split of, dividend on, or a
subdivision, combination , or recapitalization of the common stock or the
sale of substantially all of our assets, or a merger or consolidation into
another corporation or other business entity where we are not the surviving
corporation.
The warrants may be exercised upon surrender of the warrant
certificate on or prior to the expiration date at our offices, with the form
of "Subscription Form" furnished with the warrant certificate filled out and
executed as indicated, accompanied by payment of the full exercise price for
the number of warrants being exercised.
<PAGE>
Page 36
Transfer Agent
The Transfer Agent for the shares of common stock is Interwest
Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah
84117; telephone number (801) 272-9294. Initially we will act as our own
agent for the transfer and exercise of the warrants.
DIVIDEND POLICY
We have not declared or paid any cash dividends as yet on the common
stock and the Board of Directors has not yet decided on a dividend policy.
Whether dividends will be paid will be determined by the Board of Directors and
will necessarily depend on our earnings, financial condition, capital
requirements and other factors. The Board of Directors has no current plans to
declare any dividends in the foreseeable future.
UNDERWRITING
We have agreed to sell to the Underwriting Group, for which Spencer
Edwards, Inc. is acting as the representative, and the underwriting group has
agreed to purchase from us, 333,334 shares of our common stock. The underwriting
group is obligated to purchase all of the shares, if any of the shares are
purchased.
Discounts and Costs
We will sell the shares to the underwriting group for $2.70 per
share and the underwriting group will offer the shares directly to the public
at $3.00 per share. The Underwriter may also offer the shares to certain
securities dealers who may reoffer the shares on the same terms and
conditions of the offering set forth in this prospectus. The members of the
underwriting group may allow such discounts and concessions upon sales to
selected dealers as may be determined from time to time by Spencer Edwards.
If all of the shares are sold, we have also agreed to reimburse
Spencer Edwards on a nonaccountable basis for the Underwriter's expenses in
the amount of 3% of the gross proceeds of the shares, including the proceeds
from the over-allotment shares. We paid $10,000 to Spencer Edwards toward
such expenses when we entered into our letter of intent with them and an
additional $10,000 when we filed this registration statement.
Over-allotment Option
The Underwriter has an option to purchase up to 50,000 additional
shares at the public offering price to cover over-allotments. The Underwriter
can exercise this option for a period of 30 days after the date of this
prospectus. If the Underwriter exercises this option, it will have a firm
commitment, subject to some conditions, to purchase the 50,000 shares.
<PAGE>
Page 37
Underwriter's Warrants
At the closing of the underwriting, we have agreed to sell to the
Underwriter for $100 warrants to purchase 33,333 shares at $3.60 per share.
These warrants cannot be transferred by the Underwriter for one year after
the date of this prospectus. They will be exercisable at any time after one
year from the date of this prospectus until six years from the date of the
prospectus. The warrants will contain anti-dilution provisions, a cashless
exercise provision, and piggyback registration rights.
Future Financings
We have agreed with Spencer Edwards on a non-exclusive basis that if
they arrange for equity, debt, or other financing for us over the next five
years, we will pay a commission to them ranging from 10% for equity
financings to 5% or less for debt financings, increase in lines of credit,
sales of assets, mergers, acquisitions, or joint ventures.
Lock-up of Shares
The Underwriting Agreement provides that we will cause all of our
officers and directors and certain others to enter into an agreement not to
sell, pledge, hypothecate, transfer, or otherwise dispose of any shares of
common stock owned by them for a period of 24 months from the date of this
prospectus without the prior written consent of the Underwriter. The shares
subject to the lock-up consist of the 1,010,000 owned by management, 215,000
shares issued to employees, consultants, and others, 45,000 shares reserved
for future issuance under our Stock Bonus Plan and 30,000 shares reserved for
issuance to Dr. Cochran.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our
common stock. We cannot predict the effect, if any, that future market sales
of our shares, or the availability of such shares for sale, will have on the
prevailing market price of the common stock following this offering.
Nevertheless, sales of substantial amounts of our stock in the open market
following this offering could adversely affect the prevailing market price of
the stock.
Upon completion of this offering, and assuming no exercise of
outstanding warrants to purchase shares of the common stock, we will have
2,088,334 outstanding shares. Of those, only the 333,334 shares being offered
in this offering, will, subject to any applicable state law restrictions on
secondary trading, be freely tradeable without restriction under the
Securities Act, except that any shares purchased by "affiliates" (as that
term is defined in Rule 144 under the Securities Act) will be subject to the
resale limitations of Rule 144.
The remaining 1,725,000 shares are "restricted" within the meaning
of Rule 144 under the Securities Act. Of this number, 500,000 shares will be
eligible for immediate sale in the public
<PAGE>
Page 38
market without restriction under Rule 144(k). The remaining shares are
subject to a twenty-four month lock-up agreement with the underwriter.
In general, under Rule 144, as currently in effect, any 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, a number of shares that does not exceed the greater of (i) 1% of our
then outstanding shares (approximately 20,883 shares immediately after the
offering), or (ii) the average weekly trading volume of our stock during the
four calendar weeks immediately preceding the date on which notice of the
sale is filed with the Commission. Sales pursuant to Rule 144 are also
subject to certain requirements relating to manner of sale, notice and
availability of current public information about Imagenetix. A person who is
not deemed to have been an affiliate of Imagenetix at any time during the 90
days immediately preceding the sale and whose restricted shares have been
fully-paid for two years since the later of the date they were acquired from
us, or the date they were acquired from one of our affiliates, may sell these
restricted shares under Rule 144(k) without regard to the limitations and
requirements described above. Under Rule 701, shares privately issued under
certain compensatory stock-based plans, such as our Stock Bonus Plan, may be
resold under Rule 144 within ninety days from the date of this prospectus. Of
the current outstanding shares, 141,500 were issued prior to this offering
under Rule 701.
Prior to the offering, there has been no public market for our
stock. We cannot predict the effect, if any, that sales of shares under Rule
144 or the availability of shares for sale will have on the market price of
our stock prevailing from time to time after the offering. We are unable to
estimate the number of shares that may be sold in the public market under
Rule 144, because the amount will depend on the trading volume in, and market
price for, our stock and other factors. Nevertheless, sales of substantial
amounts of shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of our stock.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon
for Imagenetix by Ronald N. Vance, Attorney at Law, Salt Lake City, Utah. The
firm of Krys Boyle Freedman & Sawyer, P.C. has acted as counsel for the
Underwriter in this offering.
EXPERTS
Our financial statements for the year ended March 31, 1999, included
in this prospectus have been examined by Pritchett, Siler & Hardy, P.C.,
Certified Public Accountants. The financial statements examined by the
Certified Public Accountants have been included in reliance upon their audit
report.
<PAGE>
Page 39
FINANCIAL STATEMENTS
We have attached to this prospectus copies of our audited financial
statements as of March 31, 1999, consisting of a consolidated balance sheet
at March 31, 1999 and the related statements of operations, stockholders'
equity and cash flows from inception on January 7, 1999, through March 31,
1999. We have also included unaudited financial statements for June 30, 1999,
consisting of a balance sheet as of June 30, 1999, and the related statements
of operations, stockholders' equity, and cash flows for the three months
ended June 30, 1999, and from inception on January 7, 1999, through June 30,
1999.
<PAGE>
Page 40
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
Page 41
IMAGENETIX, INC. AND SUBSIDIARY
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
-- Independent Auditors' Report 1
-- Consolidated Balance Sheet, March 31, 1999 2
-- Consolidated Statement of Operations, from
inception on January 7, 1999 through
March 31, 1999 3
-- Consolidated Statement of Stockholders' Equity,
from inception on January 7, 1999 through
March 31, 1999 4
-- Consolidated Statement of Cash Flows, from
inception on January 7, 1999 through
March 31, 1999 5
-- Notes to Consolidated Financial Statements 6 - 12
</TABLE>
<PAGE>
Page 42
INDEPENDENT AUDITORS' REPORT
Board of Directors
IMAGENETIX, INC. AND SUBSIDIARY
San Diego, California
We have audited the accompanying consolidated balance sheet of Imagenetix,
Inc. and Subsidiary at March 31, 1999, and the related statements of
operations, stockholders' equity and cash flows from inception on January 7,
1999 through March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the consolidated financial position of
Imagenetix, Inc. and Subsidiary as of March 31, 1999, and the results of its
operations and its cash flows for the period from inception through March 31,
1999, in conformity with generally accepted accounting principles.
/s/ Pritchett, Siler & Hardy, P.C.
May 10, 1999
Salt Lake City, Utah
<PAGE>
Page 43
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31,
1999
-----------------
<S> <C>
CURRENT ASSETS:
Cash in bank $ 141,154
Inventory 1,831
-----------------
Total Current Assets 142,985
PROPERTY AND EQUIPMENT, net 6,594
OTHER ASSETS 855
-----------------
$ 150,434
-----------------
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,014
Accrued liabilities 4,629
Notes payable - related parties 100,000
-----------------
Total Current Liabilities 107,643
-----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
no shares issued and outstanding -
Common stock, $.001 par value,
50,000,000 shares authorized,
1,800,000 shares issued and
outstanding 1,800
Capital in excess of par value 61,142
Accumulated deficit (20,151)
-----------------
Total Stockholders' Equity 42,791
-----------------
$ 150,434
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE>
Page 44
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
on January 7,
1999 Through
March 31,
1999
-----------------
<S> <C>
NET SALES $ 84,986
COST OF GOODS SOLD 68,596
-----------------
GROSS PROFIT 16,390
-----------------
EXPENSES:
Selling expense 20,023
General and administrative 16,463
-----------------
Total Expenses 36,486
-----------------
LOSS FROM OPERATIONS (20,096)
OTHER INCOME (EXPENSE):
Interest expense - related party (55)
-----------------
LOSS BEFORE INCOME TAXES (20,151)
CURRENT TAX EXPENSE -
DEFERRED TAX EXPENSE -
-----------------
NET LOSS $ (20,151)
-----------------
-----------------
LOSS PER COMMON SHARE $ (.01)
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
Page 45
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON JANUARY 7, 1999
THROUGH MARCH 31, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in
------------------------ ------------------------ Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
---------- ---------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 7, 1999 - $ - - $ - $ - $ -
Issuance of 1,300,000 shares of
common stock for cash
January, 1999 at $.052,
net of $5,000 stock offering
costs - - 1,300,000 1,300 61,642 -
Effect of recapitalization of
subsidiary, March, 1999 - - 500,000 500 (500) -
Net loss for the period
ended March 31, 1999 - - - - - (20,151)
---------- ---------- ----------- --------- ----------- ------------
BALANCE, March 31, 1999 - $ - 1,800,000 $ 1,800 $ 61,142 $ (20,151)
---------- ---------- ----------- --------- ----------- ------------
---------- ---------- ----------- --------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
Page 46
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
From Inception
on January 7,
1999 Through
March 31,
1999
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (20,151)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation expense 138
Changes in assets and liabilities:
(Increase) in inventory (1,831)
(Increase) in other assets (855)
Increase in accounts payable 3,014
Increase in accrued liabilities 4,629
-----------------
Net Cash (Used) by Operating Activities (15,056)
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment (6,732)
-----------------
Net Cash (Used) by Investing Activities (6,732)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 67,942
Proceeds from notes payable - related party 100,000
Payments for stock offering costs (5,000)
-----------------
Net Cash Provided by Financing Activities 162,942
-----------------
NET INCREASE IN CASH 141,154
CASH AT BEGINNING OF PERIOD -
-----------------
CASH AT END OF PERIOD $ 141,154
-----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -
Income taxes $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
For the Period Ended March 31, 1999
During March, 1999 the Company effected a recapitalization wherein
Parent issued 1,300,000 shares of common stock to acquire all the
outstanding stock of Subsidiary. Parent had 500,000 shares of common
stock outstanding at the time of the recapitalization.
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
Page 47
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The accompanying consolidated financial statements represent
the accounts of Imagenetix, Inc. ["Parent"] organized under the laws of the
State of Colorado on July 26, 1996 (formerly Internet International
Business Management, Inc.) and Imagenetix ["Subsidiary"] organized under
the laws of the State of California on January 7, 1999, ["The Company"].
The Company is engaged in the business of setting up alliances between
various people and companies in order to market and distribute health care
products. For the past few months, the Company has been selecting
suppliers, finding customers, developing its own method of business
operations, and many other activities necessary to form a viable business.
On March 23, 1999, Parent completed an exchange agreement with Subsidiary
wherein Parent issued 1,300,000 shares of its common stock in exchange for
all of the outstanding common stock of the Subsidiary. The Acquisition was
accounted for as a recapitalization of the Subsidiary as the shareholders
of the Subsidiary controlled the combined Company after the acquisition.
There was no adjustment to the carrying values of the assets or liabilities
of the Parent or Subsidiary as a result of the recapitalization [SEE NOTE
6].
The Company has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
CONSOLIDATION - All significant intercompany transactions between the
Parent and Subsidiary have been eliminated in consolidations.
CASH AND CASH EQUIVALENTS - For purposes of the financial statements, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
ORGANIZATION COSTS - Costs of approximately $2,000 which were incurred to
organize the Company have been expensed.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized, upon being placed in
service. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is computed for financial statement purposes using
the straight-line method over the estimated useful lives of the assets.
INVENTORY - Inventory is carried at the lower of cost or market method of
valuation.
LOSS PER SHARE - The computation of loss per share is based on the weighted
average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards ["SFAS"] No.
128, "Earnings Per Share" [SEE NOTE 9].
6
<PAGE>
Page 48
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
ADVERTISING COSTS - Costs incurred in connection with advertising and
promotion of the Company's products are expensed as incurred. Such costs
amounted to approximately $13,000 for the period ended March 31, 1999.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimated by management.
RECENTLY ENACTED ACCOUNTING STANDARDS - SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", SFAS No. 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits", SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", and SFAS
No. 134, "Accounting for Mortgage-Backed Securities..." were recently
issued. SFAS No. 130, 131, 132, 133 and 134 have no current applicability
to the Company or their effect on the financial statements would not have
been significant.
NOTE 2 - INVENTORIES
Inventory is carried at the lower of cost or market value.
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Raw Materials 1,831
---------
1,831
---------
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of equipment, at cost, less accumulated
depreciation:
<TABLE>
<CAPTION>
March 31,
1999
-----------
<S> <C>
Office Equipment $ 6,732
Less accumulated depreciation (138)
-----------
$ 6,594
-----------
-----------
</TABLE>
Depreciation expense for the period ended March 31, 1999 was $138.
7
<PAGE>
Page 49
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - CONVERTIBLE NOTES PAYABLE - RELATED PARTY
At March 31, 1999 the Company had two convertible notes payable outstanding
in the amount of $50,000 each to individuals who are officers or
shareholders of the Company or to entities related to officers or
shareholders of the Company. The notes bear interest at 10% per annum. The
notes are due upon the receipt of proceeds from a proposed public stock
offering [SEE NOTE 11] or on March 29, 2000 whichever is earlier. As of
March 31, 1999, the Company has accrued $55 in interest expense on the
notes. The notes and any unpaid interest thereon are convertible into
common stock of the Company at $3.00 per share. The Company also issued
100,000 "A" warrants and 100,000 "B" warrants to the holders of the notes
payable [SEE NOTE 6]. The "A" warrants allow the holder to acquire one
share of common stock per warrant at $3 per share. The "B" warrants allow
the holder to acquire one share of common stock per warrant at $3.05 per
share. The Notes were issued as part of a funding agreement [SEE NOTE 10].
NOTE 5 - CONCENTRATION OF CREDIT RISK
For the period ended March 31, 1999, all the Company's sales were from one
significant customer. Further, the Company maintains all its cash balances
in one bank. At March 31, 1999 the Company had cash balances in excess of
federally insured amounts of approximately $41,000.
NOTE 6 - CAPITAL STOCK AND RECAPITALIZATION
EFFECT OF RECAPITALIZATION OF SUBSIDIARY - During January, 1999, in
connection with its organization, the Subsidiary issued 1,300,000 shares of
its previously authorized, but unissued common stock. Total proceeds from
the sale of stock amounted to $67,942 (or $.052 per share). During March,
1999, in connection with its Exchange Agreement with the Subsidiary, the
Parent issued 1,300,000 shares of its previously authorized, but unissued
common stock in exchange for previously issued Subsidiary stock. The
operations of Parent are included only from the date of recapitalization.
Accordingly, the previous operations and retained deficits of Parent prior
to the date of recapitalization have been eliminated. In connection with
the recapitalization, Parent effected a forward stock split on the basis of
100 shares issued for each 1 share previously outstanding. The former
shareholders of Parent retained 500,000 shares of common stock immediately
after the exchange of stock.
PREFERRED STOCK - The Company has authorized 5,000,000 shares of preferred
stock, $.001 par value, with such rights, preferences and designations and
to be issued in such series as determined by the Board of Directors. No
shares are issued and outstanding at March 31, 1999.
WARRANTS - The Company issued 100,000 "A" warrants and 100,000 "B" warrants
to the holders of convertible notes payable [SEE NOTE 4]. The "A" warrants
allow the holder to acquire one share of common stock per warrant at $3 per
share. The "B" warrants allow the holder to acquire one share of common
stock per warrant at $3.05 per share. The warrants are exercisable for a
period of five years from the filing of the proposed registration statement
or through December 31, 2005 if a registration statement is not filed by
December 31, 1999.
8
<PAGE>
Page 50
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CAPITAL STOCK AND RECAPITALIZATION [CONTINUED]
The financial statements of Parent prior to the recapitalization of the
Company have not been included because the Parent's operations have been
eliminated in the recapitalization. However the following information
summarizes the Stockholders' equity of the Parent prior to the
recapitalization of subsidiary:
IMAGENETIX, INC.
(Formerly Internet International Business Management, Inc.)
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 26, 1996 THROUGH MARCH 23, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
------------------------ ----------------------- Excess of Development
Shares Amount Shares Amount Par Value Stage
---------- --------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 26, 1996 - $ - - $ - $ - $ -
Issuance of 5,000 shares of
common stock for cash,
July, 1996 at $.01
per share - - 5,000 5 45 -
Net loss for the period
ended December 31, 1996 - - - - - (4)
---------- --------- ------------ ---------- ----------- ------------
BALANCE, December 31, 1996 - - 5,000 5 45 (4)
Net loss for the period
ended December 31, 1997 - - - - - (10)
---------- --------- ------------ ---------- ----------- ------------
BALANCE, December 31, 1997 - - 5,000 5 45 (14)
Net loss for the period
ended December 31, 1998 - - - - - (10)
---------- --------- ------------ ---------- ----------- ------------
BALANCE, December 31, 1998 - - 5,000 5 45 (24)
Capital contribution, March, 1999 - - - - 5,000 -
100 for 1 forward stock split
March, 1999 - - 495,000 495 (495) -
Net loss for the period
ended March 23, 1999 - - - - - (5,026)
---------- --------- ------------ ---------- ----------- ------------
BALANCE, March 23, 1999 - $ - 500,000 $ 500 $ 4,550 $ (5,050)
---------- --------- ------------ ---------- ----------- ------------
</TABLE>
9
<PAGE>
Page 51
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - OPERATING LEASE
The Subsidiary entered into a month to month operating lease for office
space beginning March 22, 1999. The monthly rent is $1,710 per month. Rent
expense for the period ended March 31, 1999 totaled $570. A security
deposit of $855 was recorded in other assets at March 31, 1999.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". SFAS
109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. At March 31, 1999, the Company
has available unused operating loss carryforwards of approximately $20,000,
which may be applied against future taxable income and which expire in
2019.
The amount of and ultimate realization of the benefits from the operating
loss carryforwards for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The net deferred tax asset is
approximately $6,800 as of March 31, 1999, with an offsetting valuation
allowance of the same amount.
NOTE 9 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the period presented:
<TABLE>
<CAPTION>
From Inception
on January 7,
1999 Through
March 31,
1999
----------------
<S> <C>
Loss from continuing operations available
to common shareholders (Numerator) $ (20,151)
----------------
Weighted average number of common
shares outstanding used in loss per
share during the period (Denominator) 1,800,000
----------------
</TABLE>
Dilutive earnings (loss) per share was not presented, as its effect is
anti-dilutive.
At March 31, 1999, the Company had warrants outstanding to purchase 200,000
shares of common stock at prices of $3.00 and $3.05 per share that were not
included in the computation of diluted loss per share because their effect
was anti-dilutive.
10
<PAGE>
Page 52
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - FUNDING AGREEMENT
In connection with the recapitalization of the Company [SEE NOTE 6], a
funding agreement was negotiated wherein the shareholders and officers of
Parent (prior to the recapitalization) would provide $300,000 of funding
for the combined company. The first $100,000 under this agreement was
received on March 29, 1999 [SEE NOTE 4]. The remaining $200,000 is expected
to be received prior to the commencement of sale of stock under the
proposed public offering [SEE NOTE 11]. The funding agreement also provided
for 300,000 "A" warrants and 300,000 "B" warrants to be issued. All
warrants issued are subject to "Piggy-Back" registration rights should the
Company file a registration statement.
NOTE 11 - SUBSEQUENT EVENTS
CAPITAL LEASE - Subsequent to the period ended March 31, 1999, the Company
entered into a capital lease to purchase computer equipment for
approximately $10,330. The lease calls for monthly payments of $369 and
expires in April 2002.
PROPOSED PUBLIC OFFERING OF COMMON STOCK - The Company plans to file a
registration statement with the United States Securities and Exchange
Commission on Form SB-1 under the Securities Act of 1933. The Company
proposes to sell 333,334 common shares at a price of $3 per share, which
price has been arbitrarily determined by the Company. The shares will be
offered and sold by an underwriter, who will receive 10% of the offering
price of each share sold. The underwriter will also receive a 3%
non-accountable allowance for offering expenses. Other direct offering
expenses are expected to approximate $50,000. Underwriter warrants and
sales over-allotments are also provided for in the proposed offering. The
Company has not incurred any stock offering costs as of March 31, 1999, but
any such costs will be netted against the proceeds of the proposed public
offering. In accordance with the terms of a funding agreement [SEE NOTE
10], the Company will also register the shares of common stock related to
300,000 Class "A" and 300,000 Class "B" warrants. The Class "A" warrants
allow the holder to purchase shares of common stock at $3 per share. The
Class "B" warrants allow the holder to purchase shares of common stock at
$3.05 per share.
RELATED PARTY LOANS - During May, 1999 and July, 1999, officers,
shareholders or individuals related to them loaned the Company $100,000 and
$165,000, respectively. The loans provide for interest at 10% per annum and
are due one year from the date each respective loan was made.
CONVERTIBLE NOTES PAYABLE - As of March 31, 1999, the Company had not yet
received $200,000 of loan proceeds expected under the terms of the funding
agreement [See Note 10]. However, the Company expects to receive these
proceeds prior to the sale of common stock in the proposed public stock
offering.
STOCK BONUS PLAN - Subsequent to March 31, 1999, the Board of Directors of
the Company adopted a stock bonus plan. The plan provides for the granting
of awards of up to 211,500 shares of common stock to officers, directors,
consultants and employees. Awards under the plan will be granted as
determined by the board of directors. At present, 166,500 shares have been
granted under the plan. An officer and majority shareholder has agreed to
return and cancel 241,500 shares of common stock so that the common shares
issued through the stock bonus plan will not further dilute the public
shareholders of the company.
11
<PAGE>
Page 53
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SUBSEQUENT EVENTS - CONTINUED
ALLIANCE AGREEMENT - Subsequent to March 31, 1999, the Company entered into
an Alliance Agreement with an individual who has developed nutritional and
skin care products and innovations. The Company will pay the developer a
10% commission based on sales of the developer's products or innovations.
The developer has been appointed as a member of the board of directors of
the Company. The agreement provides for a ten year term but the agreement
will terminate when the developer becomes a full time employee of the
Company. The Company anticipates entering into an employment agreement with
the developer upon successful completion of its proposed public stock
offering.
12
<PAGE>
Page 54
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30,
1999
-----------------
<S> <C>
CURRENT ASSETS:
Cash in bank $ 26,374
Accounts receivable 34,962
Inventory 312,601
Prepaid assets 30,000
-----------------
Total Current Assets 403,937
-----------------
PROPERTY AND EQUIPMENT, net 33,498
-----------------
OTHER ASSETS:
Refundable deposits 855
Trademark, net 1,015
-----------------
Total Other Assets 1,870
-----------------
$ 439,305
-----------------
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 198,410
Accrued liabilities 12,016
Customer deposits 12,000
Notes payable - related parties 200,000
Current portion of capital lease obligation 5,311
-----------------
Total Current Liabilities 427,737
CAPITAL LEASE OBLIGATION, less current portion 15,347
-----------------
Total Liabilities 443,084
-----------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value,
5,000,000 shares authorized,
no shares issued and outstanding -
Common stock, $.001 par value,
50,000,000 shares authorized,
1,725,000 shares issued and
outstanding 1,725
Capital in excess of par value 61,384
Accumulated deficit (66,888)
-----------------
Total Stockholders' Equity (Deficit) (3,779)
-----------------
$ 439,305
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
1
<PAGE>
Page 55
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
For the Three on January 7,
Months Ended 1999 Through
June 30, June 30,
1999 1999
---------------- ------------------
<S> <C> <C>
NET SALES $ 105,462 $ 190,448
COST OF GOODS SOLD 45,488 114,084
---------------- ------------------
GROSS PROFIT 59,974 76,364
---------------- ------------------
EXPENSES:
Selling expense 18,997 39,020
General and administrative 84,101 100,564
---------------- ------------------
Total Expenses 103,098 139,584
---------------- ------------------
LOSS FROM OPERATIONS (43,124) (63,220)
---------------- ------------------
OTHER INCOME (EXPENSE):
Interest expense - related party (3,479) (3,534)
Interest expense (433) (433)
Other Income 299 299
---------------- ------------------
Total Other Income (Expense) (3,613) (3,668)
---------------- ------------------
LOSS BEFORE INCOME TAXES (46,737) (66,888)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
---------------- ------------------
NET LOSS $ (46,737) $ (66,888)
---------------- ------------------
---------------- ------------------
LOSS PER COMMON SHARE $ (.03) $ (.04)
---------------- ------------------
---------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Page 56
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON JANUARY 7, 1999
THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in
------------------------ ------------------------ Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
---------- ---------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 7, 1999 - $ - - $ - $ - $ -
Issuance of 1,300,000 shares of
common stock for cash,
January, 1999 at $.052,
net of $5,000 stock offering
costs - - 1,300,000 1,300 61,642 -
Effect of recapitalization of
subsidiary, March, 1999 - - 500,000 500 (500) -
Net loss for the period
ended March 31, 1999 - - - - - (20,151)
---------- ---------- ----------- --------- ----------- ------------
BALANCE, March 31, 1999 - - 1,800,000 1,800 61,142 (20,151)
Issuance of 166,500 shares
of common stock for services
rendered, June, 1999 at
$.001 per share - - 166,500 167 - -
Cancellation of 241,500 shares
of common stock, June, 1999
at $.001 per share - - (241,500) (242) 242 -
Net loss for the period
ended June 30, 1999 - - - - - (46,737)
---------- ---------- ----------- --------- ----------- ------------
BALANCE, June 30, 1999 - $ - 1,725,000 $ 1,725 $ 61,384 $ (66,888)
---------- ---------- ----------- --------- ----------- ------------
---------- ---------- ----------- --------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
Page 57
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
From Inception
For the Three on January 7,
Months Ended 1999 Through
June 30, June 30,
1999 1999
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (46,737) $ (66,888)
Adjustments to reconcile net loss to
net cash used by operating activities:
Non-cash expense 167 167
Depreciation expense 1,477 1,614
Changes in assets and liabilities:
(Increase) in accounts receivable (34,962) (34,962)
(Increase) in inventory (310,770) (312,601)
(Increase) in prepaid assets (30,000) (30,000)
(Increase) in other assets (1,015) (1,870)
Increase in accounts payable 195,396 198,410
Increase in accrued liabilities 7,386 12,016
Increase in customer deposits 12,000 12,000
--------------- ----------------
Net Cash (Used) by Operating Activities (207,058) (222,114)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment (7,039) (13,771)
--------------- ----------------
Net Cash (Used) by Investing Activities (7,039) (13,771)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance - 67,942
Proceeds from notes payable - related party 100,000 200,000
Payments for stock offering costs - (5,000)
Payments for capital leases (683) (683)
--------------- ----------------
Net Cash Provided by Financing Activities 99,317 262,259
--------------- ----------------
NET INCREASE (DECREASE) IN CASH (114,780) 26,374
CASH AT BEGINNING OF PERIOD 141,154 -
--------------- ----------------
CASH AT END OF PERIOD $ 26,374 $ 26,374
--------------- ----------------
</TABLE>
[CONTINUED]
4
<PAGE>
Page 58
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
From Inception
For the Three on January 7,
Months Ended 1999 Through
June 30, June 30,
1999 1999
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 433 $ 433
Income taxes $ - $ -
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
For the Period Ended June 30, 1999
The Company entered into various capital leases for equipment valued at
$21,341.
The Company issued 166,500 shares of common stock for services
rendered. The shares were valued at $.001 per share.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Page 59
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The accompanying consolidated financial statements represent
the accounts of Imagenetix, Inc. ["Parent"] organized under the laws of the
State of Colorado on July 26, 1996 (formerly Internet International
Business Management, Inc.) and Imagenetix ["Subsidiary"] organized under
the laws of the State of California on January 7, 1999, ["The Company"].
The Company is engaged in the business of setting up alliances between
various people and companies in order to market and distribute health care
products. For the past few months, the Company has been selecting
suppliers, finding customers, developing its own method of business
operations, and many other activities necessary to form a viable business.
On March 23, 1999, Parent completed an exchange agreement with Subsidiary
wherein Parent issued 1,300,000 shares of its common stock in exchange for
all of the outstanding common stock of the Subsidiary. The Acquisition was
accounted for as a recapitalization of the Subsidiary as the shareholders
of the Subsidiary controlled the combined Company after the acquisition.
There was no adjustment to the carrying values of the assets or liabilities
of the Parent or Subsidiary as a result of the recapitalization [SEE NOTE
5].
The Company has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
INTERIM FINANCIAL STATEMENTS - The accompanying interim financial
statements have been prepared by the Company without audit. In the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at June 30, 1999 and for all the periods
presented have been made. The results of operations for the periods ended
June 30, 1999 are not necessarily indicative of the operating results for
the full year.
CONSOLIDATION - All significant intercompany transactions between the
Parent and Subsidiary have been eliminated in consolidations.
CASH AND CASH EQUIVALENTS - For purposes of the financial statements, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
ORGANIZATION COSTS - Costs of approximately $2,000 which were incurred to
organize the Company have been expensed.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized, upon being placed in
service. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is computed for financial statement purposes using
the straight-line method over the estimated useful lives of the assets.
INVENTORY - Inventory is carried at the lower of cost or market method of
valuation.
6
<PAGE>
Page 60
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
LOSS PER SHARE - The computation of loss per share is based on the weighted
average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards ["SFAS"] No.
128, "Earnings Per Share" [SEE NOTE 8].
ADVERTISING COSTS - Costs incurred in connection with advertising and
promotion of the Company's products are expensed as incurred. Such costs
amounted to approximately $39,020 for the period ended June 30, 1999.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimated by management.
RECENTLY ENACTED ACCOUNTING STANDARDS - SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", SFAS No. 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits", SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", and SFAS
No. 134, "Accounting for Mortgage-Backed Securities..." were recently
issued. SFAS No. 130, 131, 132, 133 and 134 have no current applicability
to the Company or their effect on the financial statements would not have
been significant.
NOTE 2 - INVENTORIES
Inventory is carried at the lower of cost or market value and consists of
the following:
<TABLE>
<CAPTION>
June 30,
1999
---------
<S> <C>
Raw Materials 312,601
---------
312,601
---------
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of equipment, at cost, less accumulated
depreciation:
<TABLE>
<CAPTION>
June 30,
1999
-----------
<S> <C>
Office Equipment $ 35,112
Less accumulated depreciation 1,614
-----------
$ 33,498
-----------
</TABLE>
Depreciation expense for the three months ended June 30, 1999 was $1,477.
7
<PAGE>
Page 61
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NOTES PAYABLE - RELATED PARTY
During the period ended June 30, 1999 the President of the Company loaned
the Company $100,000. The loan is due on May 25, 2000, is unsecured, and
has an interest rate of 10%. Accrued interest as of June 30, 1999 was $986.
At June 30, 1999 the Company had two convertible notes payable outstanding
in the amount of $50,000 each to individuals who are shareholders of the
Company or to entities related to shareholders of the Company. The notes
bear interest at 10% per annum. The notes are due upon the receipt of
proceeds from a proposed public stock offering [SEE NOTE 11] or on March
29, 2000 whichever is earlier. As of June 30, 1999, the Company has accrued
$5,115 in interest expense on the notes. The notes and any unpaid interest
thereon are convertible into common stock of the Company at $3.00 per
share. The Company also issued 100,000 "A" warrants and 100,000 "B"
warrants to the holders of the notes payable [SEE NOTE 5]. The "A" warrants
allow the holder to acquire one share of common stock per warrant at $3 per
share. The "B" warrants allow the holder to acquire one share of common
stock per warrant at $3.05 per share. The convertible notes were issued as
part of a funding agreement [SEE NOTE 10].
NOTE 5 - CAPITAL STOCK AND RECAPITALIZATION
STOCK BONUS PLAN - During June, 1999, the Board of Directors of the Company
adopted a stock bonus plan. The plan provides for the granting of awards of
up to 211,500 shares of common stock to officers, directors, consultants
and employees. Awards under the plan will be granted as determined by the
board of directors. An officer and majority shareholder has agreed to
return and cancel 241,500 shares of common stock so that the common shares
issued through the stock bonus plan will not further dilute the public
shareholders of the company. During June, 1999,166,500 shares valued at
$.001 per share were issued under the plan to certain employees,
consultants and directors.
PREFERRED STOCK - The Company has authorized 5,000,000 shares of preferred
stock, $.001 par value, with such rights, preferences and designations and
to be issued in such series as determined by the Board of Directors. No
shares are issued and outstanding at June 30, 1999.
WARRANTS - The Company issued 100,000 "A" warrants and 100,000 "B" warrants
to the holders of convertible notes payable [SEE NOTE 4]. The "A" warrants
allow the holder to acquire one share of common stock per warrant at $3 per
share. The "B" warrants allow the holder to acquire one share of common
stock per warrant at $3.05 per share. The warrants are exercisable for a
period of five years from the filing of the proposed registration statement
or through December 31, 2005 if a registration statement is not filed by
December 31, 1999.
EFFECT OF RECAPITALIZATION OF SUBSIDIARY - During January, 1999, in
connection with its organization, the Subsidiary issued 1,300,000 shares of
its previously authorized, but unissued common stock. Total proceeds from
the sale of stock amounted to $67,942 (or $.052 per share). During March,
1999, in connection with its Exchange Agreement with the Subsidiary, the
Parent issued 1,300,000 shares of its previously authorized, but unissued
common stock in exchange for previously issued Subsidiary stock. The
operations of Parent are included only from the date of recapitalization.
Accordingly, the previous operations and
8
<PAGE>
Page 62
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK AND RECAPITALIZATION [CONTINUED]
retained deficits of Parent prior to the date of recapitalization have been
eliminated. In connection with the recapitalization, Parent effected a
forward stock split on the basis of 100 shares issued for each 1 share
previously outstanding. The former shareholders of Parent retained 500,000
shares of common stock immediately after the exchange of stock.
The financial statements of Parent prior to the recapitalization of the
Company have not been included because the Parent's operations have been
eliminated in the recapitalization. However the following information
summarizes the Stockholders' equity of the Parent prior to the
recapitalization of subsidiary:
IMAGENETIX, INC.
(Formerly Internet International Business Management, Inc.)
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 26, 1996 THROUGH MARCH 23, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
------------------------ ----------------------- Excess of Development
Shares Amount Shares Amount Par Value Stage
---------- ---------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 26, 1996 - $ - - $ - $ - $ -
Issuance of 5,000 shares
of common stock for cash,
July, 1996 at $.01
per share - - 5,000 5 45 -
Net loss for the period
ended December 31, 1996 - - - - - (4)
---------- ---------- ------------ ---------- ----------- ------------
BALANCE, December 31, 1996 - - 5,000 5 45 (4)
Net loss for the period
ended December 31, 1997 - - - - - (10)
---------- ---------- ------------ ---------- ----------- ------------
BALANCE, December 31, 1997 - - 5,000 5 45 (14)
Net loss for the period
ended December 31, 1998 - - - - - (10)
---------- ---------- ------------ ---------- ----------- ------------
BALANCE, December 31, 1998 - - 5,000 5 45 (24)
Capital contribution, March, 1999 - - - - 5,000 -
100 for 1 forward stock split
March, 1999 - - 495,000 495 (495) -
Net loss for the period
ended March 23, 1999 - - - - - (5,026)
---------- ---------- ------------ ---------- ----------- ------------
BALANCE, March 23, 1999 - $ - 500,000 $ 500 $ 4,550 $ (5,050)
---------- ---------- ------------ ---------- ----------- ------------
</TABLE>
9
<PAGE>
Page 63
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LEASES
OPERATING LEASE - The Subsidiary entered into a month to month operating
lease for office space beginning March 22, 1999. The monthly rent is $1,710
per month. Rent expense for the period from January 7, 1999 through June
30, 1999 totaled $5,380. As of June 30, 1999, a security deposit of $855
was included in other assets.
CAPITAL LEASES - During the second quarter of 1999 the Company entered into
three capital leases for office equipment valued at $21,341. The assets and
liabilities under the capital leases were recorded at the lower of the
present value of the minimum lease payments or the fair value of the assets
at the time of purchase. The assets are amortized over their related lease
terms. Amortization expense of $1,008, for the assets under the capital
leases, has been included in depreciation expense for the period ended June
30, 1999.
Total future minimum lease payments, executory costs and current portion of
capital lease obligations are as follows:
Future minimum lease payments for the years ended December 31,
<TABLE>
<CAPTION>
Year ending December 31, Lease Payments
------------------------ -----------------
<S> <C>
1999 $ 4,030
2000 8,060
2001 7,378
2002 5,164
2003 2,268
Thereafter 1,134
-----------------
Total future minimum lease payments $ 28,034
Less: amounts representing interest and executory costs (7,376)
-----------------
Present value of the future minimum lease payments 20,658
Less: current portion (5,311)
-----------------
Capital lease obligations - long-term $ 15,347
-----------------
</TABLE>
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". SFAS
109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. At June 30, 1999, the Company
has available unused operating loss carryforwards of approximately $66,900,
which may be applied against future taxable income and which expire in
2019.
10
<PAGE>
Page 64
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES [CONTINUED]
The amount of and ultimate realization of the benefits from the operating
loss carryforwards for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The net deferred tax asset is
approximately $22,700 as of June 30, 1999, with an offsetting valuation
allowance of the same amount.
NOTE 8 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the period presented:
<TABLE>
<CAPTION>
From Inception
For the Three on January 7,
Months Ended 1999 Through
June 30, June 30,
1999 1999
--------------- ----------------
<S> <C> <C>
Loss from continuing operations available
to common shareholders (Numerator) $ (46,737) $ (66,888)
--------------- ----------------
Weighted average number of common
shares outstanding used in loss per
share during the period (Denominator) 1,799,176 1,799,569
--------------- ----------------
</TABLE>
Dilutive loss per share was not presented, as its effect is anti-dilutive.
At June 30, 1999, the Company had warrants outstanding to purchase 200,000
shares of common stock at prices of $3.00 and $3.05 per share that were not
included in the computation of diluted loss per share because their effect
was anti-dilutive.
NOTE 9 - CONCENTRATION OF CREDIT RISK
For the periods ended June 30, 1999, all the Company's sales were from one
significant customer.
11
<PAGE>
Page 65
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND AGREEMENTS
FUNDING AGREEMENT - In connection with the recapitalization of the Company
[SEE NOTE 5], a funding agreement was negotiated wherein the shareholders
and officers of Parent (prior to the recapitalization) would provide
$300,000 of funding for the combined company. The first $100,000 under this
agreement was received on March 29, 1999 [SEE NOTE 4]. The remaining
$200,000 is expected to be received prior to the commencement of sale of
stock under the proposed public offering [SEE NOTE 11]. The funding
agreement also provided for 300,000 "A" warrants and 300,000 "B" warrants
to be issued. All warrants issued are subject to "Piggy-Back" registration
rights should the Company file a registration statement.
ALLIANCE AGREEMENT - During June, 1999, the Company entered into an
Alliance Agreement with an individual who has developed nutritional and
skin care products and innovations. The Company will pay the developer a
10% commission based on sales of the developer's products or innovations.
The developer has been appointed as a member of the board of directors of
the Company. The agreement provides for a ten year term but the agreement
will terminate when the developer becomes a full time employee of the
Company. The Company anticipates entering into an employment agreement with
the developer upon successful completion of its proposed public stock
offering.
NOTE 11 - SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING OF COMMON STOCK - The Company plans to file a
registration statement with the United States Securities and Exchange
Commission on Form SB-1 under the Securities Act of 1933. The Company
proposes to sell 333,334 common shares at a price of $3 per share, which
price has been arbitrarily determined by the Company. The shares will be
offered and sold by an underwriter, who will receive 10% of the offering
price of each share sold. The underwriter will also receive a 3%
non-accountable allowance for offering expenses. Other direct offering
expenses are expected to approximate $50,000. Underwriter warrants and
sales over-allotments are also provided for in the proposed offering. The
Company has not incurred any stock offering costs as of June 30, 1999, but
any such costs will be netted against the proceeds of the proposed public
offering. In accordance with the terms of a funding agreement [SEE NOTE
10], the Company will also register the shares of common stock related to
300,000 Class "A" and 300,000 Class "B" warrants. The Class "A" warrants
allow the holder to purchase shares of common stock at $3 per share. The
Class "B" warrants allow the holder to purchase shares of common stock at
$3.05 per share.
RELATED PARTY LOAN - During July, 1999, officers, shareholders or
individuals related to them loaned the Company $165,000. The loans provide
for interest at 10% per annum and are due one year from the date the loans
were made.
CONVERTIBLE NOTES PAYABLE - As of June 30, 1999, the Company had not yet
received $200,000 of loan proceeds expected under the terms of the funding
agreement [SEE NOTE 10]. However, the Company expects to receive these
proceeds prior to the sale of common stock in the proposed public stock
offering.
12
<PAGE>
Page 66
[OUTSIDE BACK COVER]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary
Where You Can Get More Information
Risk Factors
Forward Looking Statements
Use of Proceeds
Dilution
Plan of Operation
Business
Management
Certain Transactions
Concurrent Offering
Principal Shareholders
Description of Securities
Dividend Policy
Underwriting
Shares Eligible For Future Sale
Legal Matters
Experts
Financial Statements
</TABLE>
Until _____, 1999, (ninety days after the date of this prospectus)
all dealers that effect transactions in these securities may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
Page 67
[ALTERNATIVE PAGE]
SUBJECT COMPLETION, DATED SEPTEMBER 22, 1999
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 shale is not permitted.
IMAGENETIX, INC.
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
(619) 674-8455
300,000 Class A Warrants
300,000 Class B Warrants
600,000 Shares of Common Stock
This Prospectus relates to 300,000 Class A Warrants and 300,000
Class B Warrants held by six selling warrant holders. This Prospectus also
relates to the 300,000 shares of common stock issuable upon exercise of the
Class A Warrants and the 300,000 shares of common stock issuable upon
exercise of the Class B Warrants. See "Description of Securities."
The warrants, and the shares underlying the warrants, may be sold
from time to time by the warrant holders or by their transferees. The
distribution of these securities may be effected in one or more transactions
that may take place on the over-the-counter market (if the common stock is
ever quoted on an over-the-counter market), including ordinary brokers'
transactions, privately negotiated transactions, or through sales to one or
more dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the selling persons.
We will not receive any of the proceeds from the sale of these
shares or warrants, except the exercise price of the warrants. See "Selling
Security Holders" and "Plan of Distribution."
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company
of 333,334 shares of common stock was declared effective by the Securities
and Exchange Commission. The Company will receive approximately $850,002 in
net proceeds from such offering (assuming no exercise of the
<PAGE>
Page 68
Underwriter's over-allotment option) after payment of underwriting discounts
and estimated expenses of this offering.
This Offering Is Highly Speculative and Involves Special Risks
Concerning the Company and its Business. Prior to this Offering There Has
Been No Public Market for the Shares. You Should Purchase Shares Only If You
Can Afford a Complete Loss. See "Risk Factors" Beginning on Page 4.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of the prospectus. Any representation to
the contrary is a criminal offense.
The date of this Prospectus is _______, 1999.
<PAGE>
Page 69
[ALTERNATE PAGE]
SELLING SECURITY HOLDERS
An aggregate of up to 300,000 A Warrants and 300,000 Class B Warrants,
and the Common Stock underlying such Warrants, may be offered for resale by the
investors listed below.
The following table sets forth certain information with respect to each
Selling Security Holder for whom the Company has registered Class A or B
Warrants or the Common Stock underlying such Warrants, for resale to the public.
The Company will not receive any of the proceeds from the sale of such
securities, except for the exercise price of the Warrants (see "Description of
Securities"). There are no material relationships between any of the Selling
Security Holders and the Company or any of its predecessors or affiliates, nor
have any such material relationships existed within the past three years except
as footnoted below. Except as described below, no Selling Security Holder will
beneficially own any Common Stock of the Company if the Selling Security
Holders' Common Stock and/or Warrants are sold. Each of the selling security
holders intends to offer and sell all of the securities listed below.
<TABLE>
<CAPTION>
Name of Selling
Shareholder Number of Securities
----------- --------------------
<S> <C>
Claudia A. McAdam(1) 50,000 A Warrants
50,000 B Warrants
Great Expectations Family 25,000 A Warrants
Limited Partnership(1)
25,000 B Warrants
Gregory Pusey 26,250 A Warrants
26,250 B Warrants
1st Zamora Corp.(2) 75,000 A Warrants
75,000 B Warrants
Barry C. Loder 11,250 A Warrants
11,250 B Warrants
<PAGE>
Page 70
Gulfstream 1998 Irrevocable 37,500 A Warrants
Trust(3)
37,500 B Warrants
David N. Nemelka 75,000 A Warrants
75,000 B Warrants
</TABLE>
- --------------------
(1)Claudia A. McAdam and Gary J. McAdam are husband and wife. Mr.
McAdam is a general partner of Great Expectations Family Limited Partnership.
Mr. McAdam was a founder of the Company, was instrumental in introducing
management of the Company to the Underwriter, and in negotiating the terms of
the underwriting for the Company. Mrs. McAdam and Great Expectations Family
Limited Partnership each loaned $50,000 to the Company, the principal and
accrued interest of which amounts may be converted into Shares. See "Certain
Transactions" and "Use of Proceeds."
(2)1st Zamora Corp. is a Colorado corporation controlled by Laura Lee
Madsen.
(3)This trust was created by Henry Fong for the benefit of his
children.
<PAGE>
Page 71
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
The sale of the Warrants or Common Stock underlying the Warrants, by
the Selling Security Holders may be effected from time to time in
transactions (which may include block transactions by or for the account of
the Selling Security Holders) in the over-the-counter market (if such a
market should develop) or in negotiated transactions or otherwise. Sales may
be made at fixed prices which may be changed, at market prices, if any,
prevailing at the time of sale, or at negotiated prices.
The Selling Security Holders may effect such transactions by selling
their Warrants or the Common Stock underlying the Warrants, directly to
purchasers, through broker-dealers acting as agents for the Selling Security
Holders or to broker-dealers who may purchase the securities as principals
and thereafter sell the Common Stock from time to time in the
over-the-counter market, if any, in negotiated transactions or otherwise.
Such broker-dealers, if any, may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders or
the purchasers for whom such broker dealers may act as agents or to whom they
may sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
Under applicable rules and regulations under the Securities Exchange
Act of 1934 ("Exchange Act"), any person engaged in the distribution of the
Selling Security Holders' Warrants or Common Stock underlying the Warrants,
may not simultaneously engage in market making activities with respect to any
securities of the Company for a period of at least two (and possibly nine)
business days prior to the commencement of such distribution. Accordingly, in
the event that the Underwriter of the Company's public offering is engaged in
a distribution of the Selling Security Holders' securities, it will not be
able to make a market in the Company's Common Stock during the applicable
restrictive period. However, the Underwriter has not agreed, nor is it
obliged, to act as broker-dealer in the sale of the Selling Security Holders'
securities. The Selling Security Holders may be required, and in the event
the Underwriter is a market maker, will likely be required, to sell such
securities through another broker-dealer.
The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
<PAGE>
Page 72
[ALTERNATE PAGE]
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement was
declared effective under the Securities Act with respect to an underwritten
offering by the Company of 333,334 shares of Common Stock by the Company and
up to 50,000 additional shares of common stock to cover over-allotments, if
any.
<PAGE>
Page 73
[ALTERNATE PAGE]
[OUTSIDE BACK COVER]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary
Where You Can Get More Information
Risk Factors
Forward Looking Statements
Use of Proceeds
Dilution
Plan of Operation
Business
Management
Certain Transactions
Concurrent Offering
Principal Shareholders
Selling Security Holders
Concurrent Public Offering
Description of Securities
Dividend Policy
Plan of Distribution
Shares Eligible For Future Sale
Legal Matters
Experts
Financial Statements
</TABLE>
Until _____, 1999, (ninety days after the date of this prospectus)
all dealers that effect transactions in these securities may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
Page 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers
Article 109 of the Colorado Business Corporation Act expressly
authorizes a Colorado corporation to indemnify its directors, officers,
employees, fiduciaries, and agents against claims or liabilities arising out of
such persons' conduct in such capacities if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company. In general, these provisions provide for indemnification in
instances when such persons acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the Company. A
corporation may also purchase and maintain liability insurance on behalf of such
persons.
Article VIII of the Company's Bylaws provides for the indemnification
of the Company's officers, directors, and employees. The Company does not
maintain any liability insurance on behalf of any director, officer, or other
person affiliated with the Company.
Item 2. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection
with the offering described in the registration statement:
<TABLE>
<S> <C>
Registration Fee $860
Blue Sky Fees $10,000
Accounting Fees and Expenses $8,000
Legal Fees and Expenses $25,000
Printing and Engraving $3,000
Transfer Agent Fees $1,000
Miscellaneous $2,140
-------
Total Expenses $50,000
-------
-------
</TABLE>
Item 3. Undertakings
(a) The Company hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement;
and (iii) include any material information with respect to the plan of
distribution not
<PAGE>
Page 75
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) For the purpose of determining liability under the Securities
Act of 1933, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at
that time shall be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(b) The Company will provide to the underwriter at the closing specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer 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 small business issuer
of expenses incurred or paid by a director, officer or controlling person of
the small business issuer 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 small business issuer
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.
(d) The Company will:
(1) For determining any liability under the Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of a prospectus filed by the Company under Rule 424(b) (1) or (4) or 497(h)
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For any liability under the 1933 Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that the offering of the securities at that time as the
initial bona fide offering of those securities.
<PAGE>
Page 76
Item 4. Unregistered Securities Issued or Sold Within One Year
In March 1999 the Company issued 1,300,000 shares of Common Stock of
the Company to William P. Spencer, a director, president, and principal
shareholder of the Company. The shares were issued in a merger transaction
between the Company and Imagenetix, the wholly owned subsidiary of the
Company. Such securities were issued without registration under the Act by
reason of the exemption from registration afforded by the provisions of
Section 4(2) thereof, and Rule 506 promulgated thereunder, as transactions by
an issuer not involving any public offering. Mr. Spencer delivered
appropriate investment representations to the Company with respect to such
transaction and consented to the imposition of restrictive legends upon the
certificates evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance.
Also in March 1999 the Company issued promissory notes to Claudia A.
McAdam in the amount of $50,000 and to Great Expectations Family Limited
Partnership, a Colorado limited partnership, in the amount of $50,000. The
Company also granted 50,000 A Warrants and 50,000 B Warrants to each such
party. Such securities were issued without registration under the Act by
reason of the exemption from registration afforded by the provisions of
Section 4(2) thereof as transactions by an issuer not involving any public
offering. The parties delivered appropriate investment representations to the
Company with respect to such issuances and consented to the imposition of
restrictive legends upon the certificates evidencing such securities. No
underwriting discounts or commissions were paid in connection with such
issuance.
In September 1999 the Company issued promissory notes to David N.
Nemelka in the amount of $50,000; to 1st Zamora in the amount of $75,000; to
Greg Pusey in the amount of $26,250; to Barry C. Loder in the amount of
$11,250; and to Gulfstream 1998 Irrevocable Trust in the amount of $37,500.
The Company also granted 200,000 A Warrants and 200,000 B Warrants pro rata
to such parties. Such securities were issued without registration under the
Act by reason of the exemption from registration afforded by the provisions
of Section 4(2) thereof as transactions by an issuer not involving any public
offering. The parties delivered appropriate investment representations to the
Company with respect to such issuances and consented to the imposition of
restrictive legends upon the certificates evidencing such securities. No
underwriting discounts or commissions were paid in connection with such
issuance.
In June 1999 the Company issued 5,000 shares each to Dr. Charles L.
Cochran and Dr. Peter H. Antoniou, directors of the Company, for accepting
such positions with the Company. Such securities were issued without
registration under the Act by reason of the exemption from registration
afforded by the provisions of Section 4(2) thereof as transactions by an
issuer not involving any public offering. The party delivered appropriate
investment representations to the Company with respect to such issuances and
consented to the imposition of restrictive legends upon the certificates
evidencing such securities. No underwriting discounts or commissions were
paid in connection with such issuance.
<PAGE>
Page 77
In June 1999 the Company issued 85,000 shares to Patrick Millsap for
employment services provided to the Subsidiary; 15,000 shares to Jules Kozuki
for consulting services connected with the development of the Company's
products; 25,000 shares to JudyWhite for employment services rendered for the
Company; 6,500 shares to Dr. Paul Dragul for consulting services connected
with the development of new products for the Company; 10,000 shares to
Maurile C. Tremblay for legal services provided to the Company; and 15,000
shares to J. Larry Cantrell as a bonus for assisting with business advice to
the Company, especially in connection with the testing of the Globestar
system. Such securities were issued without registration under the Act by
reason of the exemption from registration afforded by the provisions of
Section 28 thereof, and Rule 701 promulgated thereunder. Each party delivered
appropriate investment representations to the Company with respect to such
issuances and consented to the imposition of restrictive legends upon the
certificates evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance.
Item 5. Exhibits
The exhibits set forth in the following index of exhibits are filed
as a part of this registration statement.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Underwriter's Warrant
1.3 Form of Underwriter's Lock-up Agreement
2.1 Articles of Incorporation, as amended
2.2 By-Laws of the Company currently in effect
3.1 Form of certificate evidencing shares of Common Stock
3.2 Form of A Warrant Certificate
3.3 Form of B Warrant Certificate
6.1 Funding Agreement
6.2 Form of Convertible Promissory Note
6.3 Alliance Agreement with Dr. Cochran
6.4 Promissory Notes to Mr. and Mrs. Spencer
6.5 1999 Stock Bonus Plan
6.6 Exchange Agreement dated March 23, 1999
10.1 Consent of Pritchett, Siler & Hardy, P.C.
10.2 Consent of Ronald N. Vance (contained in
Exhibit 11 below.)
11 Opinion re Legality
</TABLE>
<PAGE>
Page 78
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-1 and authorized this
registration statement to be signed on its behalf by the undersigned in the
city of San Diego, State of California, on the 17th day of September 1999.
IMAGENETIX, INC.
By: /s/ William Spencer, President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<S> <C>
Date: September 17, 1999 /s/ William Spencer, Director and Principal
Accounting Officer
Date: September 17, 1999 /s/ Debra L. Spencer, Director and Chief
Financial Officer
Date: September 17, 1999 /s/ Dr. Charles L. Cochran, Director
Date: September 17, 1999 /s/ Dr. Peter H. Antoniou, Director
</TABLE>
<PAGE>
EXHIBIT 1.1
IMAGENETIX, INC.
UNDERWRITING AGREEMENT
September ___, 1999
Spencer Edwards, Inc.
As Representative of the Several
Underwriters Named in Schedule I Hereto
6120 Greenwood Plaza
Englewood, Colorado 80111
Gentlemen:
Imagenetix, Inc., a Colorado corporation (the "Company"), hereby confirms
its agreement with you (the "Representative") and with the other Members of the
Underwriting Group, including the Representative, named in Schedule I hereto
(hereinafter "the Underwriting Group") as follows:
SECTION 1
DESCRIPTION OF SECURITIES
The Company's authorized and outstanding capitalization when the offering
of the securities contemplated hereby is permitted to commence and at the
Closing Date (hereinafter defined), will be as set forth in the Registration
Statement and Prospectus (hereinafter defined) included therein. The Company
proposes to issue and sell to the Underwriting Group an aggregate of 333,334
shares ("Shares") at a price of $3.00 per Share.
The Representative shall also have an over-allotment option to purchase all
or part of 50,000 additional Shares (the "Over-Allotment") for a period of
thirty (30) days from the Closing Date, as provided in Section 3.1 hereof. The
Over-Allotment shall be exercisable by the Underwriter, in whole or in part,
from time to time during the aforementioned thirty (30) day period.
The Company proposes to issue and sell to the Representative on the Closing
Date, for a total purchase price of $100, warrants to purchase 33,333 shares of
common stock (the "Underwriter's Warrant") at $3.60 per Share, as provided in
Section 3.3 hereof.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Underwriting Group to enter into this Agreement, the
Company hereby represents and warrants to and agrees with each member of the
Underwriting Group that:
2.1 Registration Statement and Prospectus. A Registration Statement on
Form SB-1
<PAGE>
(File No. ____________) with respect to the Shares, including the related
Prospectus, copies of which have heretofore been delivered by the Company to
the Representative, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations ("Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and said Registration
Statement has been filed with the Commission under the Act; one or more
amendments to said Registration Statement, copies of which have heretofore
been delivered to the Representative, has or have heretofore been filed; and
the Company may file on or prior to the Effective Date of the Registration
Statement additional amendments to said Registration Statement, including the
final Prospectus. Included in such Registration Statement are a sufficient
number of additional shares of the Company's Common Stock which are reserved
against exercise of the over-allotment option.
As of the Effective Date, the capitalization of the Company shall
consist of no more than 1,800,000 shares of capital stock outstanding and
700,000 subject to issuance upon the exercise of outstanding A Warrants
(300,000) and B Warrants (300,000) and note conversions (100,000). Any
changes in the number of shares of Common Stock issued and outstanding at or
prior to the Effective Date of the Registration Statement must be approved by
the Representative. Without the Representative's prior consent, there shall
be no other warrants, options or rights outstanding as of the Effective Date
of the Registration Statement to purchase Common Stock other than as stated
above.
As used in this Agreement, the term "Registration Statement" refers to
and means said Registration Statement on Form SB-1 and all amendments
thereto, including the Prospectus, the information incorporated therein by
reference, all exhibits and financial statements, as it becomes effective;
the term "Prospectus" refers to and means the Prospectus included in the
Registration Statement when it becomes effective or as filed in final form in
accordance with the requirements of Rule 424(b) of the Rules and Regulations;
and the term "Preliminary Prospectus" refers to and means any prospectus
included in said Registration Statement before it becomes effective. The
term "Effective Date" throughout this Agreement refers to the date the
Commission declares the Registration Statement effective pursuant to Section
8 of the Act.
2.2 Accuracy of Registration Statement and Prospectus. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus with respect to the Shares, and each Preliminary Prospectus has
conformed in all material respects with the requirements of the Act and the
applicable Rules and Regulations of the Commission thereunder and to the best
of the Company's knowledge has not included at the time of filing any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein not misleading, except with respect to matters
subsequently amended prior to the Effective Date. On the Effective Date and
on the Closing Date, the Registration Statement and Prospectus will contain
all statements which are required to be stated therein in accordance with the
Act and the Rules and Regulations for the purposes of the public offering of
the Shares, and all statements of material fact contained in the Registration
Statement and Prospectus will be true and correct, and neither the
Registration Statement nor the Prospectus will include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make
<PAGE>
the statements therein not misleading; provided, however, the Company does
not make any representations or warranties as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance upon
written information furnished on behalf of the Underwriting Group
specifically for use therein. The Company will not at any time hereafter
file any amendments to the Registration Statement or in accordance with Rule
424(b) of the Rules and Regulations of which the Representative shall not
have been previously advised in advance of filing or to which the
Representative shall reasonably object in writing.
2.3 Financial Statements. The financial statements of the Company
together with related schedules and notes as set forth in the Registration
Statement and Prospectus will present fairly the financial position of the
Company and the results of its operations and the changes in its financial
position at the respective dates and for the respective periods for which
they apply; such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods concerned except as otherwise stated therein.
2.4 Independent Public Accountant. Pritchett, Siler and Hardy, P.C.
have certified or shall certify certain of the fiscal year end financial
statements filed or to be filed with the Commission as part of the
Registration Statement and Prospectus and are independent certified public
accountants within the meaning of the Act and the Rules and Regulations.
2.5 No Material Adverse Change. Except as may be reflected in or
contemplated by the Registration Statement or the Prospectus, subsequent to
the dates as of which information is given in the Registration Statement and
Prospectus, and prior to the Closing Date, (i) there shall not be any
material adverse change in the condition, financial or otherwise, of the
Company or in its business taken as a whole; (ii) there shall not have been
any material transaction entered into by the Company other than transactions
in the ordinary course of business; (iii) the Company shall not have incurred
any material liabilities, obligations or claims, contingent or otherwise,
which are not disclosed in the Prospectus; (iv) except in the ordinary course
of business and with the consent of the Representative, there shall not have
been nor will there be any change in the capital stock or long-term debt
(except current payments) of the Company; and (v) the Company has not and
will not have paid or declared any dividends or other distributions on its
capital stock.
2.6 No Defaults. Other than as disclosed in the Registration Statement
or Prospectus, the Company is not in any material default which has not been
waived in the performance of any obligation, agreement or condition contained
in any debenture, note or other evidence of indebtedness or any indenture or
loan agreement of the Company. The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated, and compliance
with the terms of this Agreement will not conflict with or result in a breach
of any of the terms, conditions or provisions of, or constitute a default
under, the articles of incorporation, as amended, or by-laws of the Company,
any note, indenture, mortgage, deed of trust, or other agreement or
instrument to which the Company is a party or by which it or any of its
property is bound, or any existing law, order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality, agency
or body, arbitration tribunal or court, domestic or foreign, having
jurisdiction over the Company or its property. The consent, approval,
authorization, or
<PAGE>
order of any court or governmental instrumentality, agency or body is not
required for the consummation of the transactions herein contemplated except
such as may be required under the Act or under the securities laws of any
state or jurisdiction.
2.7 Incorporation and Standing. The Company is and at the Closing Date
and the Over-Allotment Closing Date will be duly incorporated and validly
existing in good standing as a corporation under the laws of the State of
Colorado with authorized and outstanding capital stock as set forth in the
Registration Statement and the Prospectus, and with full power and authority
(corporate and other) to own its property and conduct its business, present
and proposed, as described in the Registration Statement and Prospectus; the
Company has full power and authority to enter into this Agreement; and the
Company is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its properties (owned
or leased) or the nature of its business makes such qualification necessary.
2.8 Legality of Outstanding Stock. The outstanding capital stock of
the Company has been duly and validly authorized, issued and is fully paid
and nonassessable and will conform to all statements with regard thereto
contained in the Registration Statement and Prospectus. No sales of
securities have been made by the Company in violation of the registration or
anti-fraud provisions of the Act or in violation of any other federal law or
laws of any state or jurisdiction.
2.9 Legality of Securities. The Common Stock, Underwriter's Warrants,
and the Common Stock issuable upon the exercise of the Underwriter's Warrants
have been duly and validly authorized and, when issued and delivered against
payment therefor as provided in this Agreement, will be validly issued, fully
paid and nonassessable. The Common Stock and the Common Stock underlying the
Underwriter's Warrants, upon issuance, will not be subject to the preemptive
rights of any shareholders of the Company. The Underwriter's Warrants, when
sold and delivered, will constitute valid and binding obligations of the
Company enforceable in accordance with the terms thereof. A sufficient
number of shares of Common Stock of the Company has been reserved for
issuance upon exercise of the Underwriter's Warrants. The Common Stock, the
Underwriter's Warrants and the Common Stock issuable upon the exercise of the
Underwriter's Warrants will conform to all statements with regard thereto in
the Registration Statement and Prospectus.
2.10 Prior Sales. No unregistered securities of the Company, or an
affiliate or of a predecessor of the Company have been sold within one year
prior to the date hereof, except as set forth in the Registration or
otherwise disclosed to the Representative in writing.
2.11 Litigation. Except as set forth in the Registration Statement and
Prospectus, there is and at the Closing Date there will be no action, suit or
proceeding before any court, arbitration tribunal or governmental agency,
authority or body pending or to the knowledge of the Company threatened which
might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change
in the condition (financial or otherwise), the business or the prospects of
the Company, or would materially affect the properties or assets of the
Company.
<PAGE>
2.12 Underwriter's Warrants. Upon delivery of and payment for the
Underwriter's Warrants to be sold by the Company as set forth in Section 3.3
of this Agreement, the Representative and designees of the Representative
will receive good and marketable title thereto, free and clear of all liens,
encumbrances, charges and claims whatsoever; and the Company will have on the
Effective Date and at the time of delivery of such Underwriter's Warrants
full legal right and power and all authorization and approval required by law
to sell, transfer and deliver such Underwriter's Warrants in the manner
provided hereunder.
2.13 Finder. The Company knows of no outstanding claims against it for
compensation for services in the nature of a finder's fee, origination fee or
financial consulting fee with respect to the offer and sale of the Shares
hereunder except as previously disclosed in writing to the Representative.
2.14 Exhibits. There are no contracts or other documents which are
required to be filed as exhibits to the Registration Statement by the Act or
by the Rules and Regulations which have not been so filed and each contract
to which the Company is a party and to which reference is made in the
Prospectus has been duly and validly executed, is in full force and effect in
all material respects in accordance with their respective terms, and none of
such contracts have been assigned by the Company; and the Company knows of no
present situation or condition or fact which would prevent compliance with
the terms of such contracts, as amended to date. Except for amendments or
modifications of such contracts in the ordinary course of business, the
Company has no intention of exercising any right which it may have to cancel
any of its obligations under any of such contracts, and has no knowledge that
any other party to any of such contracts has any intention not to render full
performance under such contracts.
2.15 Tax Returns. The Company has filed all federal and state tax
returns which are required to be filed by it and has paid all taxes shown on
such returns and on all assessments received by it to the extent such taxes
have become due. All taxes with respect to which the Company is obligated
have been paid or adequate accruals have been set up to cover any such unpaid
taxes.
2.16 Property. Except as otherwise set forth in or contemplated by the
Registration Statement and Prospectus, the Company has good title, free and
clear of all liens, encumbrances and defects, except liens for current taxes
not due and payable, to all property and assets which are described in the
Registration Statement and the Prospectus as being owned by the Company,
subject only to such exceptions as are not material and do not adversely
affect the present or prospective business of the Company.
2.17 Authority. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and this
Agreement is the valid, binding and legally enforceable obligation of the
Company.
2.18 Use of Form SB-1. The Company is eligible to use Form SB-1 for
the offer and sale of the Common Stock, the Underwriter's Warrants and the
Common Stock underlying such Underwriter's Warrants.
<PAGE>
2.19 Transfer Agent, Daily Transfer Sheets and DTC Position Listing
Report. The Company shall designate Interwest Transfer Company, Inc., Salt
Lake City, Utah, as transfer agent for the Company's securities.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
SECTION 3
PURCHASE AND SALE OF THE SHARES
3.1 Purchase of Shares and Over-Allotment Option. The Company hereby
agrees to sell to members of the Underwriting Group named in Schedule I hereto
(individually referred to as "Member" and collectively referred to as "Members")
(for all of whom the Representative is acting), severally and not jointly, and
each Member of the Underwriting Group, upon the basis of the representations and
warranties herein obtained, but subject to the conditions hereinafter stated,
agrees to purchase from the Company, severally and not jointly, the number of
Shares set forth opposite their respective names in Schedule I hereto at a
purchase price of $2.70 per Share.
The Company hereby grants to the Representative an over-allotment option
for a period of thirty (30) days after the Closing Date to purchase at a
purchase price of $2.70 per Share up to 50,000 additional Shares, each such
Share to be identical in all respects to the Shares as described in Section 1
hereof, solely to cover over-allotments, if any.
3.1.1 Default by a Member. If for any reason one or more Members of
the Underwriting Group shall fail or refuse (otherwise than for a reason
sufficient to justify the termination of this Agreement under the
provisions of Section 9 hereof) to purchase and pay for the number of
Shares agreed to be purchased by such Member, the Company shall immediately
give notice thereof to the Representative, and the non-defaulting Members
shall have the right within 24 hours after the receipt by the
Representative of such notice, to purchase or procure one or more other
Members to purchase, in such proportions as may be agreed upon among the
Representative and such purchasing Member or Members and upon the terms
herein set forth, the Shares which such defaulting Member or Members agreed
to purchase. If the non-defaulting Members fail so to make such
arrangements with respect to all such Shares, the number of Shares which
each non-defaulting Member is otherwise obligated to purchase under the
Agreement shall be automatically increased pro rata to absorb the remaining
Shares which the defaulting Member or Members agreed to purchase; provided,
however, that the non-defaulting Members shall not be obligated to purchase
the Shares which the defaulting Member or Members agreed to purchase in
excess of 10% of the total number of Shares which such non-defaulting
Member agreed to purchase hereunder, and provided further that the
non-defaulting Members shall not be obligated to purchase any Shares which
the defaulting Member or Members agreed to purchase if such additional
purchase would cause the Member to be in violation of the net capital rule
of the Commission or other applicable law. If the total number of Shares
which the defaulting Member or Members agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding
<PAGE>
sentences, the Company shall have the right, within 24 hours next
succeeding the 24-hour period above referred to, to make arrangements
with other underwriters or purchasers satisfactory to the Representative
for the purchase of such Shares on the terms herein set forth. In any such
case, either the Representative or the Company shall have the right to
postpone the Closing determined as provided in Section 3.2.2 hereof for not
more than seven business days after the date originally fixed as the
Closing pursuant to said Subsection 3.2.2 in order that any necessary
changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made. If neither the non-defaulting
Members nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the Shares which the defaulting Member
or Members agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the
Company to any non-defaulting Member.
3.1.2 Liability of Defaulting Member. Nothing contained in this
Section 3.1 shall relieve any defaulting Member of its liability, if any,
to the Company or to the remaining Members of the Underwriting Group for
damages occasioned by its default hereunder.
3.2 Public Offering Price. After the Commission notifies the Company that
the Registration Statement has become effective, the Members of the Underwriting
Group propose to offer the Shares to the public at an initial public offering
price of $3.00 per Share as set forth in the Prospectus. The Members of the
Underwriting Group may allow such discounts and concessions upon sales to
selected dealers as may be determined from time to time by the Representative.
3.2.1 Payment For Shares. Payment for the Shares (including Shares
included in the over-allotment option which the Representative agrees to
purchase) shall be made to the Company or its order by certified or
official bank check or checks, in the amount of the purchase price by or on
behalf of the Representative at the offices of the Representative in
Englewood, Colorado, upon delivery to the Representative or its designee of
certificates for the Common Stock in definitive form in such numbers and
registered in such names as the Representative requests in writing at least
three full business days prior to such delivery. At the request of the
Representative, the Company shall deliver the Shares to the Members of the
Underwriting Group through the facilities of The Depository Trust Company
or as otherwise directed.
3.2.2 Closing. The time and date of delivery and payment hereunder
is herein called the "Closing Date" and shall take place at the office of
the Representative in Englewood, Colorado, or at such other location as may
be specified by the Representative, at 10:00 a.m. on the fifth business day
following the date of the Prospectus; provided, however, that such date may
be extended for not more than an additional seven business days by the
Representative. Should the Representative elect to exercise any part of
the over-allotment option pursuant to Section 3.1 hereinabove, the time and
date of delivery and payment for said over-allotment Shares shall be as
mutually agreed, but not later than the thirtieth (30th) calendar day after
the Closing Date or the date of the Prospectus, whichever is later. Said
date is referred to as the "Over-Allotment Closing Date."
<PAGE>
3.2.3 Inspection of Certificates. For the purpose of expediting the
checking and packaging of the certificates for the securities comprising
the Shares and the Underwriter's Warrants, the Company agrees to make the
certificates available for inspection by the Representative at the main
office of the Representative in Englewood, Colorado, at least two full
business days prior to the proposed delivery date.
3.3 Sale of Underwriter's Warrants. On the Closing Date, the Company will
sell to the Underwriter for a total purchase price of $100, warrants to purchase
common stock substantially identical to the Common Stock at $3.60 per Share.
The Company shall not be obligated to sell and deliver the Underwriter's
Warrants, and the Representative will not be obligated to purchase and pay for
the Underwriter's Warrants, except upon payment for the Shares pursuant to
Subsection 3.2.1 hereof.
The total number of securities which may be purchased upon exercise of the
Unit Common Stock Warrant will be 10% of the number of shares of Common Stock
which are sold in the offering (33,333), excluding such Shares as may be sold
upon exercise of the Underwriter's over-allotment option. The Underwriter's
Warrants shall be non-transferable for a period of one (1) year following the
Effective Date except to the Underwriters and selected dealers and their
respective officers or partners. The Underwriter's Warrant shall contain
anti-dilution provisions, a cashless exercise provision, piggyback registration
rights and shall otherwise be in form and substance satisfactory to the
Underwriter.
3.4 Representative's Expense Allowance. It is understood that the
Company shall reimburse the Representative, for itself alone and not on
behalf of the other Members of the Underwriting Group, for its expenses on a
nonaccountable basis in the amount of 3% of the gross proceeds from the sale
of the Shares ($.09 per Share) excluding proceeds from the sale of the Shares
included in the over-allotment option. The Representative acknowledges
receipt of $10,000 of said non-accountable expense allowance. By the Closing
Date and, if applicable, on the Over-Allotment Closing Date, the
Representative shall be entitled to withhold the unpaid balance of such
nonaccountable expense allowance. The Representative shall be solely
responsible for all expenses incurred by it in connection with the offering
including, but not limited to, the expenses of its own counsel except as set
forth in Section 5.7 hereof. Notwithstanding the foregoing, if the
Registration Statement does not become effective, or the offering is never
commenced after it becomes effective, or if this Agreement is terminated as
provided herein, the Representative will retain so much of the
non-accountable expense allowance which has been or should have been received
by the Representative from the Company as is equal to its actual accountable
out-of-pocket expenses and reimburse the remainder, if any to the Company,
provided that the amount to be reimbursed will not exceed the amount of the
non-accountable expense allowance. The Representative's expenses shall
include, but are not to be limited to, a fee to compensate the Representative
for the services and time of Representative's counsel, plus any additional
expenses and fees, including but not limited to, travel expenses, postage
expenses, duplication expenses, confirmation and other record preparation
expenses, long-distance telephone expenses, consultant and investigator
expenses and other expenses incurred by the Representative in connection with
the proposed offering.
<PAGE>
3.5 Additional Financing. The Company agrees that if the
Representative arranges for equity financing accepted by and closed with the
Company other than as contemplated herein during a period of five (5) years
from the date of this Agreement, the Company will pay a ten percent (10%)
commission to the Representative based on the amount of equity financing.
"Arranges," as used in this section, means locating the financing,
introducing the Company to the source of the financing, and assisting the
Company, in all reasonable ways as the Company may request, to negotiate and
complete the financing.
If the Underwriter arranges for debt financing accepted by and closed
with the Company during a period of five (5) years from the date hereof, the
Company will pay a five percent (5%) commission to the Underwriter based on
the amount of debt financing.
If the Underwriter obtains an increase in the Company's line of credit,
which is accepted by and closed with the Company, the Company will pay a fee
equal to 1% of the amount of increase.
If the Underwriter arranges for the purchase or sale of assets, for a
merger, acquisition or joint venture accepted by and closed with the Company,
during a period of five (5) years from the date hereof, the Company will pay
a fee to the Underwriter for its services calculated as follows:
<TABLE>
<S> <C>
5% of the value of the transaction to the Company up to and
including $1,000,000,
4% of the value of the transaction to the Company greater than
$1,000,000 and up to and including $2,000,000,
3% of the value of the transaction to the Company greater than
$2,000,000 and up to and including $3,000,000,
2% of the value of the transaction to the Company greater than
$3,000,000 and up to and including $4,000,000, and
1% of the value of the transaction to the Company in excess of
$4,000,000, all from such income as received.
</TABLE>
In addition, the Company shall reimburse the Representative for any
reasonable expenses that it incurs in arranging and closing such funding or
transactions, including fees of its counsel after receiving written approval
from the Company.
The provisions of this Section 3.5 shall survive the performance or
termination of this Agreement in accordance with Section 12.2 of this Agreement.
3.6 Representations of the Parties. The parties hereto respectively
represent that as of the Closing Date the representations herein contained and
the statements contained in all the certificates theretofore or simultaneously
delivered by any party to another, pursuant to this
<PAGE>
Agreement, shall in all material respects be true and correct.
3.7 Post-Closing Information. The Representative covenants that
reasonably promptly after the Closing Date, it will supply the Company with
all information required from the Representative which must be supplied to
the Commission, if any, and such additional information as the Company may
reasonably request to be supplied to the securities authorities for such
states in which the Shares have been qualified for sale.
3.8 Re-Offers By Selected Dealers. On each sale by the Representative
of any of the Shares to selected dealers, the Representative shall require
the selected dealer purchasing any such Shares to agree to re-offer the same
on the terms and conditions of the offering set forth in the Registration
Statement and Prospectus.
SECTION 4
REGISTRATION STATEMENT AND PROSPECTUS
4.1 Delivery of Registration Statements. The Company shall deliver to
the Representative without charge two (2) manually signed copies of the
Registration Statement, including all financial statements and exhibits filed
therewith and any amendments or supplements thereto. The signed copies of
the Registration Statement so furnished to the Representative will include
manually signed copies of any and all consents and certificates of the
independent public accountant certifying to the financial statements included
in the Registration Statement and Prospectus and signed copies of any and all
opinions, consents and certificates of any other persons whose profession
gives authority to statements made by them and who are named in the
Registration Statement or Prospectus as having prepared, certified, or
reviewed any part thereof.
4.2 Delivery of Preliminary Prospectus. The Company will cause to be
delivered to Members of the Underwriting Group and to other broker-dealers,
without charge, prior to the Effective Date as many copies of each
Preliminary Prospectus filed with the Commission bearing in red ink the
statement required by Item 501(c)(7) of Regulation S-B as may be required by
the Representative. The Company consents to the use of such documents by
Members of the Underwriting Group and by selected dealers prior to the
Effective Date of the Registration Statement.
4.3 Delivery of Prospectus. The Company will deliver, without charge,
copies of the Prospectus at such addresses and in such quantities as may be
required by the Representative for the purposes contemplated by this
Agreement and shall deliver said printed copies of the Prospectus to Members
of the Underwriting Group and to selected dealers within one business day
after the Effective Date.
4.4 Further Amendments and Supplements. If during such period of time
as in the opinion of the Representative or its counsel the Prospectus is
required to be delivered under the Act, any event occurs or any event known
to the Company relating to or affecting the Company shall occur as a result
of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the
<PAGE>
statements therein, in light of the circumstances under which they were made,
not misleading, or if it is necessary at any time after the Effective Date to
amend or supplement the Prospectus to comply with the Act, the Company will
forthwith notify the Representative thereof and prepare and file with the
Commission such further amendment to the Registration Statement or
supplemental or amended Prospectus as may be required and furnish and deliver
to the Representative and to others whose names and addresses are designated
by the Representative, all at the cost of the Company, a reasonable number of
copies of the amended or supplemented Prospectus which as so amended or
supplemented will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the Prospectus not
misleading in the light of the circumstances as of the date of such
Prospectus, amendment, or supplement, and which will comply in all respects
with the Act; and in the event the Representative is required to deliver a
Prospectus beyond completion of its participation in the public offering,
upon request will prepare promptly such Prospectus or Prospectuses as may be
necessary to permit continued compliance with the requirements of the Act.
4.5 Use of Prospectus. The Company authorizes the Members of the
Underwriting Group in connection with the distribution of the Shares and all
selected dealers to whom any of the Shares may be sold to use the Prospectus
as from time to time amended or supplemented, in connection with the offer
and sale of the Shares and in accordance with the applicable provisions of
the Act, the Rules and Regulations and state Blue Sky or securities laws.
SECTION 5
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Representative and other
Members of the Underwriting Group that:
5.1 Objection of Representative to Amendments or Supplements. After
the date hereof, the Company will not at any time, whether before or after
the Effective Date, file any amendment or supplement to the Registration
Statement or Prospectus unless and until a copy of such amendment or
supplement has been previously furnished to the Representative a reasonable
period prior to the proposed filing thereof, or to which the Representative
or counsel for the Representative have reasonably objected, in writing, on
the ground that such amendment or supplement is not in compliance with the
Act or the Rules and Regulations.
5.2 Company's Best Efforts to Cause Registration Statement to Become
Effective. The Company will use its best efforts to cause the Registration
Statement and any post-effective amendment subsequently filed, to become
effective as promptly as reasonably practicable and will promptly advise the
Representative, and will confirm such advice in writing (i) when the
Registration Statement shall become effective and when any amendment thereto
shall have become effective and when any amendment of or supplement to the
Prospectus shall be filed with the Commission, (ii) when the Commission shall
make a request or suggestion for any amendment to the Registration Statement
or the Prospectus or for additional information and the nature and substance
thereof, (iii) of the issuance by the Commission of an order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the Act
or of the initiation of any
<PAGE>
proceedings for that purpose, (iv) of the happening of any event which in the
judgment of the Company makes any material statement in the Registration
Statement or Prospectus untrue or which requires the making of any changes in
the Registration Statement or Prospectus in order to make the statements
therein not misleading, and (v) of the refusal to qualify or the suspension
of the qualification of the Shares for offer or sale in any jurisdiction, or
of the institution of any proceedings for any of such purposes. The Company
will use every reasonable effort to prevent the issuance of any such order or
of any order preventing or suspending such use, to prevent any such refusal
to qualify or any such suspension, and to obtain as soon as possible a
lifting of any such order, the reversal of any such refusal and the
termination of any such suspension.
5.3 Preparation and Filing of Amendments and Supplements. The Company
agrees to prepare and file promptly with the Commission, upon request of the
Representative, such amendments or supplements to the Registration Statement
or Prospectus, in form satisfactory to counsel to the Company, as in the
opinion of counsel to the Representative and of counsel to the Company may be
necessary in connection with the offer and sale of the Shares and will use
its best efforts to cause the same to become effective as promptly as
possible.
5.4 Blue Sky Qualification. It is understood and agreed by the Company
and the Representative that it shall be a condition of the Offering that the
sale of the Shares be registered or otherwise qualified for offer and sale in
those states as may be reasonably requested by the Representative. The
Company specifically agrees to attempt to register or qualify the Offering in
Colorado, New York, __________, __________, __________ and such other states
as reasonably requested by Representative. Copies of all applications for
the registration or qualification of the Shares and other securities
referenced herein and related documents (except for the Registration
Statement and Prospectus) will be filed by the Representative's Counsel with
the various states and shall be supplied to the Company's legal counsel,
concurrently with their transmission to the various states. The expense of
such filings, including legal fees of the Company's Counsel, shall be
promptly paid by the Company. Copies of all comments and orders received
from the various states shall be immediately supplied to the Company's legal
counsel. Immediately prior to the distribution of the preliminary
Prospectuses to potential investors, and prior to the Effective Date,
Representative's Counsel shall provide a written memorandum of all states
wherein the preliminary Prospectus may be distributed and wherein the
Offering has been registered or qualified for sale, canceled, withdrawn,
denied or exempt, the date of such event(s) and the number of Shares
registered or qualified for sale in each such state. After settlement and
closing, the Representative may confirm the qualification of the Company's
securities in writing to the Company and the Company's counsel. Failure by
the Company or Company's counsel to refute such confirmation shall constitute
an affirmative statement by the same advising the Representative that such
qualification in fact has taken place.
5.5 Financial Statements. The Company at its own expense will prepare
and give and will continue to give such financial statements and other
information to and as may be required by the Commission, or the proper public
bodies of the states in which the Shares may be registered or qualified.
5.6 Reports and Financial Statements to the Representative. During the
period of three
<PAGE>
years from the Closing Date, the Company will file with the Commission within
the prescribed period the annual report of the Company on Form 10-K, which
includes a financial report of the Company and its subsidiaries, if any, on a
consolidated basis, and a similar financial report of all unconsolidated
subsidiaries, if any, all such reports to include a balance sheet as of the
end of the preceding fiscal year, a statement of operations, a statement of
cash flows and an analysis of shareholders' equity covering such fiscal year,
and all to be in reasonable detail and certified by independent public
accountants for the Company.
If the Company shall fail to file with the Commission the financial
statements as herein provided, within the times specified herein, the
Representative, after giving reasonable notice of not less than 30 days,
shall have the right to have such financial statements prepared by
independent public accountants of its own choosing and the Company agrees to
furnish such independent public accountants such data and assistance and
access to such records as they may reasonably require to enable them to
prepare such statements and to pay their reasonable fees and expenses in
preparing the same.
5.7 Expenses Paid by the Company. The Company shall bear, whether or
not the transactions contemplated hereunder are consummated or the
Registration Statement is prevented from becoming effective or this Agreement
is terminated, all costs and expenses incident to the filing of the
Registration Statement with the NASD, the cost and legal counsel fees of
qualification under state securities laws, the fees and disbursements of
legal counsel and accountants for the Company, the cost of preparing and
printing the Registration Statement, the cost of printing as many preliminary
and final Prospectuses as the Representative may deem necessary, the cost of
providing the Representative's Counsel with two signed copies of each
Registration Statement and as amended, including all exhibits, correspondence
and other documentation relating thereto, and all expenses incurred in
connection with the holding of due diligence meetings, including the cost of
the meeting room, food and beverage, and expenses incurred by Company
representatives in attending a reasonable number of such due diligence
meetings with the Representatives' representatives, prospective dealers and
(which shall include all expenses of presentations as reasonably requested by
the Representative) their representatives and others, the expenses of
delivery of preliminary and final Prospectuses to the Representatives and
dealers (the final Prospectus shall be delivered no later than the day
following the Effective Date), and any other expenses customarily paid by an
issuer; provided, however, that any amounts paid to the Representative as an
expense allowance shall not exceed the amounts provided in Section 3.4.
Except as specified above, the Company shall not be required to pay any fees
or charges for attending, or any travel or lodging expenses incurred in
attending, due diligence meetings by representatives of the Representatives
or dealers.
5.8 Reports to Shareholders. The Company agrees that for so long as
the Company's Common Stock is registered under the 1934 Act, the Company will
hold an annual meeting of shareholders for the election of directors within
one hundred eighty (180) days after the end of each of the Company's fiscal
years. The Company shall provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto, such financial statements will be those required by
the 1934 Act and will be included in an annual report meeting the
requirements of Rule 14c-3 under the 1934 Act.
<PAGE>
5.9 Section 11(a) Financials. The Company will make generally
available to its security holders and will deliver to the Representative, as
soon as practicable, an earnings statement (as to which no opinion need be
rendered but which will satisfy the provisions of Section 11(a) of the Act)
covering a period of at least 12 months beginning after the Effective Date.
Compliance by the Company with Rule 158 promulgated under the Act shall
satisfy the requirements of this Section 5.9.
5.10 Post-Effective Availability of Prospectus. Within the time during
which the Prospectus is required to be delivered under the Act, the Company
will comply, at its own expense, with all requirements imposed upon it by the
Act, as now or hereafter amended, by the Rules and Regulations, as from time
to time may be in force, and by any order of the Commission, so far as
necessary to permit the continuance of sales or dealings in the Shares and
the exercise of the Warrants.
5.11 Application of Proceeds. The Company will adopt procedures for
the stewardship of the net proceeds it receives from the sale of the Shares
and will apply the net proceeds from the sale of the Shares substantially in
the manner specifically set forth in the Registration Statement and
Prospectus unless any deviation from such application is in accordance with
the Registration Statement and occurs only after approval by the Board of
Directors of the Company and then only after the Board of Directors has
obtained the written opinion of recognized legal counsel well versed in the
federal and state securities laws as to the propriety of any such deviation.
5.12 Delivery of Documents. At the Closing, the Company will deliver
to the Representative true and correct copies of the articles of
incorporation of the Company and all amendments thereto, all such copies to
be certified by the Secretary of the Company; true and correct copies of the
by-laws of the Company and of the minutes of all meetings of the directors
and shareholders of the Company held prior to the Closing Date which in any
way relate to the subject matter of this Agreement.
5.13 Cooperation With Representative's Due Diligence. At all times
prior to the Closing Date, the Company will cooperate with the Representative
in such investigation as the Representative may make or cause to be made of
all the properties, management, business and operations of the Company in
connection with the purchase and public offering of the Shares, and the
Company will make available to the Representative in connection therewith
such information in its possession as the Representative may reasonably
request.
5.14 Appointment of Transfer Agent and Warrant Agent. The Company has
appointed Intra West Transfer Company, Inc., Salt Lake City, Utah, as
Transfer Agent for the Shares subject to the Closing. The Company will not
change or terminate such appointment for a period of three years from the
Effective Date without first obtaining the written consent of the
Representative, which consent shall not be unreasonably withheld.
5.15 Compliance With Conditions Precedent. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Members of the Underwriting Group
in Section 8 hereof.
<PAGE>
5.16 Reporting of Use of Proceeds. The Company agrees to file with the
Commission all required information in accordance with the provisions of Item
701 of Regulation S-B promulgated under the Act.
5.17 Bound Volume. The Company shall supply to the Representative and
the Representative's counsel, at the Company's cost, two bound volumes each
of all of the public offering materials within a reasonable time after the
closing, not to exceed three months.
5.18 Listing in Moody's and Standard & Poor's. As soon as possible
following the Effective Date, the Company agrees to use its best efforts to
have the Company listed in Moody's Over-The-Counter Manual or Standard &
Poor's Standard Corporation Records, or if already listed, the Company agrees
to use its best efforts to maintain such listings.
5.19 Secondary Trading Qualification. The Company agrees to qualify
the Shares for secondary trading, as soon as legally possible, in such states
as are requested by the Representative from time to time.
5.20 Right of Inspection. The Company agrees that for a period of
three (3) years after the Effective Date, the Representative, at the
Representative's expense, will have the right to have a person or persons
selected by the Representative review the books and records of the Company
upon seven (7) days' written notice and at reasonable times. Such person or
persons will be required to execute a confidentiality agreement which will,
in part, prohibit disclosure of information to any party except the
Representative, which information shall be held in confidence unless
otherwise specifically agreed to by the Company in writing.
SECTION 6
INDEMNIFICATION AND CONTRIBUTION
6.1 Indemnification By Company. The Company agrees to indemnify and
hold harmless the Representative and the other Members of the Underwriting
Group (for the purposes of this Section 6 collectively the "Underwriters")
and each officer, director, employee, representative, agent, surety,
guarantor, and each person who controls each of the Underwriters within the
meaning of Section 15 of the Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Act, any other statute, at common law, NASD requirements or
otherwise and to reimburse the persons indemnified above for any legal or
other expenses (including the cost of any investigation and preparation)
incurred by them in connection with any litigation, arbitration or any other
proceeding (hereinafter referred to as "litigation" in this Section 6),
whether or not resulting in any liability, but only insofar as such losses,
claims, damages, liabilities and litigation arise out of or are based upon
this Agreement or any matter relating to the offer or sale of the Shares,
including, but not limited to, any violation of any registration
requirements, any improper use of sales literature or any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereto or any application or other document filed
in order to qualify the Shares under the securities laws of the states where
filings were made, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
<PAGE>
statements therein not misleading, all as of the date when the Registration
Statement or such amendment, as the case may be, becomes effective, or any
untrue statement or alleged untrue statement of a material fact contained in
the Prospectus (as amended or supplemented if the Company shall have filed
with the Commission any amendments thereof or supplements thereto), or the
omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading as of the date of the Prospectus or such
amendment or supplement; provided, however, that the indemnity agreement
contained in this Section 6.1 shall not apply to amounts paid in settlement
of any such litigation if such settlements are effected without the consent
of the Company, nor shall it apply to the Underwriters or any other person
indemnified as provided above in respect of any such losses, claims, damages,
liabilities or actions arising out of or based upon any such untrue
statements or alleged untrue statement, or any such omission or alleged
omission, if such statement or omission was made in reliance upon information
peculiarly within the knowledge of the Underwriters and furnished in writing
to the Company by the Underwriters specifically for use in connection with
the preparation of the Registration Statement and Prospectus or any such
amendment or supplement thereto. This indemnity agreement is in addition to
any other liability which the Company may otherwise have to the Underwriters
or any other person indemnified as provided above. The Underwriters or any
other person indemnified as provided above agree within twenty days after the
receipt by them of written notice of the commencement of any action against
them in respect of which indemnity may be sought from the Company on account
of the indemnity agreement contained in this Section 6.1 to notify the
Company in writing of the commencement thereof. The failure of the
Underwriters or any other person indemnified as provided above so to notify
the Company of any such action shall relieve the Company from any liability
which it may have to such person on account of the indemnity agreement
contained in this Section 6.1, but shall not relieve the Company from any
other liability which it may have to the Underwriters or any person
identified above. In case any such action shall be brought against the
Underwriters or any other person indemnified as provided above and the
Underwriters shall notify the Company of the commencement thereof, the
Company shall be entitled to participate in (and, to the extent that it shall
wish, to direct) the defense thereof at its own expense, but such defense
shall be conducted by counsel of recognized standing and reasonably
satisfactory to the Underwriters or any other person indemnified as provided
above, defendant or defendants in such litigation. The Company agrees to
notify the Underwriters promptly of commencement of any litigation against it
or any of its officers or directors, of which it may be advised, in
connection with the issue and sale of any of the Shares or any securities
included therein and to furnish to the Underwriters, at their request, copies
of all pleadings therein and permit the Underwriters to be observers therein
and apprise the Underwriters of all developments therein, all at the
Company's expense.
6.2 Indemnification By Underwriters. The Underwriters agree to
indemnify and hold harmless the Company, and each director, officer, employee
and agent of the Company and each person who controls the Company within the
meaning of Section 15 of the Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Act or any other statute or at common law and to reimburse
persons indemnified as above for any legal or other expenses (including the
cost of any investigation and preparation) incurred by them in connection
with any litigation, whether or not resulting in any
<PAGE>
liability, but only insofar as such losses, claims, damages, liabilities and
litigation arise out of or are based upon any statement in or omission from
the Registration Statement or any amendment thereto, or the Prospectus (as
amended or as supplemented, if amended or supplemented as aforesaid) or any
application or other document filed in any state or jurisdiction in order to
qualify the Shares under the securities laws thereof, if such statement or
omission was made in reliance upon information peculiarly within its
knowledge and furnished in writing to the Company by the Underwriters on
their behalf specifically for use in connection with the preparation thereof
or supplement thereto. This indemnity agreement is in addition to any other
liability which the Underwriters may otherwise have to the Company and any
other person indemnified as provided above. The Underwriters shall not be
liable for amounts paid in settlement of any such litigation if such
settlement was effected without the consent of the Underwriters. In case of
commencement of any action in respect of which indemnity may be sought from
the Underwriters on account of the indemnity agreement contained in this
Section 6.2, each person agreed to be indemnified by the Underwriters shall
have the same obligation to notify the Underwriters as the Underwriters have
toward the Company in Section 6.1 above, subject to the same loss of
indemnity in the event such notice is not given, and the Underwriters shall
have the same right to participate in (and, to the extent that they shall
wish, to direct) the defense of such action at their own expense, but such
defense shall be conducted by counsel of recognized standing and satisfactory
to the Company or any other person indemnified as provided above. The
Underwriters agree to notify the Company promptly of the commencement of any
litigation against the Underwriters (and any other person indemnified as
provided above), of which it may be advised, in connection with the issue and
sale of any of the securities of the Company, and to furnish to the Company
at its request copies of all pleadings therein and apprise it of all the
developments therein, all at the Underwriters' expense, and permit the
Company to be an observer therein.
6.3 Contribution. If the indemnification provided for in Sections 6.1
and 6.2 of this Agreement are, for any reason other than as specified in such
Sections, held by a court to be unavailable and the Company or any Member of
the Underwriting Group has been required to pay damages as a result of a
determination by a court, arbitration tribunal or any other person having
jurisdiction over any Member of the Underwriting Group that the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto contains an untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, then the Company shall contribute to
the damage paid by the Member of the Underwriting Group and the Member of the
Underwriting Group shall contribute to the damages paid by the Company, but
in each case only to the extent that such damages arise out of or are based
upon such untrue statement or omission, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Member of the Underwriting Group on the other from the
offering of the Shares or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Member of the Underwriting Group in
connection with the statements or omissions which resulted in such damages,
as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Member of the Underwriting Group
shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company bear to the
total underwriting
<PAGE>
discounts and unitemized expenses received by the Member of the Underwriting
Group. The relative fault shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Company or the
Member of the Underwriting Group and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such untrue
statement or omission. For purposes of this Section 6.3, the term "damages"
shall include any counsel fees or other expenses reasonably incurred by the
Company or the Member of the Underwriting Group in connection with
investigating or defending any action or claim which is the subject of the
contribution provisions of this Section 6.3. Notwithstanding the provisions
of this Section 6.3, no Member of the Underwriting Group shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Member of
the Underwriting Group has otherwise been required to pay by reason of any
such untrue statements or omissions. No person adjudged guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Under this Section 6.3, each Member of the
Underwriting Group's obligations to contribute are several in proportion to
their respective underwriting obligations and not joint.
The agreements contained in this Section 6 and the representations and
warranties of the Company set forth in this Underwriting Agreement shall
remain operative and in full force and effect, regardless of (a) any
investigation made by or on behalf of any Member of the Underwriting Group or
any person controlling any Member of the Underwriting Group or by or on
behalf of the Company, or any person controlling the Company, (b) acceptance
of any Shares and payment therefor hereunder, and (c) any termination of any
other provision of this Underwriting Agreement. A successor of any Member of
the Underwriting Group or of the Company, or any director or officer thereof
or any person controlling any Member of the Underwriting Group or the
Company, as the case may be, shall be entitled to the benefits of the
agreements contained in this Section 6.
SECTION 7
EFFECTIVENESS OF AGREEMENT
This Agreement shall become effective (i) at 10:00 a.m., Denver time, on
the first full business day after the Effective Date, or (ii) upon release by
the Representative of the Shares for sale after the Effective Date, whichever
shall first occur. The Representative agrees to notify the Company
immediately after the Representative shall have taken any action, by release
or otherwise, whereby this Agreement shall have become effective. This
Agreement shall, nevertheless, become effective at such time earlier than the
time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
SECTION 8
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the Underwriting Group hereunder to purchase the
Shares and to make
<PAGE>
payment to the Company hereunder on the Closing Date and on the
Over-Allotment Closing Date, if any, shall be subject to the accuracy, as of
the Closing Date and the Over-Allotment Closing Date, of each of the
representations and warranties on the part of the Company herein contained,
to the performance by the Company of all its agreements herein contained, to
the fulfillment of or compliance by the Company with all covenants and
conditions hereof, and to the following additional conditions:
8.1 Effectiveness of Registration Statement. The Registration
Statement shall have become effective and no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission or be pending; any request for additional information on the part
of the Commission (to be included in the Registration Statement or Prospectus
or otherwise) shall have been complied with to the satisfaction of the
Commission; and neither the Registration Statement or the Prospectus nor any
amendment thereto shall have been filed to which counsel to the
Representative shall have reasonably objected in writing or have not given
their consent.
8.2 Accuracy of Registration Statement. The Representative shall not
have disclosed in writing to the Company that the Registration Statement or
the Prospectus or any amendment thereof or supplement thereto contains an
untrue statement of a fact which, in the opinion of counsel to the
Representative, is material or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein, or is
necessary to make the statements therein not misleading.
8.3 Casualty and Other Calamity. The Company shall not have sustained
any loss on account of fire, explosion, flood, accident, calamity or any
other cause, of such character as materially adversely affects its business
or property considered as an entire entity, whether or not such loss is
covered by insurance, and no officer or director of the Company shall have
suffered any injury, sickness or disability of a nature which would
materially adversely affect his or her ability to properly function as an
officer or director of the Company.
8.4 Litigation and Other Proceedings. Other than as disclosed in the
Registration Statement or Prospectus, there shall be no litigation instituted
or threatened against the Company and there shall be no proceeding instituted
or threatened against the Company before or by any federal or state
commission, regulatory body or administrative agency or other governmental
body, domestic or foreign, wherein an unfavorable ruling, decision or finding
would materially adversely affect the business, management, licenses,
operations or financial condition or income of the Company considered as an
entity.
8.5 Lack of Material Change. Except as contemplated herein or as set
forth in the Registration Statement and Prospectus, during the period
subsequent to the date of the last audited balance sheet included in the
Registration Statement, the Company (a) shall have conducted its business in
the usual and ordinary manner as the same was being conducted on the date of
the last audited balance sheet included in the Registration Statement, and
(b) except in the ordinary course of its business, the Company shall not have
incurred any liabilities, claims or obligations (direct or contingent) or
disposed of any of its assets, or entered into any material
<PAGE>
transaction or suffered or experienced any substantially adverse change in
its condition, financial or otherwise. The capital stock and surplus
accounts of the Company shall be substantially the same as at the date of the
last audited balance sheet included in the Registration Statement, without
considering the proceeds from the sale of the Shares, other than as may be
set forth in the Prospectus, and except as the surplus reflects the result of
continued losses from operations consistent with the trend established by
prior periods.
8.6 Review By and Opinion of Representative's Counsel. The
authorization of the Shares, the Underwriter's Purchase Warrants and the
Common Stock and Warrants issuable upon the exercise of the Underwriter's
Purchase Warrants, the Registration Statement, the Prospectus and all
corporate proceedings and other legal matters incident thereto and to this
Agreement shall be reasonably satisfactory in all respects to counsel to the
Representative.
8.7 Opinion of Counsel. The Company shall have furnished to the
Representative an opinion, dated the Effective Date, the Closing Date and, if
applicable, the Over-Allotment Closing Date, addressed to the Representative,
from Ronald N. Vance, P.C., 57 West 200 South, Salt Lake City, Utah 84101,
counsel to the Company, to the effect that based upon a review by them of the
Registration Statement, Prospectus, the Company's certificate of
incorporation, by-laws, and relevant corporate proceedings and contracts, and
examination of such laws they deem necessary and such other investigation by
such counsel as they deem necessary to express such opinion:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Colorado, and
has the corporate power and authority to own its properties and to carry on
its business as described in the Registration Statement and Prospectus.
(ii) The Company is duly qualified and in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or held under lease or the nature of the
business conducted requires such qualification and in which the failure to
qualify would have a materially adverse effect on the business of the
Company.
(iii) The authorized and outstanding capital stock of the Company is
as set forth in the Registration Statement and Prospectus; the outstanding
common stock of the Company, the Shares and the Underwriter's Purchase
Warrants conform to the statements concerning them in the Registration
Statement and Prospectus; the outstanding common stock of the Company
contains no preemptive rights; the Shares and Underwriter's Purchase
Warrants have been, and the securities issuable upon exercise of the
Underwriter's Purchase Warrants will be, duly and validly authorized and,
upon issuance thereof and payment therefor in accordance with this
Agreement, validly issued, fully paid and nonassessable, and will not be
subject to the preemptive rights of any shareholder of the Company.
(iv) The Underwriter's Purchase Warrants have been duly and validly
authorized
<PAGE>
and are valid and binding obligations of the Company enforceable in
accordance with their respective terms.
(v) A sufficient number of shares of common stock has been duly
reserved for issuance upon the exercise of the Underwriter's Purchase
Warrants.
(vi) To such counsel's knowledge, no consents, approvals,
authorizations or orders of agencies, officers or other regulatory
authorities are required for the valid authorization, issuance or sale of
the Shares and the Underwriter's Purchase Warrants contemplated by this
Agreement, except as such have been obtained and are in full force and
effect under the Act and such as may be required under applicable state
securities laws in connection with the purchase and distribution of such
securities by the Representative and the Underwriting Group and the
approval of the underwriting terms and compensation by the NASD.
(vii) The issuance and sale of the Shares, the Underwriter's Purchase
Warrants, and the consummation of the transactions herein contemplated and
compliance with the terms of this Agreement will not conflict with or
result in a breach of any of the terms, conditions, or provisions of or
constitute a default under the certificate of incorporation, or by-laws of
the Company, or, to their knowledge, any note, indenture, mortgage, deed of
trust, or other agreement or instrument known to such counsel without any
specific investigation to which the Company is a party or by which the
Company or any of its property is bound or any existing law (provided this
paragraph shall not relate to federal or state securities laws), order,
rule, regulation, writ, injunction, or decree known to such counsel of any
government, governmental instrumentality, agency, body, arbitration
tribunal, or court, domestic or foreign, having jurisdiction over the
Company or its property.
(viii) On the basis of a reasonable inquiry by such counsel,
including his participation in conferences with representatives of the
Company and its accountants at which the contents of the Registration
Statement and the Prospectus and related matters were discussed, and
without expressing any opinion as to the financial statements or other
financial data contained therein: (A) nothing has come to such counsel's
attention which leads them to believe that the Registration Statement and
the Prospectus, as amended or supplemented by any amendments or supplements
thereto made by the Company prior to the Closing Date, do not comply as to
form in all material respects with the requirements of the Act; (B) nothing
has come to their attention which leads them to believe that the
Registration Statement or the Prospectus, as amended or supplemented by any
such amendments or supplements thereto, contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; (C)
they do not know of any contract or other document required to be described
in or filed as an exhibit to the Registration Statement which is not so
described or filed; and (D) the Registration Statement has become effective
under the Act, and, to the best of their knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that
<PAGE>
purpose have been instituted or are pending or contemplated by the
Commission.
(ix) This Agreement has been duly authorized and executed by the
Company and is a valid and binding agreement of the Company.
(x) Based upon representations of management, the Company is not in
default of any of the contracts, licenses, leases or agreements to which it
is a party, and the offering of the Shares and the Underwriter's Purchase
Warrants will not cause the Company to become in default of any of its
contracts, licenses, leases or agreements.
(xi) The Company is not currently offering any securities for sale
except as described in the Registration Statement.
(xii) Counsel has no knowledge of any promoter, affiliate, parent or
subsidiaries of the Company except as are described in the Registration
Statement and Prospectus.
(xiii) To the knowledge of counsel, and without making any statement
as to title, the Company owns all properties described in the Registration
Statement as being owned by it; the properties are free and clear of all
liens, charges, encumbrances or restrictions except as described in the
Registration Statement; all of the leases, subleases and other agreements
under which the Company holds its properties are in full force and effect;
the Company is not in default under any of the material terms or provisions
of any of the leases, subleases or other agreements; and there are no
claims against the Company concerning its rights under the leases,
subleases and other agreements and concerning its right to continued
possession of its properties.
(xiv) To the knowledge of counsel, the Company possesses the required
licenses, certificates, authorizations or permits issued by the appropriate
federal, state and local regulatory authorities necessary to conduct its
business as described in the Registration Statement and to retain
possession of its properties. Counsel is unaware of any notice of any
proceeding relating to the revocation or modification of any of these
licenses, certificates, authorizations or permits having been received by
the Company.
(xv) To the knowledge of counsel, the Company has paid all taxes
which are shown as due and owing on the financial statements included in
the Registration Statement and Prospectus.
As to all factual matters including without limitation the issuance of
stock and warrant certificates and receipt of payment therefor, the states in
which the Company transacts business, the adoption of resolutions reflected
by the Company's minute book and the like, such counsel may rely on the
certificate of an appropriate officer of the Company. Counsel's opinion as
to the validity and enforceability of any and all contracts and agreements
referenced herein may exclude any opinion as to the validity or
enforceability of any indemnification or contribution provisions thereof, or
as the validity or enforceability of any such contract or agreement may be
limited by bankruptcy or other laws relating to or affecting creditors'
rights generally and by equitable
<PAGE>
principles.
8.8.1 Accountant's Letter. The Representative shall have received
letters addressed to it dated the Effective Date, the Closing Date and, if
applicable, the Over-Allotment Closing Date, respectively, and a draft of
such letter at least five days prior to the Effective Date, the Closing
Date and, if applicable, the Over-Allotment Closing Date, from Pritchett,
Siler, Hardy, P.C., independent public accountants for the Company, stating
that (i) with respect to the Company they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and the response to Item 509 of Regulation
S-B as reflected by the Registration Statement is correct insofar as it
relates to them; (ii) in their opinion, the financial statements examined
by them of the Company at all dates and for all periods referred to in
their opinion and included in the Registration Statement and Prospectus,
comply in all material respects with the applicable accounting requirements
of the Act and the published Rules and Regulations thereunder with respect
to registration statements on Form SB-1; (iii) on the basis of certain
indicated procedures (but not an examination in accordance with generally
accepted accounting principles), including a reading of the latest
available interim unaudited financial statements of the Company, whether or
not appearing in the Prospectus, inquiries of the officers of the Company
or other persons responsible for its financial and accounting matters
regarding the specific items for which representations are requested below
and a reading of the minute books of the Company, nothing has come to their
attention which would cause them to believe that during the period from the
last audited balance sheet included in the Registration Statement to a
specified date not more than five days prior to the date of such letter (a)
there has been any change in the capital stock or other securities of the
Company or any payment or declaration of any dividend or other distribution
in respect thereof or exchange therefor other than as set forth in or
contemplated by the Registration Statement or Prospectus; (b) there have
been any material decreases in net current assets or net assets as compared
with amounts shown in the last audited balance sheet included in the
Prospectus so as to make said financial statements misleading other than as
set forth in or contemplated by the Registration Statement or Prospectus;
and (c) on the basis of the indicated procedures and discussions referred
to in clause (iii) above, nothing has come to their attention which, in
their judgment, would cause them to believe or indicate that (1) the
unaudited financial statements and schedules set forth in the Registration
Statement and Prospectus do not present fairly the financial position and
results of the Company, for the periods indicated, in conformity with the
generally accepted accounting principles applied on a consistent basis with
the audited financial statements, and (2) the dollar amounts, percentages
and other financial information set forth in the Registration Statement and
Prospectus under the captions "Summary", "Risk Factors", and "Dilution",
are not in agreement with the Company's general ledger, financial records
or computations made by the Company therefrom.
8.8.2 Conformed Copies of Accountant's Letter. The Representative
shall be furnished without charge, in addition to the original signed
copies, such number of signed or photostatic or conformed copies of such
letters as the Representative shall reasonably
<PAGE>
request.
8.9 Officer's Certificate. The Company shall have furnished to the
Representative certificates, each signed by the President and Chief Financial
Officer of the Company, one dated as of the Effective Date, one dated as of
the Closing Date, and, if applicable, one dated as of the Over-Allotment
Closing Date, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct at and as of the date of the certificate,
and the Company has complied with all the agreements and has satisfied all
the conditions on its part to be performed or satisfied at or prior to the
date of the certificate.
(ii) The Registration Statement has become effective and no order
suspending the effectiveness of the Registration Statement has been issued
and to the best of the knowledge of the respective signers, no proceeding
for that purpose has been initiated or is threatened by the Commission.
(iii) The respective signers have each carefully examined the
Registration Statement and Prospectus and any amendments and supplements
thereto, and to the best of their knowledge the Registration Statement and
the Prospectus and any amendments and supplements thereto contain all
statements required to be stated therein, and all statements contained
therein are true and correct, and neither the Registration Statement nor
Prospectus nor any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading and, since the Effective Date of the Registration Statement,
there has occurred no event required to be set forth in an amended or a
supplemented Prospectus which has not been so set forth.
(iv) Except as set forth in the Registration Statement and Prospectus
since the respective dates of the periods for which information is given in
the Registration Statement and Prospectus and prior to the date of the
certificate, (a) there has not been any substantially adverse change,
financial or otherwise, in the affairs or condition of the Company, and (b)
the Company has not incurred any material liabilities, direct or
contingent, or entered into any material transactions, otherwise than in
the ordinary course of business.
(v) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, no dividends or
distribution whatever have been declared and/or paid on or with respect to
the common stock of the Company.
8.10 Tender of Delivery of Securities. All of the Shares being offered
by the Company and the Underwriter's Purchase Warrants being purchased from
the Company shall be tendered for delivery in accordance with the terms and
provisions of this Agreement.
8.11 Blue-Sky Registration or Qualification. The Shares shall be
registered or qualified in
<PAGE>
such states as the Representative and the Company may agree pursuant to
Section 5.4, and each such registration or qualification shall be in effect
and not subject to any stop order or other proceeding on the Closing Date or
the Over-Allotment Closing Date. On the Effective Date of the Registration
Statement, on the Closing Date and, if applicable, the Over-Allotment Closing
Date, the Representative shall receive from counsel for the Company, written
information which contains the following:
(i) the names of the states in which applications to register or
qualify the Shares and the Underwriter's Warrants and the Warrant Shares
have been filed;
(ii) the status of such registrations or qualifications in such
states as of the date of such letter;
(iii) a list containing the name of each such state in which the
Shares and the Underwriter's Warrants and the Warrant Shares may be legally
offered and sold by a dealer licensed in such state and the number of each
which may be legally offered and sold in each such state as of the date of
such letter.
(iv) with respect to the written information dated on the Effective
Date, a representation that such counsel will continuously update such
written opinion if any material changes occur, of which counsel received
actual notice, in the information provided therein between the Effective
Date and the Closing Date and, if applicable, Over-Allotment Closing Date;
(v) the names of the states in which the offer and sale of the Shares
is exempt from registration or qualification; and
(vi) a statement that the Members of the Underwriting Group and
selected dealers in the offering may rely upon the information contained
therein.
8.12 Approval of Representative's Counsel. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Representative, whose approval
shall not be unreasonably withheld. The suggested form of such documents shall
be provided to the counsel for the Representative at least three business days
before the Closing Date. The Representative's counsel will provide a written
memorandum stating such closing documents which it deems necessary for its
review.
8.13 Officers' Certificate as a Company Representative. Any certificate
signed by an officer of the Company and delivered to the Representative or
counsel for the Representative shall be deemed a representation and warranty by
the Company to the Representative as to the statements made therein.
SECTION 9
TERMINATION
<PAGE>
9.1 Termination Because of Noncompliance. This Agreement may be
terminated in its entirety by the Representative by notice to the Company prior
to its effectiveness or in the event that the Company shall have failed or been
unable to comply with any of the terms, conditions or provisions of this
Agreement on the part of the Company to be performed, complied with or fulfilled
(including but not limited to those specified in Sections 2, 3, 4, 5, and 8
hereof) within the respective times herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
waived by the Representative in writing.
9.2 Other Grounds for Termination by Representative. This Agreement may
be terminated by the Representative by notice to the Company at any time if, in
the sole judgment of the Representative, payment for and delivery of the Shares
is rendered impracticable or inadvisable because of:
(a) Material adverse changes in the Company's business, business
prospects, licenses, management, earnings, properties or conditions,
financial or otherwise;
(b) Any action, suit or proceedings, threatened or pending, at law or
equity against the Company, or by any federal, state or other commissions,
board or agency wherein any unfavorable result or decision could materially
adversely affect the business, business prospects, licenses, properties,
financial condition or income or earnings of the Company;
(c) Additional material governmental restrictions not in force and
effect on the date hereof shall have been imposed upon the trading in
securities generally, or new offering or trading restrictions shall have
been generally established by a registered securities exchange, Commission,
NASD or other applicable regulatory authority, or trading in securities
generally on any such exchange, NASDAQ or otherwise, shall have been
suspended, or a general moratorium shall have been established by federal
or state authorities;
(d) Substantial and material changes in the condition of the market
beyond normal fluctuations such that it would be undesirable, impracticable
or inadvisable in the judgment of the Representative to proceed with this
Agreement or with the public offering of the Shares;
(e) Any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by Congress or any other
substantial national or international calamity or emergency if, in the
judgment of the Representative, the effect of any such outbreak,
escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the sale of and payment for the
Shares; or
(f) Any suspension of trading in the securities of the Company in the
over-the-counter market or the interruption or termination of quotations of
any security of the Company on the NASDAQ System.
<PAGE>
9.3 Effect of Termination Hereunder. Any termination of this Agreement
pursuant to this Section 9 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party hereto, except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it specified in
Sections 3.4 and 5.7; and the Company and the Underwriting Group shall be
obligated to pay, respectively, all losses, claims, damages or liabilities,
joint or several, under Section 6.1 in the case of the Company and Section 6.2
in the case of the Underwriting Group.
SECTION 10
REPRESENTATIVE'S REPRESENTATIONS AND WARRANTIES
The Representative represents and warrants to and agrees with the Company
that:
10.1 Registration as Broker-Dealer and Member of NASD. The Representative
is registered as a broker-dealer with the Securities and Exchange Commission and
is registered as a securities broker-dealer in all states in which it will sell
Shares and is a member in good standing of the National Association of
Securities Dealers, Inc.
10.2 Representative's Covenants. The Representative covenants and agrees
with the Company that (i) it will not offer or sell the Shares in any state or
other jurisdiction where it has not been advised in writing that the Shares are
qualified for the offer and sale therein or exempt from such requirements; (ii)
it will not make any representation to any person in connection with the offer
and sale of the Shares covered hereby except as set forth in the Registration
Statement or as authorized in writing by the Company; and (iii) it will comply
in good faith with all laws, rules and regulations applicable to the
distribution of the securities, including the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
SECTION 11
NOTICE
Except as otherwise expressly provided in this Agreement:
11.1 Notice to the Company. Whenever notice is required by the provisions
of this Underwriting Agreement to be given to the Company, such notice shall be
in writing addressed to the Company as follows:
Imagenetix, Inc.
11777 Bernardo Plaza Court, Suite 206
San Diego, California 92128
with a copy to:
Ronald N. Vance, P.C.
57 West 200 South, Suite 310
Salt Lake City, Utah 84101
<PAGE>
11.2 Notice to the Representative. Whenever notice is required by the
provisions of this Agreement to be given to the Representative, such notice
shall be given in writing addressed to the Representative as follows:
Spencer Edwards, Inc.
6120 Greenwood Plaza
Englewood, Colorado 80111
with a copy to:
Krys Boyle Freedman & Sawyer, P.C.
Attn: Jon D. Sawyer, Esq.
600 17th Street, Suite 2700-S
Denver, Colorado 80202-5427
11.3 Effective Date of Notices. Such notices shall be effective the date
actually received, three days from the day of mailing, or on the date of
delivery set forth on the receipt if the notice is sent by registered mail or
any expedited delivery service.
SECTION 12
MISCELLANEOUS
12.1 Benefit. This Agreement is made solely for the benefit of the
Representative, the other Members of the Underwriting Group, the Company, their
respective officers, directors and controlling persons referred to in Section 15
of the Act and such other persons as are identified in this Agreement, and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successor" or the term
"successors and assigns" as used in this Agreement shall not include any
purchasers, as such, of any of the Shares.
12.2 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company or its officers and
the Representative or the Members of the Underwriting Group as set forth in or
made pursuant to this Agreement and the indemnity agreements contained in
Section 6 hereof of the Company and the Underwriters (as defined in Section 6)
shall survive and remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or the Underwriters or any
such officer or director thereof or any controlling person of the Company or of
the Underwriters, (ii) delivery of or payment for the Shares, and (iii) the
Closing Date and Over-Allotment Closing Date, and any successor of the Company
and the Underwriters or any controlling person, officer or director thereof, as
the case may be, shall be entitled to the benefits hereof.
12.3 Governing Law. The validity, interpretation and construction of this
Agreement and of each part hereof will be governed by the laws of the State of
Colorado.
12.4 Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties hereto, and supersedes all agreements and
understandings including, but not limited to, the Letter of Intent dated June
17, 1999 which was understood and accepted by the
<PAGE>
Company on June 17, 1999.
12.5 Representative's Information. The statements with respect to the
public offering of the Shares on the inside and outside of both the front and
back cover pages of the Prospectus and under the caption "Underwriting" in the
Prospectus constitute the written information furnished by or on behalf of the
Representative referred to in Section 2.2 hereof, in Section 6.1 hereof and
Section 6.2 hereof.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the Agreement
between you and the Company.
Very truly yours,
IMAGENETIX, INC.
ATTEST:
By:
--------------------------------------- --------------------------------
Debra L. Spencer, Secretary William P. Spencer, President
WE HEREBY CONFIRM AS OF THE DATE HEREOF THAT THE ABOVE SETS FORTH THE
AGREEMENT BETWEEN THE COMPANY AND US.
SPENCER EDWARDS, INC.
(for itself and as Representative of
the several Underwriters names in
Schedule I hereto)
By:
---------------------------------
, President
IMAGENETIX, INC.
(A Colorado Corporation)
SCHEDULE I
This Schedule sets forth the name of each Underwriter referred to in the
Underwriting Agreement and the number of Shares to be purchased by each
Underwriter.
<TABLE>
<CAPTION>
Number
Name of Shares
---- ---------
<S> <C>
Total
</TABLE>
<PAGE>
EXHIBIT 1.2
WARRANT NO. _____
WARRANT TO PURCHASE SHARES
OF
IMAGENETIX, INC.
Warrant to Purchase 33,333 Shares
(subject to adjustment as set forth herein)
Exercise Price $3.60 Per Share
(subject to adjustment as set forth herein)
VOID AFTER 3:00 P.M., DENVER, COLORADO, TIME, ___________________
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (the "Act") OR REGISTERED OR QUALIFIED UNDER ANY OTHER
APPLICABLE FEDERAL OR STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION FILED IN ACCORDANCE WITH
THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT.
Imagenetix, Inc., 11777 Bernardo Plaza Court, Suite 206, San Diego,
California 92128 (the "Company"), hereby certifies that, for value received,
Spencer Edwards, Inc., 6120 Greenwood Plaza, Englewood, Colorado 80111 (the
"Holder"), is entitled, subject to the terms and conditions set forth below,
to purchase from the Company at any time on or after _________________________,
but before 3:00 p.m., Denver time, on ____________________, up to 33,333 shares
of common stock of the Company ("Shares") at a purchase price of $3.60 per
Share.
The number and character of the securities purchasable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as provided
below.
The term "Warrant" as used herein shall include this Warrant and any Warrants
issued in substitution for or replacement of this Warrant, or any Warrants
into which this Warrant may be divided or exchanged. The securities
purchasable upon the exercise of this Warrant are hereinafter referred to as
"Warrant Securities." Except as otherwise provided herein, the Warrant
Securities shall be as described in the Company's prospectus dated
____________________ ("Effective Date").
<PAGE>
This Warrant may be assigned, transferred, sold, offered for sale, or
exercised by the Holder upon compliance with all the pertinent provisions
hereof.
1. Exercise of Warrant.
(a) Subject to the other terms and conditions of this Warrant, the
purchase rights evidenced by this Warrant may be exercised in whole or in
part at any time, and from time to time, on or after ____________________,
but before 3:00 p.m., Denver time, on ____________________, by the Holder's
presentation and surrender of this Warrant to the Company at its principal
office or at the office of the Company's stock transfer agent, if any,
accompanied by a duly executed Notice of Exercise, in the form attached to
and by this reference incorporated in this Warrant as Exhibit A, and by
payment of the aggregate Exercise Price, in certified funds or a bank
cashier's check, for the number of Shares specified in the Notice of
Exercise. In the event this Warrant is exercised in part only, as soon as is
practicable after the presentation and surrender of this Warrant to the
Company for exercise, the Company shall execute and deliver to the Holder a
new Warrant, containing the same terms and conditions as this Warrant,
evidencing the right of the Holder to purchase the number of Shares as to
which this Warrant has not been exercised.
(b) Upon receipt of this Warrant by the Company as described in
subsection (a) above, the Holder shall be deemed to be the holder of record
of the Warrant Securities issuable upon such exercise, notwithstanding that
the transfer books of the Company may then be closed or that certificates
representing such Warrant Securities may not have been prepared or actually
delivered to the Holder.
2. Payment of the Exercise Price. The Company hereby determines that
the Holder shall be permitted to pay the Exercise Price in the following
manner:
(a) In cash or by check.
(b) By delivery to the Company of common stock having a fair market
value on the date of exercise equal to the aggregate Exercise Price of the
Shares as to which the Warrant is being exercised.
(c) By exchanging all or part of this Warrant for the number of Shares
which have an aggregate fair market value on the date of exercise equal to
the difference between (x) the fair market value of the number of Shares
designated by the Holder on the date of exercise and (y) the aggregate
Exercise Price payable under the Warrant by the Holder for such designated
Shares (i.e., if market is $5.00 per share: $5.00 X 33,333 = $166,665 -
$3.60 X 33,333 = $119,999 = $46,666 DIVIDED BY $5.00 = 9,333 shares).
(d) any combination of the foregoing methods of payment.
3. Exchange, Assignment or Loss of Warrant.
<PAGE>
(a) This Warrant may not be sold, transferred, assigned or hypothecated
until ____________________, except for (i) the sale, transfer, or assignment, in
whole or in part, to or among the officers of Spencer Edwards, Inc. and other
securities broker-dealers which are members of the National Association of
Securities Dealers, Inc. ("NASD") and which participated in the public offering
of the Company's Shares and the officers or partners of those NASD member firms,
(ii) the transfer by operation of law as a result of the death of any transferee
to whom all or a portion of this Warrant may be transferred, and (iii) the
transfer to any successor to the business of Spencer Edwards, Inc. All sales,
transfers, assignments or hypothecations of this Warrant must be in compliance
with Section 8 hereof. Any assignment or transfer of this Warrant shall be made
by the presentation and surrender of this Warrant to the Company at its
principal office or the office of its transfer agent, if any, accompanied by a
duly executed Assignment Form, in the form attached to and by this reference
incorporated in this Warrant as Exhibit B. Upon the presentation and surrender
of these items to the Company, the Company, at its sole expense, shall execute
and deliver to the new Holder or Holders a new Warrant or Warrants, containing
the same terms and conditions as this Warrant, in the name of the new Holder or
Holders as named in the Assignment Form, and this Warrant shall at that time be
canceled.
(b) This Warrant, alone or with other Warrants containing substantially
the same terms and conditions and owned by the same Holder, is exchangeable at
the option of the Holder but at the Company's sole expense, at any time prior to
its expiration either by its terms or by its exercise in full upon presentation
and surrender to the Company at its principal office or at the office of its
transfer agent, if any, for another Warrant or other Warrants, of different
denominations but containing the same terms and conditions as this Warrant,
entitling the Holder to purchase the same aggregate number of Warrant Securities
that were purchasable pursuant to the Warrant or Warrants presented and
surrendered. At the time of presentation and surrender by the Holder to the
Company, the Holder also shall deliver to the Company a written notice, signed
by the Holder, specifying the denominations in which new Warrants are to be
issued to the Holder.
(c) The Company will execute and deliver to the Holder a new Warrant
containing the same terms and conditions as this Warrant upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant, provided that (i) in the case of
loss, theft, or destruction, the Company receives from the Holder a reasonably
satisfactory indemnification, and (ii) in the case of mutilation, the Holder
presents and surrenders this Warrant to the Company for cancellation. Any new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company regardless of whether the Warrant that was
lost, stolen, destroyed, or mutilated shall be enforceable by anyone at any
time.
4. Adjustments: Stock Dividends, Reclassification, Reorganization, Merger
and Anti-Dilution Provisions.
(a) If the Company increases or decreases the number of its issued and
outstanding shares of Common Stock, or changes in any way the rights and
privileges of such shares, by means of (i) the payment of a stock dividend or
the making of any other distribution on such shares payable in its Common Stock,
(ii) a forward or reverse stock split or other subdivision of
<PAGE>
shares, (iii) a consolidation or combination involving its Common Stock, or
(iv) a reclassification or recapitalization involving its Common Stock, then
the Exercise Price in effect at the time of such action and the number of
Warrant Securities purchasable pursuant to this Warrant at that time shall be
proportionately adjusted so that the numbers, rights, and privileges relating
to the Warrant Securities then purchasable pursuant to this Warrant shall be
increased, decreased or changed in like manner, for the same aggregate
purchase price as set forth in this Warrant, as if the Warrant Securities
purchasable pursuant to this Warrant immediately prior to the event at issue
had been issued, outstanding, fully paid and nonassessable at the time of
that event. As an example, if the Company were to declare a two-for-one
forward stock split or a 100 percent stock dividend, then the unpurchased
number of Warrant Securities subject to this Warrant would be doubled and the
Exercise Price for all unpurchased Warrant Securities would be reduced by 50
percent. These adjustments would result in the Holder's rights under this
Warrant not being diluted by the stock split or stock dividend and the Holder
paying the same aggregate exercise price.
If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a
right to purchase new shares of Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all shares of
Common Stock so issued shall, for purposes of this Warrant, be deemed to have
been issued as a stock dividend.
(b) If the Company pays or makes any dividend or other distribution
upon its Common Stock payable in securities or other property, excluding
money or the Company's Common Stock but including (without limitation) shares
of any other class of the Company's stock or stock or other securities
convertible into or exchangeable for shares of Common Stock or any other
class of the Company's stock or other interests in the Company or its assets
("Convertible Securities"), a proportionate part of those securities or that
other property shall be set aside by the Company and delivered to the Holder
in the event that the Holder exercises this Warrant. The securities and
other property then deliverable to the Holder upon the exercise of this
Warrant shall be in the same ratio to the total securities and property set
aside for the Holder as the number of Warrant Securities with respect to
which the Warrant is then exercised is to the total Warrant Securities
purchasable pursuant to this Warrant at the time the securities or property
were set aside for the Holder.
If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a
right to purchase new shares of a class of stock (other than Common Stock),
Convertible Securities, property or other interests from the proceeds of such
dividend or for an amount substantially equal to the dividend, all shares of
stock, Convertible Securities, property or other interests so issued or
transferred shall, for purposes of this Warrant, be deemed to have been
issued as a dividend or other distribution subject to this subsection (b).
(c) If at any time the Company grants to its shareholders rights to
subscribe pro rata for additional securities of the Company, whether Common
Stock, Convertible Securities, or other classifications, or for any other
securities, property or interests that the Holder would have
<PAGE>
been entitled to subscribe for if, immediately prior to such grant, the
Holder had exercised this Warrant, then the Company shall also grant to the
Holder the same subscription rights that the Holder would be entitled to if
the Holder had exercised this Warrant in full immediately prior to such grant.
(d) The Company shall cause effective provision to be made so that the
Holder shall have the right thereafter, by the exercise of this Warrant, to
purchase for the aggregate Exercise Price described in this Warrant the kind
and amount of shares of stock and other securities, and property and
interests, as would be issued or payable with respect to or in exchange for
the number of Warrant Securities of the Company that are then purchasable
pursuant to this Warrant as if such Warrant Securities had been issued to the
Holder immediately before the occurrence of any of the following events: (i)
the reclassification, capital reorganization, or other similar change of
outstanding shares of Common Stock of the Company, other than as described
and provided for in subsection (a) above; (ii) the merger or consolidation of
the Company with one or more other corporations or other entities, other than
a merger with a subsidiary or affiliate pursuant to which the Company is the
continuing entity and the outstanding shares of Common Stock, including the
Warrant Securities purchasable pursuant to this Warrant, are not affected; or
(iii) the spin-off of assets to a subsidiary or an affiliated entity, or the
sale, lease, or exchange of a significant portion of the Company's assets, in
a transaction pursuant to which the Company's shareholders of record are to
receive securities or other interests in another entity. Any such provision
made by the Company for adjustments with respect to this Warrant shall be as
nearly equivalent to the adjustments otherwise provided for in this Warrant
as is reasonably practicable. The foregoing provisions of this subsection (d)
shall similarly apply to successive reclassifications, capital
reorganizations and similar changes of shares of Common Stock and to
successive consolidations, mergers, spin-offs, sales, leases or exchanges.
In the event that in any such reclassification, capital reorganization,
change, consolidation, merger, spin-off, sale, lease or exchange additional
shares of Common Stock are issued in exchange, conversion, substitution or
payment, in whole or in part, for securities of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of subsection (f) below, with the amount of the consideration
received upon the issue to be determined in accordance with subsection (g)
below.
(e) If any sale, lease or exchange of all, or substantially all, of the
Company's assets or business or any dissolution, liquidation or winding up of
the Company (a "Termination of Business") shall be proposed, the Company
shall deliver written notice to the Holder or Holders of this Warrant in
accordance with Section 5 below as a condition precedent to the consummation
of that Termination of Business. If the result of the Termination of
Business is that shareholders of the Company are to receive securities or
other interests of another entity, the provisions of subsection (d) above
shall apply. However, if the result of the Termination of Business is that
shareholders of the Company are to receive money or property other than
securities or other interests in another entity, the Holder or Holders of
this Warrant shall be entitled to exercise this Warrant prior to the
consummation of the event at issue and, with respect to any Warrant
Securities so purchased, shall be entitled to all of the rights of the other
shareholders of Common Stock with respect to any distribution by the Company
in connection with the Termination of Business. In the event no other entity
is involved and subsection (d) does not apply, all purchase
<PAGE>
rights under this Warrant shall terminate at the close of business on the
date as of which shareholders of record of the Common Stock shall be entitled
to participate in a distribution of the assets of the Company in connection
with the Termination of Business; provided, that in no event shall that date
be less than 30 days after delivery to the Holder or Holders of this Warrant
of the written notice described above and in Section 5. If the termination
of purchase rights under this Warrant is to occur as a result of the event at
issue, a statement to that effect shall be included in that written notice.
Notwithstanding anything herein to the contrary, in the event that
Termination of Business is to occur prior to ________________, then
provisions shall be made by the Company, by setting aside money or other
assets to be distributed to shareholders in an amount sufficient for
distribution to Holder or Holders of this Warrant as if the Warrant had been
previously exercised, to ensure that the Holder or Holders of this Warrant
will have an opportunity to participate in such distribution by exercising
the Warrant within 90 days after its earliest exercise date. The Company
will take no steps to dissolve the Company prior to such date.
(f) If at any time or from time to time the Company should issue or
sell any shares of Common Stock, including shares held in the Company's
Treasury, without consideration or for a per share consideration less than
the Exercise Price in effect immediately prior to the issuance or sale, the
Exercise Price in effect immediately prior to each such issuance or sale
shall be adjusted downward to equal (i) the per share consideration received
by the Company upon the issuance or sale of its Common Stock, PLUS (ii)
one-third of one percent of that per share consideration for each month
remaining before this Warrant expires by its terms, including only complete
months for purposes of this adjustment. Upon adjustment of the Exercise
Price, the number of Warrant Securities purchasable pursuant to this Warrant
shall also be adjusted to equal a number computed by (i) dividing the
Exercise Price in effect immediately prior to such adjustment by the Exercise
Price as adjusted, and (ii) multiplying the resulting quotient by the number
of Warrant Securities purchasable pursuant to this Warrant immediately prior
to such adjustment. For purposes of any computation to be made in accordance
with the provisions of this subsection (f), the following provisions (A)
through (D) shall be applicable:
(A) In case the Company at any time shall issue options, rights or
warrants to purchase shares of Common Stock, including shares held in the
Company's Treasury, or shall issue any Convertible Securities, without
consideration or for a consideration per share less than the Exercise Price
in effect immediately prior to the issuance of such options, rights,
warrants or Convertible Securities, the Exercise Price and the number of
Warrant Securities purchasable pursuant to this Warrant shall be adjusted
in accordance with the provisions of this subsection (f). For purposes of
this provision (A), (i) the aggregate maximum number of shares of Common
Stock deliverable under such options, rights or warrants shall be
considered to have been issued at the time such options, rights or warrants
were issued, for a consideration equal to the minimum purchase price per
share of Common Stock provided for in the options, rights or warrants plus
the consideration, if any, paid to the Company for such options, rights or
warrants; and (ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any Convertible Securities
shall be considered to have been issued at the
<PAGE>
time such Convertible Securities were issued for a consideration equal
to the consideration paid to the Company upon the issuance of those
Convertible Securities.
(B) No adjustment of the Exercise Price or the Warrant Securities
purchasable pursuant to this Warrant shall be made in connection with the
issuance or sale of Common Stock upon the exercise of options, rights or
warrants, or upon the conversion of Convertible Securities.
(C) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which is in money, the amount of the money
consideration for those shares shall be deemed to be (i) the amount of
money received by the Company for such shares, or (ii) if shares of Common
Stock are offered by the Company for subscription, the subscription price,
or (iii) if shares of Common Stock are sold to underwriters or dealers for
a public offering without a subscription offering, the initial public
offering price without deduction for any compensation paid or discount
allowed in the sale, underwriting or purchase by underwriters or dealers or
others performing similar services or for any expenses incurred in
connection therewith.
(D) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which is property, securities or interests
other than money, the amount of consideration therefor other than money
shall be deemed to be the fair market value of such consideration as
determined in accordance with subsection (h) below.
(g) Except as otherwise provided in this Section 4, upon any adjustment of
the Exercise Price, the Holder shall be entitled to purchase, at the new
Exercise Price, the number of shares of Common Stock, calculated to the nearest
full share, obtained by multiplying the number of Warrant Securities purchasable
pursuant to this Warrant immediately prior to the adjustment of the Exercise
Price by the Exercise Price in effect immediately prior to its adjustment and
dividing the product so obtained by the new Exercise Price.
(h) If consideration other than money is received by the Company upon the
issuance or sale of Common Stock, Convertible Securities, or other securities or
interests, the fair market value of such consideration, as reasonably determined
by the Board of Directors of the Company, shall be used for purposes of any
adjustment required by this Section 4. The fair market value of such
consideration shall be determined as of the date of the adoption of the
resolution of the Board of Directors of the Company that authorizes the
transaction giving rise to the adjustment. In case of the issuance or sale of
Common Stock, Convertible Securities, or other securities or interests in
conjunction with the issuance or sale of other securities or property without a
separate allocation of the purchase price, the Board of Directors of the Company
shall reasonably determine an allocation of the consideration among the items
being issued or sold. The reclassification of securities other than Common
Stock into securities including Common Stock shall be deemed to involve the
issuance of that Common Stock for a consideration other than money immediately
prior to the close of business on the date fixed for the determination of
shareholders entitled to receive that Common Stock.
<PAGE>
The Company shall promptly deliver written notice of all such
determinations by its Board of Directors to the Holder or Holders of this
Warrant, and those determinations shall be final and binding on the Holder or
Holders if, and only if, no Holder of this Warrant delivers written notice to
the Company of an objection to a determination within 30 days after written
notice of that determination is delivered to the Holder. If written notice
of an objection is delivered to the Company and the parties cannot reconcile
their dispute, the dispute shall be arbitrated pursuant to Section 16 below.
(i) The provisions of this Section 4 shall apply to successive events
that may occur from time to time but shall only apply to a particular event
if it occurs prior to the expiration of this Warrant either by its terms or
by its exercise in full.
(j) Unless the context requires otherwise, whenever reference is made
in this Section 4 to the issue or sale of shares of Common Stock, the term
"Common Stock" shall mean (i) the common stock of the Company, (ii) any other
class of stock ranking on a parity with, and having substantially similar
rights and privileges as the Company's common stock, and (iii) any
Convertible Security convertible into either (i) or (ii). However, subject
to the provisions of subsection (d) above, Warrant Securities issuable upon
exercise of this Warrant shall include only shares of the common stock
designated as common stock of the Company as of the date of this Warrant and
warrants to purchase such common stock.
(k) For purposes of subsections (a), (b) and (f) above, shares of
Common Stock owned or held at any relevant time by, or for the account of,
the Company, in its treasury or otherwise, shall not be deemed to be
outstanding for purposes of the calculations and adjustments described.
5. Notice to Holders. If, prior to the expiration of this Warrant
either by its terms or by its exercise in full, any of the following shall
occur:
(i) the Company shall declare a dividend or authorize any other
distribution on its Common Stock; or
(ii) the Company shall authorize the granting to the shareholders of its
Common Stock of rights to subscribe for or purchase any securities or
any other similar rights; or
(iii) any reclassification, reorganization or similar change of the Common
Stock, or any consolidation or merger to which the Company is a party,
or the sale, lease, or exchange of any significant portion of the
assets of the Company; or
(iv) the voluntary or involuntary dissolution, liquidation or winding up of
the Company; or
(v) any purchase, retirement or redemption by the Company of its Common
Stock;
then, and in any such case, the Company shall deliver to the Holder or Holders
written notice thereof at least 30 days prior to the earliest applicable date
specified below with respect to which
<PAGE>
notice is to be given, which notice shall state the following:
(i) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights, or, if a record is not to be taken,
the date as of which the shareholders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be
determined;
(ii) the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation,
winding up or purchase, retirement or redemption is expected to become
effective, and the date, if any, as of which the Company's
shareholders of Common Stock of record shall be entitled to exchange
their Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up, purchase, retirement
or redemption; and
(iii) if any matters referred to in the foregoing clauses (i) and (ii) are
to be voted upon by shareholders of Common Stock, the date as of which
those shareholders to be entitled to vote are to be determined.
6. Officers' Certificate. Whenever the Exercise Price or the
aggregate number of Warrant Securities purchasable pursuant to this Warrant
shall be adjusted as required by the provisions of Section 4 above, the
Company shall promptly file with its Secretary or an Assistant Secretary at
its principal office, and with its transfer agent, if any, an officers'
certificate executed by the Company's President and Secretary or Assistant
Secretary, describing the adjustment and setting forth, in reasonable detail,
the facts requiring such adjustment and the basis for and calculation of such
adjustment in accordance with the provisions of this Warrant. Each such
officers' certificate shall be made available to the Holder or Holders of
this Warrant for inspection at all reasonable times, and the Company, after
each such adjustment, shall promptly deliver a copy of the officers'
certificate relating to that adjustment to the Holder or Holders of this
Warrant. The officers' certificate described in this Section 6 shall be
deemed to be conclusive as to the correctness of the adjustment reflected
therein if, and only if, no Holder of this Warrant delivers written notice to
the Company of an objection to the adjustment within 30 days after the
officers' certificate is delivered to the Holder or Holders of this Warrant.
The Company will make its books and records available for inspection and
copying during normal business hours by the Holder so as to permit a
determination as to the correctness of the adjustment. If written notice of
an objection is delivered by a Holder to the Company and the parties cannot
reconcile the dispute, the Holder and the Company shall submit the dispute to
arbitration pursuant to the provisions of Section 16 below. Failure to
prepare or provide the officers' certificate shall not modify the parties'
rights hereunder.
7. Reservation of Warrant Securities. The Company hereby agrees that
at all times prior to ____________________, it will have authorized and will
reserve and keep available for issuance and delivery to the Holder that
number of shares of its Common Stock that may be required from time to time
for issuance and delivery upon the exercise of the then unexercised portion
of this Warrant.
<PAGE>
8. Limited Registration Rights Under the Securities Act of 1933.
(a) If at any time prior to ____________________, (five years from the
Effective Date), the Company files a registration statement with the United
States Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Act"), or pursuant to any other act passed after the
date of this Agreement, which filing provides for the sale of securities by
the Company to the public, or files a Regulation A Offering Statement under
the Act, the Company shall offer to the Holder or Holders of this Warrant and
the holders of any Warrant Securities the opportunity to register or qualify
the Warrant (if prior to its expiration), Warrant Securities and any Warrant
Securities underlying the unexercised portion of this Warrant, if any, at the
Company's sole expense, regardless of whether the Holder or Holders of this
Warrant or the holders of Warrant Securities or both may have previously
availed themselves of any of the registration rights described in this
Section 8; provided, however, that in the case of a Regulation A offering,
the opportunity to qualify shall be limited to the amount of the available
exemption after taking into account the securities that the Company wishes
to qualify. Notwithstanding anything to the contrary, this subsection (a)
shall not be applicable to a registration statement on Forms S-4, S-8 or
their successors or any other inappropriate forms filed by the Company with
the United States Securities and Exchange Commission.
The Company shall deliver written notice to the Holder or Holders of
this Warrant and to any holders of the Warrant Securities of its intention to
file a registration statement or Regulation A Offering Statement under the
Act at least 60 days prior to the filing of such registration statement or
offering statement, and the Holder or Holders and holders of Warrant
Securities shall have 30 days thereafter to request in writing that the
Company register or qualify the Warrant, Warrant Securities, or the Warrant
Securities underlying the unexercised portion of this Warrant in accordance
with this subsection (a). Upon the delivery of such a written request within
the specified time, the Company shall be obligated to include in its
contemplated registration statement or offering statement all information
necessary or advisable to register or qualify the Warrant, Warrant Securities
or Warrant Securities underlying the unexercised portion of this Warrant for
a public offering, if the Company does file the contemplated registration
statement or offering statement; provided, however, that neither the delivery
of the notice by the Company nor the delivery of a request by a Holder or by
a holder of Warrant Securities shall in any way obligate the Company to file
a registration statement or offering statement. Furthermore, notwithstanding
the filing of a registration statement or offering statement, the Company
may, at any time prior to the effective date thereof, determine not to offer
the securities to which the registration statement or offering statement
relates, other than the Warrant, Warrant Securities and Warrant Securities
underlying the unexercised portion of this Warrant.
The Company shall comply with the requirements of this subsection (a)
and the related requirements of subsection (e) at its own expense. That
expense shall include, but not be limited to, legal, accounting, consulting,
printing, federal and state filing fees, NASD fees, out-of-pocket expenses
incurred by counsel, accountants and consultants retained by the Company, and
miscellaneous expenses directly related to the registration statement or
offering statement and the offering. However, this expense shall not include
the portion of any underwriting commissions, transfer taxes and the
underwriter's accountable and nonaccountable expense allowances
<PAGE>
attributable to the offer and sale of the Warrant, Warrant Securities and the
Warrant Securities underlying the unexercised portion of this Warrant, all of
which expenses shall be borne by the Holder or Holders of this Warrant and
the holders of the Warrant Securities registered or qualified.
(b) In the event that the Company registers or qualifies the Warrant,
Warrant Securities or the Warrant Securities underlying the unexercised
portion of this Warrant pursuant to subsections (a) or (b) above, the Company
shall include in the registration statement or qualification, and the
prospectus included therein, all information and materials necessary or
advisable to comply with the applicable statutes and regulations so as to
permit the public sale of the Warrant, Warrant Securities or the Warrant
Securities underlying the unexercised portion of this Warrant. As used in
subsections (a) and (b) of this Section 8, reference to the Company's
securities shall include, but not be limited to, any class or type of the
Company's securities or the securities of any of the Company's subsidiaries
or affiliates.
(c) As to each registration statement or offering statement, the
Company's obligations contained in this Section 8 shall be conditioned upon a
timely receipt by the Company in writing of the following:
(i) Information as to the terms of the contemplated public offering
furnished by and on behalf of each Holder or holder intending to make
a public distribution of the Warrant, Warrant Securities or Warrant
Securities underlying the unexercised portion of the Warrant; and
(ii) Such other information as the Company may reasonably require from such
Holders or holders, or any underwriter for any of them, for inclusion
in the registration statement or offering statement.
(d) In each instance in which the Company shall take any action to
register or qualify the Warrant, Warrant Securities or the Warrant Securities
underlying the unexercised portion of this Warrant, if any, pursuant to this
Section 8, the Company shall do the following:
(i) supply to Spencer Edwards, Inc., as the representative of the Holders
of the Warrant and the holders of Warrant Securities whose Warrant and
Warrant Securities are being registered or qualified, 2 manually
signed copies of each registration statement or offering statement,
and all amendments thereto, and a reasonable number of copies of the
preliminary, final or other prospectus or offering circular, all
prepared in conformity with the requirements of the Act and the rules
and regulations promulgated thereunder, and such other documents as
Spencer Edwards, Inc. shall reasonably request;
(ii) cooperate with respect to (A) all necessary or advisable actions
relating to the preparation and the filing of any registration
statements or offering statements, and all amendments thereto, arising
from the provisions of this Section 8, (B) all reasonable efforts to
establish an exemption from the provisions of the Act or any other
federal or state securities
<PAGE>
statutes, (C) all necessary or advisable actions to register or
qualify the public offering at issue pursuant to federal securities
statutes and the state "blue sky" securities statutes of each
jurisdiction that the Holders of the Warrant or holders of Warrant
Securities shall reasonably request, and (D) all other necessary or
advisable actions to enable the Holders of the Warrant and holders
of the Warrant Securities to complete the contemplated disposition
of their securities in each reasonably requested jurisdiction;
(iii) keep all registration statements or offering statements to which this
Section 8 applies, and all amendments thereto, effective under the Act
for a period of at least 9 months after their initial effective date
and cooperate with respect to all necessary or advisable actions to
permit the completion of the public sale or other disposition of the
securities subject to a registration statement or offering statement;
and
(iv) indemnify and hold harmless each Holder of the Warrant, each holder of
Warrant Securities, and each underwriter within the meaning of the Act
for each such Holder or holder, from and against all losses, claims,
damages, and liabilities, including, but not limited to, any and all
expenses reasonably incurred in investigating, preparing, defending or
settling any claim, arising from or relating to (A) any untrue or
alleged untrue statement of a material fact contained in any
registration statement or offering statement to which this Section 8
applies, or (B) any omission or alleged omission to state a material
fact necessary to make the statements contained in a registration
statement or offering statement to which this Section 8 applies not
misleading; provided, however, that the indemnification contained in
this provision (iv) shall not apply if the untrue statement or
omission, or alleged untrue statement or omission, was the result of
information furnished in writing to the Company by the Holder, holder
or underwriter seeking indemnification expressly for use in the
registration statement or offering statement at issue. To the extent
that the indemnification contained in this provision applies, the
Company also shall indemnify and hold harmless each officer, director,
employee, controlling person or agent of an indemnified Holder, holder
or underwriter.
(e) In each instance in which pursuant to this Section 8 the Company shall
take any action to register or qualify the Warrant, Warrant Securities or the
Warrant Securities underlying the unexercised portion of this Warrant, prior to
the effective date of any registration statement or offering statement, the
Company and each Holder or holder of Warrants or Warrant Securities being
registered or qualified shall enter into reciprocal indemnification agreements,
in the form customarily used by reputable investment bankers with respect to
public offerings of securities, containing substantially the same terms as
described in subsection (d)(iv) above. These indemnification agreements also
shall contain an agreement by the Holder or shareholder at issue to indemnify
and hold harmless the Company, its officers, directors from and against any and
all losses, claims, damages and liabilities, including, but not limited to, all
expenses reasonably incurred in investigating, preparing, defending or settling
any claim, directly resulting from any untrue statements of material facts, or
omissions to state a material fact necessary to make a statement not misleading,
contained in a registration statement or offering statement to which this
Section 8 applies, if, and only if, the untrue statement or omission directly
resulted from information provided in writing to the Company by the indemnifying
Holder or shareholder
<PAGE>
expressly for use in the registration statement or offering statement at
issue.
9. Transfer to Comply With the Securities Act of 1933.
(a) This Warrant, the Warrant Securities, and all other securities issued
or issuable upon exercise of this Warrant, may not be offered, sold or
transferred, in whole or in part, except in compliance with the Securities Act
of 1933, as amended (the "Act"), and except in compliance with all applicable
state securities statutes.
(b) The Company may cause the following legend, or its equivalent, to be
set forth on each certificate representing the Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant, not theretofore
distributed to the public or sold to underwriters, as defined by the Act, for
distribution to the public pursuant to Section 8 above:
"The shares represented by this Certificate have not been registered under
the Securities Act of 1933 ("the Act") and are 'restricted securities' as
that term is defined in Rule 144 under the Act. The shares may not be
offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act or pursuant to an exemption
from registration under the Act, the availability of which is to be
established to the satisfaction of the Company."
10. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of all or any part of this
Warrant. With respect to any fraction of a share of any security called for
upon any exercise of this Warrant, the Company shall pay to the Holder an amount
in money equal to that fraction multiplied by the current market value of that
share. The current market value shall be determined as follows:
(i) if the security at issue is listed on a national securities exchange
or admitted to unlisted trading privileges on such an exchange or
listed on the National Association of Securities Dealers National
Market System, the current value shall be the last reported sale price
of that security on such exchange or system on the last business day
prior to the date of the applicable exercise of this Warrant or, if no
such sale is made on such day, the average of the highest closing bid
and lowest asked price for such day on such exchange or system; or
(ii) if the security at issue is not so listed or admitted to unlisted
trading privileges, the current market value shall be the average of
the last reported highest bid and lowest asked prices quoted on the
National Association of Securities Dealers Automated Quotations System
or, if not so quoted, then by the National Quotation Bureau, Inc. on
the last business day prior to the day of the applicable exercise of
this Warrant; or
(iii) if the security at issue is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not reported, the
current market value shall be determined in such reasonable manner as
may be prescribed from time to time by the Board of Directors of the
Company, subject to the objection and arbitration procedure as
described in Section 5
<PAGE>
above.
11. Rights of the Holder. The Holder shall not be entitled to any rights
as a shareholder in the Company by reason of this Warrant, either at law or
equity, except as specifically provided for herein. The Company covenants,
however, that for so long as this Warrant is at least partially unexercised, it
will furnish any Holder of this Warrant with copies of all reports and
communications furnished to the shareholders of the Company.
12. Charges Due Upon Exercise. The Company shall pay any and all issue or
transfer taxes, including, but not limited to, all federal or state taxes, that
may be payable with respect to the transfer of this Warrant or the issue or
delivery of Warrant Securities upon the exercise of this Warrant.
13. Warrant Securities to be Fully Paid. The Company covenants that all
Warrant Securities that may be issued and delivered to a Holder of this Warrant
upon the exercise of this Warrant will be, upon such delivery, validly and duly
issued, fully paid and nonassessable.
14. Notices. All notices, certificates, requests, or other similar
items provided for in this Warrant shall be in writing and shall be
personally delivered or deposited in the United States mail, postage prepaid,
addressed to the respective party as indicated in the portions of this
Warrant preceding Section 1. All notices shall be deemed to be delivered
upon personal delivery or upon the expiration of 3 business days following
deposit in the United States mail, postage prepaid. The addresses of the
parties may be changed, and addresses of other Holders and holders of Warrant
Securities may be specified, by written notice delivered pursuant to this
Section 14. The Company's principal office shall be deemed to be the address
provided pursuant to this Section for the delivery of notices to the Company.
15. Applicable Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Colorado, and courts located in
Colorado shall have exclusive jurisdiction over all disputes arising
hereunder.
16. Arbitration. The Company and the Holder, and by receipt of this
Warrant or any Warrant Securities, all subsequent Holders or holders of
Warrant Securities, agree to submit all controversies, claims, disputes and
matters of difference with respect to this Warrant, including, without
limitation, the application of this Section 16 to arbitration in Denver,
Colorado, according to the rules and practices of the American Arbitration
Association from time to time in force; provided, however, that if such rules
and practices conflict with the applicable procedures of Colorado courts of
general jurisdiction or any other provisions of Colorado law then in force,
those Colorado rules and provisions shall govern. This agreement to
arbitrate shall be specifically enforceable. Arbitration may proceed in the
absence of any party if notice of the proceeding has been given to that
party. The parties agree to abide by all awards rendered in any such
proceeding. These awards shall be final and binding on all parties to the
extent and in the manner provided by the rules of civil procedure enacted in
Colorado. All awards may be filed, as a basis of judgment and of the
issuance of execution for its collection, with the clerk of one or more
courts, state or federal, having jurisdiction over either the party against
whom that award is
<PAGE>
rendered or its property. No party shall be considered in default hereunder
during the pendency of arbitration proceedings relating to that default.
17. Miscellaneous Provisions.
(a) Subject to the terms and conditions contained herein, this Warrant
shall be binding on the Company and its successors and shall inure to the
benefit of the original Holder, its successors and assigns and all holders of
Warrant Securities and the exercise of this Warrant in full shall not
terminate the provisions of this Warrant as it relates to holders of Warrant
Securities.
(b) If the Company fails to perform any of its obligations hereunder,
it shall be liable to the Holder for all damages, costs and expenses
resulting from the failure, including, but not limited to, all reasonable
attorney's fees and disbursements.
(c) This Warrant cannot be changed or terminated or any performance or
condition waived in whole or in part except by an agreement in writing signed
by the party against whom enforcement of the change, termination or waiver is
sought.
(d) If any provision of this Warrant shall be held to be invalid,
illegal or unenforceable, such provision shall be severed, enforced to the
extent possible, or modified in such a way as to make it enforceable, and the
invalidity, illegality or unenforceability shall not affect the remainder of
this Warrant.
(e) The Company agrees to execute such further agreements, conveyances,
certificates and other documents as may be reasonably requested by the Holder
to effectuate the intent and provisions of this Warrant.
(f) Paragraph headings used in this Warrant are for convenience only
and shall not be taken or construed to define or limit any of the terms or
provisions of this Warrant. Unless otherwise provided, or unless the context
shall otherwise require, the use of the singular shall include the plural and
the use of any gender shall include all genders.
IMAGENETIX, INC.
ATTEST:
By:
------------------------------ -------------------------------
Debra L. Spencer, Secretary William P. Spencer, President
EXHIBIT A
NOTICE OF EXERCISE
(To be executed by a Holder desiring to exercise the right to purchase Shares
pursuant to a Warrant.)
The undersigned Holder of a Warrant hereby
<PAGE>
(a) irrevocably elects to exercise the Warrant to the extent of purchasing
_______________ Shares;
(b) makes payment in full of the aggregate Exercise Price for those Shares
in the amount of $_________________ by the delivery of certified funds or a bank
cashier's check in the amount of $_________________; or makes payment by
delivery of shares of stock of the Company or Warrants pursuant to the following
formula:
(c) requests that certificates evidencing the Shares be issued in the name
of the undersigned, or, if the name and address of some other person is
specified below, in the name of such other person:
(Name and address of person OTHER than the
undersigned in whose name Shares are to be registered)
(d) requests, if the number of Shares purchased are not all the Shares
purchasable pursuant to the unexercised portion of the Warrant, that a new
Warrant of like tenor for the remaining Shares purchasable pursuant to the
Warrant be issued and delivered to the undersigned at the address stated below.
Dated:
------------------- -----------------------------------
Signature (This signature must
conform in all respects to the name
of the Holder as specified on the
face of the Warrant.)
- -------------------------- -----------------------------------
Social Security Number Printed Name
or Employer ID Number
Address:
-------------------------
-----------------------------------
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned, , hereby sells,
assigns and transfers unto:
Name:
(Please type or print in block letters)
Address:
<PAGE>
the right to purchase _________________ Shares of Imagenetix, Inc. (the
"Company") pursuant to the terms and conditions of the Warrant held by the
undersigned. The undersigned hereby authorizes and directs the Company (i)
to issue and deliver to the above-named assignee at the above address a new
Warrant pursuant to which the rights to purchase being assigned may be
exercised, and (ii) if there are rights to purchase Shares remaining pursuant
to the undersigned's Warrant after the assignment contemplated herein, to
issue and deliver to the undersigned at the address stated below a new
Warrant evidencing the right to purchase the number of Shares remaining after
issuance and delivery of the Warrant to the above-named assignee. Except for
the number of Shares purchasable, the new Warrants to be issued and delivered
by the Company are to contain the same terms and conditions as the
undersigned's Warrant. To complete the assignment contemplated by this
Assignment Form, the undersigned hereby irrevocably constitutes and appoints
as the undersigned's attorney-in-fact to transfer the
Warrants and the rights thereunder on the books of the Company with full
power of substitution for these purposes.
Dated:
------------------- -----------------------------------
Signature
(This signature must conform in all
respects to the name of the Holder
as specified on the fact of the
Warrant.)
-----------------------------------
Printed Name
Address:
--------------------------
-----------------------------------
<PAGE>
EXHIBIT 1.3
IMAGENETIX, INC.
11777 Bernardo Plaza Court
Suite 206
San Diego, California 92128
September 17, 1999
Spencer Edwards, Inc.
6120 Greenwood Plaza
Englewood, CO 80111
Re: Lock-Up Agreement
Gentlemen:
Each of the undersigned is currently a holder of shares ("Shares") of
Imagenetix, Inc., a Colorado corporation ("the Company"). In connection with
the company's pending public
<PAGE>
offering ("Offering") of shares of common stock to be underwritten by you,
and for the sum of $10.00 and/or other good and valuable consideration paid
to each of the undersigned, receipt of which is hereby acknowledged, each of
the undersigned agrees that he will not sell, assign, pledge, hypothecate or
transfer any Shares held or to be held by him (whether such Shares are owned
by him directly or beneficially or in the name or for the benefit of any
member of his family) during a period of twenty-four (24) months from the
consummation of the Offering (the "restriction period"), unless you shall
expressly agree in advance to such disposition.
This lock-up agreement shall also apply to the future issuance, if any,
of the 30,000 shares of common stock reserved by the Company for issuance to
Dr. Cochran and the 45,000 shares of common stock reserved under the
Company's Stock Bonus Plan.
Notwithstanding the foregoing, any of the undersigned may make a
transfer of any Shares to one or more members of his immediate family,
provided that the transferee shall expressly agree to be bound by the
obligations of the undersigned pursuant to this agreement.
In the event of a material personal hardship affecting the health or
welfare of any one of the undersigned or the members of his immediate family,
the circumstances of which shall be substantiated to your reasonable
satisfaction, you agree that you will not unreasonably withhold your consent
to the sale of a small portion of the Shares held by the affected person upon
written request from such person specifying such hardship circumstances,
provided that such request shall not be initiated before eighteen (18) months
from the date of the commencement of the Offering.
/s/ William P. Spencer
/s/ Debra L. Spencer
/s/ Dr. Charles Cochran
/s/ Dr. Peter Antoniou
/s/ Thomas A. Forti
MOE & Associates, Inc.
By /s/ Tom Chenault
Its President
/s/ Patrick S. Millsap
/s/ Charles S. White
/s/ Judy P. White
/s/ Jules Kozuki
<PAGE>
/s/ Paul Dragul
/s/ Maurile C. Tremblay
/s/ J. Larry Cantrell
Agreed:
Spencer Edwards, Inc.
By
Its
<PAGE>
EXHIBIT 2.1
Mail to: Secretary of State
Corporations Section
1560 Broadway, Suite 200
Denver CO 80202
(303) 894-2251
Fax (303) 894-2242
ARTICLES OF INCORPORATION
Corporation Name Internet International Business Management, Inc.
Principal Business Address 14 Red Tail Drive, Highlands Ranch, Colorado 80126
Cumulative voting shares of stock is authorized. Yes No X
If duration is less than perpetual enter number of years
Preemptive rights are granted to shareholders. Yes No X
Stock information: (if additional space is needed, continue on a separate sheet
of paper)
Stock Class COMMON Authorized Shares 50,000,000 Par Value $.001
Stock Class PREFERRED Authorized Shares 5,000,000 Par Value $.001
The name of the initial registered agent and the address of the registered
office is: (If another corporation, use last name space)
Last Name McAdam First& Middle Name Gary J.
Street Address 14 Red Tail Drive, Highlands Ranch, Colorado 80126
The undersigned consents to the appointment as the initial registered
agent.
Signature of Registered Agent /s/ Gary J. McAdam
<PAGE>
These articles are to have a delayed effective date of
Incorporators: Names and addresses: (if more than two, continue on a separate
sheet of paper).
NAME ADDRESS
Gary J. McAdam 14 Red Tail Drive, Highlands Ranch, Colorado 80126
Incorporators who are natural persons must be 18 years or more. The
undersigned, acting as incorporator(s) of a corporation under the Colorado
Business Corporation Act, adopt the above Articles of Incorporation.
Signature /s/ Gary J. McAdam
Articles Of Incorporation
Of
INTERNET INTERNATIONAL
BUSINESS MANAGEMENT, INC.
WE, THE UNDERSIGNED natural persons of the age of eighteen (18) years or
more, acting as incorporators of a corporation under the Colorado Business
Corporation Act, adopt the following Articles of Incorporation.
Article I
NAME
The Name of the corporation is INTERNET INTERNATIONAL BUSINESS MANAGEMENT,
INC,
Article II
DURATION
The duration of the corporation is perpetual.
Article III
PURPOSES
The purpose or purposes for which this corporation is engaged are:
(a) To acquire, develop, explore, and otherwise deal in and with all kinds
of internet business opportunities. Also, to acquire, develop,
explore, and otherwise deal in and with all kinds of real and personal
property and all related activities, and for any and all other lawful
purposes.
(b) To acquire by purchase, exchange, gift, bequest, subscription, or
otherwise; and to hold, own, mortgage, pledge, hypothecate, sell,
assign, transfer, exchange, or otherwise dispose of or deal in or with
its own corporate securities or stock or
<PAGE>
other securities including, without limitations, any shares of stock,
bonds, debentures, notes mortgages, or other obligations, and any
certificates, receipts or other instruments representing rights or
interests therein on any property or assets created or issued by any
person, firm, associate, or corporation, or instrumentalities thereof;
to make payment therefor in any lawful manner or to issue in exchange
therefor in any lawful manner or to issue in exchange therefor its
unreserved earned surplus for the purchase of its own shares, and to
exercise as owner or holder of any securities, any and all rights,
powers, and privileges in respect thereof.
(c) To do each and everything necessary, suitable, or proper for the
accomplishment of any of the purposes or the attainment of any one or
more of the subjects herein enumerated, or which may, at any time,
appear conducive to or expedient for the protection or benefit of this
corporation, and to do said acts as fully and to the same extent as
natural persons might, or could do in any part of the world as
principals, agents, partners, trustees, or otherwise, either alone or
in conjunction with any other person, association, or corporation.
(d) The foregoing clauses shall be construed both as purposes and powers
and shall not be held to limit or restrict in any manner the general
powers of the corporation, and the enjoyment and exercise thereof, as
conferred by the laws of the State of Colorado; and it is the
intention that the purposes and powers specified in each of the
paragraphs of this Article III shall be regarded as independent
purposes and powers.
Article IV
STOCK
(a) Common Stock. The aggregate number of shares of Common Stock which the
corporation shall have authority to issue is 50,000,000 shares at a par
value of $.001 per share. All stock when issued shall be fully paid and
non-assessable, shall be of the same class and have the same rights and
preferences.
No holder of shares of Common Stock of the Corporation, shall be entitled,
as such, to any pre-emptive or preferential rights to subscribe to any
unissued stock or any other securities which the Corporation may now or
thereafter be authorized to issue.
Each share of Common Stock shall be entitled to one vote at a stockholders
meeting, either in person or by proxy. Cumulative voting in elections of
Directors and all other matters brought before stockholders meeting,
whether they be annual or special, shall not be permitted.
(b) Preferred Stock. The aggregate number of share of Preferred Stock which
the Corporation shall have authority to issue is 5,000,000 shares, par
value $.001, which may be issued in series, with such designations,
preferences, stated values, rights, qualifications
<PAGE>
or limitations as determined solely by the Board of Directors of the
Corporation.
(1) Dividends. Dividends in cash, property or shares shall be paid upon
the Preferred Stock for any year on a cumulative or noncumulative
basis as determined by a resolution of the board of directors prior to
the issuance of such Preferred Stock, to the extent earned surplus for
each such year is available, in an amount as determined by a
resolution of the board of directors. Such Preferred Stock dividends
shall be paid pro rata to holders of Preferred Stock as determined by
a resolution of the board of directors prior to the issuance of such
Preferred Stock. No other dividend shall be paid on the Preferred
Stock.
Dividends in cash, property or shares of the corporation may be paid
upon the Common Stock, as and when declared by the board of directors,
out of funds of the corporation to the extent and in the manner
permitted by law, except that no Common Stock dividend shall be paid
for any year unless the holders of Preferred Stock, if any, shall
receive the maximum allowable Preferred Stock dividend for such year.
(2) Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the corporation, and after paying or adequately
providing for the payment of all its obligations, the remainder of the
assets of the corporation shall be distributed, either in cash or in
kind, first pro rata to the holders of the Preferred Stock until an
amount to be determined by a resolution of the board of directors
prior to issuance of such Preferred Stock has been distributed per
share, and, then, the remainder pro rata to the holders of the Common
Stock.
(3) Redemption. The Preferred Stock may be redeemed in whole or in part
as determined by a resolution of the board of directors prior to the
issuance of such Preferred Stock upon prior notice of the holders of
record of the Preferred Stock, published, mailed and given in such
manner and form and on such other terms and conditions as may be
prescribed by the Bylaws or by resolution of the board of directors,
by payment in cash or Common Stock for each share of the Preferred
Stock to be redeemed, as determined by a resolution of the board of
directors prior to the issuance of such Preferred Stock. Common Stock
used to redeem Preferred Stock shall be valued as determined by a
resolution of the board of directors prior to the issuance of such
Preferred Stock. Any rights to or arising from fractional shares
shall be treated as rights to or arising from one share. No such
purchase or, retirement shall be made if the capital of the
corporation would be impaired thereby.
Article V
AMENDMENT
These Articles of Incorporation may be amended by the affirmative Vote of
"a majority" of the shares entitled to vote on each such amendment.
<PAGE>
Article VI
SHAREHOLDERS RIGHTS
The authorized and treasury stock of this corporation may be issued at such
time, upon such terms and conditions and for such consideration as the Board of
Directors shall determine. Shareholders shall not have pre-emptive rights to
acquire unissued shares of the stock of this corporation.
Article VII
INITIAL OFFICE AND AGENT
The registered office of the Corporation in the State of Colorado is 14 Red
Tail Drive, Highlands Ranch, Colorado 80126. The registered agent in charge
thereof at such address is Gary J. McAdam.
Article VIII
DIRECTORS
The directors are hereby given the authority to do any act on behalf of the
corporation by law and in each instance where the Business corporation act
provides that the directors may act in certain instances where the Articles of
Incorporation authorize such action by the directors, the directors are hereby
given authority to act in such instances without specifically numerating such
potential action or instance herein.
The directors are specifically given the authority to mortgage or pledge
any or all assets of the business with stockholders' approval.
The number of directors constituting the initial Board of Directors of this
corporation is one (1). The names and addresses of persons who are to serve as
Directors until the first annual meeting of stockholders or until their
successors are elected and qualify are:
NAME ADDRESS
Gary J. McAdam 14 Red Tail Drive
Highlands Ranch, Colorado 80126
Article IX
INCORPORATORS
The name and address of each incorporator is:
NAME ADDRESS
Gary J. McAdam 14 Red Tail Drive
Highlands Ranch, Colorado 80126
<PAGE>
Article X
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation and any one or
more of its directors or any other corporation, firm, association, or entity in
which one or more of its directors or officers are financially interested, shall
be either void or voidable because of such relationship or interest, or because
such director or directors are present at the meeting of the Board of Directors,
or a committee thereof, which authorizes, approves, or ratifies such contract or
transaction, or because his or their votes are counted for such purpose if: (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies the contract or
transaction by vote or consent sufficient for the purpose without counting the
votes or consents of such interested director; or (b) the fact of such
relationship or interest is disclosed or known to the stockholders entitled to
vote and they authorize, approve, or ratify such contract or transaction by vote
or written consent, or (c) the contract or transaction is fair and reasonable to
the corporation.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or committee there of which
authorizes, approves or ratifies such contract or transaction.
Article XI
LIABILITY OF DIRECTORS AND OFFICERS
No director or officer shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer. Notwithstanding, the foregoing sentence, a
director or officer shall be liable to the extent provided by applicable law,
(i) for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (ii) for the payment of dividends in violation of.
The provisions hereof shall not apply to or have any effect on the
liability or alleged liability of any officer or director of the Corporation for
or with respect to any acts or omissions of such person occurring prior to such
amendment.
Under penalties of perjury, I declare that these Articles of Incorporation
have been examined by me and are, to the best of my knowledge and belief, true,
correct and complete.
Dated this 26th day of July, 1996.
/s/ Gary J. McAdam
Gary J. McAdam hereby consents to the appointment as the initial registered
agent for the Corporation.
/s/ Gary J. McAdam
Initial Registered Agent
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
INTERNET INTERNATIONAL BUSINESS MANAGEMENT, INC.
The following amendment to the Articles of Incorporation was adopted on
March 26, 1999, as prescribed by the Colorado Business Corporation Act, by the
board of directors where shares have been issued. The amendment was also
adopted by a vote of the shareholders. The number of shares voted for the
amendment was sufficient for approval.
Article I of the Articles of Incorporation of the Company is amended to
read as follows: "The name of the corporation shall be Imagenetix, Inc."
Dated: April 20, 1999
/s/ William Spencer, President
<PAGE>
EXHIBIT 2.2
BY-LAWS
of
INTERNET INTERNATIONAL BUSINESS
MANAGEMENT, INC.
A Colorado Corporation
ARTICLE I
OFFICES
Section 1. The principal office of the Corporation shall be at 14 Red
Tail Drive located in Highlands Ranch, Colorado 80126. The Corporation may
have such other offices, either within or without the State of Colorado as
the Board of Directors may designate or as the business of the Corporation
may require from time to time.
The registered office of the Corporation required by the Colorado
Business Corporation Act to be maintained in the State of Colorado may be,
but need not be, identical with the principal offices in the State of
Colorado, and the address of the registered office may be changed, from time
to time, by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of stockholders shall be
held at the principal office of the Corporation, at 14 Red Taif Drive, Highlands
Ranch, Colorado 80126 or at such other places on the third Friday of May, or at
such other times as the Board of Directors may, from time to time, determine.
If the day so designated falls upon a legal holiday then the meeting shall be
held upon the first business day thereafter. The Secretary shall serve
<PAGE>
personally or by mail a written notice thereof, not less than ten (1 0) nor
more than fifty (50) days previous to such meeting, addressed to each
stockholder at his address as it appears on the stock book; but at any
meeting at which all stockholders shall be present, or of which all
stockholders not present have waived notice in writing, the giving of notice
as above required may be dispensed with.
Section 2. SPECIAL MEETINGS. Special meetings of stockholders other
than those regulated by statute, may be called at any time by a majority of
the Directors. Notice of such meeting stating the place, day and hour and
the purpose for which it is called shall be served personally or by mail, not
less than ten (10) days before the date set for such meeting. If mailed, it
shall be directed to a stockholder at his address as it appears on the stock
book; but at any meeting at which all stockholders shall be present, or of
which stockholders not present have waived notice in writing, the giving of
notice as above described may be dispensed with. The Board of Directors
shall also, in like manner, call a special meeting of stockholders whenever
so requested in writing by stockholders representing not less than ten
percent (10%) of the capital stock of the Corporation entitled to vote at the
meeting. The President may in his discretion call a special meeting of
stockholders upon ten (10) days notice. No business other than that specified
in the call for the meeting shall be transacted at any special meeting of the
stockholders, except upon the unanimous consent of all the stockholders
entitled to notice thereof.
Section 3. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining stockholders entitled to receive notice of or to vote
at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend; or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors of the Corporation may provide that the stock transfer books shall
be closed for a stated period not to exceed, in any case, fifty (50) days.
If the stock transfer books shall be closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders,
such books shall be closed for a least ten (10) days immediately preceding
such meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than
fifty (50) days, and in case of a meeting of stockholders, not less than ten
(10) days prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. If the stock transfer books
are not closed, and no record date is fixed for the determination of
stockholders entitled to receive notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination as to
stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
Section 4. VOTING. At all meetings of the stockholders of record
having the right to vote, subject to the provisions of Section 3, each
stockholder of the Corporation is entitled to one (1) vote for each share of
stock having voting power standing in the name of such stockholder on the
books of the Corporation. Votes may be cast in person or by written
authorized proxy.
<PAGE>
Section 5. PROXY. Each proxy must be executed in writing by the
stockholder of the Corporation or his duly authorized attorney. No proxy
shall be valid after the expiration of eleven (11) months from the date of
its execution unless it shall have specified therein its duration.
Every proxy shall be revocable at the discretion of the person executing
it or of his personal representatives or assigns.
Section 6. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as
the by-laws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may
be noted by him either in person or by proxy without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted
by him either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate Order of the Court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledge,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Shares of its own stock belonging to the Corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.
Section 7. ELECTION OF DIRECTORS. At each election for Directors every
stockholder entitled to vote at such election shall have the right to vote,
in person or by proxy, the number of shares owned by him for as many persons
as there are Directors to be elected and for whose election he has a right to
vote. There shall be no cumulative voting.
Section 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of the stockholders.
If a quorum shall not be present or represented, the stockholders
entitled to vote thereat, present in person or by proxy, shall have the power
to adjourn the meeting, from time to time, until a quorum shall be present or
represented. At such rescheduled meeting at which a quorum shall be present
or represented any business or any specified item of business may be
transacted which might have been transacted at the meeting as originally
notified.
<PAGE>
The number of votes or consents of the holders of stock having voting
power which shall be necessary for the transaction of any business or any
specified item of business at any meeting of stockholders, or the giving of
any consent, shall be a majority of the outstanding shares of the Corporation
entitled to vote.
Section 9. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be
taken at a meeting of the stockholders, or any other action which may be
taken at a meeting of the stockholders, may be taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all
of the stockholders entitled to vote with respect to the subject matter
thereof.
ARTICLE III
DIRECTORS
Section 1. NUMBER. The affairs and business of this Corporation shall
be managed by a Board of Directors. The present Board of Directors shall
consist of one (1) member. Thereafter the number of Directors may be
increased to not more than nine (9) by resolution of the Board of Directors.
Directors need not be residents of the State of Colorado and need not be
stockholders of the Corporation.
Section 2. ELECTION. The Directors shall be elected at each annual
meeting of the stockholders, but if any such annual meeting is not held, or
the Directors are not elected thereat, the Directors may be elected at any
special meeting of the stockholders held for that purpose.
Section 3. TERM OF OFFICE. The term of office of each of the Directors
shall be one (1) year, which shall continue until his successor has been
elected and qualified.
Section 4. DUTIES. The Board of Directors shall have the control and
general management of the affairs and business of the Corporation. Such
Directors shall in all cases act as a Board, regularly convened, and may
adopt such rules and regulations for the conduct of meetings and the
management of the Corporation, as may be deemed proper, so long as it is not
inconsistent with these By-Laws and the laws of the State of Colorado.
Section 5. DIRECTORS' MEETINGS. Regular meetings of the Board of
Directors shall be held immediately following the annual meeting of the
stockholders, and at such other time and places as the Board of Directors may
determine. Special meetings of the Board of Directors may be called by the
President or the Secretary upon the written request of one (1) Director.
Section 6. NOTICE OF MEETINGS. Notice of meetings other than the
regular annual meeting shall be given by service upon each Director in
person, or by mailing to him at his last known address, at least three (3)
days before the date therein designated for such meeting, of a written notice
thereof specifying the time and place of such meeting, and the business to be
brought before the meeting, and no business other than that specified in such
notice shall be transacted at any special meeting. At any Directors' meeting
at which a quorum of the Board of Directors shall be present (although held
without notice), any and all business may be transacted
<PAGE>
which might have been transacted if the meeting had been duly called if a
quorum of the Directors waive or are willing to waive the notice requirements
of such meeting.
Any Directors may waive notice of any meeting under the provisions of
Article XII. The attendance of a Director at a meeting shall constitute a
waiver of notice of such meeting except where a Director attends a meeting
for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully convened or called.
Section 7. VOTING. At all meetings of the Board of Directors, each
Director is to have one (1) vote. The act of a majority of the Directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors.
Section 8. VACANCIES. Vacancies in the Board occurring between annual
meetings shall be filled for the unexpired portion of the term by a majority
of the remaining Directors.
Section 9. REMOVAL OF DIRECTORS. Any one or more of the Directors may
be removed, with or without cause, at any time, by a vote of the stockholders
holding a majority of the stock, at any special meeting called for that
purpose.
Section 10. QUORUM. The number of Directors who shall be present at
any meeting of the Board of Directors in order to constitute a quorum for the
transaction of any business or any specified item of business shall be a
majority.
The number of votes of Directors that shall be necessary for the
transaction of any business of any specified item of business at any meeting
of the Board of Directors shall be a majority.
If a quorum shall not be present at any meeting of the Board of
Directors, those present may adjourn the meeting, from time to time, until a
quorum shall be present.
Section 11. COMPENSATION. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors or each may be paid a stated salary as Director.
No such payment shall preclude any Director from serving the Corporation in
any other capacity and receiving compensation therefore.
Section 12. PRESUMPTION OF ASSENT. A Director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent is entered in the minutes of the meeting or unless
he shall file his written dissent to such action with the person acting as
the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered or certified mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
ARTICLE IV
<PAGE>
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be:
President, Vice-President, Secretary, and Treasurer, and such assistant
Secretaries as the President shall determine.
Any officer may hold more than one (1) office.
Section 2. ELECTION. All officers of the Corporation shall be elected
annually by the Board of Directors at its meeting held immediately following
the meeting of stockholders, and shall hold office for the term of one (1)
year or until their successors are duly elected. Officers need not be
members of the Board of Directors.
The Board may appoint such other officers, agents and employees as it
shall deem necessary who shall have such authority and shall perform such
duties as, from time to time, shall be prescribed by the Board.
Section 3. DUTIES OF OFFICERS. The duties and powers of the officers
of the Corporation shall be as follows:
PRESIDENT
The President shall preside at all meetings of the stockholders. He shall
present at each annual meeting of the stockholders and Directors a report of the
condition of the business of the Corporation. He shall cause to be called
regular and special meetings of these stockholders and Directors in accordance
with these By-Laws. He shall appoint and remove, employ and discharge, and fix
the compensation of all agents, employees, and clerks of the Corporation other
than the duly appointed officers, subject to the approval of the Board of
Directors. He shall sign and make all contracts and agreements in the name of
the Corporation, subject to the approval of the Board of Directors. He shall
see that the books, reports, statements and certificates required by the
statutes are properly kept, made and filed according to law. He shall sign all
certificates of stock, notes, drafts, or bills of exchange, warrants or other
orders for the payment of money duly drawn by the Treasurer; and he shall
enforce these By-Laws and perform all the duties incident to the position and
office, and which are required by law.
VICE-PRESIDENT
During the absence or inability of the President to render and perform his
duties or exercise his powers, as set forth in these By-Laws or in the statutes
under which the Corporation is organized, the same shall be performed and
exercised by the Vice-President; and when so acting, he shall have all the
powers and be subject to all the responsibilities hereby given to or imposed
upon such President.
SECRETARY
The Secretary shall keep the minutes of the meetings of the Board of
Directors and of the
<PAGE>
stockholders in appropriate books. He shall give and serve all notices of
the Corporation. He shall be custodian of the records and of the corporate
seal and affix the latter when required. He shall keep the stock and
transfer books in the manner prescribed by law, so as to show at all times
the amount of capital stock issued and outstanding; the manner and the time
compensation for the same was paid; the names of the owners thereof,
alphabetically arranged; the number of shares owned by each; the time at
which each person became such owner; and the amount paid thereon; and keep
such stock and transfer books open daily during the business hours of the
office of the Corporation, subject to the inspection of any stockholder of
the Corporation, and permit such stockholder to make extracts from said books
to the extent prescribed by law. He shall sign all certificates of stock.
He shall present to the Board of Directors at their meetings all
communications addressed to him officially by the President or any officer or
stockholder of the Corporation; and he shall attend to all correspondence and
perform all the duties incident to the office of Secretary.
TREASURER
The Treasurer shall have the care and custody of and be responsible for
all the funds and securities of the Corporation, and deposit all such funds
in the name of the Corporation in such bank or banks, trust company or trust
companies or safe deposit vaults as the Board of Directors may designate. He
shall exhibit at all reasonable times his books and accounts to any Director
or stockholder of the Corporation upon application at the office of the
Corporation during business hours. He shall render a statement of the
conditions of the finances of the Corporation at each regular meeting of the
Board of Directors, and at such other times as shall be required of him, and
a full financial report at the annual meeting of the stockholders. He shall
keep, at the office of the Corporation, correct books of account of all its
business and transactions and such other books of account as the Board of
Directors may require. He shall do and perform all duties appertaining to
the office of Treasurer. The Treasurer shall, if required by the Board of
Directors, give to the Corporation such security for the faithful discharge
of his duties as the Board may direct.
Section 4. BOND. The Treasurer shall, if required by the Board of
Directors, give to the Corporation such security for the faithful discharge
of his duties as the Board may direct.
Section 5. VACANCIES, HOW FILLED. All vacancies in any off ice shall
be filled by the Board of Directors without undue delay, either at its
regular meeting or at a meeting specifically called for that purpose. ln the
case of the absence of any officer of the Corporation or for any reason that
the Board of Directors may deem sufficient, the Board may, except as
specifically otherwise provided in these By-Laws, delegate the power or
duties of such officers to any other officer or Director for the time being;
provided, a majority of the entire Board concur therein.
Section 6. COMPENSATION OF OFFICERS. The officers shall receive such
salary or compensation as may be determined by the Board of Directors.
Section 7. REMOVAL OF OFFICERS. The Board of Directors may remove any
officer, by a majority vote, at any time with or without cause.
<PAGE>
ARTICLE V
CERTIFICATES OF STOCK
Section 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of
stock shall be numbered and registered in the order in which they are issued.
They shall be bound in a book and shall be issued in consecutive order
therefrom, and in the margin thereof shall be entered the name of the person
owning the shares therein represented, with the number of shares and the date
thereof. Such certificates shall exhibit the holder's name and number of
shares. They shall be signed by the President or Vice President, and
countersigned by the Secretary or Treasurer and sealed with the Seal of the
Corporation.
Section 2. TRANSFER OF STOCK. The stock of the Corporation shall be
assignable and transferable on the books of the Corporation only by the
person in whose name it appears on said books, his legal representatives or
by his duly authorized agent. In case of transfer by attorney, the power of
attorney, duly executed and acknowledged, shall be deposited with the
Secretary. In all cases of transfer the former certificate must be
surrendered up and canceled before a new certificate may be issued. No
transfer shall be made upon the books of the Corporation within ten (10) days
next preceding the annual meeting of the stockholders.
Section 3. LOST CERTIFICATES. If a stockholder shall claim to have
lost or destroyed a certificate or certificates of stock issued by the
Corporation, the Board of Directors may, at its discretion, direct a new
certificate or certificates to be issued, upon the making of an affidavit of
that fact by the person claiming the certificate of stock to be lost or
destroyed, and upon the deposit of a bond or other indemnity in such form and
with such sureties if any that the Board may require.
ARTICLE VI
SEAL
Section 1. SEAL. The seal of the Corporation shall be as follows:
NO SEAL IN USE AT THIS TIME
ARTICLE VI I
DIVIDENDS
Section 1. WHEN DECLARED. The Board of Directors shall by vote declare
dividends from the surplus profits of the Corporation whenever, in their
opinion, the condition of the Corporation's affairs will render it expedient
for such dividends to be declared.
Section 2. RESERVE. The Board of Directors may set aside, out of the
net profits of the Corporation available for dividends, such sum or sums
(before payment of any dividends) as the Board, in their absolute discretion,
think proper as a reserve fund, to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation,
or for such other purpose as the Directors shall think conducive to the
interest of the Corporation, and they
<PAGE>
may abolish or modify any such reserve in the manner in which it was created.
ARTICLE VIII
INDEMNIFICATION
Section 1. Any person made a party to or involved in any civil,
criminal or administrative action, suit or proceeding by reason of the fact
that he or his testator or intestate is or was a Director, officer, or
employee of the Corporation, or of any corporation which he, the testator, or
intestate served as such at the request of the Corporation, shall be
indemnified by the Corporation against expenses reasonably incurred by him or
imposed on him in connection with or resulting from the defense of such
action, suit, or proceeding and in connection with or resulting from any
appeal thereon, except with respect to matters as to which it is adjudged in
such action, suit or proceeding that such officer, Director, or employee was
liable to the Corporation, or to such other corporation, for negligence or
misconduct in the performance of his duty. As used herein the term "expense"
shall include all obligations incurred by such person for the payment of
money, including without limitation attorney's fees, judgments, awards,
fines, penalties, and amounts paid in satisfaction of judgment or in
settlement of any such action, suit, or proceedings, except amounts paid to
the Corporation or such other corporation by him.
A judgment of conviction whether based on plea of guilty or nolo
contendere or its equivalent, or after trial, shall not of itself be deemed
an adjudication that such Director, officer or employee is liable to the
Corporation, or such other corporation, for negligence or misconduct in the
performance of his duties. Determination of the rights of such
indemnification and the amount thereof may be made at the option of the
person to be indemnified pursuant to procedure set forth, from time to time,
in the By-Laws, or by any of the following procedures: (a) order of the Court
or administrative body or agency having jurisdiction of the action, suit, or
proceeding; (b) resolution adopted by a majority of the quorum of the Board
of Directors of the Corporation without counting in such majority any
Directors who have incurred expenses in connection with such action, suit or
proceeding; (c) if there is no quorum of Directors who have not incurred
expense in connection with such action, suit, or proceeding, then by
resolution adopted by a majority of the committee of stockholders and
Directors who have not incurred such expenses appointed by the Board of
Directors; (d) resolution adopted by a majority of the quorum of the
Directors entitled to vote at any meeting; or (e) Order of any Court having
jurisdiction over the Corporation. Any such determination that a payment by
way of indemnity should be made will be binding upon the Corporation. Such
right of indemnification shall not be exclusive of any other right which such
Directors, officers, and employees of the Corporation and the other persons
above mentioned may have or hereafter acquire, and without limiting the
generality of such statement, they shall be entitled to their respective
rights of indemnification under any By-Law, Agreement, vote of stockholders,
provision of law, or otherwise in addition to their rights under this
Article. The provision of this Article shall apply to any member of any
committee appointed by the Board of Directors as fully as though each person
and been a Director, officer or employee of the Corporation.
ARTICLE IX
AMENDMENTS
<PAGE>
Section 1. HOW AMENDED. These By-Laws may be altered, amended,
repealed or added to by the vote of the Board of Directors of the Corporation
at any regular meeting of said Board, or at a special meeting of Directors
called for that purpose provided a quorum of the Directors as provided by law
and by the Articles of Incorporation, are present at such regular meeting or
special meeting. These By-Laws and any amendments thereto and new By-Laws
added by the Directors may be amended, altered or replaced by the
stockholders at any annual or special meeting of the stockholders.
ARTICLE X
FISCAL YEAR
Section 1. FISCAL YEAR. The fiscal year shall end on the 31st day of
DECEMBER.
ARTICLE XI
WAIVER OF NOTICE
Section 1. Whenever any notice is required to be given to any shareholders
or directors of the Corporation under the provisions of these By-Laws, under the
Articles of Incorporation or under the provisions of the Colorado Business
Corporation Act, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
ADOPTED this 29th day of July, 1996.
INTERNET INTERNATIONAL BUSINESS
MANAGEMENT, INC.
A Colorado Corporation,
/s/ Gary McAdam
President
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary\Treasurer of INTERNET
INTERNATIONAL BUSINESS MANAGEMENT, INC., A Colorado Corporation; and
2. That the foregoing By-Laws, comprising Nine (9) pages, constitute the
By-Laws of said Corporation as duly adopted at a meeting of the Board of
Directors thereof duly held on the 29th day of July, 1996.
/s/ Gary J. McAdam
Secretary\Treasurer
(SEAL)
<PAGE>
EXHIBIT 3.1
[Front of Stock Certificate]
Not Valid Unless Countersigned by Transfer Agent
Incorporated Under the Laws of the State of
Colorado
IMAGENETIX, INC.
Number Shares
CUSIP No. 45245X 10 7
Authorized Common Stock: 50,000,000 Shares
Par Value: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of IMAGENETIX, INC. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Debra L. Spencer /s/ William Spencer
Secretary/Treasurer IMAGENETIX, INC. President
CORPORATE
SEAL
COLORADO
[Back of Stock Certificate]
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations.
<TABLE>
<S> <C> <C>
TEN COM as tenants in common UNI GIFT MIN ACT . . . . . . . Custodian . . . . . . .
TEN ENT as tenants by the entireties (Cust) (Minor)
JT TEN as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act. . . . . . . . . . . . . . . .
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
<PAGE>
For Value Received, ________________ Hereby sell, assign and transfer unto
Please insert social security or other
identifying number of assignee
________________________________________________________________________________
Please print or typewrite name and address, including zip code, of assignee)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________ Shares of the capital
stock represented by the within certificate, and do hereby irrevocably
constitute and appoint _________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
Notice: The signature of this assignment must correspond with
the name as written upon the face of the certificate in
every particular without alteration or enlargement or
any change whatever
<PAGE>
EXHIBIT 3.2
IMAGENETIX, INC.
(A Colorado Corporation)
WARRANT CERTIFICATE
WARRANT NUMBER A-_____ NUMBER OF WARRANTS:_________
CLASS "A" WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES
OF THE $.001 PAR VALUE COMMON STOCK OF
IMAGENETIX, INC.
FOR VALUE RECEIVED, Imagenetix, Inc. (the "Company"), a Colorado
corporation, hereby certifies that _______________________________, the
registered holder hereof, or registered assigns ("Holder") is entitled to
purchase subject to the terms and conditions hereinafter set forth at any
time beginning ninety days following, and not after five (5) years from, the
effective date of the registration statement (the "Registration Statement")
filed by the Company pursuant to subsection 5.15 of the Exchange Agreement
dated March 23, 1999, by and between the Company, Imagenetix, a California
corporation, and the shareholders of such entity, or, if the Registration
Statement is not declared effective on or before December 31, 1999, then five
(5) years from December 31, 1999 (the "Expiration Date"), and not thereafter
one (1) share of the common stock ("Common Stock") of the Company for each
one (1) Warrant exercised, at a price of $3.00 per share of Common Stock (the
"Warrant Price"), and receive a certificate(s) for
<PAGE>
the Common Stock so purchased, upon presentation and surrender to the
transfer agent for the Company, with the form or subscription duly executed,
and accompanied by payment of the purchase price of each share purchased,
either in cash or by certified check or bank draft, payable to the order of
the Company. Fractional shares of the Company's Common Stock will not be
issued upon the exercise of the Warrant. If for any reason the Registration
Statement does not become effective on or before December 31, 1999, or if
thereafter the Registration Statement, or a subsequent federal registration
statement which includes these Warrants, and the underlying shares, does not
remain effective during the period in which the Warrants may be exercised,
then the Holder may from time to time convert this Warrant, in whole or in
part, into the number of shares determined by dividing (a) the aggregate Fair
Market Value (determined on the date of exercise) of the shares of the
Company's Common Stock issuable upon exercise of this Warrant minus the
aggregate Warrant Price of such shares by (b) the Fair Market Value
(determined on the date of exercise) of one share. For purposes of this
paragraph, "Fair Market Value" shall be the value determined in accordance
with the following provisions:
(a) If the Common Stock is not at the time listed or admitted to trading
on any stock exchange but is traded on the Nasdaq National Market System or
SmallCap Market, or is quoted on the OTC Bulletin Board, the Fair Market
Value shall be the closing selling price per share of Common Stock on the
date in question, as such price is reported by the National Association of
Securities Dealers through, in order of preference, the Nasdaq National
Market System, the SmallCap Market, or the OTC Bulletin Board, or any
successor system. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(b) If the Common Stock is at the time listed or admitted to trading on
any stock exchange, the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the stock
exchange determined by the Board of Directors of the Company to be the
primary market for the Common Stock, as such price is officially quoted in
the composite tape of transactions on the exchange. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(c) If the Common Stock is at the time neither listed nor admitted to
trading on any exchange nor traded on the Nasdaq National Market System or
the SmallCap Market, or traded on the OTC Bulletin Board, then such Fair
Market Value shall be determined by the Board of Directors of the Company
after taking into account such factors as the Board of Directors of the
Company shall deem appropriate.
THESE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE ACT OR
THE LAWS OF THE
<PAGE>
APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR TRANSFER IS
EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE STATUTES.
The Company covenants and agrees that all shares of Common Stock which
may be delivered upon the exercise of this Warrant will, upon delivery, be
free from all taxes, liens and charges with respect to the purchase thereof
hereunder. This Warrant shall not be exercised by Holder in any state where
such exercise would be unlawful such as a state in which the Company's Common
Stock is not registered.
The number of shares of Common Stock purchasable upon the exercise of
this Warrant and the purchase price shall be subject to adjustment from time
to time as set forth herein.
The Company agrees at all times to reserve or hold available a
sufficient number of shares of its Common Stock to cover the number of shares
issuable upon the exercise of this and all other Warrants of like tenor then
outstanding.
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company, or to any other rights whatsoever
except the rights herein set forth, and no dividend shall be payable to
accrue in respect to this Warrant or the interest represented hereby, or the
shares purchasable hereunder, until or unless, and except to the extent that
this Warrant shall be exercised, and the Common Stock purchasable upon
exercise thereof shall become deliverable.
The Warrants are not redeemable by the Company.
This Warrant is exchangeable upon the surrender hereof by the Holder to
the Company for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as many be designated by the registered owner at the time of such
surrender.
The Company may deem and treat the Holder at any time as the absolute
owner hereof for all purposes and shall not be affected by any notice to the
contrary.
The issuance of this Warrant is subject to the following conditions:
(1) If the Company shall at any time subdivide its outstanding shares
of Common Stock by recapitalization, reclassification or split-up thereof, or
if the Company shall declare a stock dividend or distribute shares of Common
Stock to its stockholders, the number of shares of Common Stock purchasable
upon exercise of this Warrant immediately prior to such subdivision shall be
proportionately increased in each instance, and if the Company shall at any
time combine the outstanding shares of Common Stock by recapitalization,
reclassification or combination
<PAGE>
thereof, the number of shares of Common Stock purchasable upon exercise of
this Warrant immediately prior to such combination shall be proportionately
decreased in each instance.
(2) If the Company shall distribute to all of the holders of its shares
of Common Stock any security (except as provided in the preceding paragraph)
or other assets (other than a distribution made as a dividend payable out of
earnings or out of any earned surplus legally available for dividends under
the laws of the jurisdiction of incorporation of the Company), the Board of
Directors shall be required to make such equitable adjustment in the Warrant
Price in effect immediately prior to the record date of such distribution as
may be necessary to preserve to the Holder of this Warrant rights
substantially proportionate to those enjoyed hereunder by such Holder
immediately prior to the happening of such distribution. Any such adjustment
shall become effective as of the day following the record date for such
distribution.
(3) Whenever the number of shares of Common Stock purchasable upon the
exercise of this Warrant is required to be adjusted as provided in the
Warrant Agency Agreement, the Warrant Price shall be adjusted (to the nearest
cent) in each instance by multiplying such Warrant Price immediately prior to
such adjustment by a fraction (x) the numerator of which shall be the number
of shares of Common Stock purchasable upon the exercise of the Warrants
immediately prior to such adjustment, and (y) the denominator of which shall
be the number of shares of Common Stock so purchasable immediately thereafter.
(4) In case of any reclassification of the outstanding shares of Common
Stock, other that a change covered by paragraph (1) above or which solely
affects the par value of such shares of Common Stock, or in the case of any
merger or consolidation of the Company with or into another corporation
(other that a consolidation merger in which the Company is the continuing
corporation and which does not result in any reclassification or capital
reorganization of the outstanding shares of Common Stock), or in the case of
any sale or conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety in connection with which the
Company is dissolved, the Holder of this Warrant shall have the right
thereafter (until the expirations of the respective rights of exercise of the
Warrant) to receive upon the exercise thereof, for the same aggregate Warrant
Price payable hereunder immediately prior to such event, the kind and amount
of shares of stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation, or upon
the dissolution following any sale or other transfer, which a holder of the
number of shares of Common Stock of the Company would obtain upon exercise of
the Warrants immediately prior to such event; and if any classification also
results in a change in shares of Common Stock covered by paragraph (1) above,
then such adjustment shall be made pursuant to both paragraph (1) above and
this paragraph (4). The provisions of this paragraph (4) shall similarly
apply to successive reclassifications, or capital reorganizations, mergers or
consolidations, sales or other transfers.
(5) In case of the dissolution, liquidation or winding-up of the
Company, all rights under any of the Warrants not redeemed or expired by
their terms shall terminate on a date fixed by the Company, such date so
fixed to be not earlier than the date of the commencement of the proceedings
for such dissolution, liquidation or winding-up and not later than thirty
(30) days after such commencement date. Notice of such termination or
purchase rights shall be given to
<PAGE>
the registered Holder of this Warrant as the same shall appear on the books
of the Company, by certified or registered mail at least thirty (30) days
prior to such termination date.
(6) In case the Company shall, at any time prior to the Expiration Date
of the Warrants, and prior to the exercise thereof, offer to the holders of
its Common Stock any right to subscribe for additional shares of any class of
the Company, then the Company shall give written notice thereof to the
registered Holder of this Warrant not less than thirty (30) days prior to the
date on which the books of the Company are closed or a record date fixed for
the determination of stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date be fixed with respect to such offer or subscription, and the right of
the holders to participate in such offer or subscription shall terminate if
this Warrant shall not be exercised on before the date of such closing of the
books or such record date.
(7) If the Company after the date hereof shall take any action
affecting the shares of its Common Stock, other than that action described
above, which, in the opinion of the Board of Directors of the Company, would
materially affect the rights of the Holder of this Warrant or the Warrant
Price, the number of shares of Common Stock purchasable on exercise of this
Warrant shall be adjusted in each instance and at such time as the Board of
Directors of the Company, in good faith, may determine to be equitable under
the circumstances.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer this _____ day of ________ 1999.
Imagenetix, Inc.
By President
ATTEST:
Secretary
ASSIGNMENT FORM
(To be executed by the registered Holder to effect a
Transfer of the Within Warrant)
For Value Received ____________________ hereby sells, assigns, and transfer unto
________________________________________________________________________________
(Please print or typewrite name and address,
including postal zip code of assignee)
this Warrant and the rights represented thereby to purchase Common Stock in
accordance with the terms and conditions thereof, and does hereby irrevocable
constitute and appoint _______________________________ attorney to transfer
this Warrant on the books of the Company with full power of substitution.
Date: Signed
----------------------------- ---------------------------------
SUBSCRIPTION FORM
<PAGE>
(To Be Executed by the Registered Holder to Exercise The Rights
To Purchase Common Stock Evidenced By The Within Warrant)
The undersigned hereby irrevocably subscribes for ____________________ shares
of the Common Stock of International Business Management, Inc., pursuant and
in accordance with the terms and conditions of the Warrant and hereby makes
payment of $____________________ therefor, and requests that certificate(s)
for such shares be issued in the name of the undersigned and be delivered to
the address stated below, and if such number of shares shall not be all of
the shares purchasable hereunder, that a new Warrant of like tenor for the
balance of the remaining shares purchasable hereunder be delivered to the
undersigned at the address stated below:
Date: Signed
-------------------------- --------------------------------
SIGNATURE(S) MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF A REGISTERED
NATIONAL STOCK EXCHANGE, OR BY A BANK (OTHER THAN A SAVINGS BANK), OR A TRUST
COMPANY. THE SIGNATURE TO THIS SUBSCRIPTION FORM MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE WARRANT. IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
<PAGE>
EXHIBIT 3.3
IMAGENETIX, INC.
(A Colorado Corporation)
WARRANT CERTIFICATE
WARRANT NUMBER B-_____ NUMBER OF WARRANTS:_________
CLASS "B" WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES
OF THE $.001 PAR VALUE COMMON STOCK OF
IMAGENETIX, INC.
FOR VALUE RECEIVED, Imagenetix, Inc. (the "Company"), a Colorado
corporation, hereby certifies that _______________________________, the
registered holder hereof, or registered assigns ("Holder") is entitled to
purchase subject to the terms and conditions hereinafter set forth at any
time beginning ninety days following, and not after five (5) years from, the
effective date of the registration statement (the "Registration Statement")
filed by the Company pursuant to subsection 5.15 of the Exchange Agreement
dated March 23, 1999, by and between the Company, Imagenetix, a California
corporation, and the shareholders of such entity, or, if the Registration
Statement is not declared effective on or before December 31, 1999, then five
(5) years from December 31, 1999 (the "Expiration Date"), and not thereafter
one (1) share of the common stock ("Common Stock") of the Company for each
one (1) Warrant exercised, at a price of $3.05 per share of Common Stock (the
"Warrant Price"), and receive a certificate(s) for the Common Stock so
purchased, upon presentation and surrender to the transfer agent for the
Company, with the form or subscription duly executed, and accompanied by
payment of the
<PAGE>
purchase price of each share purchased, either in cash or by certified check
or bank draft, payable to the order of the Company. Fractional shares of the
Company's Common Stock will not be issued upon the exercise of the Warrant.
If for any reason the Registration Statement does not become effective on or
before December 31, 1999, or if thereafter the Registration Statement, or a
subsequent federal registration statement which includes these Warrants, and
the underlying shares, does not remain effective during the period in which
the Warrants may be exercised, then the Holder may from time to time convert
this Warrant, in whole or in part, into the number of shares determined by
dividing (a) the aggregate Fair Market Value (determined on the date of
exercise) of the shares of the Company's Common Stock issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such shares by (b) the
Fair Market Value (determined on the date of exercise) of one share. For
purposes of this paragraph, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or admitted to trading
on any stock exchange but is traded on the Nasdaq National Market System or
SmallCap Market, or is quoted on the OTC Bulletin Board, the Fair Market
Value shall be the closing selling price per share of Common Stock on the
date in question, as such price is reported by the National Association of
Securities Dealers through, in order of preference, the Nasdaq National
Market System, the SmallCap Market, or the OTC Bulletin Board, or any
successor system. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(b) If the Common Stock is at the time listed or admitted to trading on
any stock exchange, the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the stock
exchange determined by the Board of Directors of the Company to be the
primary market for the Common Stock, as such price is officially quoted in
the composite tape of transactions on the exchange. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(c) If the Common Stock is at the time neither listed nor admitted to
trading on any exchange nor traded on the Nasdaq National Market System or
the SmallCap Market, or traded on the OTC Bulletin Board, then such Fair
Market Value shall be determined by the Board of Directors of the Company
after taking into account such factors as the Board of Directors of the
Company shall deem appropriate.
THESE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE ACT OR
THE LAWS OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL
<PAGE>
REASONABLY SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT
THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE
STATUTES.
The Company covenants and agrees that all shares of Common Stock which
may be delivered upon the exercise of this Warrant will, upon delivery, be
free from all taxes, liens and charges with respect to the purchase thereof
hereunder. This Warrant shall not be exercised by Holder in any state where
such exercise would be unlawful such as a state in which the Company's Common
Stock is not registered.
The number of shares of Common Stock purchasable upon the exercise of
this Warrant and the purchase price shall be subject to adjustment from time
to time as set forth herein.
The Company agrees at all times to reserve or hold available a
sufficient number of shares of its Common Stock to cover the number of shares
issuable upon the exercise of this and all other Warrants of like tenor then
outstanding.
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company, or to any other rights whatsoever
except the rights herein set forth, and no dividend shall be payable to
accrue in respect to this Warrant or the interest represented hereby, or the
shares purchasable hereunder, until or unless, and except to the extent that
this Warrant shall be exercised, and the Common Stock purchasable upon
exercise thereof shall become deliverable.
The Warrants are not redeemable by the Company.
This Warrant is exchangeable upon the surrender hereof by the Holder to
the Company for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as many be designated by the registered owner at the time of such
surrender.
The Company may deem and treat the Holder at any time as the absolute
owner hereof for all purposes and shall not be affected by any notice to the
contrary.
The issuance of this Warrant is subject to the following conditions:
(1) If the Company shall at any time subdivide its outstanding shares
of Common Stock by recapitalization, reclassification or split-up thereof, or
if the Company shall declare a stock dividend or distribute shares of Common
Stock to its stockholders, the number of shares of Common Stock purchasable
upon exercise of this Warrant immediately prior to such subdivision shall be
proportionately increased in each instance, and if the Company shall at any
time combine the outstanding shares of Common Stock by recapitalization,
reclassification or combination thereof, the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such
combination shall be proportionately decreased in each instance.
<PAGE>
(2) If the Company shall distribute to all of the holders of its shares
of Common Stock any security (except as provided in the preceding paragraph)
or other assets (other than a distribution made as a dividend payable out of
earnings or out of any earned surplus legally available for dividends under
the laws of the jurisdiction of incorporation of the Company), the Board of
Directors shall be required to make such equitable adjustment in the Warrant
Price in effect immediately prior to the record date of such distribution as
may be necessary to preserve to the Holder of this Warrant rights
substantially proportionate to those enjoyed hereunder by such Holder
immediately prior to the happening of such distribution. Any such adjustment
shall become effective as of the day following the record date for such
distribution.
(3) Whenever the number of shares of Common Stock purchasable upon the
exercise of this Warrant is required to be adjusted as provided in the
Warrant Agency Agreement, the Warrant Price shall be adjusted (to the nearest
cent) in each instance by multiplying such Warrant Price immediately prior to
such adjustment by a fraction (x) the numerator of which shall be the number
of shares of Common Stock purchasable upon the exercise of the Warrants
immediately prior to such adjustment, and (y) the denominator of which shall
be the number of shares of Common Stock so purchasable immediately thereafter.
(4) In case of any reclassification of the outstanding shares of Common
Stock, other that a change covered by paragraph (1) above or which solely
affects the par value of such shares of Common Stock, or in the case of any
merger or consolidation of the Company with or into another corporation
(other that a consolidation merger in which the Company is the continuing
corporation and which does not result in any reclassification or capital
reorganization of the outstanding shares of Common Stock), or in the case of
any sale or conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety in connection with which the
Company is dissolved, the Holder of this Warrant shall have the right
thereafter (until the expirations of the respective rights of exercise of the
Warrant) to receive upon the exercise thereof, for the same aggregate Warrant
Price payable hereunder immediately prior to such event, the kind and amount
of shares of stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation, or upon
the dissolution following any sale or other transfer, which a holder of the
number of shares of Common Stock of the Company would obtain upon exercise of
the Warrants immediately prior to such event; and if any classification also
results in a change in shares of Common Stock covered by paragraph (1) above,
then such adjustment shall be made pursuant to both paragraph (1) above and
this paragraph (4). The provisions of this paragraph (4) shall similarly
apply to successive reclassifications, or capital reorganizations, mergers or
consolidations, sales or other transfers.
(5) In case of the dissolution, liquidation or winding-up of the
Company, all rights under any of the Warrants not redeemed or expired by
their terms shall terminate on a date fixed by the Company, such date so
fixed to be not earlier than the date of the commencement of the proceedings
for such dissolution, liquidation or winding-up and not later than thirty
(30) days after such commencement date. Notice of such termination or
purchase rights shall be given to the registered Holder of this Warrant as
the same shall appear on the books of the Company, by certified or registered
mail at least thirty (30) days prior to such termination date.
<PAGE>
(6) In case the Company shall, at any time prior to the Expiration Date
of the Warrants, and prior to the exercise thereof, offer to the holders of
its Common Stock any right to subscribe for additional shares of any class of
the Company, then the Company shall give written notice thereof to the
registered Holder of this Warrant not less than thirty (30) days prior to the
date on which the books of the Company are closed or a record date fixed for
the determination of stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date be fixed with respect to such offer or subscription, and the right of
the holders to participate in such offer or subscription shall terminate if
this Warrant shall not be exercised on before the date of such closing of the
books or such record date.
(7) If the Company after the date hereof shall take any action
affecting the shares of its Common Stock, other than that action described
above, which, in the opinion of the Board of Directors of the Company, would
materially affect the rights of the Holder of this Warrant or the Warrant
Price, the number of shares of Common Stock purchasable on exercise of this
Warrant shall be adjusted in each instance and at such time as the Board of
Directors of the Company, in good faith, may determine to be equitable under
the circumstances.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer this _____ day of ________ 1999.
Imagenetix, Inc.
By President
ATTEST:
Secretary
ASSIGNMENT FORM
(To be executed by the registered Holder to effect a
Transfer of the Within Warrant)
For Value Received ____________________ hereby sells, assigns, and transfer unto
________________________________________________________________________________
(Please print or typewrite name and address,
including postal zip code of assignee)
this Warrant and the rights represented thereby to purchase Common Stock in
accordance with the terms and conditions thereof, and does hereby irrevocable
constitute and appoint attorney
to transfer this Warrant on the books of the Company with full power of
substitution.
Date: Signed
---------------------------------- ------------------------
SUBSCRIPTION FORM
(To Be Executed by the Registered Holder to Exercise The Rights
To Purchase Common Stock Evidenced By The Within Warrant)
<PAGE>
The undersigned hereby irrevocably subscribes for _______________ shares of
the Common Stock of International Business Management, Inc., pursuant and in
accordance with the terms and conditions of the Warrant and hereby makes
payment of $_______________ therefor, and requests that certificate(s) for
such shares be issued in the name of the undersigned and be delivered to the
address stated below, and if such number of shares shall not be all of the
shares purchasable hereunder, that a new Warrant of like tenor for the
balance of the remaining shares purchasable hereunder be delivered to the
undersigned at the address stated below:
Date: Signed
---------------------------------- ------------------------
SIGNATURE(S) MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF A REGISTERED
NATIONAL STOCK EXCHANGE, OR BY A BANK (OTHER THAN A SAVINGS BANK), OR A TRUST
COMPANY. THE SIGNATURE TO THIS SUBSCRIPTION FORM MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE WARRANT. IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
<PAGE>
EXHIBIT 6.1
FUNDING AGREEMENT
This Agreement, entered into this 23rd day of March 1999, is by,
between, and among Claudia A. McAdam, an individual ("McAdam"), Great
Expectations Family Limited Partnership, a Colorado limited partnership
("GEFLP"), Growth Ventures, Inc., a Colorado corporation ("GVI"), Imagenetix,
a California corporation ("Imagenetix"), Internet International Business
Management, Inc., a Colorado corporation ("IIBM").
RECITALS:
WHEREAS, Imagenetix has entered into an Exchange Agreement dated of even
date herewith by, between, and among IIBM, Imagenetix, and the shareholders
of Imagenetix (hereinafter the "Exchange Agreement") whereby Imagenetix shall
become a wholly owned subsidiary of IIBM;
WHEREAS, subsection 1.3 of the Exchange Agreement requires IIBM to
furnish a $300,000 line of credit to Imagenetix;
WHEREAS, McAdam, GEFLP, and GVI, or its assigns, (hereinafter
collectively the "Funding Parties") have agreed with IIBM to provide the
$300,000 line of credit to satisfy the requirements of subsection 1.3 of the
Exchange Agreement, and Imagenetix is willing to accept funding from IIBM as
set forth herein in satisfaction of the requirements of such subsection 1.3;
WHEREAS, the parties hereto have agreed to the funding provisions as set
forth herein;
NOW, THEREFORE, in consideration of the mutual terms and conditions set
forth herein, and other valuable consideration, the receipt and sufficiency
of which is hereby
<PAGE>
acknowledged, the parties hereto agree as follows:
1. LINE OF CREDIT. The Funding Parties, severally and not jointly,
each hereby agrees to loan to IIBM, and IIBM hereby agrees to loan to
Imagenetix, upon reasonable request, up to the following maximum amount of
funds which shall be made available to IIBM, and IIBM shall make available to
Imagenetix, in the following order:
<TABLE>
<CAPTION>
Amount
Name of Loan Payment Date
---- ------- ------------
<S> <C> <C>
McAdam $50,000 As of the date of this Agreement
GEFLP $50,000 As of the date of this Agreement
GVI, or its assigns $200,000 As of the Closing of the Exchange
Agreement, as provided therein
</TABLE>
The terms and conditions of the loans to IIBM are set forth in the form of
Promissory Note, a copy of which is attached hereto as Exhibit "B-1" and
incorporated herein (the "IIBM Note"). The terms and conditions of the loans
from IIBM to Imagenetix are set forth in the form of Promissory Note, a copy
of which is attached hereto as Exhibit "B-2" and incorporated herein (the
"Imagenetix Note"). Simultaneous with the furnishing of funds by one of the
Funding Parties to IIBM, IIBM shall execute and deliver an IIBM Note to such
party. Simultaneous with the furnishing of funds by IIBM to Imagenetix,
Imagenetix shall execute and deliver an Imagenetix Note to IIBM. The
principal and interest due under the IIBM Note shall be convertible into
shares of common stock of IIBM, at the option of the lending party, as set
forth in the IIBM Note. Without prior notice or approval, GVI may assign all
or part of its obligation to furnish the funds set forth above to one or more
parties who, at the time of furnishing such funds, shall agree to be subject
to the terms and conditions of this Agreement.
2. DRAWS OF FUNDS. Each request for funds pursuant to this Agreement
shall be accompanied by a reasonable description of the use of such funds,
which funds shall be used for the business of Imagenetix. Each such request
shall be subject to the approval of Gary J. McAdam, which approval shall not
be unreasonably withheld.
3. ISSUANCE OF WARRANTS. As partial consideration for the Funding
Parties providing the funding to IIBM, IIBM shall issue to the members of the
Funding Parties one "A" warrant and one "B" warrant to purchase common shares
of IIBM for each $1.00 loaned by the particular member of the Funding
Parties, which warrants shall be subject to the terms and conditions set
forth in the forms attached hereto as Exhibits "B-3" and "B-4" and
incorporated herein (the "Warrants"). The Warrants shall be issued, and
Warrant certificates delivered, not later than the Closing of the Exchange
Agreement separately to each member of the Funding Parties providing the
loaned funds.
4. REGISTRATION RIGHTS. The Purchaser hereby grants the following
registration rights in connection with the shares issuable upon conversion of
the IIBM Note, the Warrants, and the shares underlying such Warrants:
a. REGISTRATION STATEMENT. IIBM shall include in the registration
statement
<PAGE>
(the "Registration Statement") filed by IIBM pursuant to subsection 5.15 of
the Exchange Agreement the shares issuable upon conversion of the IIBM Note,
the Warrants, and the shares of common stock of IIBM underlying the Warrants
(hereinafter the "Registerable Shares").
b. PIGGYBACK RIGHTS. If for any reason the Registration
Statement is not filed, or does not become effective, and IIBM files a
subsequent registration statement with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933 (the "Securities
Act") with respect to shares of its common stock, prior to five years
following the date of this Agreement, on a form appropriate for registering
the Registerable Shares, IIBM shall give written notice thereof to the
holders of the Registerable Shares prior to such filing, and the holders of
the Registerable Shares shall have the right to request to have included
therein such number of the Registerable Shares as shall be specified in such
request, provided, however, that the inclusion of such shares shall not
unreasonably interfere with IIBM's registration of its shares and that in no
event shall IIBM be obligated (i) to file such registration statement at any
time other than during the period ended five years following the date of this
Agreement, or (ii) to keep the prospectus with respect to such stock current
for more than five years after the effective date of the registration
statement. If Vendor does not make a request for such registration within
twenty days after receipt of notice from IIBM, IIBM shall have no obligation
to include any such Registerable Shares in such registration statement, or in
any future registration statement.
c. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares being issued by IIBM under subparagraph
(b) above, IIBM shall not be required under subparagraph (b) to include any
of the Registerable Shares in such underwriting unless the holders of the
Registerable Shares accept the terms of the underwriting as agreed upon
between IIBM and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the
success of the offering by IIBM. If the total amount of securities,
including the Registerable Shares, requested to be included in such offering
exceeds the amount of securities sold other than by the Company that the
underwriters reasonably believe compatible with the success of the offering,
only the number of such securities, including the Registerable Shares, which
the underwriters believe will not jeopardize the success of the offering, but
in no event shall (i) the number of Registerable Shares included in the
offering be reduced below ten percent (10%) of the total number of shares
included in such offering.
d. STATE REGISTRATIONS. At the written request of a majority of
the holders of the Registerable Shares, IIBM shall file a registration
statement with one state in which the such parties intends to sell the
Registerable Shares, provided that such filing can be made without
unreasonable expense to IIBM and without materially affecting the
registration statement filed with the SEC. IIBM shall cooperate with the
holders of the Registerable Shares in the filing of a registration statement
in one or more additional states, provided that the holders of such
Registerable Shares shall reimburse IIBM for its time, effort, and costs
reasonably associated with such filings.
e. PAYMENT OF EXPENSES. IIBM shall bear all expenses incurred by
it in registering the Registerable Shares hereunder, including without
limitation, all filing, registration and qualification fees of the SEC or any
state agency (except for fees incurred in states expressly
<PAGE>
designated by the holders of the Registerable Shares in subparagraph (d)
above), printing expenses, fees and disbursements of legal counsel and all
accounting expenses including expenses of the year-end audits. The holders
of the Registerable Shares shall bear the fees and disbursements of their own
legal counsel, underwriting or brokerage discounts and commissions, expenses
of its brokers or underwriters, and fees of the National Association of
Securities Dealers, Inc.
f. COOPERATION OF THE HOLDERS OF THE REGISTERABLE SHARES. It
shall be a condition of the obligations of IIBM to take action in response to
any request for registration by the holder of Registerable Shares that such
request include or be accompanied by all of the following: (i) the holder's
confirmation that such person then has a present intention of selling or
distributing the Registerable Shares which are the subject of such request;
(ii) information with respect to the holder and the number of Registerable
Shares proposed to be sold and a description of such Registerable Shares, or,
to the extent that such information is not then available, the holder's
undertaking to furnish the same; (iii) the indemnity agreement specified in
subparagraph (g) below; (iv) the holder's agreement to refrain, in connection
with such registration, offering and sale, from taking any action violative
of the anti-manipulative rules promulgated under the Securities Exchange Act
of 1934, as amended; and (v) the holder's agreement to cooperate with IIBM
generally in connection with such registration, and the undertaking to
execute such further documents relating to formal matters in connection with
such registration, offering and sale as may be necessary, appropriate and
proper to effectuate the transactions contemplated by such request.
g. INDEMNIFICATION. Any registration hereunder shall be
accompanied by an agreement of the holder of the Registerable Shares to be
registered to indemnify IIBM, each of its directors, each of its officers who
sign the registration statement, and each person who controls IIBM against
any loss, claim, liability, damage or action arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in the registration statement when the same becomes effective or in any final
prospectus or amendment or supplement thereto, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and to reimburse the
indemnified persons for any legal or other expenses reasonably incurred in
investigating or defending any such action or claim, but only to the extent
that the untrue statement (or alleged untrue statement) or omission (or
alleged omission) was made in reliance upon and in conformity with written
information furnished to IIBM by or on behalf of the holder for use in the
registration statement, final prospectus, or amendment or supplement thereto,
as the case may be.
5. MISCELLANEOUS.
a. NOTICES. All communications provided for herein shall be in
writing and shall be deemed to be given or made when served personally or
when deposited in the United States mail, certified return receipt requested,
addressed as follows, or at such other address as shall be designated by any
party hereto in written notice to the other party hereto delivered pursuant
to this subsection:
<PAGE>
McAdam: 14 Red Tail Drive
Highlands Ranch, CO 80126
GEFLP, IIBM and GVI: 14 Red Tail Drive
Highlands Ranch, CO 80126
Attn: Gary J. McAdam
With Copy to: Ronald N. Vance
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, UT 84101
Imagenetix
and Shareholders: 1702 Macero Street
Escondido, CA 92029
Attn: William P. Spencer
With Copy to: Louis K. Bruno
Attorney at Law
135 West Mission Avenue
Suite 105
Escondido, CA 92025
b. DEFAULT. Should any party to this Agreement default in any of
the covenants, conditions, or promises contained herein, the defaulting party
shall pay all costs and expenses, including a reasonable attorney's fee, which
may arise or accrue from enforcing this Agreement, or in pursuing any remedy
provided hereunder or by the statutes of the State of Utah.
c. ASSIGNMENT. Except as set forth in Paragraph 1 above, this
Agreement may not be assigned in whole or in part by the parties hereto without
the prior written consent of the other party or parties, which consent shall not
be unreasonably withheld.
d. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their heirs, executors,
administrators, successors and assigns.
e. PARTIAL INVALIDITY. If any term, covenant, condition, or
provision of this Agreement or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the remainder of
this Agreement or application of such term or provision to persons or
circumstances other than those as to which it is held to be invalid or
unenforceable shall not be affected thereby and each term, covenant, condition,
or provision of this Agreement shall be valid and shall be enforceable to the
fullest extent permitted by law.
f. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding
<PAGE>
between the parties hereto with respect to the subject matter hereof and
supersedes all negotiations, representations, prior discussions, letters of
intent, and preliminary agreements between the parties hereto relating to the
subject matter of this Agreement.
g. INTERPRETATION OF AGREEMENT. This Agreement shall be
interpreted and construed as if equally drafted by all parties hereto.
h. SURVIVAL OF COVENANTS, ETC. All covenants, representations,
and warranties made herein to any party, or in any statement or document
delivered to any party hereto, shall survive the making of this Agreement and
shall remain in full force and effect until the obligations of such party
hereunder have been fully satisfied.
i. FURTHER ACTION. The parties hereto agree to execute and
deliver such additional documents and to take such other and further action
as may be required to carry out fully the transactions contemplated herein.
j. AMENDMENT. This Agreement or any provision hereof may not be
changed, waived, terminated, or discharged except by means of a written
supplemental instrument signed by the party or parties against whom
enforcement of the change, waiver, termination, or discharge is sought.
k. FULL KNOWLEDGE. By their signatures, the parties acknowledge
that they have carefully read and fully understand the terms and conditions
of this Agreement, that each party has had the benefit of counsel, or has
been advised to obtain counsel, and that each party has freely agreed to be
bound by the terms and conditions of this Agreement.
l. HEADINGS. The descriptive headings of the various sections or
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
m. COUNTERPARTS. This Agreement may be executed in two or more
partially or fully executed counterparts, each of which shall be deemed an
original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto executed the foregoing Funding
Agreement as of the day and year first above written.
McAdam: /s/ Claudia A. McAdam, Individually
GEFLP: Great Expectations Family Limited Partnership
By /s/ Gary J. McAdam, General Partner
IIBM: Internet International Business Management, Inc.
By /s/ Gary J. McAdam, President
<PAGE>
Imagenetix: Imagenetix
By /s/ William P. Spencer, President
GVI: Growth Ventures, Inc.
By /s/ Gary J. McAdam, President
<PAGE>
EXHIBIT 6.2
Date: _________, 1999
Amount: $
IMAGENETIX, INC.
(A Colorado Corporation)
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE TRANSFERRED OR
SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER
THE ACT OR THE LAWS OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT
THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE
STATUTES.
Imagenetix, Inc., a corporation duly organized and existing under the
laws of the State of Colorado (hereinafter referred to as the "Maker"), for
value received, hereby promises to pay to the following person (the "Lender"):
the principal sum of up to ___________________________ dollars ($______), as
loaned in one or more increments by the Lender to the Maker from time to time
as set forth in the Funding Agreement of even date herewith and incorporated
herein (the "Funding Agreement"), in such lawful money of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts, on the terms and at the time hereinafter provided.
This Note is subject to the terms and conditions of the Funding
Agreement and any inconsistencies between this Note and the Funding Agreement
shall be governed by the Funding Agreement. This Note is also subject to the
further terms and provisions:
1. PAYMENT OF PRINCIPAL AND INTEREST. The outstanding principal
amount of this Note, which amount shall be equal to the funds loaned by
Lender to the Maker hereunder and not otherwise repaid pursuant hereto,
together with all interest then accrued shall be due and payable on the date
of the initial release of funds under the registration statement (the
"Registration Statement") filed by the Company pursuant to subsection 5.15 of
the Exchange Agreement dated
<PAGE>
March 23, 1999, by and between the Company, Imagenetix, a California
corporation, and the shareholders of such entity or one year from the date
hereof, whichever shall first occur (the "Due Date"). Interest on the
outstanding principal shall accrue at the rate of ten percent (10%) per annum
from the date of delivery of such principal funds by the Lender. All
interest shall be calculated on the basis of a 365-day year, counting the
actual number of days elapsed from the date any principal amount is delivered
to the Maker through the Due Date. Interest on any overdue payments of
principal and interest due hereunder shall accrue and be payable at the rate
of twelve percent (12%) per annum, based on the actual number of days elapsed
from the date such principal or interest payment was due to the date of
actual payment.
2. CONVERSION. Subject to, and in compliance with, the provisions
contained herein, the holder of this Note is entitled, at its option, at any
time prior to the Due Date, to convert the outstanding principal and accrued
interest due under this Note, or any portion thereof, into fully paid and
nonassessable shares (calculated as to each conversion to the nearest share)
of common stock (the "Shares") of the Maker, by surrender of this Note, duly
endorsed (if so required by the Maker) or assigned to the Maker, accompanied
by written notice to the Maker, in the form set forth below, that the holder
hereof selects to convert this Note or, if less than the entire principal
amount and accrued interest hereof is to be converted, the portion hereof to
be converted. Such conversion shall be effected at the rate of one share of
the Maker for each $3.00 of principal and interest converted. No fractions
of Shares will be issued on conversion, but instead of any fractional
interest, the Maker will round up such fractional share to the next whole
share.
3. PREPAYMENT. This Note is subject to prepayment, in whole or in
part, at any time upon not less than 30 days notice by registered mail at the
election of the Maker. Prepayment shall be effected by paying the amount
equal to the outstanding principal amount of this Note, plus all interest
accrued to the date of prepayment. During the 30 days following the date of
any notice of prepayment, the holder shall have the right to convert this
Note to the common stock of the Maker, on the terms and conditions provided
for in paragraph 2 above.
4. LIMITATIONS ON RIGHT OF CONVERSION. Following receipt of the
written notice of intention to convert the Note, the Maker shall take such
steps as it deems appropriate to permit conversion of the Note as specified
in the notice and to issue such Shares without registration or qualification
under applicable federal and state securities laws; PROVIDED, that in no
event shall the Maker be required to consent to the general service of
process or to qualify as a foreign corporation in any jurisdiction where the
Note holder resides if such jurisdiction is different than such Note holder's
residence when the Note was originally offered and sold. In order to comply
with any exemptions from the registration requirements of the Act and certain
state securities statutes, the Maker may require the holder of this Note to
make certain representations and execute and deliver to the Maker certain
documents as a condition to exercise of conversion rights hereunder, all in
form and substance satisfactory to the Maker as determined in its sole
discretion. In the event the Maker reasonably determines that the Note
cannot be converted in compliance with applicable federal and state
securities laws in the absence of registration or qualification under such
statutes, the Maker shall be under no obligation to permit conversion of the
Note and issue any shares of common stock pursuant hereto.
<PAGE>
5. SATISFACTION AND DISCHARGE OF NOTE. This Note shall cease to be of
further effect (except as to any surviving rights of conversion, transfer, or
exchange of the Note herein expressly provided for) when:
a. The Maker has paid or caused to be paid all sums payable
hereunder by the Maker, including all outstanding principal amounts and
interest accrued under the Note; and
b. All the conditions precedent herein provided for relating to
the satisfaction and discharge of this Note have been complied with.
6. EVENTS OF DEFAULT. "Event of Default," when used herein, whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law pursuant to any judgment,
decree, or order of any court or any order, rule, or regulation of any
administration or government body or be caused by the provisions of any
paragraph herein means any one of the following events:
a. Default in the payment of any interest on this Note when it
becomes due and payable, and continuance of such default for a period of 30
days; or
b. Default in the payment of the principal amount of this Note
when due, whether at maturity, upon prepayment, or otherwise; or
c. Default in the performance or breach of any covenant or
warranty of the Maker in this Note (other than a covenant or warranty, the
breach or default in performance of which is elsewhere in this section
specifically dealt with), and continuation of such default or breach for a
period of 30 days after there has been given to the Maker by registered or
certified mail, by the holder of this Note, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a notice of default hereunder; or
d. The entry of a decree or order by a court having jurisdiction
in the premises adjudging the Maker a bankrupt or insolvent under the Federal
Bankruptcy Act or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee (or other similar official) of the
Maker or of any substantial part of its property , or ordering the winding up
or liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days;
e. The institution by the Maker of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or a filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Act or any other applicable federal or state law; or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee (or other similar official) of the
Maker or of any substantial part of its property, or the making by it of any
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Maker in furtherance of any such action; or
<PAGE>
f. Any material breach of the representations or warranties of
the Maker in, the Funding Agreement, or any material default of the Maker of
the terms and conditions of the Funding Agreement.
7. ACCELERATION OF MATURITY. If an Event of Default occurs and is
continuing then, in every such case, the holder of this Note may declare the
outstanding principal of this Note to be due and payable immediately, by a
notice in writing to the Maker of such default, and upon any such
declaration, such principal shall become immediately due and payable. At
such time after such declaration of acceleration has been made, and before a
judgment or decree for payment of money due has been obtained by the holder,
the holder of this Note, by written notice to the Maker, may rescind and
annul such declaration and its consequences, if all Events of Default, other
than the nonpayment of the principal of this Note which has become due solely
by such acceleration, has been cured or waived. No such rescission shall
affect any subsequent default or impair any right consequent thereon. Upon
the occurrence of an Event of Default which remains uncorrected, the Lender
shall not be obligated to provide further funds to the Maker under this Note.
8. RESTRICTIONS. The holder of this Note, by acceptance hereof,
represents and warrants as follows:
a. The Note is being acquired for the holder's own account to be
held for investment purposes only and not with a view to, or for, resale in
connection with any distribution of such Note or any interest therein without
registration, an applicable exemption from registration, or other compliance
under the Act, or any state securities laws, and the holder hereof has no
direct or indirect participation in any such undertaking or in underwriting
such an undertaking.
b. The holder hereof has been advised and understands that the
Note has not been registered under the Act, or any state securities laws, and
the Maker is under no obligation to register the Note under the Act.
9. NEGOTIABILITY AND TRANSFERABILITY. This Note is negotiable and
transferable, subject to compliance with the provisions of paragraph 8 hereof.
10. PRESENTMENT WAIVER. The makers, guarantors, and endorsers hereof,
if any, severally waive presentment for payment, protest, and notice of
protest and of nonpayment of this Note.
Imagenetix, Inc.
By
Imagenetix, Inc.
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
<PAGE>
Re: Conversion of Note
Gentlemen:
The undersigned owner of this Note hereby irrevocably exercises the option
to convert this Note or the portion hereof designated, into shares of common
stock of Imagenetix, Inc., in accordance with the terms of this Note, and
directs that the shares issuable and deliverable upon the conversion be issued
in the name of and delivered to the undersigned unless a different name has been
indicated below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay any transfer taxes payable with
respect thereto.
Date:
-------------------- -------------------------------------------
(Signature)
FILL IN FOR REGISTRATION OF SHARES
- --------------------------- ---------------------------------------------
(Printed Name) (Social Security or other identifying number)
- --------------------------- ---------------------------------------------
(Street Address)
- --------------------------- ---------------------------------------------
(City, State, and ZIP Code) Portion to be converted (if less than all)
<PAGE>
EXHIBIT 6.3
ALLIANCE AGREEMENT
BETWEEN
IMAGENETIX & DR. CHARLES COCHRAN
Dr. Charles L. Cochran, hereinafter referred to as the "Developer," in
consideration of the promises made herein and intending to be legally bound,
agree as follows:
ARTICLE I
Status of Imagenetix
Section 1.01 - Imagenetix is a corporation duly organized, validly existing, and
in good standing under the laws of the State of California with corporate power
to own property and carry on its business as it is now being conducted.
Imagenetix has its primary office and place of business at:
11777 Bernardo Plaza Court, Suite #206
San Diego, CA 92128
Legal Status of Developer
<PAGE>
Section 1.02 - Developer is an individual having his primary office and place of
business at:
226 Lake Court
Aptos, CA 95003
Developer Business
Section 1.03 - The Developer is engaged in the business of formulating and
developing:
Nutritional and Skin Care Products
Resources of Imagenetix: Desire to Be an Imagenetix Developer
Section 1.04 - (a) Imagenetix declares that it possesses the financial and
physical resources to promote the sale and use of the products and innovations
of Developer and is desirous of developing demand for and selling such products
to Imagenetix Alliance Members, as authorized herein. (b) Developer is desirous
of having Imagenetix develop demand for and sell its products and innovations on
the term and conditions set forth herein,
ARTICLE 2. APPOINTMENT
Section 2.01 - (a) The Developer appoints Imagenetix as representative for the
sale of mutually agreed products worldwide to mutually agreed Imagenetix
clients.
Section 2.02 - This Alliance Agreement shall continue in full force for a period
of ten (10) years Commencing from the date of this Agreement and will terminate
when Dr. Charles Cochran becomes a full time employee of Imagenetix (refer to
Agreed upon Details).
ARTICLE 3. OPERATIONS
Section 3.01 - Imagenetix shall pay to Developer as compensation for his
services a commission of ten (10%) percent (or a mutually agreed upon rate based
on market, product or other conditions) of the net invoice value of all
shipments of its products to any client for which the Developer shall have
received payment. These products include all Cetyl Myristoleate and related
products, including Integris' Everlasting and Everlasting Support, Nikken's CM
product, and any CM products to be developed by Imagenetix in the future. Also,
presently included, is the ViGro-TM- formula used to address male impotence and
decreased libido. Imagenetix shall pay the commissions within fifteen (I 5)
days of paid invoice to Imagenetix. This compensation package will terminate
and be replaced when Developer becomes an Imagenetix employee.
See attached Addendum for agreement regarding Developer as an employee of
Imagenetix.
Payment of Expenses
Section 3.02 - Imagenetix shall assume and pay all agreed upon travel costs when
Developer is conducting Imagenetix business.
<PAGE>
ARTICLE 4. TERMINATION
Grounds
Section 4.01 - Either party, at its election, may treat this Alliance Agreement
breached and, without prejudice to any other of its rights, may forthwith
terminate this Agreement by written notice to the other party o-n occurrence of
the following event:
There shall be a substantial failure by the other party to perform one or
more of its obligations hereunder which shall not have been cured within
thirty (30) days after written notice specifying the nature of such
failure.
ARTICLE 5. INTERPRETATION AND ENFORCEMENT
Controlling Law
Section 5.01 - The validity, interpretation, and performance of this Agreement
shall be controlled by and construed under the law of the State of California.
Assignment
Section 5.02 - Imagenetix shall not assign this Agreement without the prior
consent of the Developer in writing.
Completeness of Instrument
Section 5.0.4 - This instrument contains all of the agreements, understandings,
representations, conditions, warranties, and covenants made between the parties
hereto. Unless set forth herein, neither party shall be liable for any
representations made, and all modifications and amendments hereto must be in
writing.
Executed on June 16, 1999
Date
IMAGENETIX
By: /s/ William P. Spencer /s/ Dr. Charles Cochran, Developer
Addendum Regarding Future Relationship With
Developer as an Employee of Imagenetix
Both Imagenetix (Mr. William P. Spencer) and Developer (Dr. Charles Cochran)
have spoken on several occasions in regards to a future relationship in which
Developer will become an employee of Imagenetix. This addendum is not a
contractual agreement, but a construct of several points that have been
discussed and agreed upon. It can be defined as a tentative agreement to be
followed by a more comprehensive agreement at the time in which Developer
assumes the role as
<PAGE>
an employee of Imagenetix.
Agreed Upon Details
It is the desire of both parties for Developer to be hired as an employee on
or around the end of July 1999.
Once hired as an employees Developer agrees to work with Imagenetix
exclusively in regards to formulation and development of nutritional and skin
care products unless mutually agreed upon in writing. Developer also agrees
to share all former business relationships, raw material suppliers, and
clients with Imagenetix in hopes that Imagenetix will experience a tremendous
growth by expanding its marketing and client base.
Imagenetix agrees to pay Developer not less than $100,000.00 per year salary
to include health insurance for him and his spouse.
Upon signing of employee contract, Developer shall receive shares of
Imagenetix, Incorporated. The amount of shares discussed was 35,000 for the
transfer of intellectual property of products developed on behalf of
Imagenetix and 5,000 as a Board Member.
Developer will have the daily use of a leased automobile. All expenses
incurred during actual work time will be paid for by Imagenetix.
Imagenetix will put all funds not necessary for operation and cost of the
business into a bonus account that would be divided between William P.
Spencer, Patrick Millsap, Dr. Charles Cochran, and other employees of
Imagenetix.
<PAGE>
EXHIBIT 6.4
PROMISSORY NOTE
Date: May 25, 1999 Amount: $100,000.00
Imagenetix promises to pay William P. & Debra L. Spencer, the sum of One
Hundred Thousand Dollars and No/100 - - - - ($100,000.00) plus interest at
the rate of 10.00% per annum, with this note due and payable in one (1) year,
May 25, 2000, or sooner not from initial funding of the Imagenetix offering,
but through Imagenetix profits and or the exercising of Imagenetix warrants.
signature: IMAGENETIX, INC.
by: /s/ William P. Spencer, President
PROMISSORY NOTE
Date: July 20, 1999 Amount $90,000.00
<PAGE>
Imagenetix promises to pay to William P. & Debra L. Spencer, the sum of
Ninety Thousand Dollars and No/100 - - - - ($90,000.00) plus interest at the
rate of 10.00% per annum, with this note due and payable in one (1) year, on
July 20, 2000, or sooner through the initial funding of the Imagenetix
offering.
signature: IMAGENETIX
by: /s/ William P. Spencer, President
PROMISSORY NOTE
Date: July 28,1999 Amount $75,000.00
Imagenetix Promises to pay to William P. & Debra L. Spencer, the sum of
Seventy-five Thousand Dollars and No/100 - - - - ($75,000.00) plus interest
at the rate of 10.00% per annum, with this note due and payable in one (1)
year July 28, 2000, or sooner through the initial funding of the Imagenetix
offering.
Signature: IMAGENETIX
by: /s/ William P. Spencer, President
<PAGE>
EXHIBIT 6.5
IMAGENETIX, INC.
1999 STOCK BONUS PLAN
Imagenetix, Inc., a Colorado corporation, (the "Company"), hereby adopts
this 1999 Stock Bonus Plan (the "Plan") this 29th day of June 1999, under
which shares of common stock of the Company may be granted from time to time
to officers, directors, employees and consultants of the Company or its
subsidiaries, if any.
1. PURPOSE OF THE PLAN. The Plan is intended to aid the Company in
maintaining and developing a management team, attracting qualified directors,
officers, and employees capable of assisting in the future success of the
Company, and rewarding those individuals who have contributed to the success
of the Company. It is designed to aid the Company in retaining the services
of executives and employees and in attracting new personnel when needed for
future operations and growth and to provide such personnel with an incentive
to remain employees of the Company, to use their best efforts to promote the
success of the Company's business, and to provide them with an opportunity to
obtain or increase a proprietary interest in the Company. It is also
designed to permit the Company to reward those individuals who are not
employees of the Company but who are perceived by management as having
contributed to the success of the Company or who are important to the
continued business and operations of the Company. The above aims will be
effectuated through the issuance of shares of common stock of the Company,
par value $.001 per share (the "Stock"), subject to the terms and conditions
of this Plan.
2. EFFECTIVE DATE. The Plan shall become effective immediately on
adoption by
<PAGE>
the board of directors of the Company (the "Board").
3. ADMINISTRATION OF THE PLAN. Administration of the Plan shall be by
the Board. Subject to compliance with applicable provisions of the governing
law, the Board may delegate administration of the Plan or specific
administrative duties with respect to the Plan, on such terms and to such
committees of the Board as it deems proper; provided however, that if less
than the entire Board is administering the Plan or grants under the Plan,
action may be taken only by a committee of two or more "disinterested
directors" as that term is defined in Rule 16b-3, and the regulations and
releases thereunder all as promulgated by the Securities and Exchange
Commission under authority of the Securities Exchange Act of 1934, as
amended. Any issuance approved by the Board shall be approved by a majority
vote of those members of the Board in attendance at a meeting at which a
quorum is present. Any issuance approved by a committee designated by the
Board shall be approved as specified by the Board at the time of delegation.
The interpretation and construction of the terms of the Plan by the Board or
a duly authorized committee shall be final and binding on all participants in
the Plan absent a showing of demonstrable error. No member of the Board or
duly authorized committee shall be liable for any action taken or
determination made in good faith with respect to the Plan.
4. SHARES OF STOCK SUBJECT TO THE PLAN. A total of 211,500 shares of
Stock may be subject to, or issued pursuant to, the terms of this Plan.
5. ELIGIBILITY. Stock under the Plan may be issued to employees,
including officers, and directors of the Company or its subsidiaries, as may
be existing from time to time, and to other individuals who are not employees
of the Company, but performed BONA FIDE services to the Company, as may be
deemed in the best interest of the Company by the Board or a duly authorized
committee. Such services to the Company or a subsidiary shall not be in
connection with the offer or sale of securities in a capital-raising
transaction and shall not be in connection, directly or indirectly, with the
promotion or maintenance of a market for the Stock or any other securities
of the Company.
6. WITHHOLDING. If the issuance of Stock pursuant to this Plan is
subject to withholding or other trust fund payment requirements of the
Internal Revenue Code or applicable state or local laws, such requirements
may, at the discretion of the Board or a duly authorized committee, be met by
the Company making such withholding or other trust fund payment and the
shareholder reimbursing the Company such amount paid within 10 days after
written demand therefor from the Company.
7. EXPIRATION AND TERMINATION OF THE PLAN. The Plan may be abandoned
or terminated at any time by the Board or a duly authorized committee. The
Plan shall otherwise terminate on the earlier of the date that is: (i) ten
years after the date the Plan is adopted by the Board; or (ii) ten years
after the date the Plan is approved by the shareholders of the Company.
8. NO RIGHT OF EMPLOYMENT. Nothing contained in this Plan shall be
construed as conferring on a director, officer, or employee any right to
continue or remain as a
<PAGE>
director, officer, or employee of the Company or its subsidiaries.
9. COMPLIANCE WITH SECURITIES LAWS. The shares of Stock issued under
the Plan shall be issued in compliance with applicable federal and state
securities laws. It is the intent of this Plan that such shares of the Stock
shall qualify for issuance under Rule 701 promulgated by the U.S. Securities
and Exchange Commission under the Securities Act of 1933, as amended, and
similar state exemptions from registration.
The foregoing Plan was duly adopted by the Board of Directors on the 29th
day of June 1999.
/s/ Debra L. Spencer, Secretary
<PAGE>
EXHIBIT 6.6
EXCHANGE AGREEMENT
This Exchange Agreement (the "Agreement"), entered into this 23rd day
of March 1999, is by, between, and among Internet International Business
Management, Inc., a Colorado corporation (hereinafter "IIBM"), Imagenetix, a
California corporation (hereinafter "Imagenetix"), and the shareholders of
Imagenetix whose names and signatures are set forth upon the signature page
of this Agreement (the "Shareholders").
RECITALS:
WHEREAS, IIBM wishes to acquire, and the Shareholders are willing to
sell, all of the outstanding stock of Imagenetix in exchange solely for a
part of the voting stock of IIBM whereby the Shareholders would acquire a
controlling interest of IIBM; and
WHEREAS, the parties hereto intend to qualify such transaction as a
tax-free exchange pursuant to Section 368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended;
NOW, THEREFORE, based upon the stated premises, which are incorporated
herein by reference, and for and in consideration of the mutual covenants and
agreements set forth herein, the mutual benefits to the parties to be derived
herefrom, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, IIBM, Imagenetix, and the Shareholders
approve and adopt this Agreement and mutually covenant and agree with each
other as follows:
1. SHARES TO BE TRANSFERRED AND SHARES TO BE ISSUED; FUNDING
AGREEMENT.
1.1 On the Closing Date the Shareholders shall transfer to
IIBM certificates for the number of shares of the common stock of Imagenetix
described in Schedule "A," attached hereto and incorporated herein, which in
the aggregate shall represent all of the issued and outstanding shares of the
common stock of Imagenetix.
1.2 In exchange for the transfer of the common stock of
Imagenetix pursuant to subsection 1.1. hereof, IIBM shall on the Closing Date
and contemporaneously with such
<PAGE>
transfer of the common stock of Imagenetix to it by the Shareholders issue
and deliver to the Shareholders the number of shares of common stock of IIBM
specified on Exhibit "A" hereof such that the Shareholders shall own
approximately 72% of the outstanding common stock of IIBM.
1.3 Upon execution of this Agreement IIBM shall furnish to
Imagenetix an executed funding agreement in form as set forth in Exhibit "B"
attached hereto and incorporated herein, to provide to Imagenetix a line of
credit in an amount up to $100,000 at the time of execution of this Agreement
and an additional amount of up to $200,000 at Closing.
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each of
the Shareholders, for himself, herself, or itself, and not for any other
Shareholder, represents and warrants to IIBM as set forth below. These
representations and warranties are made as an inducement for IIBM to enter
into this Agreement and, but for the making of such representations and
warranties and their accuracy, IIBM would not be a party hereto.
2.1 OWNERSHIP OF STOCK.
a. Each of the Shareholders is the record and
beneficial owner and holder of the number of fully paid and nonassessable
shares of the common stock of Imagenetix listed in Exhibit "A" hereto as of
the date hereof and will continue to own such shares of the common stock of
Imagenetix until the delivery thereof to IIBM on the Closing Date and all
such shares of common stock are or will be on the Closing Date owned free and
clear of all liens, encumbrances, charges and assessments of every nature and
subject to no restrictions with respect to transferability. Each of the
Shareholders currently has, and will have at Closing, full power and
authority to dispose, assign, and transfer his, her, or its shares of
Imagenetix in accordance with the terms hereof. Each of the Shareholders
currently has, and will have at Closing, full power and authority to vote
his, her, or its shares of Imagenetix, without restriction of any kind.
b. Except for this Agreement, there are no
outstanding options, contracts, calls, commitments, agreements or demands of
any character relating to the common stock of Imagenetix listed in Exhibit
"A" and owned by each of the Shareholders.
2.2 ACCURACY OF ALL STATEMENTS MADE BY THE SHAREHOLDERS. No
representation or warranty by the Shareholders in this Agreement, nor any
statement, certificate, schedule, or exhibit hereto furnished or to be
furnished by or on behalf of the Shareholders pursuant to this Agreement, nor
any document or certificate delivered to IIBM by the Shareholders pursuant to
this Agreement or in connection with actions contemplated hereby, contains or
shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not
misleading.
3. Representations and Warranties of Imagenetix. Imagenetix
represents and warrants to IIBM as set forth below. These representations
and warranties are made as an inducement for IIBM to enter into this
Agreement and, but for the making of such representations and warranties and
their accuracy, IIBM would not be a party hereto.
<PAGE>
3.1 ORGANIZATION AND AUTHORITY. Imagenetix is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California with full power and authority to enter into and perform
the transactions contemplated by this Agreement. Imagenetix does not have
any subsidiaries or own any interest in any other entity. Imagenetix is duly
qualified as a foreign corporation in each jurisdiction in which it is
required to be so qualified.
3.2 CAPITALIZATION. As of the date of the Closing,
Imagenetix will have a total of no more than 1,300,000 shares of common stock
issued and outstanding. All of the shares will have been duly authorized and
validly issued and will be fully paid and nonassessable. There are no
options, warrants, debentures, conversion privileges, or other rights,
agreements, or commitments obligating Imagenetix to issue or to transfer from
treasury any additional shares of capital stock of any class. Exhibit "A"
accurately sets forth all of the shareholders of record of Imagenetix and the
number of shares held of record by each Shareholder.
3.3 PERFORMANCE OF THIS AGREEMENT. The execution and
performance of this Agreement and the transfer of stock contemplated hereby
have been authorized by the board of directors of Imagenetix.
3.4 FINANCIALS. True copies of the financial statements of
Imagenetix for the period ended February 28, 1999, (unaudited) have been
furnished to IIBM. Said financial statements are true and correct in all
material respects and present an accurate and complete disclosure of the
financial condition of Imagenetix as of February 28, 1999, and the earnings
for the periods covered, in accordance with generally accepted accounting
principles applied on a consistent basis.
3.5 LIABILITIES. There are no material liabilities of
Imagenetix, whether accrued, absolute, contingent or otherwise, which arose
or relate to any transaction of Imagenetix, its agents or servants occurring
prior to February 28, 1999, which are not disclosed by or reflected in said
financial statements. As of the date hereof, there are no known
circumstances, conditions, happenings, events or arrangements, contractual or
otherwise, which may hereafter give rise to liabilities, except in the normal
course of business of Imagenetix.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in this Agreement, since February 28, 1999, there has not been (i) any
material adverse change in the business, operations, properties, level of
inventory, assets, or condition of Imagenetix, or (ii) any damage,
destruction, or loss to Imagenetix (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties,
assets, or conditions of Imagenetix.
3.7 LITIGATION. There are no legal, administrative or other
proceedings, investigations or inquiries, product liability or other claims,
judgments, injunctions or restrictions, either threatened, pending, or
outstanding against or involving Imagenetix or its subsidiaries, if any, or
their assets, properties, or business, nor does Imagenetix or its
subsidiaries know, or have reasonable grounds to know, of any basis for any
such proceedings, investigations or inquiries, product liability or other
claims, judgments, injunctions or restrictions. In addition, there are no
material proceedings existing, pending or reasonably contemplated to which
any officer, director,
<PAGE>
or affiliate of Imagenetix or as to which any of the Shareholders is a party
adverse to Imagenetix or any of its subsidiaries or has a material interest
adverse to Imagenetix or any of its subsidiaries.
3.8 TAXES. All federal, state, foreign, county and local
income, profits, franchise, occupation, property, sales, use, gross receipts
and other taxes (including any interest or penalties relating thereto) and
assessments which are due and payable have been duly reported, fully paid and
discharged as reported by Imagenetix, and there are no unpaid taxes which
are, or could become a lien on the properties and assets of Imagenetix,
except as provided for in the financial statements of Imagenetix, or have
been incurred in the normal course of business of Imagenetix since that date.
All tax returns of any kind required to be filed have been filed and the
taxes paid or accrued. There are no disputes as to taxes of any nature
payable by Imagenetix.
3.9 HAZARDOUS MATERIALS. No hazardous material has been
released, placed, stored, generated, used, manufactured, treated, deposited,
spilled, discharged, released, or disposed of on or under any real property
currently or previously owned or leased by Imagenetix or any of its
subsidiaries.
3.10 LEGAL COMPLIANCE. Imagenetix, its predecessors and
affiliates have substantially complied with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgements, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), including, but not limited to,
federal and state securities laws.
3.11 NONCONTRAVENTION. Imagenetix is not in breach of a
material provision of any outstanding agreement, contract, lease, license,
instrument, or other arrangement to which Imagenetix is a party or by which
it is bound or to which any of its assets is subject. Neither the execution
and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which Imagenetix is a party or by which it is bound or to which any of its
assets is subject.
3.12 ACCURACY OF ALL STATEMENTS MADE BY IMAGENETIX. No
representation or warranty by Imagenetix in this Agreement, nor any
statement, certificate, schedule, or exhibit hereto furnished or to be
furnished by or on behalf of Imagenetix pursuant to this Agreement, nor any
document or certificate delivered to IIBM by Imagenetix pursuant to this
Agreement or in connection with actions contemplated hereby, contains or
shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF IIBM. IIBM represents and
warrants to Imagenetix and to the Shareholders as set forth below. These
representations and warranties are made as an inducement for Imagenetix and
the Shareholders to enter into this Agreement and, but for the making of such
representations and warranties and their accuracy, Imagenetix and the
Shareholders would not be parties hereto.
<PAGE>
4.1 ORGANIZATION AND GOOD STANDING. IIBM is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado with full power and authority to enter into and perform the
transactions contemplated by this Agreement. IIBM does not have any
subsidiaries or own any interest in any other entity.
4.2 CAPITALIZATION. As of the date of the Closing, IIBM
will have a total of no more than 500,000 shares of common stock issued and
outstanding (excluding the shares to be issued pursuant to this Agreement).
All of the shares will have been duly authorized and validly issued and will
be fully paid and nonassessable. Except for IIBM's obligations hereunder
with respect to the shares to be issued pursuant to subsection 1.2 hereof,
there are no options, warrants, debentures, conversion privileges, or other
rights, agreements, or commitments obligating IIBM to issue or to transfer
from treasury any additional shares of capital stock of any class. IIBM has
adopted a 1997 Stock Option Plan (the "Plan") which provides for the issuance
of options to acquire up to 1,000,000 shares of IIBM under the Plan, none of
which options has been granted. As of the Closing, the Articles of
Incorporation, as amended, of IIBM (the "IIBM Articles") and as currently in
effect shall remain unchanged, except as provided herein. The IIBM Articles
provide for 50,000,000 shares of common stock, par value $.001 and 5,000,000
shares of preferred stock, par value $.001. There are presently 5,000 shares
of common stock outstanding and no shares of preferred stock outstanding.
4.3 PERFORMANCE OF THIS AGREEMENT. The execution and
performance of this Agreement and the issuance of stock contemplated hereby
have been authorized by the board of directors of IIBM.
4.4 FINANCIALS. True copies of the financial statements of
IIBM consisting of the balance sheets as of the fiscal years ended December
31, 1998, 1997, and 1996 (unaudited), and statements of income, cash flow and
changes in stockholder's equity for each of the years then ended, have been
delivered by IIBM to Imagenetix. Said financial statements are true and
correct in all material respects and present an accurate and complete
disclosure of the financial condition of IIBM as of December 31, 1998, and
the earnings for the periods covered, in accordance with generally accepted
accounting principles applied on a consistent basis.
4.5 LIABILITIES. There are no material liabilities of IIBM,
whether accrued, absolute, contingent or otherwise, which arose or relate to
any transaction of IIBM, its agents or servants which are not disclosed by or
reflected in said financial statements. As of the date hereof, there are no
known circumstances, conditions, happenings, events or arrangements,
contractual or otherwise, which may hereafter give rise to liabilities,
except in the normal course of business of IIBM.
4.6 LITIGATION. There are no legal, administrative or other
proceedings, investigations or inquiries, product liability or other claims,
judgments, injunctions or restrictions, either threatened, pending, or
outstanding against or involving IIBM or its subsidiaries, if any, or their
assets, properties, or business, nor does IIBM or its subsidiaries know, or
have reasonable grounds to know, of any basis for any such proceedings,
investigations or inquiries, product liability or other claims, judgments,
injunctions or restrictions. In addition, there are no material
<PAGE>
proceedings existing, pending or reasonably contemplated to which any
officer, director, or affiliate of IIBM is a party adverse to IIBM or any of
its subsidiaries or has a material interest adverse to IIBM or any of its
subsidiaries.
4.7 TAXES. All federal, state, foreign, county and local
income, profits, franchise, occupation, property, sales, use, gross receipts
and other taxes (including any interest or penalties relating thereto) and
assessments which are due and payable have been duly reported, fully paid and
discharged as reported by IIBM, and there are no unpaid taxes which are, or
could become a lien on the properties and assets of IIBM, except as provided
for in the financial statements of IIBM, or have been incurred in the normal
course of business of IIBM since that date. All tax returns of any kind
required to be filed have been filed and the taxes paid or accrued. There
are no disputes as to taxes of any nature payable by IIBM.
4.8 HAZARDOUS MATERIALS. No hazardous material has been
released, placed, stored, generated, used, manufactured, treated, deposited,
spilled, discharged, released, or disposed of on or under any real property
currently or previously owned or leased by IIBM or any of its subsidiaries.
4.9 LEGAL COMPLIANCE. IIBM, its predecessors and affiliates
have substantially complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgements, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments
(and all agencies thereof), including, but not limited to, federal and state
securities laws.
4.10 NONCONTRAVENTION. IIBM is not in breach of a material
provision of any outstanding agreement, contract, lease, license, instrument,
or other arrangement to which IIBM is a party or by which it is bound or to
which any of its assets is subject. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which IIBM is a party or by which it is bound or to which any of its assets
is subject.
4.11 LEGALITY OF SHARES TO BE ISSUED. The shares of common
stock of IIBM to be issued by IIBM pursuant to this Agreement, when so issued
and delivered, will have been duly and validly authorized and issued by IIBM
and will be fully paid and nonassessable.
4.12 ACCURACY OF ALL STATEMENTS MADE BY IIBM. No
representation or warranty by IIBM in this Agreement, nor any statement,
certificate, schedule, or exhibit hereto furnished or to be furnished by IIBM
pursuant to this Agreement, nor any document or certificate delivered to
Imagenetix or the Shareholders pursuant to this Agreement or in connection
with actions contemplated hereby, contains or shall contain any untrue
statement of material fact or omits to state or shall omit to state a
material fact necessary to make the statements contained therein not
misleading.
<PAGE>
5. COVENANTS OF THE PARTIES.
5.1 CORPORATE RECORDS.
a. Simultaneous with the execution of this Agreement by
Imagenetix, if not previously furnished, such entity shall deliver to IIBM
copies of the articles of incorporation, as amended, and the current bylaws of
Imagenetix, and copies of the resolutions duly adopted by the board of directors
of Imagenetix approving this Agreement and the transactions herein contemplated.
b. Simultaneous with the execution of this Agreement by
IIBM, if not previously furnished, such entity shall deliver to Imagenetix
copies of the IIBM Articles, and the current bylaws of IIBM, and copies of the
resolutions duly adopted by the board of directors of IIBM approving this
Agreement and the transactions herein contemplated.
5.2 ACCESS TO INFORMATION.
a. IIBM and its authorized representatives shall have
full access during normal business hours to all properties, books, records,
contracts, and documents of Imagenetix, and Imagenetix shall furnish or cause to
be furnished to IIBM and its authorized representatives all information with
respect to its affairs and business as IIBM may reasonably request. IIBM shall
hold, and shall cause its representatives to hold confidential, all such
information and documents, other than information that (i) is in the public
domain at the time of its disclosure to IIBM; (ii) becomes part of the public
domain after disclosure through no fault of IIBM; (iii) is known to IIBM or any
of its officers or directors prior to disclosure; or (iv) is disclosed in
accordance with the written consent of Imagenetix. In the event this Agreement
is terminated prior to Closing, IIBM shall, upon the written request of
Imagenetix, promptly return all copies of all documentation and information
provided by Imagenetix hereunder.
b. Imagenetix and its authorized representatives shall
have full access during normal business hours to all properties, books, records,
contracts, and documents of IIBM, and IIBM shall furnish or cause to be
furnished to Imagenetix and its authorized representatives all information with
respect to its affairs and business Imagenetix may reasonably request.
Imagenetix shall hold, and shall cause its representatives to hold confidential,
all such information and documents, other than information that (i) is in the
public domain at the time of its disclosure to Imagenetix; (ii) becomes part of
the public domain after disclosure through no fault of Imagenetix; (iii) is
known to Imagenetix or any of its officers or directors prior to disclosure; or
(iv) is disclosed in accordance with the written consent of IIBM. In the event
this Agreement is terminated prior to Closing, Imagenetix shall, upon the
written request of IIBM, promptly return all copies of all documentation and
information provided by IIBM hereunder.
5.3 ACTIONS PRIOR TO CLOSING. From and after the date of this
Agreement and until the Closing Date:
a. IIBM and Imagenetix shall each carry on its business
diligently and
<PAGE>
substantially in the same manner as heretofore, and neither party shall make
or institute any unusual or novel methods of purchase, sale, management,
accounting or operation.
b. Neither IIBM nor Imagenetix shall enter into any
contract or commitment, or engage in any transaction not in the usual and
ordinary course of business and consistent with its business practices.
c. Neither IIBM nor Imagenetix shall amend its
articles of incorporation or bylaws or make any changes in authorized or
issued capital stock, except as provided in this Agreement.
d. IIBM and Imagenetix shall each use its best
efforts (without making any commitments on behalf of the company) to preserve
its business organization intact.
e. Neither IIBM nor Imagenetix shall do any act or
omit to do any act, or permit any act or omission to act, which will cause a
material breach of any material contract, commitment, or obligation of such
party.
f. IIBM and Imagenetix shall each duly comply with
all applicable laws as may be required for the valid and effective issuance
or transfer of stock contemplated by this Agreement.
g. Neither IIBM nor Imagenetix shall sell or dispose
of any property or assets, except products sold in the ordinary course of
business.
h. IIBM and Imagenetix shall each promptly notify
the other of any lawsuits, claims, proceedings, or investigations that may be
threatened, brought, asserted, or commenced against it, its officers or
directors involving in any way the business, properties, or assets of such
party.
5.4 SHAREHOLDERS' APPROVAL. IIBM shall promptly submit this
Agreement and the transactions contemplated hereby for the approval of its
stockholders by majority written consent or at a meeting of stockholders and,
subject to the fiduciary duties of the Board of Directors of IIBM under
applicable law, shall use its best efforts to obtain stockholder approval and
adoption of this Agreement and the transactions contemplated hereby. In
connection with such written action by, or meeting of, stockholders, IIBM
shall prepare a proxy or information statement to be furnished to the
shareholders of IIBM setting forth information about this Agreement and the
transactions contemplated hereby. The Private Party shall promptly furnish
to IIBM all information, and take such other actions, as may reasonably be
requested in connection with any action to be taken by IIBM in connection
with the immediately preceding sentence. Imagenetix shall have the right to
review and provide comments to the proxy or information statement prior to
mailing to the shareholders of IIBM.
5.5 NO COVENANT AS TO TAX OR ACCOUNTING CONSEQUENCES. It is
expressly understood and agreed that neither IIBM nor its officers or agents
has made any warranty or
<PAGE>
agreement, expressed or implied, as to the tax or accounting consequences of
the transactions contemplated by this Agreement or the tax or accounting
consequences of any action pursuant to or growing out of this Agreement.
5.6 INDEMNIFICATION. Imagenetix and the Shareholders,
severally and not jointly, shall indemnify IIBM for any loss, cost, expense,
or other damage (including, without limitation, attorneys' fees and expenses)
suffered by IIBM resulting from, arising out of, or incurred with respect to
the falsity or the breach of any representation, warranty, or covenant made
by Imagenetix or the Shareholders herein, and any claims arising from the
operations of Imagenetix prior to the Closing Date. IIBM shall indemnify and
hold Imagenetix and the Shareholders harmless from and against any loss,
cost, expense, or other damage (including, without limitation, attorneys'
fees and expenses) resulting from, arising out of, or incurred with respect
to, or alleged to result from, arise out of or have been incurred with
respect to, the falsity or the breach of any representation, covenant,
warranty, or agreement made by IIBM herein, and any claims arising from the
operations of IIBM prior to the Closing Date. The indemnity agreement
contained herein shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any party and shall
survive the consummation of the transactions contemplated by this Agreement.
5.7 PUBLICITY. The parties agree that no publicity,
release, or other public announcement concerning this Agreement or the
transactions contemplated by this Agreement shall be issued by any party
hereto without the advance approval of both the form and substance of the
same by the other parties and their counsel, which approval, in the case of
any publicity, release, or other public announcement required by applicable
law, shall not be unreasonably withheld or delayed.
5.8 EXPENSES. Except as otherwise expressly provided
herein, each party to this Agreement shall bear its own respective expenses
incurred in connection with the negotiation and preparation of this
Agreement, in the consummation of the transactions contemplated hereby, and
in connection with all duties and obligations required to be performed by
each of them under this Agreement. In the event the Closing of this
Agreement does not occur on or before the date set forth in Section 11(ii)
hereof due to the failure of Imagenetix to perform its obligations hereunder,
or because of a breach of the representations and warranties of Imagenetix
herein, then Imagenetix shall pay the legal fees and out-of-pocket expenses
actually incurred by IIBM in connection with this transaction, which amount
shall be paid to IIBM by Imagenetix within ten days following written demand
by IIBM. In the event the Closing of this Agreement does not occur on or
before the date set forth in Section 11(ii) hereof due to the failure of IIBM
to perform its obligations hereunder, or because of a breach of the
representations and warranties of IIBM herein, then IIBM shall pay the legal
fees and out-of-pocket expenses actually incurred by Imagenetix in connection
with this transaction, which amount shall be paid to Imagenetix by IIBM
within ten days following written demand by Imagenetix. In no event shall
the demand for legal fees and out-of-pocket expenses by either party exceed
$12,500.
5.9 FURTHER ACTIONS. Each of the parties hereto shall take
all such further action, and execute and deliver such further documents, as
may be necessary to carry out the
<PAGE>
transactions contemplated by this Agreement.
5.10 NAME CHANGE. On or before the Closing Date IIBM shall
duly authorize an amendment to the IIBM Articles to change the name of IIBM
to "Imagenetix, Inc."
5.11 FORWARD STOCK SPLIT. On or before Closing IIBM shall
forward split its 5,000 outstanding shares of common stock at the rate of 100
shares for each share outstanding such that at Closing IIBM shall have
500,000 shares outstanding.
5.12 AUDIT OF FINANCIALS. Immediately upon execution of this
Agreement, IIBM shall engage and pay an accounting firm to audit as soon as
possible the financial statements of IIBM furnished in connection with this
Agreement. Immediately upon execution of this Agreement, Imagenetix shall
engage and pay an accounting firm to audit as soon as possible the financial
statements of Imagenetix as of March 31, 1999, or such other period as
mutually agreed by the parties in consultation with the auditing firm engaged
by Imagenetix.
5.13 COMPREHENSIVE INVESTOR RELATIONS PROGRAM. Imagenetix
shall implement and maintain a comprehensive investor relations program
during the eighteen months following the Closing Date.
5.14 NO MATERIAL LIABILITIES. At Closing IIBM shall have no
liabilities in excess of an aggregate of $1,000.
5.15 REGISTRATION STATEMENT. Immediately following the
Closing, but in no event later than April 30, 1999, IIBM shall prepare and
file with the Securities and Exchange Commission (the "SEC") a registration
statement to register the offer and sale of shares of common stock of IIBM to
raise a total of $600,000. In connection with such registration statement,
IIBM shall agree to register for sale the shares of common stock of IIBM held
by the present shareholders, the warrants and underlying shares to be issued
in connection with the line of credit set forth in subsection 1.3 above, and
the shares, if any, issued in connection with the conversion of the
promissory notes issued in connection with the line of credit. IIBM shall
cause such registration statement to be filed on Form SB-1, SB-2, or other
appropriate form, with the SEC and shall use its best efforts to cause such
registration statement to become effective.
6. CONDITIONS PRECEDENT TO IIBM'S OBLIGATIONS. Each and every
obligation of IIBM to be performed on the Closing Date shall be subject to
the satisfaction prior thereto of the following conditions:
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by Imagenetix and the Shareholders in
this Agreement or given on their behalf hereunder shall be substantially
accurate in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made or given
on and as of the Closing Date.
6.2 PERFORMANCE OF OBLIGATIONS AND COVENANTS. Imagenetix
and the
<PAGE>
Shareholders shall have performed and complied with all obligations and
covenants required by this Agreement to be performed or complied with by them
prior to or at the Closing.
6.3 OFFICER'S CERTIFICATE. IIBM shall have been furnished
with a certificate (dated as of the Closing Date and in form and substance
reasonably satisfactory to IIBM), executed by an executive officer of
Imagenetix, certifying to the fulfillment of the conditions specified in
subsections 6.1 and 6.2 hereof.
6.4 NO LITIGATION OR PROCEEDINGS. There shall be no
litigation or any proceeding by or before any governmental agency or
instrumentality pending or threatened against any party hereto that seeks to
restrain or enjoin or otherwise questions the legality or validity of the
transactions contemplated by this Agreement or which seeks substantial
damages in respect thereof.
6.5 NO MATERIAL ADVERSE CHANGE. As of the Closing Date
there shall not have occurred any material adverse change, financially or
otherwise, which materially impairs the ability of Imagenetix to conduct its
business or the earning power thereof on the same basis as in the past.
6.6 SHAREHOLDERS' APPROVAL. The holders of not less than a
majority of the outstanding common stock of IIBM shall have voted for
authorization and approval of this Agreement and the transactions
contemplated hereby.
6.7 SHAREHOLDERS' EXECUTION OF AGREEMENT. This Agreement
shall have been duly executed and delivered by each of the parties owning in
the aggregate all of the outstanding stock of Imagenetix as of the Closing
Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF IMAGENETIX AND THE
SHAREHOLDERS. Each and every obligation of Imagenetix and the Shareholders
to be performed on the Closing Date shall be subject to the satisfaction
prior thereto of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by IIBM in this Agreement or given on its
behalf hereunder shall be substantially accurate in all material respects on
and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the
Closing Date.
7.2 PERFORMANCE OF OBLIGATIONS AND COVENANTS. IIBM shall
have performed and complied with all obligations and covenants required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
7.3 OFFICER'S CERTIFICATE. Imagenetix shall have been
furnished with a certificate (dated as of the Closing Date and in form and
substance reasonably satisfactory to Imagenetix), executed by an executive
officer of IIBM, certifying to the fulfillment of the conditions specified in
subsections 7.1 and 7.2 hereof.
<PAGE>
7.4 NO LITIGATION OR PROCEEDINGS. There shall be no
litigation or any proceeding by or before any governmental agency or
instrumentality pending or threatened against any party hereto that seeks to
restrain or enjoin or otherwise questions the legality or validity of the
transactions contemplated by this Agreement or which seeks substantial
damages in respect thereof.
7.5 NO MATERIAL ADVERSE CHANGE. As of the Closing Date
there shall not have occurred any material adverse change, financially or
otherwise, which materially impairs the ability of IIBM to conduct its
business.
8. SECURITIES LAW PROVISIONS.
8.1 RESTRICTED SECURITIES. Each of the parties hereto,
severally and not jointly, represents that he, she, or it is aware that the
shares issued or transferred to him, her, or it will not have been registered
pursuant to the Securities Act of 1933, as amended (the "1933 Act"), or any
state securities act, and thus will be restricted securities as defined in
Rule 144 promulgated by the SEC. Therefore, under current interpretations
and applicable rules, he, she, or it will probably have to retain such shares
for a period of at least one year and at the expiration of such one year
period his, her, or its sales may be confined to brokerage transactions of
limited amounts requiring certain notification filings with the SEC and such
disposition may be available only if the issuer is current in its filings
with the SEC under the Securities Exchange Act of 1934, as amended, or other
public disclosure requirements.
8.2 NON-DISTRIBUTIVE INTENT. Each of the parties hereto,
severally and not jointly, covenants and warrants that the shares received
are acquired for his, her, or its own account and not with the present view
towards the distribution thereof and he, she, or it will not dispose of such
shares except (i) pursuant to an effective registration statement under the
1933 Act, or (ii) in any other transaction which, in the opinion of counsel
acceptable to the issuer, is exempt from registration under the 1933 Act, or
the rules and regulations of the SEC thereunder. In order to effectuate the
covenants of this subsection, an appropriate legend will be placed upon each
of the certificates of common stock issued or transferred pursuant to this
Agreement, and stop transfer instructions shall be placed with the transfer
agent for the securities.
8.3 EVIDENCE OF COMPLIANCE WITH PRIVATE OFFERING EXEMPTION.
Each of the parties hereto, severally and not jointly, hereby represents and
warrants that he, she, or it, either individually or together with his, her,
or its representative, has such knowledge and experience in business and
financial matters that he, she, or it is capable of evaluating the risks of
this Agreement and the transactions contemplated hereby, and that the
financial capacity of such party is of such proportion that the total cost of
such person's commitment in the shares would not be material when compared
with his, her, or its total financial capacity. Each of the Shareholders
hereby acknowledges receipt of the following documents pertaining to IIBM and
this transaction: IIBM's Articles, current bylaws, and tax returns for the
years ended December 31, 1996 and 1997. Upon the written request of the
issuer of the securities issued or transferred pursuant to this Agreement,
any party hereto shall provide such issuer with evidence of compliance with
the requirements of any federal or state exemption from registration. IIBM
and Imagenetix shall each
<PAGE>
file, with the assistance of the other and its respective legal counsel, such
notices, applications, reports, or other instruments as may be deemed by each
of them to be necessary or appropriate in an effort to document reliance on
such exemptions, unless an exemption requiring no filing is available in the
particular jurisdiction, all to the extent and in the manner as may be deemed
by such parties to be appropriate.
9. CHANGE OF MANAGEMENT. Upon and as a condition of Closing this
Agreement:
9.1 Prior to Closing IIBM shall authorize an increase in the
number of directors to four persons and will present to its shareholders for
approval the election of Dr. Charles Cochran, Debra Spencer, Dr. Peter
Antoniou, and William P. Spencer as directors of IIBM effective at the
Closing of this Agreement. Prior to Closing Imagenetix will furnish material
information of Dr. Charles Cochran, Debra Spencer, Dr. Peter Antoniou, and
William P. Spencer as nominees to be elected by the shareholders of IIBM. In
connection with the election or nomination of such persons as directors of
IIBM, IIBM shall furnish the resignations of all existing directors and
officers of IIBM to be effective simultaneous with the Closing. IIBM
reserves the right to refuse to cause the nomination of any or all such
persons as directors of IIBM if, after review of the foregoing information
concerning said persons, it is the opinion of IIBM that the election of such
persons would not be in the best interests of IIBM.
9.2 Imagenetix reserves the right to terminate this
Agreement if nominees selected by it are not elected or appointed as set
forth above.
10. CLOSING.
10.1 TIME AND PLACE. The Closing of this transaction
("Closing") shall take place at 57 West 200 South, Suite 310, Salt Lake City,
Utah, at 2:00 pm, on March 26, 1999, or at such other time and place as the
parties hereto shall agree upon. Such date is referred to in this Agreement
as the "Closing Date."
10.2 DOCUMENTS TO BE DELIVERED BY IMAGENETIX AND THE
SHAREHOLDERS. At the Closing Imagenetix and the Shareholders shall deliver
to IIBM the following documents:
a. Certificates for the number of shares of common
stock of Imagenetix in the manner and form required by subsection 1.1 hereof.
b. The certificate required pursuant to subsection
6.3 hereof.
c. A signed consent and/or minutes of Imagenetix's
directors and shareholders approving this Agreement and each matter to be
approved under this Agreement.
d. Such other documents of transfer, certificates of
authority, and other documents as IIBM may reasonably request.
10.3 DOCUMENTS TO BE DELIVERED BY IIBM. At the Closing IIBM
shall deliver
<PAGE>
to Imagenetix and the Shareholders the following documents:
a. Certificates for the number of shares of common
stock of IIBM as determined in sub-section 1.2 hereof.
b. The certificate required pursuant to subsection 7.3
hereof.
c. A signed consent and/or minutes of IIBMs's directors
and shareholders approving this Agreement and each matter to be approved under
this Agreement.
d. Such other documents of transfer, certificates of
authority, and other documents as Imagenetix and the Shareholders may reasonably
request.
11. TERMINATION. This Agreement may be terminated by IIBM or
Imagenetix by notice to the other if, (i) at any time prior to the Closing Date
any event shall have occurred or any state of facts shall exist that renders any
of the conditions to its or their obligations to consummate the transactions
contemplated by this Agreement incapable of fulfillment, or (ii) on March 31,
1999, if the Closing shall not have occurred. Following termination of this
Agreement no party shall have liability to another party relating to such
termination, other than any liability resulting from the breach of this
Agreement by a party prior to the date of termination.
12. MISCELLANEOUS.
12.1 NOTICES. All communications provided for herein shall be
in writing and shall be deemed to be given or made when served personally or
when deposited in the United States mail, certified return receipt requested,
addressed as follows, or at such other address as shall be designated by any
party hereto in written notice to the other party hereto delivered pursuant to
this subsection:
IIBM: 14 Red Tail Drive
Highlands Ranch, CO 80126
Attn: Gary J. McAdam
With Copy to: Ronald N. Vance
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, UT 84101
Imagenetix
and Shareholders: 1702 Macero Street
Escondido, CA 92029
Attn: William P. Spencer
With Copy to: Louis K. Bruno
<PAGE>
Attorney at Law
135 West Mission Avenue
Suite 105
Escondido, CA 92025
12.2 DEFAULT. Should any party to this Agreement default in any
of the covenants, conditions, or promises contained herein, the defaulting party
shall pay all costs and expenses, including a reasonable attorney's fee, which
may arise or accrue from enforcing this Agreement, or in pursuing any remedy
provided hereunder or by the statutes of the State of Utah.
12.3 ASSIGNMENT. This Agreement may not be assigned in whole or
in part by the parties hereto without the prior written consent of the other
party or parties, which consent shall not be unreasonably withheld.
12.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto, their heirs,
executors, administrators, successors and assigns.
12.5 PARTIAL INVALIDITY. If any term, covenant, condition, or
provision of this Agreement or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the remainder of
this Agreement or application of such term or provision to persons or
circumstances other than those as to which it is held to be invalid or
unenforceable shall not be affected thereby and each term, covenant, condition,
or provision of this Agreement shall be valid and shall be enforceable to the
fullest extent permitted by law.
12.6 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all negotiations, representations, prior discussions,
letters of intent, and preliminary agreements between the parties hereto
relating to the subject matter of this Agreement.
12.7 INTERPRETATION OF AGREEMENT. This Agreement shall be
interpreted and construed as if equally drafted by all parties hereto.
12.8 SURVIVAL OF COVENANTS, ETC. All covenants,
representations, and warranties made herein to any party, or in any statement
or document delivered to any party hereto, shall survive the making of this
Agreement and shall remain in full force and effect until the obligations of
such party hereunder have been fully satisfied.
12.9 FURTHER ACTION. The parties hereto agree to execute and
deliver such additional documents and to take such other and further action
as may be required to carry out fully the transactions contemplated herein.
12.10 AMENDMENT. This Agreement or any provision hereof may
not be changed, waived, terminated, or discharged except by means of a
written supplemental instrument signed by the party or parties against whom
enforcement of the change, waiver, termination, or discharge
<PAGE>
is sought.
12.11 FULL KNOWLEDGE. By their signatures, the parties
acknowledge that they have carefully read and fully understand the terms and
conditions of this Agreement, that each party has had the benefit of counsel,
or has been advised to obtain counsel, and that each party has freely agreed
to be bound by the terms and conditions of this Agreement.
12.12 HEADINGS. The descriptive headings of the various
sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
12.13 COUNTERPARTS. This Agreement may be executed in two or
more partially or fully executed counterparts, each of which shall be deemed
an original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto executed the foregoing
Agreement as of the day and year first above written.
IIBM: Internet International Business
Management, Inc.
By /s/ Gary J. McAdam, President
Imagenetix: Imagenetix
By /s/ William P. Spencer, President
SHAREHOLDERS: /s/ William P. Spencer, Individually
/s/ Debra L. Spencer, Individually
EXHIBIT "A"
TO THE
EXCHANGE AGREEMENT
<TABLE>
<CAPTION>
NO. OF SHARES OF NO. OF SHARES OF
NAME OF IMAGENETIX IIBM
SHAREHOLDER TO BE TRANSFERRED TO BE ISSUED
- ----------- ----------------- ------------
<S> <C> <C>
William & Debra Spencer 1,300,000 1,300,000
</TABLE>
<PAGE>
EXHIBIT 10.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-1 for Imagenetix, Inc., of our report dated
May 10, 1999, relating to the March 31, 1999 financial statement of
Imagenetix, Inc., which appears in such prospectus. We also consent to the
reference to us under the heading "Experts."
Pritchett, Siler & Hardy, P.C.
Salt Lake City, Utah
September 15, 1999
<PAGE>
EXHIBIT 11
RONALD N. VANCE, P.C.
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, Utah 84101
September 16, 1999
William P. Spencer, President
Imagenetix, Inc.
11777 Bernardo Plaza Court
Suite 206
San Diego, CA 92128
Re: Registration Statement on Form SB-1
Dear Mr. Spencer:
You have requested my opinion as to whether or not the securities to be
issued by Imagenetix, Inc. (the "Company") in the above-referenced
registration statement will be legally issued and, when issued, will be fully
paid and non-assessable shares of the Company. In connection with this
engagement I have examined the form of the registration statement to be filed
by the Company; the Articles of Incorporation of the Company; the By-laws of
the Company currently in effect; and the minutes of the Company relating to
the registration statement and the issuance of the shares of common stock by
the Company.
Based upon the above-referenced examination, I am of the opinion that
the shares of common stock to be issued by the Company and to be registered
pursuant to said registration statement will be legally issued and, when
issued, will be fully paid and non-assessable.
I hereby consent to being named in the registration statement as having
rendered the foregoing opinion and as having represented the Company in
connection with the registration statement.
Sincerely,
/s/ Ronald N. Vance
