<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1999.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BUSYBOX.COM, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1711 94-3233035
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
701 BATTERY STREET
THIRD FLOOR
SAN FRANCISCO, CA 94111
(415) 283-1811
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
701 BATTERY STREET
THIRD FLOOR
SAN FRANCISCO, CA 94111
(415) 283-1811
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
PATRICK A. GROTTO, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
701 BATTERY STREET
THIRD FLOOR
SAN FRANCISCO, CA 94111
(415) 283-1811
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS T. PROUSALIS, JR., ESQ. DAVID A. CARTER, P.A.
1919 Pennsylvania Avenue, N.W. 2300 Glades Road
Suite 800 Suite 210W
Washington, D.C. 20006 Boca Raton, FL 33431
(202) 296-9400 (561) 750-6999
(202) 296-9403 Fax (561) 367-0960 Fax
COUNSEL TO ISSUER COUNSEL TO UNDERWRITER
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434, CHECK
THE FOLLOWING BOX. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 Par Value(1).......... 2,300,000 $ 5.00 $ 11,500,000 $ 3,966
Warrants(2).............................. 2,300,000 $ .125 $ 287,500 $ 99
Common Stock Underlying Warrants(3)...... 2,300,000 $ 5.50 $ 12,650,000 $ 4,362
Underwriter's Common Stock Option(4)..... 200,000 -- -- --
Common Stock Underlying Underwriter's
Common Stock Option(5).................. 200,000 $ 8.25 $ 1,650,000 $ 569
Underwriter's Warrant Option(6).......... 200,000 -- -- --
Warrants Underlying Underwriter's Warrant
Option(7)............................... 200,000 $ .20625 $ 41,250 $ 14
Common Stock Underlying Underwriter's
Warrant Option(8)....................... 200,000 $ 8.25 $ 1,650,000 $ 569
Total Registration and Fee(9).......... $ 27,778,750 $ 9,579
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(1) Includes 300,000 shares reserved for the option, exercisable within 45 days
after the date on which the Securities and Exchange Commission (the
"Commission") declares this Registration Statement effective, to cover
over-allotments, if any (the "Over-Allotment Option"), granted by the
Company to Barron Chase Securities, Inc. ("Underwriter"). See
"Underwriting."
(2) Includes 300,000 Redeemable Common Stock Purchase Warrants ("Purchase
Warrants" or the "Warrants") reserved for the Over-Allotment Option. The
Warrants (a) may be purchased separately from the Common Stock in the
offering, (b) are exercisable during a five-year period commencing on the
effective date of this Registration Statement, and (c) shall be redeemable,
at the option of the Company, at $.05 per Warrant upon 30 days' prior
written notice, (i) if the closing bid price, as reported on the Nasdaq
SmallCap Market-SM-, or the closing sale price, as reported on a national or
regional securities exchange, as applicable, of the shares of the
Registrant's Common Stock for 30 consecutive trading days ending within ten
days of the notice of redemption of the Warrants averages in excess of
$10.00 per share, subject to adjustment, and (ii) after a then current
registration statement has been declared effective by the Commission with
regard to the shares of Common Stock to be received by the holder upon
exercise, but (iii) during the one-year period after the effective date of
this Registration Statement, only with the written consent of the
Underwriter. Pursuant to Rule 416 under the Securities Act of 1933, as
amended ("Securities Act"), such additional number of these securities are
also being registered to cover any adjustment resulting from the operation
of the anti-dilution provisions relating to the Warrants.
(3) Reserved for issuance upon exercise of the Warrants. Pursuant to Rule 416
under the Securities Act, such additional number of shares of Common Stock
subject to the Warrants are also being registered to cover any adjustment
resulting from the operation of the anti-dilution provisions relating to the
Warrants.
(4) To be issued to the Underwriter or persons related to the Underwriter.
Pursuant to Rule 416 under the Securities Act, such additional number of
Underwriter stock options ("Common Stock Underwriter Warrants") are also
being registered to cover any adjustment resulting from the operation of the
anti-dilution provisions relating to the Common Stock Underwriter Warrants.
(5) Reserved for issuance upon exercise of the Common Stock Underwriter
Warrants. Pursuant to Rule 416 under the Securities Act, such additional
number of shares of Common Stock subject to the Common Stock Underwriter
Warrants are also being registered to cover any adjustment resulting from
the operation of the anti-dilution provisions relating to the Common Stock
Underwriter Warrants.
(6) To be issued to the Underwriter or persons related to the Underwriter.
Pursuant to Rule 416 under the Securities Act, such additional number of
Underwriter warrant options ("Warrant Underwriter Warrants") are also being
registered to cover any adjustment resulting from the operation of the anti-
dilution provisions relating to the Warrant Underwriter Warrants.
(7) Reserved for issuance upon exercise of the Warrant Underwriter Warrants.
Pursuant to Rule 416 under the Securities Act, such additional number of
warrants to purchase shares of Common Stock subject to the Warrant
Underwriter Warrants ("Underwriter Underlying Warrants") are also being
registered to cover any adjustment resulting from the operation of the
anti-dilution provisions relating to the Warrant Underwriter Warrants.
(8) Reserved for issuance upon exercise of the Underwriter Underlying Warrants.
Pursuant to Rule 416 under the Securities Act, such additional number of
shares of Common Stock subject to the Underwriter Underlying Warrants are
also being registered to cover any adjustment resulting from the operation
of the anti-dilution provisions relating to the Underwriter Underlying
Warrants.
(9) The requisite fee has been paid in connection with this Registration
Statement.
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
ii
<PAGE>
BUSYBOX.COM, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B)
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM CAPTION IN PROSPECTUS
- --------------------------------------------- ---------------------------------
<C> <S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus...... Facing Page; Cross-Reference
Sheet; Prospectus Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................... Prospectus Cover Page; Prospectus
Back Cover Page
3. Summary Information and Risk Factors.... Prospectus Summary; The Company;
Risk Factors
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Risk Factors; Underwriting
6. Dilution................................ Dilution and Other Comparative
Data
7. Selling Security-holders................ Description of Securities
8. Plan of Distribution.................... Prospectus Cover Page;
Underwriting
9. Legal Proceedings....................... Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons.................... Management; Principal
Shareholders
11. Security Ownership of Certain Beneficial
Owners and Management.................. Principal Shareholders
12. Description of Securities............... Description of Securities
13. Interest of Named Experts and Counsel... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Certain Relationships and Related
Transactions
15. Organization Within Five Years.......... Prospectus Summary; Business
16. Description of Business................. Business
17. Management's Discussion and Analysis or
Plan of Operation...................... Management's Discussion and
Analysis or Plan of Operation
18. Description of Property................. Business
19. Certain Relations and Related
Transactions........................... Certain Relationships and Related
Transactions
20. Market for Common Equity and Related
Stockholder Matters.................... Description of Securities
21. Executive Compensation.................. Management
22. Financial Statements.................... Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure............................. Not applicable
</TABLE>
iii
<PAGE>
FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-70717
SUBJECT TO COMPLETION, DATED JUNE 9, 1999
2,000,000 SHARES
2,000,000 WARRANTS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
COMMON STOCK
WARRANTS
-----------
Prior to this offering, there has been no public market for our common stock
and warrants. The initial public offering price of our common stock is $5.00 per
share and $.125 per warrant. We have applied for the inclusion of our common
stock and warrants on the Nasdaq SmallCap Market ("Nasdaq") under the symbols
"BUSY" and "BUSYW."
The underwriter has an option to purchase a maximum of 300,000 additional
shares of our common stock and 300,000 additional warrants to cover
over-allotments of our shares and warrants.
INVESTING IN OUR COMMON STOCK AND WARRANTS INVOLVES RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO BUSYBOX.COM
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share............................................. $5.00 $.50 $4.50
Per Warrant........................................... $.125 $.0125 $.1125
Total................................................. $10,250,000 $1,025,000 $9,225,000
</TABLE>
Neither the Securities and Exchange Commission nor any other state
securities commission has approved these securities or determined that this
prospectus is accurate or complete. Any representation to the contrary is
illegal.
[BARRON CHASE SECURITIES' LOGO]
The date of this Prospectus is , 1999.
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 5
Use of Proceeds.............................. 15
Dilution..................................... 16
Capitalization............................... 17
Dividend Policy.............................. 17
Management's Discussion and Analysis or Plan
of Operation............................... 18
Business..................................... 22
Management................................... 35
Principal Stockholders....................... 40
<CAPTION>
PAGE
---------
<S> <C>
Certain Relationships and Related
Transactions............................... 41
Description of Securities.................... 43
Underwriting................................. 46
Legal Matters................................ 49
Legal Proceedings............................ 49
Experts...................................... 49
Where You Can Find More Information.......... 49
Index to Financial Statements................ F-1
Report of Independent Certified Public
Accountants................................ F-2
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY BE ACCURATE ONLY
ON THE DATE OF THIS DOCUMENT.
Delivery of the shares of common stock will be made on or about ,
1999 against payment in immediately available funds.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
This prospectus contains forward-looking statements and information relating
to us, our industry and to other U.S. and international Internet businesses.
These forward-looking statements are based on the beliefs of our management, as
well as assumptions made by and information currently available to our
management. When used in this prospectus, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are intended
to identify forward-looking statements. These statements reflect our current
views with respect to future events and are subject to risks and uncertainties
that may cause our actual results to differ materially from those contemplated
in our forward-looking statements. We caution you not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
prospectus. We do not undertake any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL DATA AND
RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION. UNLESS OTHERWISE INDICATED,
ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT
OPTION TO PURCHASE ADDITIONAL SHARES OF COMMON STOCK AND WARRANTS GRANTED TO THE
UNDERWRITER.
BUSYBOX.COM, INC.
busybox designs, develops, maintains, services, markets, sells and
distributes digital imagery, including black and white and color still
photographs, film footage and video, over the Internet to our customers in the
technology, media, entertainment, government, corporate and sports industries.
We believe that our proprietary Java-based technology, combined with our
component-based content programming, uniquely enables busybox to catalogue,
manage, transact, deliver and reconcile digital images and video on the
Internet. We also believe that our component-based programming is unique in the
industry and provides a significant business opportunity for busybox when
combined with the emerging and rapidly developing Internet e-commerce
marketplace.
A principal customer of busybox is Corbis Corporation, a Bellevue,
Washington based interactive, digital image company owned by William H. Gates,
III, a co-founder of Microsoft Corporation. Corbis Corporation owns one of the
world's largest collections of digitized visual content, with approximately 1.3
million photos, prints and other images reproduced in digital form, and is one
of the world's preeminent commercial providers of digital visual content. In May
1998, busybox entered into an agreement for services with Corbis Corporation
whereby we were responsible for the design, development and implementation of a
digital image catalogue within the Corbis Internet Web site
(www.corbisimages.com). Also, in May 1998, busybox entered into an automatically
renewable maintenance agreement with Corbis Corporation whereby we were
responsible to operate, maintain, monitor and service the digital image
catalogue that we designed and developed for Corbis Corporation. The maintenance
agreement with Corbis Corporation remains in full force and effect, and our
relationship with Corbis Corporation remains good.
Other principal customers of busybox include Visual Communications Group
Limited and FPG International LLC (Freelance Photographers' Guild), subsidiaries
of United News & Media plc, a major London, England based media firm with
interests in business services, consumer publishing, broadcasting and
entertainment. Visual Communications Group is a major worldwide producer and
distributer of stock photography for the advertising, design, press, publishing
and business to business markets. Visual Communications Group's catalogue
contains more than six million images. FPG International is one of the largest
and most recognized stock photography agencies in the world. FPG International's
collection contains millions of images of all subjects and styles and adds
approximately 100,000 new images every year.
Another principal customer of busybox is the National Basketball Association
("NBA"), for whom we have developed a proprietary agent technology which
monitors Web related intellectual property rights, among other services.
For the years ending December 31, 1997 and 1998, and for the quarter ending
March 31, 1999, all of our revenues were derived, directly or indirectly, from
the Internet.
We intend to principally use the proceeds of this offering for operating
costs and working capital, including business development, capital equipment,
marketing and sales and mergers and acquisitions with complementary companies in
an effort to significantly expand our business and operations. We are not sure
that the proceeds of this offering will enable us to expand our business and
operations.
busybox was incorporated in Delaware in October 1995. In this prospectus, we
will refer to busybox.com, inc. as "busybox," "we" and "us." Our principal
executive offices are located at 701 Battery Street, Third Floor, San Francisco,
California 94111, and our telephone number is (415) 283-1811. Our principal
Internet Web site address is www.busybox.com. The information on our Web site is
not part of this prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered......................... 2,000,000 Shares
Warrants Offered............................. 2,000,000 Warrants
Common Stock Outstanding:
Before the Offering........................ 5,260,000 Shares
After the Offering......................... 7,260,000 Shares
Warrants Outstanding:
Before the Offering........................ None
After the Offering......................... 2,000,000
Estimated Net Proceeds....................... $8,225,000
Use of Proceeds.............................. Operations and development, capital
equipment, marketing and sales, mergers and
acquisitions and working capital.
Proposed Nasdaq Symbols:
Common Stock............................... BUSY
Warrants................................... BUSYW
Internet Web Site Address.................... www.busybox.com
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
--------------------------- ENDED
1997 1998 MARCH 31, 1999
------------ ------------- -----------------
<S> <C> <C> <C>
Statement of Earnings Data:
Net sales............................................ $ 833,797 $ 1,170,022 $ 122,659
Operating profit..................................... $ 61,160 $ 4,662 $ (292,581)
Earnings (loss) before income taxes.................. $ 62,087 $ 8,238 $ (244,487)
Net earnings (loss).................................. $ 61,287 $ 7,438 $ (244,487)
Earnings (loss) per share............................ $ .02 $ -- $ (.06)
Weighted average shares outstanding.................. 2,600,000 2,843,630 4,075,000
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------
PRO FORMA
AS
HISTORICAL PRO FORMA (1) ADJUSTED (2)
---------- ------------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital...................................... $ (66,771) $ 1,758,229 $ 9,983,229
Total assets......................................... $ 398,513 $ 2,223,513 $ 10,448,513
Total liabilities.................................... $ 261,094 $ 261,094 $ 261,094
Stockholders' equity................................. $ 137,419 $ 1,962,419 $ 10,187,419
</TABLE>
- ------------------------
(1) Gives effect to the pro forma adjustment for the net proceeds of the sale of
1,185,000 shares of our common stock for $2,370,000 in a private placement
transaction in April 1999.
(2) Adjusted to reflect the sale of our securities in this offering, less
underwriting discounts and commissions and the payment of expenses of this
offering estimated at $1,000,000.
4
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW BEFORE MAKING AN INVESTMENT
DECISION. THESE RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES FACING BUSYBOX OR
WHICH MAY ADVERSELY AFFECT OUR BUSINESS. IF ANY OF THE FOLLOWING RISKS OR
UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS MAY BE MATERIALLY ADVERSELY AFFECTED. IN THIS EVENT, THE TRADING
PRICE OF OUR COMMON STOCK MAY DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT. THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER FROM THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. THIS MAY OCCUR BECAUSE OF THE RISKS
DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY.
We were incorporated in Delaware in October 1995 and have a limited
operating history. We face the risks and problems associated with new businesses
and have a limited operating history upon which to base an evaluation of our
future prospects. Such prospects should be considered in light of the risks,
expenses and difficulties frequently encountered in the expansion of a new
business in an industry characterized by a significant number of market entrants
and intense competition. The market for our products, systems and services is
relatively new, intensely competitive, rapidly evolving and subject to rapid
change. Many of our current and potential competitors have longer operating
histories, greater name recognition, larger installed customer bases and
significantly greater financial, technical and marketing resources than we have.
Therefore, it is difficult to evaluate our business and prospects.
WE EXPECT TO CONTINUE TO INCUR LOSSES AND EXPERIENCE NEGATIVE CASH FLOWS.
We expect to have significant operating losses and to record significant net
cash outflow before financing in the near term. Our business has not generated
sufficient cash flow to fund our operations without resorting to external
sources of capital. Starting up our company and building our business required
substantial capital and other expenditures. As a result, we reported an
operating loss before interest of approximately $292,581 for the period ending
March 31, 1999, and net cash outflow before financing of approximately $71,859
for the same period. Further developing our operations and expanding our
business will require significant additional capital and other expenditures.
WE CAN MAKE NO ASSURANCES OF FUTURE PROFITABILITY OR PAYMENT OF DIVIDENDS.
We can make no assurances that our future operations will result in
additional revenues or will be profitable. Should the operations of busybox be
profitable, it is likely that we would retain much or all of our earnings in
order to finance future growth and expansion. Therefore, we do not presently
intend to pay dividends, and it is not likely that any dividends will be paid in
the foreseeable future.
AN INVESTOR IN OUR OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
FROM AN INVESTMENT IN THIS OFFERING.
An investor in our offering will experience immediate and substantial
dilution. As of March 31, 1999, we had a pro forma net tangible book value of
$1,900,789 or $.36 per share. After giving effect to the sale of the shares in
our offering at an offering price of $5.00 per share, after deducting
underwriting discounts and estimated offering expenses, adjusted pro forma net
tangible book value would be $10,125,789 or $1.39 per share. The result will be
an immediate increase in net tangible book value per share of $1.03
(approximately 286%) to existing shareholders and an immediate dilution to new
investors of $3.61 (approximately 72%) per share. As a result, an investor in
our offering will bear most of the risk of loss since his or her shares are
being purchased at a cost substantially above the price that existing
shareholders acquired their shares.
5
<PAGE>
WE MAY NEED ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND FINANCE OUR GROWTH,
AND WE MAY NOT BE ABLE TO OBTAIN IT ON TERMS ACCEPTABLE TO US OR AT ALL.
We intend to fund our operations and other capital needs for the next 12
months substantially from the proceeds of this offering, but there can be no
assurance that such funds will be sufficient for these purposes. We may require
substantial amounts of the proceeds of this offering for our future expansion,
operating costs and working capital. We have made no arrangements to obtain
future additional financing, if required, and there can be no assurance that
such financing will be available, or that it will be available on terms
acceptable to us.
OUR SUCCESS IS PRINCIPALLY DEPENDENT ON THE ABILITIES OF OUR MANAGEMENT.
Our success is principally dependent on our current management for the
operation of our business. We have recently entered into employment agreements
with Messrs. Grotto, Esposito, Carter, Bloodworth and Leffers. However, if the
employment of any of these persons terminates, or he or she is unable to perform
his or her duties, we may be substantially affected in our ability to operate
our business. The agreements also contain non-compete provisions but may be
limited in geographical scope. We have agreed to purchase key-man life insurance
on Messrs. Grotto, Esposito and Carter in the amount of $1 million each prior to
the closing of this offering. busybox will be the owner and beneficiary of the
term insurance policies.
OUR SUCCESS IS ALSO DEPENDENT ON QUALIFIED TECHNICAL PERSONNEL.
We believe that our future success will depend in large part upon our
continued ability to recruit and retain qualified technical personnel.
Competition for qualified technical personnel is significant, particularly in
the San Francisco area in which our operations are located. We are not sure that
our relationship with our employees will remain good.
OUR PROPOSED MERGERS AND ACQUISITIONS CAMPAIGN IS UNCERTAIN AND POSES RISKS TO
OUR BUSINESS.
Following the closing of this offering, we intend to engage in a mergers and
acquisitions campaign in order to merge with or acquire companies engaged in a
similar business. We have not entered into any negotiations to merge with or
acquire any such target companies, but we have identified several such companies
engaged in a complementary business. We can make no assurances that we will be
able to merge with or acquire any companies. Although we intend to utilize
approximately $750,000 of the net proceeds of this offering in our mergers and
acquisitions activities during the 12 months following the date of this
prospectus, no assurances can be made that such funds will enable us to expand
our base or realize profitable consolidated operations. In addition, our
stockholders may not have the opportunity to review the financial statements of
any of the companies that may be acquired or have the opportunity to vote on any
proposed acquisitions since Delaware law does not require such review and
approval. The stockholders of busybox will therefore be dependent on the
judgment of the management of the Company in their selection of merger and
acquisition candidates. Should such funds not be utilized in its mergers and
acquisitions activities, we intend to utilize the funds in equal amounts in
working capital, capital equipment and marketing and sales.
THE MANAGEMENT OF BUSYBOX HAS BROAD DISCRETION IN THE USE OF THE NET PROCEEDS OF
THIS OFFERING, AND IF WE DO NOT ALLOCATE THEM WISELY, YOUR INVESTMENT MAY BE AT
RISK.
The management of busybox has broad discretion to adjust the application and
allocation of the net proceeds of this offering, including funds received upon
exercise of the warrants, which may total up to $11,000,000, of which there is
no assurance, in order to address changed circumstances and opportunities. As a
result of the foregoing, our success will be substantially dependent upon the
discretion and judgment of the management of the Company with respect to the
application and allocation of the net proceeds of this offering. Pending use of
the proceeds, the proceeds will be invested by us in temporary, short-term
interest-bearing obligations.
6
<PAGE>
FAILURE OF COMPUTER SYSTEMS AND SOFTWARE TO BE YEAR 2000 ("Y2K") COMPLIANT MAY
INCREASE OUR COSTS, DISRUPT OUR SERVICES AND REDUCE DEMAND FROM OUR CLIENTS.
Our business is dependent upon a number of different information and
telecommunications technologies to access and manage information, including
handling a high volume of communications on a daily basis. Rapid and evolving
changes in these technologies may require greater than anticipated capital
expenditures to improve or upgrade a high level of customer service. A failure
to manage our information and telecommunications technologies may have a
material adverse effect on our business, operating results and financial
condition.
Our dependence upon information and telecommunications technology makes us
relevant to Year 2000 (Y2K) issues. Because the Company is dependent on
telecommunications technologies in the operation of our business, we must be
able to identify and correct Year 2000 issues on a more expedited basis than
companies in other industries who are not as dependent on information and
telecommunications technologies. We believe that our information and
telecommunications technologies are Year 2000 compliant. However, because
busybox and its customers are dependent on certain third-party vendors and
suppliers who may not necessarily be Year 2000 compliant, such lack of
compliance may have a material adverse effect on our business, operating results
and financial condition.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED GROWTH OF ONLINE COMMERCE.
Our future revenues and any future profits may become dependent upon the
widespread acceptance and use of the Internet and commercial online services as
an effective medium of commerce by consumers. For us to be successful, these
consumers must accept and utilize novel ways of conducting business and
exchanging information. Convincing consumers to purchase products online may be
particularly difficult, as such consumers have traditionally relied on catalogue
purchases and are accustomed to a certain degree of human interaction in
purchasing products. Rapid growth in the use of and interest in the Web, the
Internet and commercial online services is a recent phenomenon, and there can be
no assurance that acceptance and use will continue to develop or that a
sufficiently broad base of consumers will adopt, and continue to use, the
Internet and commercial online services as a medium of commerce, particularly
for purchases of our products. Demand for recently introduced services and
products over the Internet and commercial online services is subject to a high
level of uncertainty and there exist few proven services and products. The
development of the Internet and commercial online services as a viable
commercial marketplace is subject to a number of factors, including continued
growth in the number of users of such services, concerns about transaction
security, continued development of the necessary technological infrastructure
and the development of complementary services and products. If the Internet and
commercial online services do not become a viable commercial marketplace, our
business, operating results and financial condition may be materially adversely
affected.
RAPID TECHNOLOGICAL CHANGE MAY HAMPER OUR ABILITY TO SUCCEED.
The Internet and the online commerce industry are characterized by rapid
technological change, changes in user and customer requirements and preferences,
frequent new product and service introductions embodying new technologies and
the emergence of new industry standards and practices that could render our
existing online sites and proprietary technology and systems obsolete. The
emerging nature of these products and services and their rapid evolution will
require that we continually improve the performance, features and reliability of
our online services, particularly in response to competitive offerings. Our
success will depend, in part, on our ability to enhance our existing services,
to develop new services and technology that address the increasingly
sophisticated and varied needs of our prospective customers and to respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis. The development of online sites and other
proprietary technology entails significant technical and business risks and
requires substantial expenditures and lead time. It is difficult to determine if
we will successfully use new technologies effectively or adapt its online sites,
proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. If we are unable, for technical,
legal, financial
7
<PAGE>
or other reasons, to adapt in a timely manner in response to changing market
conditions or customer requirements, our business, operating results and
financial condition may be materially adversely affected.
SECURITY RISKS ASSOCIATED WITH ONLINE COMMERCE MAY HAVE A MATERIAL ADVERSE
EFFECT ON OUR REPUTATION, BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION.
A fundamental requirement for online commerce and communications is the
secure transmission of confidential information over public networks. busybox
relies on software encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card numbers.
In addition, we maintain an extensive confidential database of customer profiles
and transaction information. Advances in computer capabilities, new discoveries
in the field of cryptography or other events or developments may not prevent a
compromise or breach of the algorithms used by busybox to protect customer
transaction and personal data contained in our customer database. If any
compromise of our security were to occur, it may have a material adverse effect
on our reputation, business, operating results and financial condition. A party
who is able to circumvent our security measures may misappropriate proprietary
information or cause interruptions in our operations. We may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of transactions conducted on the Internet and commercial online
services and the privacy of users may also inhibit the growth of the Internet
and commercial online services, especially as a means of conducting commercial
transactions. To the extent that our activities or third-party contractors
involve the storage and transmission of proprietary information, such as credit
card numbers or other personal information, security breaches may expose us to a
risk of loss or litigation and possible liability to us. Our security measures
may not prevent security breaches that may have a material adverse effect on our
business, operating results and financial condition.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN WITHOUT MERIT, MAY
COST A SIGNIFICANT AMOUNT OF MONEY TO DEFEND AND DIVERT MANAGEMENT'S ATTENTION
AWAY FROM OUR BUSINESS.
As the number of software products in our target markets increases and the
functionality of these products further overlap, software industry participants
may become increasingly subject to infringement claims. Someone may even claim
that our technology infringes their proprietary rights. Any infringement claims,
even if without merit, can be time consuming and expensive to defend. They may
divert our attention and resources and may cause service implementation delays.
They also could require us to enter into costly royalty or licensing agreements.
If successful, a claim of product infringement against us and our inability to
license the infringed or similar technology may adversely affect our business,
operating results and financial condition.
BECAUSE WE HAVE INTERNATIONAL BUSINESS, WE FACE ADDITIONAL RISKS RELATED TO
FOREIGN POLITICAL AND ECONOMIC CONDITIONS.
We derive a significant amount of our revenues from businesses in the United
Kingdom. We intend to expand further into international markets. We cannot be
sure that we will be able to obtain the necessary telecommunications
infrastructure in a cost-effective manner or compete effectively in
international markets. In addition, there are risks inherent in conducting
business internationally. These include:
- Unexpected changes in regulatory requirements.
- Export restrictions.
- Tariffs and other trade barriers.
- Challenges in staffing and managing foreign operations.
- Differing technology standards.
8
<PAGE>
- Employment laws and practices in foreign countries.
- Political instability.
- Fluctuations in currency exchange rates.
- Imposition of currency exchange controls.
- Potentially adverse tax consequences.
Any of these risks may adversely affect our international operations. We
cannot be sure that one or more of these risk factors will not have a material
adverse effect on our current or future international operations and,
consequently, on our business, operating results and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY ADD ADDITIONAL COSTS TO DOING
BUSINESS ON THE INTERNET AND MAY LIMIT OUR CLIENTS' USE OF THE INTERNET.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The adoption or modification of laws
or regulations relating to the Internet may adversely affect our business. The
last session of the United States Congress resulted in Internet laws regarding
children's privacy, copyrights, taxation and the transmission of sexually
explicit material. The European Union recently enacted its own privacy
regulations. The law of the Internet, however, remains largely unsettled, even
in areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet. In addition, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business online. For
example, Germany and the European Union have enforced laws and regulations on
content distributed over the Internet that are more strict than those currently
in place in the United States.
THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS HAVE
MUCH GREATER RESOURCES.
The market for Internet technologies and services is highly competitive and
we expect that competition will continue to intensify. We compete with (i) other
Web sites, portals and Internet companies to acquire and provide content to
attract users, (ii) Internet broadcasters, (iii) online services, other Web site
operators and advertising networks, as well as traditional media such as
television and print, for a share of advertisers' total advertising budgets and
(iv) local television stations and national television networks for sales of
advertising spots. We are not sure that we will be able to compete successfully
or that the competitive pressures faced by us, including those described below,
will not have a material adverse effect on our business, operating results and
financial condition.
Competition among Web sites and portals that provide compelling content,
including digital media content, is intense and is expected to increase
significantly in the future. We compete against a variety of businesses that
provide media content through one or more mediums, such as print, television,
cable television and the Internet. Traditional media companies that have not
established a significant presence on the Internet may expend resources to
establish such a presence in the future. We compete generally with other content
providers for the time and attention of users and for advertising revenues. To
compete successfully, we must license and then provide sufficiently compelling
and popular content to generate users, support advertising intended to reach
such users and attract business and other organizations seeking Internet and
distribution services. We believe that the principal competitive factors in
attracting Internet users include the quality of service and the relevance,
timeliness, depth and breadth of content and services offered. In the market for
Internet distribution of radio and television programming, we compete with ISPs,
television stations and networks that originate their own Internet broadcasts.
We also compete for the time and attention of Internet users with thousands of
Web sites operated by businesses and other organizations, individuals,
governmental agencies and educational institutions. For example, certain Web
sites may provide a collection of links to other Web sites with digital
streaming media content. We expect competition to intensify and the number of
competitors to increase significantly in the future. In addition, as we expand
the scope of our content
9
<PAGE>
and services, we will compete directly with a greater number of Web sites and
other media companies. Because the operations and strategic plans of existing
and future competitors are undergoing rapid change, it is extremely difficult
for us to anticipate which companies are likely to offer competitive
technologies and services in the future.
We also compete with companies that provide Internet services to businesses
and other organizations. Principal competitive factors include price,
transmission quality, transmission speed, reliability of service, ease of
access, ease of use, customer support, brand recognition and operating
experience. Our current and potential competitors may have significantly greater
financial, technical and marketing resources, longer operating histories and
greater brand recognition. Companies that provide media streaming software may
also enter the market for Internet services. If media streaming technology and
backbone bandwidth becomes more readily available to companies at low prices,
our customers may decide to broadcast their own programming. In particular,
local exchange carriers, ISPs and other data communication service providers may
compete in the future with a portion of or all of our business services as
technological advancements facilitate the ability of these providers to offer
effectively these services. We are not sure that we will be able to compete
successfully against current or future competitors for Internet services.
We also compete with online services, other Web site operators and
advertising networks, as well as traditional media such as television and print
for a share of advertisers' total advertising budgets. We believe that the
principal competitive factors for attracting advertisers include the number of
users accessing our Web sites, the demographics of our users, our ability to
deliver focused advertising and interactivity through our Web sites and the
overall cost-effectiveness and value of advertising offered by busybox. There is
intense competition for the sale of advertising on high-traffic Web sites, which
has resulted in a wide range of rates quoted by different vendors for a variety
of advertising services, making it difficult to project levels of Internet
advertising that will be realized generally or by any specific company. Any
competition for advertisers among present and future Web sites, as well as
competition with other traditional media for advertising placements, may result
in significant price competition. We believe that the number of companies
selling Web-based advertising and the available inventory of advertising space
have recently increased substantially. Accordingly, we may face increased
pricing pressure for the sale of advertisements. Reduction in our Web
advertising revenues may have a material adverse effect on our business, results
of operations and financial condition.
We also compete for traditional media advertising sales with national
television networks, as well as local television stations. Television content
providers and national television networks may have larger and more established
sales organizations than busybox. These companies may have greater name
recognition and more established relationships with advertisers and advertising
agencies than we have. Such competitors may be able to undertake more extensive
marketing campaigns, obtain a more attractive inventory of ad spots, adopt more
aggressive pricing policies and devote substantially more resources to selling
advertising inventory. Our traditional media advertising sales efforts depend on
our ability to obtain an inventory of ad spots across the television markets. If
we are unable to obtain such inventory, it may have a material adverse effect on
our business, operating results and financial condition.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we do.
We cannot be sure that we will have the resources or expertise to compete
successfully in the future. Our competitors may be able to:
- More quickly develop and expand their network infrastructures and service
offerings.
- Better adapt to new or emerging technologies and changing customer needs.
- Take advantage of mergers and acquisitions and other opportunities more
readily.
- Negotiate more favorable licensing agreements with software application
vendors.
- Devote greater resources to the marketing and sale of their products and
services.
10
<PAGE>
- Adopt more aggressive pricing policies.
Some of our competitors may also be able to provide customers with
additional benefits at lower overall costs. We cannot be sure that we will be
able to match cost reductions by our competitors. In addition, we believe that
there is likely to be consolidation in our markets, which may increase price and
other competition in ways that may materially adversely affect our business,
operating results and financial condition. Finally, there are few substantial
barriers to entry, and we currently have no patented technology that would bar
competitors from our market.
OUR BUSINESS AND OPERATIONS MAY BE SUBJECT TO LIABILITY AND OUR INSURANCE MAY
NOT BE ENOUGH TO COVER POTENTIAL CLAIMS.
We provide training and related services to our customers in connection with
our technology, products and systems. We therefore may be exposed to the risk of
liability for injury. We maintain quality control programs in an attempt to
reduce the risk of potential damage to persons and any associated potential
liability. We maintain $1,000,000 per loss event/$6,000,000 policy aggregate of
liability insurance covering damages resulting from negligent acts, errors,
mistakes or omissions in rendering or failing to render its services. We are not
a party to any legal proceedings and, to the best of our information, knowledge
and belief, none is contemplated or has been threatened.
THE DIRECTORS OF OUR COMPANY HAVE CERTAIN LEGAL PROTECTIONS PROVIDED BY DELAWARE
LAW, AND POTENTIAL CLAIMANTS MAY BE BARRED FROM RECOVERY.
As permitted by the Delaware law, our Certificate of Incorporation limits
the liability of directors to busybox or its stockholders for monetary damages
for breach of a director's fiduciary duty except for liability in four specific
instances. These are for (i) any breach of the director's duty of loyalty to
busybox or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of law, (iii) unlawful
payments of dividends or unlawful stock purchases or redemptions as provided in
Section 174 of the Delaware General Corporation Law, or (iv) any transaction
from which the director derived an improper personal benefit. As a result of our
charter provision and Delaware law, stockholders may have limited rights to
recover against directors for breach of fiduciary duty.
THE PRICES OF OUR SECURITIES IN THIS OFFERING HAVE BEEN ARBITRARILY DETERMINED.
There has been no prior public market for our securities. The price to the
public of the securities offered hereby has been arbitrarily determined by
negotiations between busybox and the underwriter and bears no relationship to
our earnings, book value or any other recognized criteria of value. The offering
price of $5.00 per share is substantially in excess of the pro forma net
tangible book value of $0.32 per share, derived from our balance sheet as of
March 31, 1999, and in excess of the price received by busybox for shares sold
in prior securities transactions.
WE HAVE A REQUIREMENT TO KEEP OUR PROSPECTUS AND STATE BLUE SKY REGISTRATION
CURRENT, AND OUR FAILURE TO DO SO MAY LIMIT YOUR ABILITY TO TRADE OUR
SECURITIES.
We will be able to issue shares of our common stock upon the exercise of the
warrants and the underwriter's purchase option only if (i) there is a current
prospectus relating to the securities offered hereby under an effective
registration statement filed with the Securities and Exchange Commission, and
(ii) such common stock is then qualified for sale or exempt therefrom under
applicable state securities laws of the jurisdictions in which the various
holders of warrants reside. Although we intend to maintain a current
registration statement, there can be no assurance, however, that we will be
successful in maintaining a current registration statement. After a registration
statement becomes effective, it may require updating by the filing of a
post-effective amendment. A post-effective amendment is required when facts or
events have occurred which represent a material change in the information
contained in the registration statement. We intend to qualify the sale of the
warrants in a limited number of states, although certain exemptions under
certain state securities ("Blue Sky") laws
11
<PAGE>
may permit the warrants to be transferred to purchasers in states other than
those in which the warrants were initially qualified. Qualification for the
exercise of the warrants in the states is essential for the establishment of a
trading market in the securities. We can make no assurances that we will be able
to qualify our securities in any state. We will be prevented, however, from
issuing common stock upon exercise of the warrants in those states where
exemptions are unavailable and we have failed to qualify the common stock
issuable upon exercise of the warrants. We may decide not to seek, or may not be
able to obtain qualification of the issuance of such common stock in all of the
states in which the ultimate purchasers of the warrants reside. In such a case,
the warrants of those purchasers will expire and have no value if such warrants
cannot be exercised or sold.
A PRIOR MARKET DOES NOT EXIST FOR OUR SECURITIES AND IT IS UNCERTAIN THAT A
MARKET WILL DEVELOP FOLLOWING THIS OFFERING.
No prior market exists for the securities being offered in this prospectus
and no assurance can be given that a market will develop subsequent to this
offering. The underwriter may make a market in our securities upon the closing
of this offering, but there is no assurance that it will do so, or if a market
develops that it will be sustained.
THE WARRANTS OFFERED FOR SALE IN THIS OFFERING ARE SUBJECT TO REDEMPTION AT $.05
PER WARRANT UNDER CERTAIN CONDITIONS, WHICH MAY MATERIALLY ADVERSELY AFFECT YOUR
INVESTMENT IN BUSYBOX.
We are offering 2,000,000 shares of common stock, $.01 par value per share,
and 2,000,000 warrants. The common stock and the warrants (collectively,
"Securities") are being offered separately and not as units, and each are
separately transferable. Each warrant entitles the holder to purchase one share
of common stock at $5.50 per share (subject to adjustment) during the five-year
period commencing on the date of this prospectus. The warrants are redeemable by
busybox for $.05 per warrant, on not less than thirty (30) days nor more than
sixty (60) days written notice if the closing bid price for the common stock
equals or exceeds $10.00 per share during any thirty (30) consecutive trading
day period ending not more than fifteen (15) days prior to the date that the
notice of redemption is mailed, provided there is then a current effective
registration statement under the Securities Act of 1933, as amended ("Act") with
respect to the issuance and sale of common stock upon the exercise of the
warrants. Any redemption of the warrants during the one-year period commencing
on the date of this prospectus shall require the written consent of the
underwriter.
We intend to qualify the sale of the securities in a limited number of
states, although certain exemptions under certain state securities ("Blue Sky")
laws may permit the warrants to be transferred to purchasers in states other
than those in which the warrants were initially qualified. We will be prevented,
however, from issuing common stock upon exercise of the warrants in those states
where exemptions are unavailable and we have failed to qualify the common stock
issuable upon exercise of the warrants. We may decide not to seek, or may not be
able to obtain qualification of the issuance of such common stock in all of the
states in which the ultimate purchasers of the warrants reside. In such case,
the warrants of those purchasers will expire and have no value if such warrants
cannot be exercised or sold. Accordingly, the market for the warrants may be
limited because of our obligation to fulfill these requirements.
THE EXERCISE OF THE WARRANTS IN THIS OFFERING MAY HAVE A DILUTIVE EFFECT ON THE
MARKET, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON YOUR INVESTMENT.
In addition to the 2,000,000 warrants offered in this offering, we will also
issue to the underwriter and/or persons related to the underwriter, for nominal
consideration, warrants to purchase 200,000 shares of common stock and 200,000
warrants. The underwriter's warrants will be exercisable for a five year period
commencing from the effective date of the offering at an exercise price of 165%
of the price at which the common stock and warrants are sold to the public
subject to adjustment. The warrants may have certain dilutive effects because
the holders thereof will be given the opportunity to profit from a rise in the
market price of the underlying shares with a resulting dilution in the interest
12
<PAGE>
of our other shareholders. The terms on which we may obtain additional capital
during the life of the warrants may be adversely affected because the holders of
the warrants might be expected to exercise them at a time when we would
otherwise be able to obtain comparable additional capital in a new offering of
securities at a price per share greater than the exercise price of the warrants.
We have agreed that, at the request of the holders thereof under certain
circumstances, we will register under Federal and state securities laws the
underwriter's warrants and/or the securities issuable thereunder. Exercise of
these registration rights may involve substantial expense to us at a time when
we may not be able to afford the cash expenditures which may adversely affect
the terms upon which we may be able to obtain additional funding and which may
materially adversely affect the price of our common stock.
NASDAQ HAS CERTAIN MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS IN ORDER TO
MAINTAIN OUR INCLUSION ON THE NASDAQ SMALLCAP MARKET, WHICH WE MAY NOT BE ABLE
TO SUSTAIN.
Under the current rules relating to the listing of securities on the Nasdaq
SmallCap Market a company must have (a) at least $4,000,000 in net tangible
assets, or $750,000 in net income in two of the last three years, or a market
capitalization of at least $50,000,000, (b) public float of at least 1,000,000
shares, (c) market value of public float of at least $5,000,000, and (d) a
minimum bid price of $4.00 per share, among other requirements. For a continued
listing, a company must maintain (a) at least $2,000,000 in net tangible assets,
or $500,000 in net income in two of the last three years, or a market
capitalization of at least $35,000,000, (b) public float of at least 500,000
shares, (c) market value of public float of at least $1,000,000 and (d) a
minimum bid price of $1.00 per share; among other requirements.
Our common stock and the warrants are expected to be eligible for initial
listing on the Nasdaq SmallCap Market under the current rules upon the closing
of this offering. If at any time after issuance the common stock and warrants
are not listed on the Nasdaq SmallCap Market, and no other exclusion from the
definition of a "penny stock" under the Exchange Act were available,
transactions in the securities would become subject to the penny stock
regulations which impose additional sales practice requirements on
broker-dealers who offer and sell such securities.
If we should experience losses from operations, we may be unable to maintain
the standards for a continued listing and the securities may be subject to
delisting from the Nasdaq SmallCap Market. Trading, if any, in the securities
would thereafter be conducted in the over-the-counter market on an electronic
bulletin board established for securities that do not meet the Nasdaq SmallCap
Market listing requirements or in what are commonly referred to as the "pink
sheets." As a result, an investor may find it more difficult to dispose of or to
obtain accurate quotations as to the price of our securities.
THE SECURITIES AND EXCHANGE COMMISSION MAY IMPOSE CERTAIN RESTRICTIONS ON THE
MARKETABILITY OF LOW-PRICED SECURITIES, WHICH MAY MATERIALLY ADVERSELY AFFECT
THE TRADING IN OUR SECURITIES.
The Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market price
less than $5.00 per share, subject to certain exceptions. Upon authorization of
the securities offered hereby for quotation, such securities will initially be
exempt from the definition of "penny stock." If the securities offered hereby
fall within the definition of a "penny stock" following the effective date, our
securities may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer also must disclose the commissions
13
<PAGE>
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell our securities
and may affect the ability of purchasers in this offering to sell our securities
in the secondary market.
SHARES OF COMMON STOCK THAT ARE ELIGIBLE FOR SALE IN THE FUTURE MAY MATERIALLY
ADVERSELY AFFECT THE MARKET.
All of our currently outstanding shares of common stock are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act of 1933, as amended. Rule 144 provides, in
essence, that a person holding "restricted securities" for a period of one year
may sell only an amount every three months equal to the greater of (a) one
percent of our issued and outstanding shares, or (b) the average weekly volume
of sales during the four calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not an affiliate of busybox may
sell is not so limited, since nonaffiliates may sell without volume limitation
their shares held for two years if there is adequate current public information
available concerning us. Upon the sale of the securities, and assuming that
there is no exercise of any issued and outstanding warrants, we will have
7,260,000 shares of our common stock issued and outstanding, of which 5,260,000
shares will be "restricted securities." Therefore, during each three month
period, a holder of restricted securities who has held them for at least the one
year period may sell under Rule 144 a number of shares up to 72,600 shares.
Non-affiliated persons who hold for the two-year period described above may sell
unlimited shares once their holding period is met. However, pursuant to the
terms of the underwriting agreement, our current stockholders have agreed not to
sell, transfer, assign or otherwise dispose of any of our restricted securities
for a period of 24 months following the date of this prospectus.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of our common stock in any
market which may develop and, therefore, the ability of any investor to market
his or her shares may be dependent directly upon the number of shares that are
offered and sold. Our affiliates may sell their shares during a favorable
movement in the market price of our common stock which may have a depressive
effect on our price per share.
THE TRADING PRICES OF OUR SECURITIES MAY BE VOLATILE AND MAY MATERIALLY
ADVERSELY AFFECT YOUR INVESTMENT IN BUSYBOX.
The trading prices of our common stock and warrants may be volatile. The
stock market in general, and the market for technology and Internet-related
companies in particular, has experienced extreme volatility. This volatility has
often been unrelated to the operating performance of such companies. We cannot
be sure that an active public market for our securities will develop or continue
after this offering. Investors may not be able to sell their securities at or
above our initial public offering price. Prices for the securities will be
determined in the marketplace and may be influenced by many factors, including
variations in our financial results, changes in earnings estimates by industry
research analysts, investors' perceptions of us and general economic, political,
industry and market conditions. Volatile trading prices of our securities may
materially adversely affect your investment in busybox.
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USE OF PROCEEDS
We will receive net proceeds of approximately $8,225,000 upon the sale of
the securities in this offering, after deducting the underwriting discounts and
estimated offering expenses. These net proceeds do not include the exercise of
the underwriter's over-allotment option. We intend to use these proceeds
approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT
OF NET PROCEEDS %
------------------- ---------
<S> <C> <C>
- Operations and Development....................... $ 2,000,000 24.32
- Capital Equipment................................ 2,000,000 24.32
- Marketing and Sales.............................. 2,500,000 30.40
- Mergers and Acquisitions......................... 750,000 9.11
- Working Capital.................................. 975,000 11.85
------------------- ---------
Total............................................ $ 8,225,000 100.00
------------------- ---------
------------------- ---------
</TABLE>
The amounts and timing of our actual expenditures will depend upon numerous
factors, including the status of our product development efforts, marketing and
sales activities, the amount of cash generated by our operations and
competition. Actual expenditures may vary substantially from these estimates. We
may find it necessary or advisable to use portions of the proceeds for other
purposes. Pending application of the net proceeds as described above, we intend
to invest the net proceeds of this offering in insured, short-term,
investment-grade, interest-bearing securities.
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DILUTION
As of March 31, 1999, we had a pro forma net tangible book value of
$1,900,789 or $.36 per share. Net tangible book value per share means the
tangible assets of busybox, less all liabilities, divided by the number of
shares of common stock outstanding. After giving effect to the sale of the
common stock in this offering at an assumed price of $5.00 per share after
deducting underwriting discounts and estimated offering expenses, adjusted pro
forma net tangible book value would be $10,125,789 or $1.39 per share. The
result will be an immediate increase in net tangible book value per share of
$1.03 (approximately 286%) to existing shareholders and an immediate dilution to
new investors of $3.61 (approximately 72%) per share. As a result, investors in
this offering will bear most of the risk of loss since their shares are being
purchased at a cost substantially above the price that existing shareholders
acquired their shares. "Dilution" is determined by subtracting net tangible book
value per share after the offering from the offering price to investors. The
following table illustrates this dilution assuming no exercise of the
underwriter's over-allotment option:
<TABLE>
<S> <C> <C>
Public offering price per share of the common stock offered hereby.... $ 5.00
Net tangible book value per share before pro forma adjustments...... $ .02
Increase per share attributable to pro forma adjustments............ $ .34
---------
Pro forma net tangible book value per share, before the offering.... $ .36
Increase per share attributable to the sale by busybox of the shares
offered hereby.................................................... $ 1.03
---------
Pro forma net tangible book value per share, after the offering....... $ 1.39
---------
Dilution per share to new investors................................... $ 3.61
---------
---------
</TABLE>
The above table assumes no exercise of the warrants, the underwriter's
over-allotment option or the purchase option.
The following table summarizes the investments of all existing stockholders
and new investors after giving effect to the sale of the shares in this offering
assuming no exercise of the underwriter's over-allotment option:
<TABLE>
<CAPTION>
PERCENTAGE PERCENT OF AVERAGE
SHARES OF TOTAL AGGREGATE TOTAL PRICE PER
PURCHASED SHARES CONSIDERATION INVESTED SHARE
---------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Present Stockholders.............................. 5,260,000 72.45 $ 5,053,550 33.57% $ .96
-----
-----
Public Stockholders............................... 2,000,000 27.55% $ 10,000,000 66.43% $ 5.00
---------- ------ ------------- ----------- -----
-----
Total......................................... 7,260,000 100.00% $ 15,053,550 100.00% $ 2.07
---------- ------ ------------- ----------- -----
---------- ------ ------------- ----------- -----
</TABLE>
If the over-allotment option is exercised in full, the investors in this
offering will have paid $11,500,000 and will hold 2,300,000 shares of common
stock, representing 69.47% percent of the total consideration and 30.42% percent
of the total number of outstanding shares of common stock.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of busybox, as of March
31, 1999; on a pro forma basis after giving effect for the sale of 1,185,000
shares of common stock in April 1999; and as adjusted for the sale of the
securities in this offering. The table should be read in conjunction with the
Financial Statements, and the Notes, beginning on page F-1.
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, AS
1999 PRO FORMA(2) ADJUSTED (3)
------------ ------------- -------------
<S> <C> <C> <C>
Long-term debt (1).................................................... $ 9,486 $ 9,486 $ 9,486
------------ ------------- -------------
Stockholders' equity
Common Stock, $.01 par value, 25,000,000 shares authorized,
4,075,000 shares outstanding; 5,260,000 shares outstanding pro
forma; 7,260,000 shares outstanding, as adjusted.................. $ 40,750 $ 52,600 $ 72,600
Additional paid-in capital.......................................... 2,642,800 4,455,950 12,660,950
Notes and accounts receivable stockholders.......................... (2,439,750) (2,439,750) (2,439,750)
Retained earnings................................................... (106,381) (106,381) (106,381)
------------ ------------- -------------
Total stockholders' equity........................................ 137,419 1,962,419 10,187,419
------------ ------------- -------------
Total capitalization.............................................. $ 146,905 1,971,905 $ 10,196,905
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
- ------------------------
(1) Long-term debt consists primarily of capital lease obligations with
non-related parties. See Note D to the accompanying "Financial Statements,"
beginning on page F-9.
(2) As adjusted to reflect the net proceeds of the sale of 1,185,000 shares of
common stock for $2,370,000 in a private placement transaction in April
1999.
(3) As adjusted to reflect the net proceeds of this offering. Assumes no
exercise of (i) the warrants; (ii) the underwriter's over-allotment option
to purchase up to 300,000 shares of common stock and 300,000 warrants; or
(iii) the underwriter's purchase option to purchase up to 200,000 shares of
common stock and 200,000 warrants.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and have no plans to
do so in the foreseeable future. The declaration and payment of any dividends in
the future will be determined by the board of directors and will depend on a
number of factors including our earnings, capital requirements and overall
financial condition.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES OF BUSYBOX INCLUDED IN THIS PROSPECTUS,
BEGINNING ON PAGE F-1. THE DISCUSSION IN THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS APPLY TO ALL RELATED FORWARD-LOOKING
STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. OUR ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE OR CONTRIBUTE TO DIFFERENCES INCLUDE THOSE DISCUSSED IN
"RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS ARE MADE AS OF THE DATE
OF THIS PROSPECTUS, AND WE ASSUME NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING
STATEMENTS OR TO UPDATE THE REASONS ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
busybox designs, develops, maintains, services, markets, sells and
distributes digital imagery, including black and white and color still
photographs, film footage and video, over the Internet to our customers in the
technology, media, entertainment, government, corporate and sports industries.
We believe that our proprietary Java-based technology combined with our
component-based content programming uniquely enables us to catalogue, manage,
transact, deliver and reconcile digital images and video on the Internet. We
believe that our component-based programming is unique in the industry and
provides a significant business opportunity for us when combined with the
emerging and rapidly developing Internet e-commerce marketplace.
For the years ending December 31, 1997 and 1998, and for the quarter ending
March 31, 1999, all of our revenues were derived, directly or indirectly, from
the Internet.
We intend to principally use the proceeds of this offering for operating
costs and working capital, including business development, capital equipment,
marketing and sales and mergers and acquisitions with complementary companies in
an effort to significantly expand our business and operations. We also intend to
use approximately $750,000 of the proceeds of this offering to further design
and develop our principal Internet Web site into a state-of-the-art, enhanced
fully interactive principal Web site to manage our emerging e-commerce on the
Internet. We believe that our state-of-the-art, enhanced and fully interactive
principal Web site will be implemented and fully operational within the
approximately six months following the closing of this offering. We are not sure
that the proceeds of this offering will enable us expand our business and
operations in any manner.
We believe that several challenges must be overcome to realize
cost-effective Internet broadcasting: aggregating diverse and compelling
content, scaling Internet broadcasts from small to large audiences, deploying
new transmission and streaming technologies in a timely manner and providing
multimedia advertisements and services. In order to aggregate content, Internet
broadcasters must rapidly identify and secure licensing opportunities by
demonstrating to content providers broad based distribution and the ability to
deliver associated traffic. Successful Internet broadcasters serving a large
number of simultaneous users around the clock also need to design, develop and
integrate complex network elements, which include extensive bandwidth, streaming
licenses, equipment and technical expertise. The rapid evolution of streaming
media technologies requires Internet broadcasters to support multiple vendors,
an investment which few companies have made. We believe, therefore, that a
successful Internet business must develop a well-branded Web site which offers
compelling content, a network capable of streaming video programming to large
audiences 24 hours a day, seven days a week, and an organization which can
deliver quality services to advertisers and businesses.
We believe that our proprietary Java-based technology, together with our
component-based content programming, will enable us to be a leading aggregator,
distributor and broadcaster of digital streaming media programming on the Web
with the network infrastructure and expertise to deliver or "stream"
18
<PAGE>
live and on-demand video programs over the Internet. Our Web site will offer a
selection of both streaming and downloadable broadcast quality film footage and
video programming, including aerials, archival, beauty, destinations, lifestyle,
locations, nature, sports, extreme sports, time lapse, underwater and wildlife.
Our proprietary Java-based technology, together with our component-based
content programming, allows users to efficiently and effectively find, retrieve,
view, transact and download digital media. We believe we will establish a
significant brand for our broadcasts and services on the Internet due to our
technologically unique content distribution capabilities. In addition, our Web
sites will provide an attractive platform for advertisers seeking to target
specific users with compelling advertising solutions.
The principal technologies utilized by busybox are those related to the
digitization of images, the enhancement and compression of digitized images, the
organization and management of our database of digitized images and customer
profiles and technologies associated with customer interaction with Web sites
including search functions, transaction-processing and downloading of images.
Our e-commerce systems can manage a large number of concurrent customer
searches, as well as the process of accepting, authorizing and charging customer
credit cards or accounts. We use a combination of our own proprietary
technologies and commercially available equipment and licensed technologies. Our
current plan is to license commercially available technology whenever possible
rather than seek internally developed solutions. We have focused our internal
development efforts on creating and enhancing the specialized software and
processes related to enhancement and delivery of digitized still photography,
film footage and video.
Internet-delivered media content, including still photographs, film footage
and video, offers certain opportunities that are not generally available from
traditionally delivered media content. Currently available analog technology and
government regulations limit the ability of television stations to broadcast
beyond certain geographic areas. Televisions are not widely used in office
buildings and other workplaces, where Internet access has become commonplace.
Traditional business communication tools such as videoconferencing can be
costly, non-targeted and inconvenient. In addition, traditional broadcasters are
limited in their ability to measure or identify in real time the viewers of a
program. By using the Internet, targeted streaming media content can be offered
to a geographically dispersed audience of customers, suppliers, employees and
stockholders at relatively low costs. Internet users can interact with the media
content by responding to online surveys, voting in polls and obtaining
additional information. In addition, Internet broadcasters can provide highly
specific information about a program's audience to content providers,
advertisers and users of Internet business services. The convergence of the
Internet's capabilities and attributes has accelerated its acceptance as a
business tool, leading to rapidly growing economic opportunities in Web-based
advertising and business service offerings, including electronic commerce and
real-time streaming video transmission, among others. Ultimately, in our view,
the broadcasting of media content over the Internet will usher in the
technological convergence of the computer and the television into a seamless
multimedia medium.
The Internet has grown rapidly in recent years, spurred by developments such
as easy-to-use Web browsers, the availability of multimedia-enhanced personal
computers, the adoption of more robust network architectures and the emergence
of compelling Web-based content and commerce applications. The broad acceptance
of the Internet Protocol ("IP") standard has also led to the emergence of
intranets and the development of a wide range of non-PC devices that allow users
to access the Internet and intranets.
The Internet's rapid evolution towards becoming a mass medium may be
attributed to the accelerated pace of technological innovation, which has
expanded the Web's capabilities and improved users' experiences. Most notably,
the Internet has evolved from a mass of static, text-oriented Web pages and
e-mail services to a much richer environment, capable of delivering graphical,
interactive and multimedia content. Prior to the development of streaming media
technologies, users could not
19
<PAGE>
playback video clips until the content was downloaded in its entirety. As a
result, live Internet broadcasts were not possible. The development of streaming
media products from companies such as Microsoft, and RealNetworks, among others,
enables the simultaneous transmission and playback (i.e., Internet broadcast) of
continuous "streams" of video content over the Internet and intranets. These
technologies have evolved to deliver video over widely used 28.8 kbps narrow
bandwidth modems, yet can scale in quality to take advantage of higher speed
access that is expected to be provided by xDSL, cable modems and other emerging
broadband technologies.
Our business is dependent upon a number of different information and
telecommunications technologies to access information and manage systems. Rapid
changes in these technologies may require greater than anticipated capital
expenditures to improve or upgrade the level of customer service. Our dependence
upon information and telecommunications technology may make us sensitive to Year
2000 ("Y2K") issues. We have reviewed the Y2K compliance issue as required by
our principal customers. We believe that our information and telecommunications
technologies are Year 2000 compliant. Finally, customers who use our products
and services may be exposed to disruptions as a result of failures by other
businesses to correct Year 2000 problems in their information and computer
systems.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998.
For the three months ended March 31, 1999, we reported revenue of $122,659
from the sale of our products, systems and services, a 62% decrease compared to
the same period ending March 31, 1998, where we reported revenue of $324,856 on
the sale of our products, systems and services. The decrease was primarily
attributable to reduced sales of technology, systems and service revenue. Our
gross margin on sales in the three months ended March 31, 1999 decreased to 52%
as compared to 71% for the three months ended March 31, 1998. The decrease was
the result of change in the composition of sales.
Selling, general and administrative expenses increased to $300,113 in the
three months ended March 31, 1999 from $86,314 in the three months ended March
31, 1998. The increase was the result of expenditures primarily from wages due
to additional management, administrative and sales staff needed to support
operations and marketing in anticipation of our public offering of securities
along with additional costs incurred for marketing and professional fees.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997.
For the year ended December 31, 1998, we reported revenues of $1,170,022
from the sale of our products, systems and services, as compared to the year
ended December 31, 1997 where we reported revenues of $833,797 on the sale of
our products, systems and services. Our gross margin on sales for the year ended
December 31, 1998, increased to 64% from 61% in 1997 due to a reduction in costs
and wages.
Selling, general and administrative expenses increased to $491,446 for the
year ended December 31, 1998 from $362,031 for the year ended December 31, 1997.
The increase was the result of expenditures primarily in wages, professional
fees and advertising.
LIQUIDITY AND CAPITAL RESOURCES
Our operations to date have concentrated on continuing the development of
our products and systems, establishing acceptance of our products and systems in
our industry, providing technical service to our existing customer base and the
expansion of our business. We have historically financed these activities
through internally generated cash flows from operations and financing through
short-term
20
<PAGE>
obligations (see Note C to our Financial Statements). We believe that the cash
flow provided by our operations and the net proceeds of this offering will be
sufficient to sustain our operations for the remainder of fiscal 1999 and fiscal
2000. Additional financing may be necessary to provide for the continued product
development and operations in fiscal 2001.
In March 1999, we entered into a letter of intent with the Underwriter in
connection with this public offering. The net proceeds of this offering,
totalling approximately $8,225,000, should provide adequate working capital for
us to enhance and, otherwise, stabilize cash flow during at least the 12 months
of operations following the closing of this offering, such that any shortfalls
between cash generated by operating revenues and costs will be covered by
working capital. Although we prefer to retain our working capital in reserve, we
may be required to expend part or all of these proceeds as financial demands
dictate.
Although it is uncertain that the market price of our shares of common stock
will rise to a level at which the warrants may be exercised, in the event
investors in this offering elect to exercise the warrants (not including the
underwriter's over-allotment option or the underwriter's purchase option), we
will receive proceeds of up to $11,000,000. We anticipate that the proceeds from
the exercise of the warrants would be contributed to working capital.
Nonetheless, we may at the time of exercise allocate a portion of the proceeds
to any other corporate purposes. Accordingly, investors who exercise their
warrants will entrust their funds to us.
We are unable to predict the precise period for which this offering will
provide financing, although we believe that we should have sufficient working
capital to meet our cash requirements for the 12 months period following the
date of this offering. Accordingly, we may need to seek additional funds through
loans or other financing arrangements during this period of time. No such
arrangements exist or are currently contemplated and we cannot be sure that they
may be obtained in the future should the need arise.
Pending utilization, we intend to make temporary investment of the net
proceeds of this offering in insured, short-term, investment-grade,
interest-bearing securities.
IMPACT OF INFLATION
We do not believe that inflation has had a material adverse effect on our
income since our inception. Increases in supplies or other operating costs may
adversely affect our operations; however, we believe we may increase the prices
of our products, systems and services to offset increases in operating costs.
SEASONALITY
Based on our experience to date, we believe that our future operating
results will not be subject to seasonal changes. Such effects, should they
occur, may be apparent in our operating results during a period of expansion.
However, we are not sure that our business and operations can be significantly
expanded.
RECENTLY ISSUED ACCOUNTING PRINCIPLES
See Note 1 of Notes to Financial Statements for recently issued accounting
standards.
21
<PAGE>
BUSINESS
BUSYBOX.COM INC.
busybox designs, develops, maintains, services, markets, sells and
distributes digital imagery, including black and white and color still
photographs, film footage and video, over the Internet to our customers in the
technology, media, entertainment, government, corporate and sports industries.
We believe that our proprietary Java-based technology, combined with our
component-based content programming, uniquely enables busybox to catalogue,
manage, transact, deliver and reconcile digital images and video on the
Internet. We also believe that our component-based programming is unique in the
industry and provides a significant business opportunity for busybox when
combined with the emerging and rapidly developing Internet e-commerce
marketplace.
A principal customer of busybox is Corbis Corporation, a Bellevue,
Washington based interactive, digital image company owned by William H. Gates,
III, a co-founder of Microsoft Corporation. Corbis Corporation owns one of the
world's largest collections of digitized visual content, with approximately 1.3
million photos, prints and other images reproduced in digital form, and is one
of the world's preeminent commercial providers of digital content. In May 1998,
busybox entered into an agreement for services with Corbis Corporation whereby
we were responsible for the design, development and implementation of a digital
image catalogue within the Corbis Internet Web site (www.corbisimages.com) for
the sum of $165,000. Also, in May 1998, busybox entered into an automatically
renewable maintenance agreement with Corbis Corporation whereby we are
responsible to operate, maintain, monitor and service the digital image
catalogue that we designed and developed for Corbis Corporation, on a 24-hour
basis, including, but not limited to:
- Internet operations;
- e-commerce operations;
- image processing;
- image and product updates;
- bug fixes;
- Corbis-requested changes; and
- enhancements and backup options.
Corbis Corporation pays us $10,000 per month for our maintenance and services,
plus $150 per hour for development services, $75 per hour for non-development
services, plus our expenses. Our maintenance agreement with Corbis Corporation
is cancellable by either party with 90 days notice. Our maintenance agreement
with Corbis Corporation remains in full force and effect, and our relationship
with Corbis Corporation remains good.
Other principal customers of busybox include Visual Communications Group
Limited and FPG International LLC (Freelance Photographers' Guild), subsidiaries
of United News & Media plc, a major London, England based media firm with
interests in business services, consumer publishing, broadcasting and
entertainment. Visual Communications Group is a major worldwide producer and
distributer of stock photography for the advertising, design, press, publishing
and business to business markets. Visual Communications Group's catalogue
contains more than six million images. FPG International is one of the largest
and most recognized stock photography agencies in the world. FPG International's
collection contains millions of images of all subjects and styles and adds
approximately 100,000 new images every year.
Another principal customer of busybox is the National Basketball Association
("NBA"), for whom we have developed a proprietary agent technology which
monitors Web related intellectual property rights, among other services.
For the years ending December 31, 1997 and 1998, and for the quarter ending
March 31, 1999, all of our revenues were derived, directly or indirectly, from
the Internet.
22
<PAGE>
We intend to principally use the proceeds of this offering for operating
costs and working capital, including business development, capital equipment,
marketing and sales and mergers and acquisitions with complementary companies in
an effort to significantly expand our business and operations. We also intend to
use approximately $750,000 of the proceeds of this offering to further design
and develop our principal Internet Web site into a state-of-the-art, enhanced
fully interactive Web site to manage our emerging e-commerce on the Internet. We
believe that our state-of-the-art, enhanced and fully interactive principal Web
site will be implemented and fully operational within the approximately six
months following the closing of this offering. We are not sure that the proceeds
of this offering will enable us to expand our business and operations.
INTERNET STRATEGY
WORLD WIDE WEB SITE WWW.BUSYBOX.COM
The Internet enables millions of people worldwide to have access to current
news, media and information, create community among individuals with similar
professional or personal interests and conduct business electronically. The
number of Internet users worldwide is projected to grow from an estimated 100
million at the end of 1998 to 320 million by the year 2002, according to
International Data Corporation ("IDC"). With this growth in the number of
Internet users, the Internet is emerging as a mass communication and commerce
medium, which offers advertisers and vendors certain advantages. The Internet
permits advertisers to target specific demographic groups, measure the
effectiveness of their advertising campaigns and revise them in response to
real-time feedback. Business-to-business Internet advertising is forecasted by
Forrester Research, Inc. to increase from an estimated $290 million in 1998 to
$2.6 billion in 2002 and consumer-oriented Internet advertising is forecasted by
Jupiter Communications to increase from an estimated $1.9 billion to $7.7
billion in the same period. The Internet provides online merchants with the
ability to reach a global audience and to operate with minimal infrastructure,
reduced overhead and greater economies of scale, while providing customers with
broad selection, increased pricing information and unparalleled convenience. IDC
forecasts that total commerce on the Internet will grow from an estimated $20
billion in 1998 to $223.1 billion in 2001, with the business-to-business
component growing from an estimated $5.5 billion to $149.5 billion in the same
period.
We believe that our emphasis on the World Wide Web will enable us to realize
significant savings in our operations. We believe that the proceeds of this
offering combined with our value-added approach and expertise will allow us to
compete effectively with other technology providers on the Internet by (i)
providing competitive prices and product inventory availability, and (ii)
enhancing and simplifying access to information, products and services.
The Internet and commercial online services are emerging as significant
global communications media enabling millions of people to share information and
conduct business electronically. A number of factors have contributed to the
growth in the Internet and commercial online services usage, including the large
and growing installed base of advanced personal computers in the home and
workplace, improvements in network infrastructure, easier, faster and cheaper
access to the Internet and commercial online services, the introduction of
alternative Internet access devices and increased awareness of the Internet and
commercial online services among consumer and business users.
The functionality and accessibility of the Internet and commercial online
services have made them an increasingly attractive commercial medium by
providing features that historically have been unavailable through traditional
channels. For example, the Internet and commercial online services provide users
with convenient access to large volumes of dynamic data to support their
investment, purchase and other decisions.
Online retailers are able to communicate effectively with customers by
providing frequent updates of featured selections, content, pricing and visual
presentations and provide tailored services by
23
<PAGE>
capturing valuable data on customer tastes, preferences, shopping and buying
patterns. Unlike most traditional distribution channels, online retailers do not
have the burden of managing and maintaining numerous local facilities to provide
their services on a global scale. In contrast, online retailers benefit from the
relatively low cost of reaching and electronically serving customers worldwide
from a central location. Because of these advantages, an increasingly broad base
of products and services are being sold online.
Moreover, as the number of online content, commerce and service providers
has expanded, strong brand recognition and strategic alliances have become
critical to the success of such companies. Brand development is especially
important for online retailers due to the need to establish trust and loyalty
among consumers in the absence of face-to-face interaction. In addition, some
online retailers have begun to establish long-term strategic partnerships and
alliances with content, commerce and service providers to rapidly build brand
recognition and trust, enhance their service offerings, stimulate traffic, build
repeat business, take advantage of cross-marketing opportunities and create
barriers to entry.
BUSINESS OPPORTUNITY
Internet-delivered media content, including still photographs, film footage
and video, over the Internet offers certain opportunities that are not generally
available from traditionally delivered media content. Currently available analog
technology and government regulations limit the ability of television stations
to broadcast beyond certain geographic areas. Televisions are not widely used in
office buildings and other workplaces, where Internet access has become
commonplace. Traditional business communication tools such as videoconferencing
can be costly, non-targeted and inconvenient. In addition, traditional
broadcasters are limited in their ability to measure or identify in real time
the viewers of a program. By using the Internet, targeted streaming media
content can be offered to a geographically dispersed audience of customers,
suppliers, employees and stockholders at relatively low costs. Internet users
can interact with the media content by responding to online surveys, voting in
polls and obtaining additional information. In addition, Internet broadcasters
can provide highly specific information about a program's audience to content
providers, advertisers and users of Internet business services. The convergence
of the Internet's capabilities and attributes has accelerated its acceptance as
a business tool, leading to rapidly growing economic opportunities in Web-based
advertising and business service offerings, including electronic commerce and
real-time streaming video transmission, among others. Ultimately, in our view,
the broadcasting of media content over the Internet will usher in the
technological convergence of the computer and the television into a seamless
multimedia medium.
The Internet has grown rapidly in recent years, spurred by developments such
as easy-to-use Web browsers, the availability of multimedia-enhanced personal
computers, the adoption of more robust network architectures and the emergence
of compelling Web-based content and commerce applications. The broad acceptance
of the Internet Protocol ("IP") standard has also led to the emergence of
intranets and the development of a wide range of non-PC devices that allow users
to access the Internet and intranets.
The Internet's rapid evolution towards becoming a mass medium may be
attributed to the accelerated pace of technological innovation, which has
expanded the Web's capabilities and improved users' experiences. Most notably,
the Internet has evolved from a mass of static, text-oriented Web pages and
e-mail services to a much richer environment, capable of delivering graphical,
interactive and multimedia content. Prior to the development of streaming media
technologies, users could not playback video clips until the content was
downloaded in its entirety. As a result, live Internet broadcasts were not
possible. The development of streaming media products from companies such as
Microsoft, and RealNetworks, among others, enables the simultaneous transmission
and playback (i.e., Internet broadcast) of continuous "streams" of video content
over the Internet and intranets. These technologies have evolved to deliver
video over widely used 28.8 kbps narrow bandwidth modems, yet
24
<PAGE>
can scale in quality to take advantage of higher speed access that is expected
to be provided by xDSL, cable modems and other emerging broadband technologies.
We believe that several challenges must be overcome to realize
cost-effective Internet broadcasting: aggregating diverse and compelling
content, scaling Internet broadcasts from small to large audiences, deploying
new transmission and streaming technologies in a timely manner and providing
multimedia advertisements and services. In order to aggregate content, Internet
broadcasters must rapidly identify and secure licensing opportunities by
demonstrating to content providers broad based distribution and the ability to
deliver associated traffic. Successful Internet broadcasters serving a large
number of simultaneous users around the clock also need to design, develop and
integrate complex network elements, which include extensive bandwidth, streaming
licenses, equipment and technical expertise. The rapid evolution of streaming
media technologies requires Internet broadcasters to support multiple vendors,
an investment which few companies have made. We believe, therefore, that a
successful Internet broadcaster must develop a well-branded Web site which
offers compelling content, a network capable of streaming video programming to
large audiences 24 hours a day, seven days a week, and an organization which can
deliver quality broadcasting services to advertisers and businesses.
We believe that our proprietary Java-based technology, together with our
component-based content programming, will enable us to be a leading aggregator,
distributor and broadcaster of digital streaming media programming on the Web
with the network infrastructure and expertise to deliver or "stream" live and
on-demand video programs over the Internet. Our Web site will offer a selection
of both streaming and downloadable broadcast quality film footage and video
programming, including aerials, archival, beauty, destinations, lifestyle,
locations, nature, sports, extreme sports, time lapse, underwater and wildlife.
Our proprietary Java-based technology, together with its component-based
content programming, allows users to efficiently and effectively find, retrieve,
view, transact and download digital media. We believe we will establish a
significant brand for our broadcasts and services on the Internet due to our
technologically unique content distribution capabilities. In addition, our Web
sites will provide an attractive platform for advertisers seeking to target
specific users with compelling advertising solutions.
Our executive management team has more then 50 years of combined management
experience in the digital media technology industry. Following the closing of
this offering, we intend to grow internally and through acquisitions by
capitalizing upon the significant consolidation opportunities available in the
fragmented digital media technology industry. We will seek to make acquisitions
that complement our established strengths and are likely to enhance our presence
or allow us to establish a presence in a new market.
Our business is dependent upon a number of different information and
telecommunications technologies to access information and manage systems. Rapid
changes in these technologies may require greater than anticipated capital
expenditures to improve or upgrade the level of customer service. Our dependence
upon information and telecommunications technology may make us sensitive to Year
2000 ("Y2K") issues. We have reviewed the Y2K compliance issue as required by
our principal customers. We believe that our information and telecommunications
technologies are Year 2000 compliant. Finally, customers who use our products
and services may be exposed to disruptions as a result of failures by other
businesses to correct Year 2000 problems in their information and computer
systems.
DIGITAL MEDIA TECHNOLOGY INDUSTRY
The digital media technology industry supplies digital images to a varied
and growing customer base, ranging from individual consumers to major
multinational corporations. Digital images are used to communicate messages in a
wide variety of applications, including print, electronic and broadcast
advertising, direct mail and marketing brochures, educational and training
publications, books,
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magazines, newspapers, corporate communications and annual reports, motion
pictures, broadcasting, CD-ROM products, Web sites, other on-line uses, sales
and in-house presentations and various consumer uses.
Visual content can be broadly divided into commissioned digital imagery and
non-commissioned digital imagery. Commissioned images are commissioned from
photographers and cinematographers by particular clients for a single
predetermined application. Non-commissioned images, commonly referred to as
"stock," are provided by agencies that maintain libraries of selected images
which can be licensed for use by different customers for different purposes.
We will be primarily active in the non-commissioned sector of the visual
content industry. We believe that the market share of non-commissioned imagery
has been increasing as the quality of images available from non-commissioned
agencies has become comparable to the quality of commissioned images.
Non-commissioned imagery typically offers the advantages of lower cost,
immediate availability and the ability to preview an image for appropriateness
prior to license.
Non-commissioned images are commercially available from two types of
providers: (i) Agencies that license images for specific uses ("rights-protected
licensing"). These agencies offer and negotiate licenses that can be tailored
for each image and customer application. Licenses typically grant a degree of
exclusivity of use to licensees and impose restrictions on the permissible
number of copies that can be made, the medium of reproduction or publication,
uses by other parties and other factors, including the geographic area, duration
and purpose of use; and (ii) agencies that license images on a standard fee
basis for multiple uses (commonly referred to as "royalty-free licensing").
These agencies offer images that can be used on a non-exclusive basis for
virtually any purpose, pursuant to non-negotiable, "shrink-wrap" or
"point-and-click" license agreements. Royalty-free agencies typically deliver
imagery via CD-ROM products and, in some cases, the Internet.
The visual content industry consists of several different types of still
image content. The categories of content currently commercially available in the
non-commissioned sector of the industry generally falls under "contemporary" or
"archival" stock photography. Contemporary stock photography covers a wide
variety of contemporary subjects, including lifestyles, families, business,
science, health and beauty, sports, transportation, travel and the environment.
Four major contemporary stock photography businesses include Corbis Corporation,
Getty Images, The Image Bank, a division of Eastman Kodak, and Visual
Communications Group. These businesses have historically supplied images to a
customer base of commercial users. Archival photography consists of collections
of images and illustrations covering well-known historic moments, people and
places up to the present day, as well as images reflecting the history of
society, entertainment, travel, industry and culture. Hulton Getty and the
Bettmann Archive are two of the world's two largest privately owned collections
of archival photography, owned by Getty Images and Corbis Corporation,
respectively. Contemporary stock and archival footage are the film equivalents
of contemporary stock photography and archival photography. These categories
currently form growing, but still relatively small parts of, the visual content
industry. Energy Film Library, owned by Getty Images, and The Image Bank are the
two leading contemporary stock footage providers on a worldwide basis. News,
current affairs, features and celebrity material consists of photographs or
footage of specific events or the activities of well-known people. Participants
in this segment of the industry include wire services and several general and
specialist news and reportage agencies, including Gamma Liaison.
The visual content market supplies imagery to creative professionals in the
visual communications industry, including graphic designers, art directors and
art buyers at advertising agencies, marketing and communications professionals,
Web and new media designers, newspaper, magazine, book, music and video
publishers and broadcast and media production companies. In addition, new market
segments are emerging, including business users, who are not graphic designers
or other professional users of images,
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such as managerial and sales professionals, and small office/home office
("SOHO") users, and potentially consumers.
These customers use imagery in a variety of applications, including print,
electronic and broadcast advertising, direct mail and marketing brochures,
educational and training publications, books, magazines, newspapers, corporate
communications and annual reports, motion pictures, broadcasting, CD-ROM
products, web sites, other online uses, sales and in-house presentations and
various consumer uses.
We believe that there have been significant increases in recent years in the
numbers of users and uses of images, partly as a result of a greater
appreciation of the value of images for conveying, symbolizing and reinforcing
marketing and editorial messages and partly as a result of a proliferation in
communication channels, particularly via the Internet and in the cable and
satellite broadcasting industry.
We expect that the film footage and video sectors will continue to grow as
technological developments in cable and satellite broadcasting and new media
industries lead to a major increase in demand for stock and archival film
footage and video, particularly on the Internet.
PLANS AND OPERATIONS
The principal technologies utilized by busybox are those related to the
digitization of images, the enhancement and compression of digitized images, the
organization and management of our database of digitized images and customer
profiles and technologies associated with customer interaction with Web sites
including search functions, transaction-processing and downloading of images.
Our e-commerce systems can manage a large number of concurrent customer
searches, as well as the process of accepting, authorizing and charging customer
credit cards or accounts. We use a combination of our own proprietary
technologies and commercially available equipment and licensed technologies. Our
current plan is to license commercially available technology whenever possible
rather than seek internally developed solutions. We have focused our internal
development efforts on creating and enhancing the specialized software and
processes related to enhancement and delivery of digitized still photography,
film footage and video.
Our Web sites and e-commerce systems are supported by a combination of
software provided by Sun Microsystems, Apple Computer and others, as well as
user interface software and other technologies developed by us. Our library of
still photographs, film footage and video is managed in a Microsoft database
environment. Image search tools employed by customers include technologies
supplied by America Online and others.
A group of system administrators and network managers monitor and operate
our Web sites, network operations and transactions-processing systems. The
reliable operation of our Web sites and transaction-processing systems is
essential to sales over the Internet, and it is the job of the site operation
staff to ensure, to the greatest extent possible, the uninterrupted operation of
the Web sites and transaction-processing systems. We use the services of several
Internet service providers, including ConXion, Exodus, Savvis and @Home, among
others, to obtain connectivity to the Internet. Our Web sites reside in Class
(A) Data Centers connected to the Internet via dual redundant OC3c SONNET rings,
connected to multiple Internet public exchange points, including PBNAP,
MAE-WEST, MAE-WEST/NASA Ames, AADS Chicago and MAE-EAST.
Each still photograph added to our Web site is digitized at the highest
practical resolution (the balance between what is technically feasible and
commercially marketable). Film footage and video added to our Web site is
digitized at broadcast quality resolution at our facilities. Our digital media
assets, including still photographs, film footage and video, are edited and
processed for editorial and intellectual property attribution using our
innovative application of widely accepted standards such as
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IPTC/NNPA, XML and others. This pioneering approach to digital media asset
management enhances the commercial and intellectual property value of the
digital assets.
From our Web sites, customers can access a variety of value-added products
and services, including searchable catalogues, shopping carts, service and
support functions, promotions, community features and personalized service
areas.
To purchase and download still photographs, film footage and video from our
Web sites, customers are guided through a proven and user-friendly secure
e-commerce process starting with "checkout" and concluding with "order
confirmation and receipt." A typical first-time customer is guided through three
steps including (1) checkout, (2) account creation and (3) review order. The
first step, checkout, allows the customer to view the items selected for
purchase. The second step, account creation, allows the user to securely set up
a credit card account. Account information is encrypted while in transit using
industry-standard SSL protocol. The third step, review order, is the customer's
final opportunity to review order information prior to purchase. Once an order
is processed, the customer receives an e-mail confirmation and receipt with the
order number and respective download options. As an added benefit, all customers
have secure access to their transaction history.
Our product offering is downloaded or streamed electronically from our Web
sites. Compressed high-resolution photographs at an average file size of 2.5
megabytes require a download time of approximately 6.14 minutes with a standard
56Kb modem and approximately 13 seconds with a T-1 access line. Uncompressed
broadcast quality film footage clips at an average file size of 100 megabytes
require a download time of approximately 9.4 minutes with a T-1 access line.
Consumer video is compressed and streamed real-time at varying bandwidth
depending on user preferences based on the speed of the customer's Internet
connection.
We intend to establish a key accounts sales force that targets video and
communications professionals in the technology, media, entertainment,
government, corporate and sports industries. We maintain domestic direct sales
personnel in San Francisco and New York. The key accounts sales force also
includes technical support staff and trainers who assist with both pre- and
post-sales support.
We believe that our ability to establish and maintain long-term
relationships with our customers and encourage repeat visits and purchases
depends, in part, on the strength of our customer service and technical support
teams. We also believe that a consistent and high level of support is central to
the adoption and successful utilization of our products and services. Our
customer service and technical support center is based out of our San Francisco
headquarters and consists of a team with a broad knowledge of our product
offering, as well as expertise in digital content creation. Our customer service
and technical support group provides assistance in several languages and offers
support via telephone, electronic mail, facsimile and the Internet.
We believe that a number of technological advances have contributed to
recent developments in the digital visual content industry and to increased
demand for digital black and white and color still photographs, film footage and
video. There have been significant increases in the use of the Internet, both as
a medium for communications and as a platform for commercial transactions. This
increased use of the Internet has resulted in growth in commercial promotion and
advertising in Websites and other online communications, which, in turn, has
contributed to an increase in demand for and use of digital photographs, film
footage and video. In addition, the Internet provides a new more efficient means
of marketing and distributing digital photographs, film footage and video. The
significant increase in the availability of high-speed and broadband Internet
connectivity (e.g., ISDN, xDSL, Web enabled cable modems, T-1 lines) makes
customized access to multimedia content readily available and affordable for
commercial and residential customers; (ii) faster, low-cost desktop computers,
color displays, storage and memory devices, and related compression technologies
(e.g., JPEG, MPEG) have made it possible for users to create, edit and
distribute high-quality digital photographs, film footage and video.
Developments in software applications and tools for complete digital content
creation and
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playback have enabled personal computer users to create, enhance, manipulate,
edit and view digital content.
The next generation of the world's first MPEG-2 codec architecture is
expected to meet the critical demands of the high-volume consumer electronics
industry: high-performance, low-price, and low-power consumption. Combined with
the new storage media such as recordable DVD now being developed, the next
generation MPEG-2 codec is expected to make consumer devices such as digital
VCR's and disc based camcorders a reality in the near future.
We believe that the digital visual content industry will continue to develop
and significantly expand as a result of several factors, including (i)
continuing proliferation of digital content creation and playback applications
and the increasing use of digital media to communicate and convey messages in
the publishing, film, video and broadcast industries; (ii) the continuing shift
in broadcast economics from single purpose commissioned media to centralized
non-commissioned repositories of digital content which continues to drive down
the price of digital content to within reach of the consumer; (iii) continued
evolution in Internet use and commerce and the development and commercialization
of new technologies in the areas of digital content creation and playback,
facilitating use by both professionals and consumers; and (iv) continuing
consolidation in the industry, which will benefit well capitalized,
technology-enabled companies with a global reach.
We currently generate licensing revenues only from the digital visual
content professional market. However, we expect to generate significant
additional advertising and e-commerce revenues by providing digital video
entertainment programming over the Internet. We intend to license entertainment
programming from studios, broadcast networks, cable networks, syndicators and
others for replay on the Internet. The nature of the programming we intend to
license will be targeted to specific viewing audiences, i.e., specific
demographics and psychographics. We will offer this programming within a video
on demand (VoD) and near video on demand (nVoD) environment. We intend to
license this programming on a barter basis. Barter licensing involves a
reciprocal exchange of advertising spots between the licensee and licensor. We
are currently in discussions with Interpublic Group and Pearson TV for such
programming under these terms. We intend to fill our advertising spot inventory
with sponsorships with those products and services specific to the programming
content.
An additional revenue channel unique to Internet-delivered entertainment
programming is e-commerce. Through our proposed licensing of "hot-spot"
technology together with our fulfillment capabilities used in our professional
digital content business, we expect to offer an end-to-end solution whereby
viewers of Internet-delivered entertainment programming can purchase products
featured in the programming. We expect to receive a commission against the gross
purchase price of all such purchases.
This interactive entertainment programming will be post-produced at our
facilities in San Francisco, where we will create e-commerce enabled interactive
versions of the programs we license. By using hot-spot technology we will
activate objects in the streaming video, which when activated by the viewer at
his personal computer allows the viewer to click directly on the video program
to navigate from segment to segment, stop the program to get additional
information on a featured product or service and make secure online purchases
using the same technology employed in our professional digital content
businesses. This technology will provide us with a vehicle to produce and
distribute a new kind of interactive viewing experience. Viewers will have
access to a unique video and content not available in the television version of
the program.
MARKETING AND SALES
A principal customer of busybox is Corbis Corporation, a Bellevue,
Washington based interactive, digital image company owned by William H. Gates,
III, a co-founder of Microsoft Corporation. Corbis Corporation owns one of the
world's largest collections of digitized visual content, with approximately
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1.3 million photos, prints and other images reproduced in digital form, and is
one of the world's preeminent commercial providers of digital content. In May
1998, busybox entered into an agreement for services with Corbis Corporation
whereby we were responsible for the design, development and implementation of a
digital image catalogue within the Corbis Internet Web site
(www.corbisimages.com) for the sum of $165,000. Also, in May 1998, busybox
entered into an automatically renewable maintenance agreement with Corbis
Corporation whereby we are responsible to operate, maintain, monitor and service
the digital image catalogue that we designed and developed for Corbis
Corporation, on a 24-hour basis, including, but not limited to:
- Internet operations;
- e-commerce operations;
- image processing;
- image and product updates;
- bug fixes;
- Corbis-requested changes; and
- enhancements and backup options.
Corbis Corporation pays us $10,000 per month for our maintenance and services,
plus $150 per hour for development services, $75 per hour for non-development
services, plus our expenses. Our maintenance agreement with Corbis Corporation
is cancellable by either party with 90 days notice. Our maintenance agreement
with Corbis Corporation remains in full force and effect, and our relationship
with Corbis Corporation remains good.
Other principal customers of busybox include Visual Communications Group
Limited and FPG International LLC (Freelance Photographers' Guild), subsidiaries
of United News & Media plc, a major London, England based media firm with
interests in business services, consumer publishing, broadcasting and
entertainment. Visual Communications Group is a major worldwide producer and
distributer of stock photography for the advertising, design, press, publishing
and business-to-business markets. Visual Communications Group's catalogue offers
more than six million images. FPG International is one of the largest and most
recognized stock photography agencies in the world. FPG International's
collection contains millions of images of all subjects and styles and adds
approximately 100,000 new images every year.
Another principal customer of busybox is the National Basketball Association
("NBA"), for whom we have developed a proprietary agent technology which
monitors Web related intellectual property rights, among other services.
We currently market and sell black and white and color digital photographs
to our customers in the technology, media, entertainment, government, corporate
and sports industries. We will additionally market and sell digital film footage
and video over the Internet to our customers in the technology, media,
entertainment, government, corporate and sports industries. We currently drive
traffic to our Web site through a combination of promotional strategies
including advertising, direct and electronic mail, promotional bundles and
public relations. We have engaged a public relations firm to achieve the
following: (i) gain market advantage by establishing the perception that we are
a significant segment leader in digital content, (ii) position our executives as
significant leaders, thinkers and influencers in the digital content market; and
(iii) leverage our status to extend and enhance relationships with our
customers.
We intend to build points of presence by cross-promoting the entertainment
programming available through busybox in the cable and broadcast distribution
channels and networks. We expect by means of this cross-promotion to drive
traffic to and build brand awareness of our Web site. We believe that through
this cross-promotion strategy we will create awareness and build a significant
entertainment programming portal and entertainment network.
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Our sales and marketing efforts are also designed to promote the busybox
brand and our digital media programming and services. We intend to utilize
traditional media vehicles for marketing and promotional purposes, including
television and print advertisements, as well as marketing arrangements with
other leading Web sites, gateway ads on our Web sites and e-mail newsletters.
We also intend to exchange banner ads with high traffic Web sites such as
Infoseek, Tripod, Talk Cities, Go2Net, CBS SportsLine, Music Boulevard, Games
Domain and Lycos. We intend to use these opportunities to highlight our special
programming events and drive traffic to revenue generating opportunities. The
banner ads would also be used to promote business services customers' events in
order to attract larger audiences. We intend to extend brand awareness on the
Web by requiring that our logo and distinctive "view button" be placed
prominently on the Web pages of broadcast partners. We also intend to use a
number of search engines and live events guides such as CNET Events, Yahoo!
Events, NetGuide Live, Microsoft's Netshow Gallery and Your Personal Net.
INTELLECTUAL PROPERTY RIGHTS
We intend to file patent, trademark and copyright applications related to
certain aspects of our technology, products and services, as appropriate. If
patents, trademarks or copyrights were to be issued, there can be no assurance
as to the extent of the protection that will be granted to us as a result of
having such patents, trademarks or copyrights or that we will be able to afford
the expenses of any complex litigation which may be necessary to enforce our
proprietary rights. Failure of our patent, trademark and copyright applications
may have a material adverse impact on our business. Except as may be required by
the filing of patent, trademark and copyright applications, we will attempt to
keep all other proprietary information secret and to take such actions as may be
necessary to insure the results of our development activities are not disclosed
and are protected under the common law concerning trade secrets. Such steps will
include the execution of nondisclosure agreements by key personnel and may also
include the imposition of restrictive agreements on customers of our technology
and services. We are not sure that the execution of such agreements will be
effective to protect us, that we will be able to enforce the provisions of such
nondisclosure agreements, or that technology and services and other information
acquired by us pursuant to its development activities will be deemed to
constitute trade secrets by any court of competent jurisdiction.
GOVERNMENT REGULATION
Although there are currently few Federal and state laws and regulations
directly applicable to the Internet, it is likely that new laws and regulations
will be adopted in the United States and elsewhere covering issues such as
licensing, broadcast license fees, copyrights, privacy, pricing, sales taxes and
characteristics and quality of Internet services. It is possible that
governments will enact legislation that may be applicable to us in areas such as
content, network security, encryption and the use of key escrow, data and
privacy protection, electronic authentication or "digital" signatures, illegal
and harmful content, access charges and retransmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, content, taxation, defamation and personal privacy is uncertain. The
majority of such laws were adopted before the widespread use and
commercialization of the Internet and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Any such
export or import restrictions, new legislation or regulation or governmental
enforcement of existing regulations may limit the growth of the Internet,
increase our cost of doing business or increase our legal exposure, which may
have a material adverse effect on our business, results of operations and
financial condition.
By distributing content over the Internet, we face potential liability for
claims based on the nature and content of the materials that we distribute,
including claims for defamation, negligence or copyright, patent or trademark
infringement, which claims have been brought, and sometimes successfully
litigated, against Internet companies. Our general liability insurance may not
cover
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potential claims of this type or may not be adequate to indemnify us for any
liability that may be imposed. Any liability not covered by insurance or in
excess of insurance coverage may have a material adverse effect on our business,
operating results and financial condition.
COMPETITION
The market for Internet technologies and services is highly competitive and
we expect that competition will continue to intensify. We compete with (i) other
Web sites, portals and Internet companies to acquire and provide content to
attract users, (ii) Internet broadcasters, (iii) online services, other Web site
operators and advertising networks, as well as traditional media such as
television and print, for a share of advertisers' total advertising budgets and
(iv) local television stations and national television networks for sales of
advertising spots. We are not sure that we will be able to compete successfully
or that the competitive pressures faced by us, including those described below,
will not have a material adverse effect on our business, operating results and
financial condition.
Competition among Web sites and portals that provide compelling content,
including digital media content, is intense and is expected to increase
significantly in the future. We compete with a variety of businesses that
provide media content through one or more mediums, such as print, television,
cable television and the Internet. Traditional media companies that have not
established a significant presence on the Internet may expend resources to
establish such a presence in the future. We compete generally with other content
providers for the time and attention of users and for advertising revenues. To
compete successfully, we must license and then provide sufficiently compelling
and popular content to generate users, support advertising intended to reach
such users and attract business and other organizations seeking Internet and
distribution services. We believe that the principal competitive factors in
attracting Internet users include the quality of service and the relevance,
timeliness, depth and breadth of content and services offered. In the market for
Internet distribution of radio and television broadcasts, we compete with ISPs,
television stations and networks that originate their own Internet broadcasts.
We also compete for the time and attention of Internet users with thousands of
Web sites operated by businesses and other organizations, individuals,
governmental agencies and educational institutions. For example, certain Web
sites may provide a collection of links to other Web sites with digital
streaming media content. We expect competition to intensify and the number of
competitors to increase significantly in the future. In addition, as we expand
the scope of our content and services, we will compete directly with a greater
number of Web sites and other media companies. Because the operations and
strategic plans of existing and future competitors are undergoing rapid change,
it is extremely difficult for us to anticipate which companies are likely to
offer competitive technologies and services in the future.
We also compete with companies that provide Internet services to businesses
and other organizations. Principal competitive factors include price,
transmission quality, transmission speed, reliability of service, ease of
access, ease of use, customer support, brand recognition and operating
experience. Our current and potential competitors may have significantly greater
financial, technical and marketing resources, longer operating histories and
greater brand recognition. Companies that provide media streaming software may
also enter the market for Internet services. If media streaming technology and
backbone bandwidth becomes more readily available to companies at low prices,
our customers may decide to broadcast their own programming. In particular,
local exchange carriers, ISPs and other data communication service providers may
compete in the future with a portion of or all of our business services as
technological advancements facilitate the ability of these providers to offer
effectively these services. We are not sure that we will be able to compete
successfully against current or future competitors for Internet services.
We also compete with online services, other Web site operators and
advertising networks, as well as traditional media such as television and print
for a share of advertisers' total advertising budgets. We believe that the
principal competitive factors for attracting advertisers include the number of
users
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accessing our Web sites, the demographics of our users, our ability to deliver
focused advertising and interactivity through our Web sites and the overall
cost-effectiveness and value of advertising offered by us. There is intense
competition for the sale of advertising on high-traffic Web sites, which has
resulted in a wide range of rates quoted by different vendors for a variety of
advertising services, making it difficult to project levels of Internet
advertising that will be realized generally or by any specific company. Any
competition for advertisers among present and future Web sites, as well as
competition with other traditional media for advertising placements, could
result in significant price competition. We believe that the number of companies
selling Web-based advertising and the available inventory of advertising space
have recently increased substantially. Accordingly, we may face increased
pricing pressure for the sale of advertisements. Reduction in our Web
advertising revenues may have a material adverse effect on our business,
operating results and financial condition.
We also compete for traditional media advertising sales with national
television networks, as well as local television stations. Television content
providers and national television networks may have larger and more established
sales organizations than us. These companies may have greater name recognition
and more established relationships with advertisers and advertising agencies
than us. Such competitors may be able to undertake more extensive marketing
campaigns, obtain a more attractive inventory of ad spots, adopt more aggressive
pricing policies and devote substantially more resources to selling advertising
inventory. Our traditional media advertising sales efforts depend on our ability
to obtain an inventory of ad spots across the television markets. If we are
unable to obtain such inventory, it may have a material adverse effect on our
business, operating results and financial condition.
EMPLOYEES
As of the date of this prospectus, we have a total of 18 employees, all of
whom are full time employees. Of the total number of employees, four are engaged
in our management, four are engaged in administrative and technical support and
services, seven are engaged in technology and product development, two are
engaged in marketing and sales and one is engaged in administration and finance.
Following the closing of this offering, we intend to hire approximately five
additional employees, three in technology and product development, one in
marketing and sales and one in administration and finance. Our future success
depends in significant part upon the continued service of our key technical and
senior management personnel and our continuing ability to attract and retain
qualified technical and managerial personnel. Competition for qualified
technical personnel is highly intense and there can be no assurance that we will
be able to retain our technical and managerial employees or that we will be able
to attract and retain additional qualified technical and managerial personnel in
the future. None of our employees is represented by labor union. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
The rapid execution necessary for us to fully exploit the market window for
our products and services requires an effective planning and management process.
Our growth has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources. To manage our
growth, we must continue to implement and improve our operational and financial
systems and to expand, train and manage our technical employee base. For
example, we are currently in the process of building our internal technical
product development and support organization. Although we believe that we have
made adequate allowances for the costs and risks associated with this expansion,
there can be no assurance that our systems, procedures or controls will be
adequate to support our operations or that our management will be able to
achieve the rapid execution necessary to fully exploit the market window for our
products and services. If we are unable to manage growth effectively, our
business, operating results and financial condition may be materially adversely
affected.
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FACILITIES
Our principal executive offices currently occupy approximately 4,000 square
feet of an office building located at 701 Battery Street, Third Floor, San
Francisco, California 94111, and our telephone number is (415) 283-1811. We
currently lease our offices pursuant to a two-year lease agreement, which
expires in December 2000, for approximately $6,000 per month. The lease
agreement also requires us to pay certain taxes and expenses associated with the
offices. We believe that our facilities are suitable and adequate for our
current operations. We intend to increase our leased office space to
approximately 10,000 square feet under a multi-year lease agreement for
approximately $25,000 per month following the closing of this offering.
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MANAGEMENT
The officers and directors of busybox are as follows:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------- ------------------------------------------------
<S> <C>
Patrick A. Grotto Chairman of the Board, Chief Executive Officer
Rosanne Esposito President, Chief Operating Officer, Director
Todd L. Carter Vice President, Chief Technology Officer
Jon M. Bloodworth, Esq. Vice President, General Counsel, Secretary,
Director
Mark B. Leffers, C.P.A. Vice President, Treasurer, Chief Financial
Officer
Peter A. Seligmann, Ph.D. (hon.) Director
Michael H. Glawe, Esq. Director
</TABLE>
Each of our directors hold office for a period expiring October 31, 1999. At
present, our By-laws provide for not less than one director nor more than nine
directors. Currently, there are five directors. The By-laws permit the board of
directors to fill any vacancy and such director may serve until the next annual
meeting of shareholders or until his successor is elected and qualified.
Officers serve at the discretion of the board of directors. There are no family
relationships among any officers or directors. The officers devote full time to
our business.
The principal occupation and business experience for each officer and
director of busybox for at least the last five years are as follows:
PATRICK A. GROTTO, 50, has been chairman of the board and chief executive
officer of busybox since April 1999, and from December 1998 to April 1999 was
president, chief executive officer and a director of busybox. Mr. Grotto has
substantial executive management, marketing and sales, and investment banking
experience. From 1990 to 1994, Mr. Grotto was president and chief executive
officer of EDT, Incorporated, a Maryland based network software company which
was sold in a merger in 1994. In 1991, GTE named Mr. Grotto "Entrepreneur of the
Year" in connection with his business relationship with such firm. From 1994 to
1997, Mr. Grotto was president and chief executive officer of AGS Financial
Corporation, a New York based investment banking firm that was sold to a Fortune
1000 company in 1997. From 1997 to 1998, Mr. Grotto was president and chief
executive officer of Royal Oak Holdings, LLC, a Maryland based investment
banking firm. Since December 1998, Mr. Grotto has been instrumental in the
organization, development and promotion of busybox. Mr. Grotto holds a B.S.
degree from Loyola University (Chicago).
ROSANNE ESPOSITO, 44, is a co-founder of busybox and has been president,
chief executive officer and a director of busybox since 1995, except for the
period December 1998 to April 1999 when Ms. Esposito was executive vice
president, chief executive officer and a director of busybox. Ms. Esposito has
substantial executive management, image-based software development and marketing
and sales experience. From 1991 to 1995, Ms. Esposito was a founder and product
manager of Digital Arts and Science, Inc., an Alameda, California based software
developer of image-based archiving applications. Since 1995, Ms. Esposito has
been instrumental in the organization, development and promotion of busybox. Ms.
Esposito holds a B.S. degree from Temple University and a M.A. degree
(equivalent) from Trinity College (Ireland).
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<PAGE>
TODD L. CARTER, 36, is a co-founder of busybox and has been vice president
and chief technology officer of busybox since 1995. Mr. Carter has substantial
image-based software development and digital technology experience. From 1993 to
1994, Mr. Carter was the technology development director of PressLink, Inc., a
Washington, D.C. area based Knight-Ridder digital content distribution company.
Since 1995, Mr. Carter has been instrumental in the organization, development
and promotion of busybox. Mr. Carter is fluent in French. Mr. Carter attended
the Universities of Michigan and Massachusetts and the University of Dijon
(France).
JON M. BLOODWORTH, ESQ., 41, has been a vice president, general counsel,
secretary and a director of busybox since 1995. Mr. Bloodworth has substantial
executive management, finance and corporate legal experience. From 1994 to 1998,
Mr. Bloodworth was president and chief executive officer of Koyosha Graphics of
America, Inc., a San Francisco, California based software graphics company.
Since 1995, Mr. Bloodworth has been instrumental in the organization,
development and promotion of busybox. Mr. Bloodworth is fluent in German and
Japanese. Mr. Bloodworth holds a B.A. degree from the University of California
(Berkeley) and a J.D. degree from Golden Gate University School of Law.
MARK B. LEFFERS, C.P.A., 38, has been a vice president, treasurer and chief
financial officer of busybox since December 1998. From 1993 to 1997, Mr. Leffers
was a manager in a Maryland based independent certified public accounting firm.
From 1997 to 1998, Mr. Leffers was a vice president and chief financial officer
of NewsReal,Inc., a Maryland based Soros Fund Management Company, where he lead
the buy-out of the business news and information division from Infoseek, a Top
Five Internet search engine and Nasdaq-listed company. Since December 1998, Mr.
Leffers has been instrumental in the organization, development and promotion of
busybox. Mr. Leffers holds a B.S. degree from the University of Virginia.
PETER A. SELIGMANN, PH.D. (HON), 48, has been a director of busybox since
December 1998. Mr. Seligmann has substantial executive management and
international advisory experience. Since 1987, Mr. Seligmann has been a
co-founder, chairman of the board and chief executive officer of Conservation
International, one of the world's leading conservation organizations, based in
Washington, D.C., which pioneers innovative conservation policies that are
economically sound, scientifically based and culturally sensitive, with private
and public projects and partnerships in more than 20 regions of the world. Mr.
Seligmann is a member of the advisory councils of the Jackson Hole Land Trust,
Ecotrust and the Japanese Keidanren's Nature Conservation Fund. Mr. Seligmann
holds a B.S. degree from Rutgers University, a M.S. degree from Yale University
and a Ph.D. (hon.) degree from Michigan State University.
MICHAEL H. GLAWE, ESQ., 51, has been a director of busybox since December
1998. Mr. Glawe has substantial executive management, international corporate
advisory and legal experience. Since 1995, Mr. Glawe has been a member of the
board of directors of UAL Corp., the Chicago based parent company of United
Airlines, Inc., the world's largest airline and the largest employee owned
company in the world, and chairman of the Air Line Pilot's Association. Mr.
Glawe is a United Airlines DC-10 captain and has been a pilot for United since
1978. Mr. Glawe is a former decorated commissioned officer and aviator in the
U.S. Air Force. Mr. Glawe is also a member of the board of directors of
Conservation International, one of the world's leading conservation
organizations. Mr. Glawe holds a B.S. degree from the United States Military
Academy (West Point) and a J.D. degree from Northern Illinois University College
of Law.
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<PAGE>
REMUNERATION
EXECUTIVE COMPENSATION
The following table sets forth remuneration in excess of $100,000 that we
paid in fiscal years ended December 31, 1998 and 1997 and that we propose to pay
in fiscal year ended December 31, 1999 to the officers and directors of busybox:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)(2)(3)
-----------------------------------------------
OTHER
NAME OF INDIVIDUAL OR NUMBER ANNUAL
OF PERSONS IN GROUP POSITION WITH BUSYBOX YEAR SALARY BONUS COMPENSATION
- ---------------------------- ------------------------------------------------ --------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Patrick A. Grotto Chairman of the Board, Chief Executive Officer 1999 $ 175,000 $ 87,500 --
1998 $ -- $ -- --
1997 $ -- $ -- --
Rosanne Esposito President, Chief Operating Officer, Director 1999 $ 125,000 $ 62,500 --
1998 $ 57,905 $ 10,000 6,000
1997 $ 6,000 $ -- 49,000
Todd L. Carter Vice President, Chief Technology Officer 1999 $ 125,000 $ 62,500 --
1998 $ 68,514 $ 10,000 --
1997 $ 7,000 $ -- 42,800
Jon M. Bloodworth, Esq. Vice President, General Counsel, Secretary, 1999 $ 150,000 $ 75,000 --
Director 1998 $ 1,800 $ -- 38,000
1997 $ -- $ -- --
Mark B. Leffers, C.P.A. Vice President, Treasurer, Chief Financial 1999 $ 125,000 $ 62,500 --
Officer 1998 $ -- $ -- --
1997 $ -- $ -- --
</TABLE>
- ------------------------
(1) busybox has agreed to purchase key-man term life insurance on Messrs.
Grotto, Esposito and Carter in the amount of $1 million each prior to the
closing of this offering. busybox will be the owner and beneficiary of such
life insurance policies.
(2) The officers of busybox may receive remuneration as part of an overall group
insurance plan providing health, life and disability insurance benefits for
employees of busybox. The amount allocable to each individual officer cannot
be specifically determined, but, in any event, will not exceed $25,000 as to
each individual.
(3) The officers of busybox are each entitled to an annual bonus equal to 50
percent of the salary provided under an employment agreement. Each outside
director is entitled to receive a fee of $2,500 plus expenses incurred in
personally attending meetings of the board of directors. The members of the
board of directors intend to meet at least quarterly during our fiscal year,
and at such other times duly called. We presently have two outside
directors.
EMPLOYMENT AGREEMENTS
busybox has entered into employment agreements ("Agreements") with Messrs.
Grotto, Esposito, Carter, Bloodworth and Leffers dated as of January 1, 1999.
The Agreements will expire on December 31, 2001. The current annual salaries
under the Agreements are $175,000, $125,000, $125,000, $150,000 and $125,000,
respectively. The salaries under the Agreements may be increased to reflect
annual cost of living increases and may be supplemented by discretionary merit
and performance increases as determined by the board of directors. Messrs.
Grotto, Esposito, Carter, Bloodworth and
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Leffers are each entitled to an annual bonus equal to 50 percent of the salary
provided under his Agreement.
The Agreements provide, among other things, for participation in an
equitable manner in any profit-sharing or retirement plan for employees or
executives and for participation in other employee benefits applicable to
employees and executives. The Agreements provide for other fringe benefits
commensurate with the employees' duties and responsibilities. The Agreements
also provide for benefits in the event of disability. The Agreements also
contain non-compete provisions but may be limited in geographical scope.
However, state courts may determine not to enforce, or only partially enforce,
non-compete clauses in employment agreements.
Employment under the Agreements may be terminated with cause or by the
executive with or without good reason. Termination by busybox without cause, or
by the executive for good reason, would subject us to liability for liquidated
damages in an amount equal to the terminated executive's current salary and a
PRO RATA portion of their bonus for the remaining term of the Agreement, payable
in a lump sum cash payment, without any set-off for compensation received from
any new employment. In addition, the terminated executive would be entitled to
continue to participate in and accrue benefits under all employee benefit plans
and to receive supplemental retirement benefits to replace benefits under any
qualified plan for the remaining term of the Agreement to the extent permitted
by law.
LIMITATION ON LIABILITY OF DIRECTORS
As permitted by Delaware law, our Certificate of Incorporation includes a
provision which provides that a director of busybox shall not be personally
liable to busybox or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except (i) for any breach of the director's duty
of loyalty to busybox or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of the
law, (iii) the unlawful payment of dividends or the unlawful repurchase or
redemption of stock, or (iv) for any transaction from which the director derives
an improper personal benefit. This provision is intended to afford directors
protection against, and to limit their potential liability for monetary damages
resulting from, suits alleging a breach of the duty of care by a director. As a
consequence of this provision, stockholders of busybox will be unable to recover
monetary damages against directors for action taken by them that may constitute
negligence or gross negligence in performance of their duties unless such
conduct falls within one of the foregoing exceptions. The provision, however,
does not alter the applicable standards governing a director's fiduciary duty
and does not eliminate or limit the right of busybox or any stockholder to
obtain an injunction or any other type of nonmonetary relief in the event of a
breach of fiduciary duty. Our management believes this provision will assist us
in securing and retaining qualified persons to serve as directors. We are
unaware of any pending or threatened litigation against us or our directors that
would result in any liability for which such director would seek indemnification
or similar protection.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase our ability to attract and retain
qualified persons to serve as directors. We currently maintain a liability
insurance policy for the benefit of our directors. We believe that the
substantial increase in the number of lawsuits being threatened or filed against
corporations and their directors and the general unavailability of directors
liability insurance to provide protection against the increased risk of personal
liability resulting from such lawsuits have combined to result in a growing
reluctance on the part of capable persons to serve as members of boards of
directors of public companies. We also believe that the increased risk of
personal liability without adequate insurance or other indemnity protection for
its directors may result in overcautious and less effective direction and
management of busybox.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to busybox and its shareholders, but eliminate personal liability
for monetary damages for breach of that duty. The
38
<PAGE>
provisions do not, however, eliminate or limit the liability of a director for
failing to act in good faith, for engaging in intentional misconduct or
knowingly violating a law, for authorizing the illegal payment of a dividend or
repurchase of stock, for obtaining an improper personal benefit, for breaching a
director's duty of loyalty (which is generally described as the duty not to
engage in any transaction which involves a conflict between the interest of
busybox and those of the director) or for violations of the Federal securities
laws. The provisions also limit or indemnify against liability resulting from
grossly negligent decisions including grossly negligent business decisions
relating to attempts to change control of busybox.
The provisions regarding indemnification provide, in essence, that busybox
will indemnify our directors against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding arising out of the director's
status as a director, including actions brought by or on behalf of busybox
(shareholder derivative actions). The provisions do not require a showing of
good faith. Moreover, they do not provide indemnification for liability arising
out of willful misconduct, fraud or dishonesty, for "short-swing" profits
violations under the Federal securities laws, or for the receipt of illegal
remuneration. The provisions also do not provide indemnification for any
liability to the extent such liability is covered by insurance. One purpose of
the provisions is to supplement the coverage provided by such insurance.
The provisions diminish the potential rights of action which might otherwise
be available to shareholders by limiting the liability of officers and directors
to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
in connection with any shareholders derivative action. However, the provisions
do not have the effect of limiting the right of a shareholder to enjoin a
director from taking actions in breach of his fiduciary duty, or to cause
busybox to rescind actions already taken, although as a practical matter courts
may be unwilling to grant such equitable remedies in circumstances in which such
actions have already been taken. Although we have procured directors liability
insurance coverage, there is no assurance that it will provide coverage to the
extent directors would be indemnified and, in such event, we may be forced to
bear a portion or all of the cost of the director's claims for indemnification.
If we are forced to bear the costs for indemnification, the value of our stock
may be adversely affected. In the opinion of the Securities and Exchange
Commission, indemnification for liabilities arising under the Securities Act of
1933 is contrary to public policy and, therefore, is unenforceable.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding our common
stock owned on the date of this prospectus and, as adjusted, to reflect the sale
of shares offered by this prospectus, by (i) each person who is known by busybox
to own beneficially more than five percent of our common stock; (ii) each of our
officers and directors; and (iii) all officers and directors as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
--------------------------
NUMBER BEFORE AFTER
NAME AND ADDRESS (1) POSITION WITH BUSYBOX OF SHARES OFFERING OFFERING (2)
- ---------------------------------------------------------- ----------------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Patrick A. Grotto......................................... Chairman of the Board, Chief 325,000 6.40 4.59
Executive Officer
Rosanne Esposito.......................................... President, Chief Operating 900,000 17.73 12.72
Officer, Director
Todd L. Carter............................................ Vice President, Chief 900,000 17.73 12.72
Technology Officer
Jon M. Bloodworth, Esq.................................... Vice President, General 450,000 8.87 6.36
Counsel, Secretary,
Director
Mark B. Leffers, C.P.A.................................... Vice President, Treasurer, 200,000 3.94 2.83
Chief Financial Officer
Peter A. Seligmann, Ph.D. (hon.).......................... Director 100,000 1.97 1.41
Michael H. Glawe, Esq..................................... Director 100,000 1.97 1.41
Thomas T. Prousalis, Jr., Esq.(3)......................... Stockholder 300,000 5.91 4.24
All Officers and Directors
as a Group (7 persons).................................. 2,975,000 58.62 42.05
</TABLE>
- ------------------------
(1) c/o busybox.com, inc., 701 Battery Street, Third Floor, San Francisco,
California 94111.
(2) Does not include the exercise of up to 2,000,000 warrants in this offering.
Each warrant entitles the holder to purchase one share of common stock at
$5.50 per share during the five-year period commencing on the date of this
prospectus. The warrants are redeemable upon certain conditions. If the
warrants are exercised, we will receive proceeds of up to $11,000,000.
(3) 1919 Pennsylvania Avenue, N.W., Suite 800, Washington, D.C. 20006. See
"Legal Matters."
40
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
busybox was incorporated in Delaware in October 1995. We have authorized
capital of 25,000,000 shares of common stock, $.01 par value. We have 5,260,000
shares of common stock issued and outstanding prior to this offering.
In December 1995, busybox issued 2,450,000 shares of common stock to four
persons, including three officers and directors of busybox, in a private
placement transaction in consideration of $24,500, consisting of $1,000 in cash
and $23,500 in services rendered, or $.01 per share.
In July 1997, busybox issued 300,000 shares of common stock to two persons
in a private placement transaction in consideration of $174,167, consisting of
property and services rendered, or $.58 per share.
In July 1998, busybox issued 100,000 shares of common stock to one person in
a private placement transaction in consideration of $58,385, consisting of
services rendered, or $.58 per share.
In December 1998, busybox amended its Certificate of Incorporation to
increase the number of authorized no par value common shares from 3,000,000
shares to 6,000,000 shares. Also, in December 1998, busybox issued 1,225,000
shares of common stock to eight persons, including two officers and one director
and two outside directors of busybox, in a private placement transaction in
consideration of $2,450,000, consisting of cash and promissory notes, or $2 per
share.
In March 1999, busybox amended its Certificate of Incorporation to change
the par value of its common stock from no par value to $.01 par value per share,
and to increase the number of authorized shares from 6,000,000 shares to
25,000,000 shares. busybox then approved a 2,000-for-1 stock split for all
shares issued and outstanding. All references to number of shares and amounts
per share in this prospectus have been adjusted to reflect the effect of the
stock split and change in par value.
In April 1999, busybox issued 1,185,000 shares of common stock to 45 persons
in a private placement transaction in consideration of $2,370,000, or $2 per
share.
All unregistered securities issued by busybox prior to this offering are
deemed "restricted securities" within the meaning of that term as defined in
Rule 144 and have been issued pursuant to certain "private placement" exemptions
under Section 4(2) of the Securities Act of 1933, as amended, and certain rules
and regulations as promulgated by the Securities and Exchange Commission, such
that the sales of the securities to sophisticated investors were transactions by
an issuer not involving any public offering. Such investors had access to
information on busybox necessary to make an informed investment decision.
busybox intends to indemnify its officers and directors to the full extent
permitted by Delaware law. Under Delaware law, a corporation may indemnify its
agents for expenses and amounts paid in third party actions and, upon court
approval in derivative actions, if the agents acted in good faith and with
reasonable care. A majority vote of the board of directors, approval of the
shareholders or court approval is required to effectuate indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to officers, directors or persons
controlling busybox, we have been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
busybox of expenses incurred or paid by an officer, director or controlling
person of busybox in the successful defense of any action, suit or proceeding)
is asserted by such officer, director or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
41
<PAGE>
is against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
Any future transactions with affiliates will be on terms no less favorable
than could be obtained from nonaffiliated parties and will be approved by a
majority of the independent and disinterested directors, as required by a
resolution of the board of directors. Any future loans to officers, directors,
affiliates and/or shareholders of busybox will be approved by a majority of the
independent and disinterested directors, as required by a resolution of the
board of directors.
42
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of busybox consists of 25,000,000 shares of
common stock, $.01 par value. busybox has 5,075,000 shares of common stock
issued and outstanding prior to this offering. Holders of the common stock do
not have preemptive rights to purchase additional shares of common stock or
other subscription rights. The common stock carries no conversion rights and is
not subject to redemption or to any sinking fund provisions. All shares of
common stock are entitled to share equally in dividends from sources legally
available therefor when, as and if declared by the board of directors and, upon
liquidation or dissolution of busybox, whether voluntary or involuntary, to
share equally in the assets of busybox available for distribution to
stockholders. All outstanding shares of common stock are validly authorized and
issued, fully paid and nonassessable, and all shares to be sold and issued as
contemplated hereby, will be validly authorized and issued, fully paid and
nonassessable. The board of directors is authorized to issue additional shares
of common stock, not to exceed the amount authorized by our Certificate of
Incorporation, and to issue options and warrants for the purchase of such
shares, on such terms and conditions and for such consideration as the board may
deem appropriate without further stockholder action. The above description
concerning the common stock of busybox does not purport to be complete.
Reference is made to our Certificate of Incorporation and By-laws which are
available for inspection upon proper notice at our offices, as well as to the
applicable statutes of Delaware for a more complete description concerning the
rights and liabilities of stockholders.
Prior to this offering, there has been no market for the common stock of
busybox, and no predictions can be made of the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
common stock of busybox in the public market may adversely affect prevailing
market prices, and may impair our ability to raise capital at that time through
the sale of our equity securities.
Each holder of common stock is entitled to one vote per share on all matters
on which such stockholders are entitled to vote. Since the shares of common
stock do not have cumulative voting rights, the holders of more than 50 percent
of the shares voting for the election of directors can elect all the directors
if they choose to do so and, in such event, the holders of the remaining shares
will not be able to elect any person to the board of directors.
WARRANTS
Prior to this offering, there were no warrants issued and outstanding. The
warrants will be issued in registered form under an agreement dated on the date
of this prospectus ("Warrant Agreement"), between busybox and American
Securities Transfer, Inc., Denver, Colorado, as warrant agent (the "Warrant
Agent"). The following discussion of certain terms and provisions of the
warrants is qualified in its entirety by reference to the Warrant Agreement. A
form of the certificate representing the warrants which forms a part of the
Warrant Agreement has been filed as an exhibit to the registration statement of
which this prospectus forms a part.
Each of the warrants entitles the registered holder to purchase one share of
common stock. The warrants are exercisable at a price of $5.50 (which exercise
price has been arbitrarily determined by busybox and the Underwriter) subject to
certain adjustments. The warrants are entitled to the benefit of adjustments in
their exercise prices and in the number of shares of common stock or other
securities deliverable upon the exercise thereof in the event of a stock
dividend, stock split, reclassification, reorganization, consolidation or
merger.
The warrants may be exercised at any time and continuing thereafter until
the close of five years from the date hereof, unless such period is extended by
busybox. After the expiration date, warrant holders shall have no further
rights. Warrants may be exercised by surrendering the certificate
43
<PAGE>
evidencing such warrant, with the form of election to purchase on the reverse
side of such certificate properly completed and executed, together with payment
of the exercise price and any transfer tax, to the Warrant Agent. If less than
all of the warrants evidenced by a warrant certificate are exercised, a new
certificate will be issued for the remaining number of warrants. Payment of the
exercise price may be made by cash, bank draft or official bank or certified
check equal to the exercise price.
Warrant holders do not have any voting or any other rights as shareholders
of busybox. busybox has the right at any time to redeem the warrants, at a price
of $.05 per warrant, by written notice to the registered holders thereof, mailed
not less than thirty (30) nor more than sixty (60) days prior to the Redemption
Date. busybox may exercise this right only if the closing bid price for the
common stock equals or exceeds $10 per share during a thirty (30) consecutive
trading day period ending no more than fifteen (15) days prior to the date that
the notice of redemption is mailed, provided there is then a current
registration statement under the Securities Act of 1933, as amended (the "Act")
with respect to the issuance and sale of common stock upon the exercise of the
warrants. If busybox exercises its right to call warrants for redemption, such
warrants may still be exercised until the close of business on the day
immediately preceding the Redemption Date. If any warrant called for redemption
is not exercised by such time, it will cease to be exercisable, and the holder
thereof will be entitled only to the repurchase price. Notice of redemption will
be mailed to all holders of warrants or record at least thirty (30) days, but
not more than sixty (60) days, before the Redemption Date. The foregoing
notwithstanding, busybox may not call the warrants at any time that a current
registration statement under the Act is not then in effect. Any redemption of
the warrants during the one-year period commencing on the date of this
prospectus shall require the written consent of the Underwriter.
The Warrant Agreement permits busybox and the Warrant Agent, without the
consent of warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that busybox and the Warrant Agent
deem necessary or desirable and that do not adversely affect the interest of any
warrant holder. busybox and the Warrant Agent may also supplement or amend the
Warrant Agreement in any other respect with the written consent of holders of
not less than a majority in the number of warrants then outstanding; however, no
such supplement or amendment may (i) make any modification of the terms upon
which the warrants are exercisable or may be redeemed; or (ii) reduce the
percentage interest of the holders of the warrants without the consent of each
warrant holder affected thereby.
In order for the holder to exercise a warrant, there must be an effective
registration statement, with a current prospectus on file with the Securities
and Exchange Commission covering the shares of common stock underlying the
warrants, and the issuance of such shares to the holder must be registered,
qualified or exempt under the laws of the state in which the holder resides. If
required, busybox will file a new registration statement with the Securities and
Exchange Commission with respect to the securities underlying the warrants prior
to the exercise of such warrants and will deliver a prospectus with respect to
such securities to all holders thereof as required by Section 10(a)(3) of the
Securities Act of 1933, as amended.
SHARES ELIGIBLE FOR FUTURE SALE
All of our currently outstanding shares of common stock are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act of 1933, as amended. Rule 144 provides, in
essence, that a person holding "restricted securities" for a period of one year
may sell only an amount every three months equal to the greater of (a) one
percent of our issued and outstanding shares, or (b) the average weekly volume
of sales during the four calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not an affiliate of busybox may
sell is not so limited, since nonaffiliates may sell without volume limitation
their shares held for two years if there is adequate current public information
available concerning busybox. Upon the sale of the securities, and assuming that
there is no exercise of any issued and outstanding warrants,
44
<PAGE>
busybox will have 7,075,000 shares of its common stock issued and outstanding,
of which 5,075,000 shares will be "restricted securities." Therefore, during
each three month period, a holder of restricted securities who has held them for
at least the one year period may sell under Rule 144 a number of shares up to
70,750 shares. Non-affiliated persons who hold for the two-year period described
above may sell unlimited shares once their holding period is met. However, under
to the terms of the Underwriting Agreement, the current stockholders of busybox
have agreed not to sell, transfer, assign or otherwise dispose of any restricted
securities of busybox for a period of 24 months following the date of this
prospectus.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our securities is American Securities
Transfer, Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202.
REPORTS TO SECURITY-HOLDERS
We will furnish to holders of our securities annual reports containing
audited financial statements. We may issue other unaudited interim reports to
our security-holders as we deem appropriate.
Contemporaneously, with this offering, we intend to register our securities
with the Securities and Exchange Commission under the provisions of Section
12(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and,
in accordance therewith, we will be required to comply with certain reporting,
proxy solicitation and other requirements of the Exchange Act.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Barron
Chase Securities, Inc. ("Underwriter") has agreed to purchase from busybox an
aggregate of 2,000,000 shares of common stock and 2,000,000 warrants
(collectively, "Securities"). The Securities are offered by the Underwriter
subject to prior sale, when, as and if delivered to and accepted by counsel and
certain other conditions. The Underwriter is committed to purchase all of the
Securities offered by this prospectus, if any are purchased (other than those
covered by the Over-Allotment Option described below).
We have been advised by the Underwriter that the Underwriter proposes to
offer the Securities to the public at the offering prices set forth on the cover
page of this prospectus. The Underwriter has advised us that the Underwriter
proposes to offer the Securities through members of the National Association of
Securities Dealers, Inc. ("NASD"), and may allow concessions, in its discretion,
to certain selected dealers who are members of the NASD and who agree to sell
the Securities in conformity with the NASD's Conduct Rules. Such concessions
will not exceed the amount of the underwriting discount that the Underwriter is
to receive.
We have granted to the Underwriter an Over-Allotment Option, exercisable for
45 days from the Effective Date, to purchase up to an additional 300,000 shares
of common stock and an additional 300,000 warrants at the respective public
offering prices less the underwriting discounts set forth on the cover page of
this prospectus. The Underwriter may exercise this option solely to cover
overallotments in the sale of the Securities being offered by this prospectus.
Our officers and directors may introduce the Underwriter to persons to
consider this offering and to purchase Securities either through the Underwriter
or through participating dealers. In this connection, no Securities have been
reserved for those purchases and officers and directors will not receive any
commissions or any other compensation.
We have agreed to pay to the Underwriter a commission of ten percent (10%)
of the gross proceeds of this offering (the "Underwriting Discount"), including
the gross proceeds from the sale of the Over-Allotment Option, if exercised. In
addition, we have agreed to pay to the Underwriter the Non-Accountable Expense
Allowance of three percent (3%) of the gross proceeds of this offering,
including proceeds from any Securities purchased pursuant to the Over-Allotment
Option. We have paid to the Underwriter a $50,000 advance with respect to the
Non-Accountable Expense Allowance. The Underwriter's expenses in excess of the
Non-Accountable Expense Allowance will be paid by the Underwriter. To the extent
that the expenses of the Underwriter are less than the amount of the Non-
Accountable Expense Allowance received, such excess shall be deemed to be
additional compensation to the Underwriter. The Underwriter has informed us that
it does not expect sales of discretionary accounts to exceed five percent (5%)
of the total number of Securities offered by us.
We have agreed to engage the Underwriter as a financial advisor for a fee of
$108,000, which is payable to the Underwriter on the Closing Date. Under the
terms of a financial advisory agreement, the Underwriter has agreed to provide,
at our request, advice to us concerning potential merger and acquisition and
financing proposals, whether by public financing or otherwise. With regard to
the Underwriter's engagement to locate mergers or acquisitions for us, the
Underwriter does not have any current plans, proposals, arrangements or
understandings in this regard. We have also agreed that if we participate in any
transaction which the Underwriter has introduced in writing to us during a
period of five years after the Closing (including mergers, acquisitions, joint
ventures and any other business transaction for us introduced in writing by the
Underwriter), and which is consummated after the Closing (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares or other securities of busybox), or if we retain the services of the
Underwriter in connection with any such transaction (an "Introduced Consummated
Transaction"), then we will pay for the Underwriter's services an amount equal
to 5% of up to one million dollars of value paid or received in the transaction,
4% of the next one million dollars of such value, 3% of the next one million
dollars of
46
<PAGE>
such value, 2% of the next one million dollars of such value, and 1% of the next
million dollars of such value and of all such value above $4,000,000.
Prior to this offering, there has been no public market for the shares of
common stock or the warrants. Consequently, the initial public offering prices
for the Securities, and the terms of the warrants (including the exercise price
of the warrants), have been determined by negotiation between busybox and the
Underwriter. Among the factors considered in determining the public offering
prices were the history of, and the prospects for, our business, an assessment
of our management, our past and present operations, our development and the
general condition of the securities market at the time of this offering. The
initial public offering prices do not necessarily bear any relationship to our
assets, book value, earnings or other established criteria of value. Such prices
are subject to change as a result of market conditions and other factors, and no
assurance can be given that a public market for the shares or the warrants will
develop after the Closing, or if a public market in fact develops, that such
public market will be sustained, or that the shares or the warrants can be
resold at any time at the offering or any other price.
At the Closing, we will issue to the Underwriter and/or persons related to
the Underwriter, for nominal consideration, the Common Stock Underwriter
Warrants to purchase up to 200,000 shares of common stock ("Underlying Shares")
and the Warrant Underwriter Warrants to purchase up to 200,000 warrants
("Underlying Warrants"). The Common Stock Underwriter Warrants, the Warrant
Underwriter Warrants and the Underlying Warrants are sometimes referred to in
this prospectus as the "Underwriter Warrants." The Common Stock Underwriter
Warrants and the Warrant Underwriter Warrants will be exercisable for a
five-year period commencing on the Effective Date. The initial exercise price of
each Common Stock Underwriter Warrant shall be $8.25 per Underlying Share (165%
of the public offering price). The initial exercise price of each Warrant
Underwriter Warrant shall be $.20265 per Underlying Warrant (165% of the public
offering price). Each Underlying Warrant will be exercisable for a five-year
period commencing on the Effective Date to purchase one share of common stock at
an exercise price of $8.25 per share of common stock. The Underwriter Warrants
will be restricted from sale, transfer, assignment or hypothecation for a period
of twelve months from the Effective Date by the holder, except (i) to officers
of the Underwriter and members of the selling group and officers and partners
thereof; (ii) by will; or (iii) by operation of law.
The Common Stock Underwriter Warrants and the Warrant Underwriter Warrants
contain provisions providing for appropriate adjustment in the event of any
merger, consolidation, recapitalization, reclassification, stock dividend, stock
split or similar transaction. The Underwriter Warrants contain net issuance
provisions permitting the holders thereof to elect to exercise the Underwriter
Warrants in whole or in part and instruct busybox to withhold from the
securities issuable upon exercise, a number of securities, valued at the current
fair market value on the date of exercise, to pay the exercise price. Such net
exercise provision has the effect of requiring busybox to issue shares of common
stock without a corresponding increase in capital. A net exercise of the
Underwriter Warrants will have the same dilutive effect on the interests of our
shareholders as will a cash exercise. The Underwriter Warrants do not entitle
the holders thereof to any rights as a shareholder of busybox until such
Underwriter Warrants are exercised and shares of common stock are purchased
thereunder.
The Underwriter Warrants and the securities issuable thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. We have agreed that if we shall cause a post-effective
amendment, a new registration statement or similar offering document to be filed
with the Commission, the holders shall have the right, for seven (7) years from
the Effective Date, to include in such registration statement or offering
statement the Underwriter Warrants and/or the securities issuable upon their
exercise at no expense to the holders. Additionally, we have agreed that, upon
request by the holders of 50% or more of the Underwriter Warrants during the
period commencing one year from the Effective Date and expiring four years
thereafter, we will, under certain
47
<PAGE>
circumstances, register the Underwriter Warrants and/or any of the securities
issuable upon their exercise.
In order to facilitate the offering of the common stock and warrants, the
Underwriter may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock and warrants. Specifically, the Underwriter
may overallot in connection with the offering, creating a short position in the
common stock and warrants for its own account. In addition, to cover
overallotments or to stabilize the price of the common stock and warrants, the
Underwriter may bid for, and purchase, shares of common stock and warrants in
the open market. Finally, the Underwriter may reclaim selling concessions
allowed to a dealer for distributing the common stock and warrants in the
offering, if the Underwriter repurchases previously distributed common stock or
warrants in transactions to cover the Underwriter's short position in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock and warrants above independent
market levels. The Underwriter is not required to engage in these activities and
may end any of these activities at any time.
We have agreed to indemnify the Underwriter against any costs or liabilities
incurred by the Underwriter by reason of misstatements or omissions to state
material factors in connection with the statements made in the registration
statement filed by busybox with the Commission under the Securities Act
(together with all amendments and exhibits thereto, the "Registration
Statement") and this prospectus. The Underwriter has in turn agreed to indemnify
busybox against any costs or liabilities by reason of misstatements or omissions
to state material facts in connection with the statements made in the
Registration Statement and this prospectus, based on information relating to the
Underwriter and furnished in writing by the Underwriter. To the extent that
these provisions may purport to provide exculpation from possible liabilities
arising under the federal securities laws, in the opinion of the Securities and
Exchange Commission, such indemnification is contrary to public policy and
therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement.
48
<PAGE>
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation that arises in the
normal course of business operations. As of the date of this prospectus, busybox
is not a party to any legal proceedings and, to the best of our information,
knowledge and belief, none is contemplated or has been threatened.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
busybox by Thomas T. Prousalis, Jr., Esq., 1919 Pennsylvania Avenue, N.W., Suite
800, Washington, D.C. 20006. Mr. Prousalis is the beneficial owner of 300,000
shares of common stock of busybox. Certain legal matters will be passed upon for
the Underwriter by David A. Carter, P.A., 2300 Glades Road, Suite 210W, Boca
Raton, Florida 33431.
EXPERTS
The financial statements of busybox as of and for the two years ended
December 31, 1998, included in the registration statement and this prospectus
have been included herein in reliance on the report of Grant Thornton LLP,
independent certified public accountants, given on the authority of Grant
Thornton LLP as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act of 1933, as amended, with
respect to the securities offered in this prospectus. This prospectus does not
contain all of the information contained in the registration statement and the
exhibits and schedules to the registration statement. Some items are omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. For further information about busybox and the securities offered
under this prospectus, you should review the registration statement and the
exhibits and schedules filed as a part of the registration statement.
Descriptions of contracts or other documents referred to in this prospectus are
not necessarily complete. If the contract or document is filed as an exhibit to
the registration statement, you should review that contract or document. You
should be aware that when we discuss these contracts or documents in the
prospectus we are assuming that you will read the exhibits to the registration
statement for a more complete understanding of the contract or document. The
registration statement and its exhibits and schedules may be inspected without
charge at the public reference facilities maintained by the Securities and
Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and the Securities and Exchange Commission's regional offices located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies may be obtained from
the Securities and Exchange Commission after payment of fees prescribed by the
Securities and Exchange Commission. The Securities and Exchange Commission also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants, including busybox, that file
electronically with the Securities and Exchange Commission. The address of this
Web site is www.sec.gov. You may also contact the Securities and Exchange
Commission by telephone at (800) 732-0330.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Financial Statements
Balance Sheets........................................................................................... F-3
Statements of Operations................................................................................. F-4
Statements of Stockholders' Equity....................................................................... F-5
Statements of Cash Flows................................................................................. F-6
Notes to Financial Statements............................................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
busybox.com, inc.
We have audited the accompanying balance sheet of busybox.com, inc.
("Company") as of December 31, 1998, and the related statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1998, and the results of its operations and its cash flows for the years
ended December 31, 1997 and 1998 in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
San Francisco, California
March 24, 1999 (except for Note K, as to which
the date is June 7, 1999)
F-2
<PAGE>
BUSYBOX.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................................................... $ 130,711 $ 67,719
Accounts receivable, net of allowance for doubtful accounts of $12,050
and $0, respectively............................................................ 145,383 64,000
Other current assets.............................................................. 24,353 53,118
------------- -------------
Total current assets.......................................................... 300,447 184,837
PROPERTY AND EQUIPMENT, net......................................................... 80,048 103,291
INTEREST RECEIVABLE................................................................. -- 48,755
OTHER ASSETS, net................................................................... 64,613 61,630
------------- -------------
$ 445,108 $ 398,513
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................................. $ 47,269 $ 131,688
Accrued liabilities............................................................... 5,751 10,609
Line of credit.................................................................... -- 100,000
Income taxes payable.............................................................. 1,600 1,600
Capital leases payable, current................................................... 7,282 7,711
------------- -------------
Total current liabilities..................................................... 61,902 251,608
LONG-TERM DEBT
Capital leases payable, long-term................................................. 11,550 9,486
------------- -------------
Total liabilities............................................................. 73,452 261,094
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 25,000,000 shares authorized;
4,075,000 shares issued and outstanding in 1998 and 1999........................ 40,750 40,750
Additional paid-in capital........................................................ 2,642,800 2,642,800
Retained earnings (accumulated deficit)........................................... 138,106 (106,381)
------------- -------------
2,821,656 2,577,169
Less notes and accounts receivable from stockholders.............................. (2,450,000) (2,439,750)
------------- -------------
Total stockholders' equity.................................................... 371,656 137,419
------------- -------------
$ 445,108 $ 398,513
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
BUSYBOX.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue................................... $ 833,797 $1,170,022 $ 324,856 $ 122,659
Cost of revenue............................... 327,606 415,672 94,126 58,683
--------- --------- --------- ---------
Gross profit.............................. 506,191 754,350 230,730 63,976
Operating expenses
General and administrative expenses......... 362,031 491,446 86,314 300,113
Research and development.................... 83,000 258,242 44,465 56,444
--------- --------- --------- ---------
Total operating expenses.................. 445,031 749,688 130,779 356,557
--------- --------- --------- ---------
Operating profit (loss)................... 61,160 4,662 99,951 (292,581)
Other income
Interest income on stockholders' notes
receivable................................ -- -- -- 48,750
Interest income (expense), net.............. 927 3,576 (5) (656)
--------- --------- --------- ---------
Net income (loss) before income taxes..... 62,087 8,238 99,946 (244,487)
Income taxes.................................. 800 800 -- --
--------- --------- --------- ---------
NET INCOME (LOSS)......................... $ 61,287 $ 7,438 $ 99,946 $(244,487)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net income (loss) per
share....................................... $ 0.02 $ -- $ 0.04 $ (0.06)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in calculation of net income
(loss) per share............................ 2,600,000 2,843,630 2,750,000 4,075,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an ingegral part of these statements.
F-4
<PAGE>
BUSYBOX.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED STOCKHOLDERS'
COMMON STOCK ADDITIONAL EARNINGS NOTES AND
--------------------- PAID-IN (ACCUMULATED ACCOUNTS
SHARES AMOUNT CAPITAL DEFICIT) RECEIVABLE TOTAL
---------- --------- -------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997............... 2,450,000 $ 24,500 $ (23,500) $ 69,381 $ -- $ 70,381
Issuance of common stock for services and
software............................... 300,000 3,000 171,167 -- -- 174,167
Net income............................... -- -- -- 61,287 -- 61,287
---------- --------- -------------- ------------ ------------- ----------
Balance at December 31, 1997............. 2,750,000 27,500 147,667 130,668 -- 305,835
Issuance of common stock for services.... 100,000 1,000 57,383 -- -- 58,383
Issuance of common stock................. 1,225,000 12,250 2,437,750 -- (2,450,000) --
Net income............................... -- -- -- 7,438 -- 7,438
---------- --------- -------------- ------------ ------------- ----------
Balance at December 31, 1998............. 4,075,000 40,750 2,642,800 138,106 (2,450,000) 371,656
Net loss (unaudited)..................... -- -- -- (244,487) -- (244,487)
Repayments of stockholders' accounts
receivable (unaudited)................. -- -- -- -- 10,250 10,250
---------- --------- -------------- ------------ ------------- ----------
Balance at March 31, 1999 (unaudited).... 4,075,000 $ 40,750 $ 2,642,800 $ (106,381) $ (2,439,750) $ 137,419
---------- --------- -------------- ------------ ------------- ----------
---------- --------- -------------- ------------ ------------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
BUSYBOX.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
---------- ------------ ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net income (loss).......................................... $ 61,287 $ 7,438 $ 99,946 $ (244,487)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 21,796 36,136 3,963 10,462
Common stock issued for services....................... 90,667 58,383 -- --
Loss on retirement of assets........................... -- 1,067 -- --
Change in assets and liabilities
Accounts receivable, net............................. (92,034) (44,199) (174,391) 81,383
Other current assets................................. (12,500) (11,740) (2,033) (28,765)
Interest receivable.................................. -- -- -- (48,755)
Accounts payable..................................... 10,413 7,172 16,514 84,417
Income taxes payable................................. (8,044) 800 -- --
Other accrued liabilities............................ (17,334) 5,090 883 4,858
---------- ------------ ----------- -----------
Net cash provided by (used in) operating
activities......................................... 54,251 60,147 (55,118) (140,887)
Cash flows from investing activities
Purchases of property and equipment........................ (10,556) (29,614) (16,741) (30,720)
Cash flows from financing activities
Repayment of capital leases................................ -- (4,742) (631) (1,635)
Repayment of note payable.................................. (3,234) -- -- --
Proceeds from line of credit............................... -- -- -- 100,000
Proceeds from stockholders accounts receivable............. -- -- -- 10,250
---------- ------------ ----------- -----------
Net cash (used in) provided by financing
activities......................................... (3,234) (4,742) (631) 108,615
---------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH...................... 40,461 25,791 (72,490) (62,992)
Cash at beginning of period.................................. 64,459 104,920 104,920 130,711
---------- ------------ ----------- -----------
Cash at end of period........................................ $ 104,920 $ 130,711 $ 32,430 $ 67,719
---------- ------------ ----------- -----------
---------- ------------ ----------- -----------
Supplemental cash flow disclosures
Cash paid for
Interest................................................. $ 64 $ 2,721 $ 350 $ 1,064
Income taxes............................................. $ 8,844 $ -- $ -- $ --
Noncash transactions
Shares of common stock issued in exchange for services..... $ 90,667 $ 58,383 $ -- $ --
Capital lease obligation incurred.......................... $ -- $ 23,574 $ 12,332 $ --
Shares of common stock issued to stockholders for notes and
accounts receivable...................................... $ -- $ 2,450,000 $ -- $ --
Shares of common stock issued in exchange for software..... $ 83,500 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
BUSYBOX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE A--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
busybox.com, inc. ("Company") designs, develops, maintains, services,
markets, sells and distributes digital imagery, including black and white and
color still photographs, film footage and video, as well as the sale and
licensing of Company developed software over the Internet to its customers in
the technology, media, entertainment, government, corporate and sports
industries.
In December 1998, the Company amended its Certificate of Incorporation to
change its name from "Get Smart, Inc." to "Busy Box, Inc." In March 1999, the
Company further amended its Certificate of Incorporation to change its name to
"busybox.com, inc."
REVENUE RECOGNITION
Revenues are derived from digital image processing and services, Web site
hosting, maintenance and support, on-line sales of software and licensing of the
Company-developed software. Web site service revenues are recognized as services
are provided. The Company recognizes the revenue allocable to software licenses
upon delivery of the software product to the end-user, unless the fee is not
fixed or determinable or collectibility is not probable. The Company considers
all arrangements with payment terms extending beyond twelve months and other
arrangements with payment terms longer than normal not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. If collectibility is not considered
probable, revenue is recognized when the fee is collected.
CASH AND CASH EQUIVALENTS
All liquid instruments with an original maturity of three months or less are
considered cash equivalents.
The Company maintains cash balances at financial institutions which are
insured by the Federal Deposit Insurance Corporation up to $100,000. The Company
has not experienced any losses in such accounts and believes it is not exposed
to significant risk or loss.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets.
Equipment is depreciated over estimated useful lives of three to seven years.
Leasehold improvements are amortized over the estimated useful life of the asset
or the related lease term, whichever is shorter.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," requires the capitalization of certain software development costs
subsequent to the establishment of technological feasibility. In the Company's
case, capitalization would begin upon completion of a working model as the
Company does not prepare detail program designs as part of the development
process. Included in other assets at December 31, 1998 and
F-7
<PAGE>
BUSYBOX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE A--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
March 31, 1999, were capitalized costs of $64,613 and $61,630, net of
amortization, which represent purchased software. Technological feasibility was
established in July 1997, and the costs are amortized using the straight-line
method over its estimated useful life of 7 years.
INCOME TAXES
The Company follows the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities and on the expected future tax benefit to be derived from the tax
loss carryforwards, if any. Additionally, deferred tax items are measured using
current tax rates. A valuation allowance is established if it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, accounts receivable and
accounts payable approximates carrying value due to the short-term nature of
such instruments. The fair value of the stockholders' notes receivable cannot be
determined as no market exists for such instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the
weighted average shares outstanding. The Company did not have any common
equivalent shares for the years ended December 31, 1997 and 1998.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There was no difference between the
Company's net income (loss) and its total comprehensive income (loss) for 1997
and 1998.
F-8
<PAGE>
BUSYBOX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE A--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for the Company in fiscal
2000. Although the Company has not fully assessed the implications of SFAS No.
133, the Company does not believe that adoption of this statement will have a
material impact on the Company's financial position or results of operations.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for fair presentation of the financial position at such dates and the
results of operations and cash flows for the periods then ended. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of results that may be expected for the entire year.
NOTE B--PROPERTY AND EQUIPMENT
Components of property and equipment are:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Equipment.......................................................... $ 34,924 $ 40,502
Computers.......................................................... 84,160 94,408
Leasehold improvements............................................. 9,059 23,956
------------ ----------
128,143 158,866
Accumulated depreciation and amortization.......................... (48,095) (55,575)
------------ ----------
$ 80,048 $ 103,291
------------ ----------
------------ ----------
</TABLE>
NOTE C--LINE OF CREDIT
The Company has a $100,000 line of credit with Wells Fargo Bank. The
facility expires in November 1999 and the interest rate is 12.5%. Repayment is
guaranteed by one of the Company's stockholders. At December 31, 1998, there was
no balance owed.
NOTE D--PROPERTY HELD UNDER CAPITAL LEASE
The Company leases equipment under capital leases expiring in various years
through 2001. Assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value of
the assets. The assets are amortized over five years. Amortization expense
F-9
<PAGE>
BUSYBOX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE D--PROPERTY HELD UNDER CAPITAL LEASE (CONTINUED)
for assets held under capital leases was $3,291 in 1998, and $1,965 for the
period ended March 31, 1999.
The following is a summary of equipment held under capital lease:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Equipment........................................................... $ 23,574 $ 23,574
Accumulated amortization............................................ (3,291) (5,256)
------------ -----------
$ 20,283 $ 18,318
------------ -----------
------------ -----------
</TABLE>
Minimum future lease payments under the capital lease as of December 31,
1998 for each of the next three years and in the aggregate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1999........................................................................ $ 10,160
2000........................................................................ 10,160
2001........................................................................ 2,931
------------
Total minimum lease payments................................................ 23,251
Less amount representing interest........................................... 4,419
------------
Total....................................................................... $ 18,832
------------
------------
Presented on the balance sheet as of December 31, 1998, as follows:
Current portion............................................................... $ 7,282
Long-term debt................................................................ 11,550
------------
Total....................................................................... $ 18,832
------------
------------
</TABLE>
The capital lease obligations have implicit interest rates of 10.92% to
25.65%.
NOTE E--COMMON STOCK
In July 1997, the Company issued 300,000 shares of common stock to two
persons in a private placement transaction in consideration of $174,167,
consisting of property and services rendered, or $.58 per share. The related
expense is included in the accompanying Statements of Operations for 1997.
In July 1998, the Company issued 100,000 shares of common stock to one
person in a private placement transaction in consideration of $58,385,
consisting of services rendered, or $.58 per share. The related expense is
included in the accompanying Statements of Operations for 1998.
In December 1998, the Company amended its Certificate of Incorporation to
increase the number of authorized no par value common shares from 3,000,000
shares to 6,000,000 shares. Also, in December 1998, the Company issued 1,225,000
shares of common stock to eight persons, including two officers and directors
and two outside directors of the Company, in a private placement transaction in
F-10
<PAGE>
BUSYBOX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE E--COMMON STOCK (CONTINUED)
consideration of $2,450,000, consisting of $12,250 in accounts receivable and
$2,437,750 in promissory notes, or $2 per share. The promissory notes bear
interest at eight percent and are due and payable in December 2003, together
with accrued interest.
In March 1999, the Company amended its Certificate of Incorporation to
change the par value of its common stock from no par value to $.01 par value per
share, and to increase the number of authorized shares from 6,000,000 shares to
25,000,000 shares. The Company then approved a 2,000-for-1 stock split for all
shares issued and outstanding. All references to number of shares and amounts
per share herein have been adjusted to reflect the effect of the stock split and
change in par value for all periods presented.
In March 1999, the Company entered into a letter of intent with Barron Chase
Securities, Inc. ("Underwriter"), a broker dealer firm and NASD member, to
represent the Company in an initial public offering of its common stock and
warrants on a "firm commitment" basis. The letter of intent requires that the
Company pay certain expenses of the Underwriter in advance, and provides for
ongoing investment banking services by the Underwriter and a right of first
refusal to act as manager on future sales of the Company's securities for a
period of five years.
NOTE F--INCOME TAXES
No provision for Federal and state income taxes has been recorded as the
Company incurred net operating losses in years prior to 1997. A reconciliation
of the statutory income tax rate with the Company's effective tax rate for the
year ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Statutory rate................................................................ 34.0% 34.0%
Nondeductible expenses........................................................ 1.2 33.8
State income tax.............................................................. 1.3 9.7
Utilization of net operating losses........................................... (35.2) (67.8)
--------- ---------
1.3% 9.7%
--------- ---------
--------- ---------
</TABLE>
The following table sets forth the primary components of deferred tax assets
and liabilities at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net operating loss carryforward....................................... $ 34,000 $ 43,000
Valuation allowance................................................... (9,000) (9,000)
---------- ----------
Net deferred tax assets............................................... 25,000 34,000
Receivables and accruals.............................................. 25,000 34,000
---------- ----------
$ -- $ --
---------- ----------
---------- ----------
</TABLE>
F-11
<PAGE>
BUSYBOX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE F--INCOME TAXES (CONTINUED)
As of December 31, 1998, the Company has approximately $105,000 in loss
carryforwards to offset Federal taxable income in future years, subject to
limitations due to changes in ownership. The loss carryforwards expire in
various years from 2012 to 2013.
Deferred taxes arise from the differences in carrying values of certain
assets and liabilities for tax and financial reporting purposes. The differences
are primarily related to the Company's use of the cash basis of accounting for
income tax purposes, use of accelerated depreciation methods for income tax
purposes and the tax effect of net operating loss carryforwards. The valuation
allowance for deferred tax assets did not change in 1997 and 1998.
NOTE G--COMMITMENTS
The Company leases office space under operating leases expiring in 2000 with
a three year option to renew. Minimum future lease payments under noncancelable
operating leases having remaining terms in excess of one year for each of the
next five years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1999.............................................................................. $ 68,500
2000.............................................................................. 72,000
----------
Total............................................................................. $ 140,500
----------
----------
</TABLE>
Rent expense was $43,000 and $36,025 for the year ended December 31, 1997
and 1998, respectively.
NOTE H--RETIREMENT PLAN
In January 1998, the Company established a qualified 401(k) Profit Sharing
Plan for the benefit of all employees who have worked for the Company for at
least three months. Employees may defer up to 20% of their annual compensation
for individual income tax purposes through contributions to the plan. Employee
contributions are fully vested when made. Company matching or discretionary
contributions to the plan for the benefit of participating or all employees,
respectively, may be made at the discretion of the board of directors of the
Company. Employees begin vesting in employer contributions after two years of
service and are fully vested after six years of service. The Company made no
discretionary contributions to the plan in 1998. The Company pays all costs of
administering the plan.
NOTE I--RELATED PARTY TRANSACTIONS
The Company presently holds notes receivable from two officers of the
Company for $5,000 each, which are included in other current assets in the
accompanying balance sheets. The notes bear interest at the rate of 8% per year
and are due and payable on or before December 31, 1999.
F-12
<PAGE>
BUSYBOX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
NOTE J--CONCENTRATION OF CREDIT AND GEOGRAPHIC INFORMATION
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which was
adopted by the Company in 1998. SFAS No. 131 requires companies to report
financial information about its reportable operating segments, including segment
profit and loss, certain revenue and expense items and segment assets, as well
as information about revenues and major customers.
The Company distributes digital media over the Internet. The Company grants
credit to customers in the United States and Europe. Such credit is generally
granted without requiring collateral. Consequently, the Company's ability to
collect amounts due from customers is affected by the economic fluctuations in
those industries and geographic regions, and is dependent on each customer's
financial condition.
Information as to the Company's revenue in different geographical areas is
as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
United States....................................................... $ 466,918 $ 620,112
United Kingdom...................................................... 366,879 549,910
---------- ------------
$ 833,797 $ 1,170,022
---------- ------------
---------- ------------
</TABLE>
The Company had sales to three significant customers which accounted for
44%, 24% and 9% of revenue in 1997 and 47%, 28% and 11% of revenue in 1998. One
of these customers accounted for 81% of accounts receivable at December 31,
1998.
NOTE K--SUBSEQUENT EVENT
In April 1999, the Company issued 1,185,000 shares of common stock to 45
persons in a private placement transaction in consideration of $2,370,000, or
$2.00 per share, and net proceeds to the Company were $1,825,000. As a result of
this transaction, pro forma stockholders' equity increased to $1,962,419.
F-13
<PAGE>
[LOGO]
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Delaware law, the Company's Certificate of Incorporation
includes a provision which provides that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, which prohibits the unlawful payment of dividends or the
unlawful repurchase or redemption of stock, or (iv) for any transaction from
which the director derives an improper personal benefit. This provision is
intended to afford directors protection against, and to limit their potential
liability for monetary damages resulting from, suits alleging a breach of the
duty of care by a director. As a consequence of this provision, stockholders of
the Company will be unable to recover monetary damages against directors for
action taken by them that may constitute negligence or gross negligence in
performance of their duties unless such conduct falls within one of the
foregoing exceptions. The provision, however, does not alter the applicable
standards governing a director's fiduciary duty and does not eliminate or limit
the right of the Company or any stockholder to obtain an injunction or any other
type of nonmonetary relief in the event of a breach of fiduciary duty.
Management of the Company believes this provision will assist the Company in
securing and retaining qualified persons to serve as directors. The Company is
unaware of any pending or threatened litigation against the Company or its
directors that would result in any liability for which such director would seek
indemnification or similar protection.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase the Company's ability to attract and
retain qualified persons to serve as directors. Because directors liability
insurance is only available at considerable cost and with low dollar limits of
coverage and broad policy exclusions, the Company does not currently maintain a
liability insurance policy for the benefit of its directors although the Company
may attempt to acquire such insurance in the future. The Company believes that
the substantial increase in the number of lawsuits being threatened or filed
against corporations and their directors and the general unavailability of
directors liability insurance to provide protection against the increased risk
of personal liability resulting from such lawsuits have combined to result in a
growing reluctance on the part of capable persons to serve as members of boards
of directors of public companies. The Company also believes that the increased
risk of personal liability without adequate insurance or other indemnity
protection for its directors could result in overcautious and less effective
direction and management of the Company. Although no directors have resigned or
have threatened to resign as a result of the Company's failure to provide
insurance or other indemnity protection from liability, it is uncertain whether
the Company's directors would continue to serve in such capacities if improved
protection from liability were not provided.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its shareholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of the Company.
II-1
<PAGE>
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance. However, as mentioned above, the Company does not currently
provide such insurance to its directors, and there is no guarantee that the
Company will provide such insurance to its directors in the near future although
the Company may attempt to obtain such insurance.
The provisions diminish the potential rights of action which might otherwise
be available to shareholders by limiting the liability of officers and directors
to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any shareholders derivative action. However,
the provisions do not have the effect of limiting the right of a shareholder to
enjoin a director from taking actions in breach of his fiduciary duty, or to
cause the Company to rescind actions already taken, although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken. Also, because the Company does
not presently have directors liability insurance and because there is no
assurance that the Company will procure such insurance or that if such insurance
is procured it will provide coverage to the extent directors would be
indemnified under the provisions, the Company may be forced to bear a portion or
all of the cost of the director's claims for indemnification under such
provisions. If the Company is forced to bear the costs for indemnification, the
value of the Company stock may be adversely affected. In the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Securities Act of 1933 is contrary to public policy and, therefore, is
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of expenses, payable by the Company from the
proceeds of this offering, incurred by the Company in connection with the
issuance and distribution of the securities of the Company being offered hereby.
All expenses are estimated except the SEC, NASD and Nasdaq Registration and
Filing Fees. See "Use of Proceeds."
<TABLE>
<S> <C>
SEC Registration and Filing Fee(1).............................. $ 9,579
NASD Registration and Filing Fee(1)............................. 3,278
Nasdaq Registration and Filing Fee(1)........................... 10,000
Transfer Agent Fees............................................. 1,500
Financial Printing.............................................. 75,000
Accounting Fees and Expenses.................................... 75,000
Legal Fees and Expenses......................................... 375,000
Blue Sky Fees and Expenses...................................... 25,000
Underwriter's Nonaccountable Expense Allowance(2)............... 307,500
Underwriter's Advisory Fee...................................... 108,000
Miscellaneous................................................... 10,143
---------
TOTAL....................................................... $1,000,000
---------
---------
</TABLE>
- ------------------------
(1) Paid upon initial filing of this Registration Statement and related
Prospectus.
(2) Includes $50,000 paid to date.
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was incorporated in the State of Delaware on October 26, 1995.
The Company has authorized capital of 25,000,000 shares of common stock, $.01
par value. The Company has 5,260,000 shares of common stock issued and
outstanding prior to this offering. See "Principal Stockholders" and
"Description of Securities."
In December 1995, the Company issued 2,450,000 shares of common stock to
four persons, including three officers and directors of the Company, in a
private placement transaction in consideration of $24,500, consisting of $1,000
in cash and $23,500 in services rendered, or $.01 per share.
In July 1997, the Company issued 300,000 shares of common stock to two
persons in a private placement transaction in consideration of $174,167,
consisting of property and services rendered, or $.58 per share.
In July 1998, the Company issued 100,000 shares of common stock to one
person in a private placement transaction in consideration of $58,383,
consisting of services rendered, or $.58 per share.
In December 1998, the Company amended its Certificate of Incorporation to
increase the number of authorized no par value common shares from 3,000,000
shares to 6,000,000 shares. Also, in December 1998, the Company issued 1,225,000
shares of common stock to eight persons, including two officers and one director
and two outside directors of the Company, in a private placement transaction in
consideration of $2,450,000, consisting of cash and promissory notes, or $2 per
share.
In March 1999, the Company amended its Certificate of Incorporation to
change the par value of its common stock from no par value to $.01 par value per
share, and to increase the number of authorized shares from 6,000,000 shares to
25,000,000 shares. The Company then approved a 2,000-for-1 stock split for all
shares issued and outstanding. All references to number of shares and amounts
per share herein have been adjusted to reflect the effect of the stock split and
change in par value for all periods presented.
In April 1999, the Company issued 1,185,000 shares of common stock to 45
persons, in a private placement transaction in consideration of $2,370,000, or
$2 per share.
All unregistered securities issued by the Company prior to this offering are
deemed "restricted securities" within the meaning of that term as defined in
Rule 144 and have been issued pursuant to certain "private placement" exemptions
under Section 4(2) of the Securities Act of 1933, as amended, and certain rules
and regulations as promulgated by the Securities and Exchange Commission,
Washington, D.C. 20549, such that the sales of the securities to sophisticated
investors were transactions by an issuer not involving any public offering. Such
investors had access to information on the Company necessary to make an informed
investment decision. See "Description of Securities."
Reference is also made hereby to "Dilution," "Principal Stockholders,"
"Certain Transactions" and "Description of Securities" in the Prospectus for
more information with respect to the previous issuance and sale of the Company's
securities.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are "restricted securities," as defined in Rule 144 of the
rules and regulations of the Securities and Exchange Commission, Washington,
D.C. 20549. All of the aforesaid securities were issued for investment purposes
only and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were issued
pursuant to the "private placement" exemptions under the Securities Act of 1933,
as amended, as transactions by an issuer not involving any public offering. The
Registrant has been informed that each person is able to bear the economic risk
of his investment and is aware that the securities were
II-3
<PAGE>
not registered under the Securities Act of 1933, as amended, and cannot be
re-offered or re-sold until they have been so registered or until the
availability of an exemption therefrom. The transfer agent and registrar of the
Registrant will be instructed to mark "stop transfer" on its ledgers to assure
that these securities will not be transferred absent registration or until the
availability of an exemption therefrom is determined.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of Exhibits filed herewith by busybox.com, inc. as
part of the SB-2 Registration Statement and related Prospectus:
<TABLE>
<C> <S>
1.0 Form of Underwriting Agreement.
1.1 Selected Dealer Agreement.
3.0 Certificate of Incorporation (Delaware), dated October 1995.
3.1 Certificate of Amendment of Certificate of Incorporation, dated December
1998.
3.2 Amended and Restated Certificate of Incorporation (Delaware), dated
December 1998.
3.3 By-laws, as amended.
4.0 Specimen Copy of Common Stock Certificate.*
4.1 Form of Warrant Certificate.*
4.2 Form of Underwriter's Warrant Agreement.
5.0 Opinion of Thomas T. Prousalis, Jr., Esq. for Registrant.*
10.0 Employment Agreement, Patrick A. Grotto, dated January 1999.
10.1 Employment Agreement, Rosanne Esposito, dated January 1999.
10.2 Employment Agreement, Todd L. Carter, dated January 1999.
10.3 Employment Agreement, Jon M. Bloodworth, Esq., dated January 1999.
10.4 Employment Agreement, Mark B. Leffers, C.P.A., dated January 1999.
10.5 Financial Advisory Agreement.
10.6 Merger and Acquisition Agreement.
10.7 Revised Master Agreement for Services, Corbis Corporation, dated May
1998.
10.8 Maintenance Agreement, Corbis Corporation, dated May 1998.
23.0 Consent of Thomas T. Prousalis, Jr., Esq. is contained on page II-7 of
the Registration Statement.
24.0 Consent of Grant Thornton LLP is contained on page II-8 of the
Registration Statement.
24.1 Power of Attorney appointing Patrick A. Grotto is contained on page II-6
of the Registration Statement.
</TABLE>
- ------------------------
* To be filed by subsequent amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to participating
broker-dealers, at the closing, certificates in such denominations and
registered in such names as required by the participating broker-dealers, to
permit prompt delivery to each purchaser.
The undersigned Registrant also undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement:
II-4
<PAGE>
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
This Registration Statement consists of the following:
<TABLE>
<C> <S>
1. Facing page.
2. Cross-Reference Sheet.
3. Prospectus.
4. Complete text of Items 24-28 in Part Two of Registration Statement.
5. Exhibits.
6. Signature page.
7. Consents of:
Thomas T. Prousalis, Jr., Esq.
Grant Thornton LLP
</TABLE>
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Washington, District of Columbia, on June 9, 1999.
By: PATRICK A. GROTTO
-------------------------------------------
Patrick A. Grotto
Chairman of the Board
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick A. Grotto his true and lawful
attorney-in-fact, with full capacities, to sign any and all Amendments
(including post-effective Amendments) to this Registration Statement, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, Washington, D.C. 20549,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------------------------- ---------------
<C> <S> <C>
PATRICK A. GROTTO
--------------------------------- Chairman of the Board, Chief Executive Officer June 9, 1999
Patrick A. Grotto
ROSANNE ESPOSITO
--------------------------------- President, Chief Operating Officer, Director June 9, 1999
Rosanne Esposito
TODD L. CARTER
--------------------------------- Vice President, Chief Technology Officer June 9, 1999
Todd L. Carter
JON M. BLOODWORTH, ESQ.
--------------------------------- Vice President, General Counsel, Secretary, Director June 9, 1999
Jon M. Bloodworth, Esq.
MARK B. LEFFERS, C.P.A.
--------------------------------- Vice President, Treasurer, Chief Financial Officer June 9, 1999
Mark B. Leffers, C.P.A.
PETER A. SELIGMANN, PH.D.
--------------------------------- Director June 9, 1999
Peter A. Seligmann, Ph.D.
MICHAEL H. GLAWE, ESQ.
--------------------------------- Director June 9, 1999
Michael H. Glawe, Esq.
</TABLE>
II-6
<PAGE>
CONSENT OF COUNSEL
The consent of Thomas T. Prousalis, Jr., Esq., 1919 Pennsylvania Avenue,
N.W., Suite 800, Washington, D.C. 20006, to the use of his name in this Form
SB-2 Registration Statement, and related Prospectus, as amended, of busybox.com,
inc. is contained in his opinion filed as Exhibit 5.0 hereto.
II-7
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 24, 1999 (except for Note K as to
which the date is June 7, 1999) accompanying the Financial Statements of
busybox.com, inc. contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in the Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
San Francisco, California
June 9, 1999
II-8
<PAGE>
Exhibit 1.0
BUSYBOX.COM, INC.
2,000,000 SHARES OF COMMON STOCK AND
2,000,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Boca Raton, Florida
_____________, 1999
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Gentlemen:
busybox.com, inc. (the "Company"), on the basis of the representations,
warranties, covenants and conditions contained herein, hereby proposes to issue
and sell to Barron Chase Securities, Inc. (the "Underwriter" or Ayou@) for sale
in a proposed public offering (the AOffering@) pursuant to the terms of this
Underwriting Agreement (the "Agreement"), on a "firm commitment" basis,
2,000,000 shares of Common Stock (the "Shares") at $5.00 per Share and 2,000,000
Redeemable Common Stock Purchase Warrants (the "Warrants") at $.125 per Warrant.
The Shares and the Warrants are collectively referred to as the "Securities".
Each Warrant is exercisable to purchase one (1) share of Common Stock (the
"Common Stock") at $5.50 per share at any time during the period between the
Effective Date and five (5) years from the Effective Date. The date upon which
the Securities and Exchange Commission ("Commission") shall declare the
Registration Statement of the Company effective shall be the "Effective Date".
The Warrants are subject to redemption under certain circumstances. In addition,
the Company proposes to grant to the Underwriter the option referred to in
Section 2(b) to purchase all or any part of an aggregate of 300,000 additional
Shares and/or 300,000 additional Warrants (the "Option Securities").
You have advised the Company that you desire to purchase the
Securities, and that you are authorized to execute this Agreement. The Company
confirms the agreements made by it with respect to the purchase of the
Securities by the Underwriter, as follows:
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1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with the Underwriter
as of the Effective Date (as defined above), the Closing Date (as hereinafter
defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. _________) on Form SB-2 relating
to the public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to you, 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 (the "Rules
and Regulations") of the Commission thereunder, and has been filed with the
Commission under the Act. The Company has prepared in the same manner and
proposes to file, prior to the Effective Date of such registration statement, an
additional amendment or amendments to such registration statement, including a
final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriter or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) 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 statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranty or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof. It
is understood
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that the statements set forth in the Prospectus with respect to stabilization,
under the heading "Underwriting" and regarding the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute the only information
furnished in writing by the Underwriter for inclusion in the Registration
Statement and Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as
of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respect with, or were
exempt from, applicable Federal and state securities laws; the holders thereof
have no rights of rescission against the Company with respect thereto, and are
not subject to personal liability by reason of being such holders; none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company; except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation into, any securities of the Company have
been granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been
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duly authorized, validly issued and delivered and will constitute valid and
legally binding obligations of the Company entitling the holders to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance and when issued in
accordance with the terms of the Warrants and Warrant Agreement will be duly and
validly authorized, validly issued, fully paid and non-assessable, free of
pre-emptive rights, and no personal liability will attach to the ownership
thereof. The Warrant exercise period and the Warrant exercise price may not be
changed or revised by the Company without the prior written consent of the
Underwriter. The Warrant Agreement has been duly authorized and, when executed
and delivered pursuant to this Agreement, will have been duly executed and
delivered and will constitute the valid and legally binding obligation of the
Company enforceable in accordance with its terms.
The Common Stock Underwriter Warrants, the Warrant Underwriter
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Underwriter Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Underwriter's Warrant Agreement described in Section 11 herein), have been duly
authorized and, when issued, delivered and paid for, will be validly issued,
fully paid, non-assessable, free of pre-emptive rights and no personal liability
will attach to the ownership thereof, and will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms
and entitled to the benefits provided by the Underwriter's Warrant Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the
Underwriter's Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company, and assuming due execution of this Agreement by
the other party hereto, constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally. The Company has full power and authority to
authorize, issue and sell the Securities to be sold by it hereunder on the terms
and conditions set forth herein, and no consent, approval, authorization or
other order of any governmental authority is required in connection with such
authorization, execution and delivery or with the authorization, issue and sale
of the Securities or the securities to be issued pursuant to the Underwriter's
Warrant Agreement, except such as may be required under the Act or state
securities laws, or as otherwise have been obtained.
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(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any material lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary or any of the terms or provisions of any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any subsidiary is a party or by which the
Company or any subsidiary may be bound or to which any of the property or assets
of the Company or any subsidiary is subject, nor will such action result in any
material violation of the provisions of the Articles of Incorporation or By-Laws
of the Company or any subsidiary, as amended, or any statute or any order, rule
or regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not material to
its business, financial condition or results of operation; all of the material
leases and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or any subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or any subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Grant Thornton LLP, who has given its report on certain financial
statements filed and to be filed with the Commission as part of the Registration
Statement, and which are included in the Prospectus, is with respect to the
Company, independent public accountants as required by the Act and the Rules and
Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration
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Statement present fairly the financial condition, results of operations and cash
flows of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
financial statements and related notes and schedules have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent during the periods involved. The Company's internal
accounting controls and procedures are sufficient to cause the Company and each
subsidiary to prepare financial statements which comply in all material respects
with generally accepted accounting principles applied on a basis which is
consistent during the periods involved. During the preceding five (5) year
period, nothing has been brought to the attention of the Company's management
that would result in any material reportable condition relating to the Company's
internal accounting procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes
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shown as due thereon; and there is no tax deficiency which has been or to the
knowledge of the Company might be asserted against the Company or any subsidiary
that has not been provided for in the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or indirectly,
at any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public of quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the Underwriter hereunder will
have been fully paid or provided for by the Company and all laws imposing such
taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
(s) Except as set forth in or contemplated by the
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Registration Statement and the Prospectus, neither the Company nor any
subsidiary has any material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriter against any losses, claims, damages
or liabilities, which shall include, but not be limited to, all costs to defend
against any such claim, so long as such claim arises out of agreements made or
allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or beneficial owner of five percent (5%) or more of the
securities of the Company or any subsidiary has any direct or indirect
affiliation or association with any member of the National Association of
Securities Dealers, Inc. ("NASD"), except as disclosed to the Underwriter in
writing, and no beneficial owner of the Company's unregistered securities has
any direct or indirect affiliation or association with any NASD member
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except as disclosed to the Underwriter in writing. The Company will advise
the Underwriter and the NASD if any beneficial owner of the securities of the
Company or any subsidiary is or becomes an affiliate or associated person of
an NASD member participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity. No
question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
(aa) Except as disclosed in the Prospectus, neither the Company nor any
subsidiary maintains, sponsors nor contributes to, nor is it required to
contribute to, any program or arrangement that is an "employee pension benefit
plan", an "employee welfare benefit plan", or a "multi-employer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Except as disclosed in the Prospectus, neither the Company nor any
subsidiary maintained or contributed to a defined benefit plan, as defined in
Section 3(35) of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) The subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which any of them was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which any of them was
an executive officer at or within two years before the time of
such filing;
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(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
any of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with any such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
with the purchase or sale of any security or
commodity or in connection with any violation of
federal or state securities law or federal commodity
laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for
more than sixty (60) days their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to
have violated any federal or state securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
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(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement and based
upon the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriter an aggregate of
2,000,000 Shares at $4.50 per Share and 2,000,000 Warrants at $.1125 per
Warrant, (the public offering price less ten percent (10%)), at the place and
time hereinafter specified. The price at which the Underwriter shall sell the
Securities to the public shall be $5.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take place at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton,
Florida 33433 (or at such other place as may be designated by the Underwriter)
at 10:00 a.m., Eastern Time, on such date after the Registration Statement has
become effective as the Underwriter shall designate, but not later than ten (10)
business days (holidays excepted) following the first date that any of the
Securities are released to you, such time and date of payment and delivery for
the Securities being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this Agreement,
and based upon the representations, warranties and agreements herein contained,
the Company hereby grants an option to the Underwriter to purchase all or any
part of an aggregate of an additional 300,000 Shares and 300,000 Warrants at the
same price per Share and Warrant as the Underwriter shall pay for the Securities
being sold pursuant to the provisions of subsection (a) of this Section 2 (such
additional Securities being referred to herein as the "Option Securities"). This
option may be exercised within forty-five (45) days after the Effective Date of
the Registration Statement upon notice by the Underwriter to the Company
advising as to the amount of Option Securities as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Securities are to be registered and the time and date when such certificates are
to be delivered. Such time and date shall be determined by the Underwriter but
shall not be later than ten (10) full business days after the exercise of said
option, nor in any event prior to the Closing Date, and such time and date is
referred to herein as the "Option Closing Date". Delivery of the Option
Securities against payment therefor shall take place at the offices of the
Underwriter. The Option granted hereunder may be exercised only to cover
overallotments in the sale by the Underwriter of the Securities referred to in
subsection (a)
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above. In the event the Company declares or pays a dividend or distribution on
its Common Stock, whether in the form of cash, shares of Common Stock or any
other consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you for inspection at least two (2) full business
days prior to the Closing Date at the offices of the Underwriter, and such
certificates shall be registered in such names and denominations as you may
request. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Company to the Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to you
for the account of the Underwriter against payment of the purchase prices by the
Underwriter by wire transfer in New York Clearing House funds to the account of
the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made by wire transfer, at the time and date of delivery of such Securities as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Securities by the Underwriter for the account of the
Underwriter registered in such names and in such denominations as the
Underwriter may request.
It is understood that the Underwriter proposes to offer the Securities
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement is declared
effective by the Commission.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriter of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or
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Prospectus which may be necessary or advisable in connection with the
distribution of the Securities and as mutually agreed by the Company and the
Underwriter.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has consented
and hereby consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriter and Selected Dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of counsel to the Underwriter the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriter or
Selected Dealers, of any event of which the Company has knowledge and which in
the opinion of counsel for the Company or counsel for the Underwriter should be
set forth in an amendment to the Registration Statement or a supplement to the
Prospectus, in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Securities, or in case it shall be necessary to
amend or supplement the Prospectus to comply with law or with the Act and the
Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter.
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<PAGE>
The Company will comply with the Act, the Rules and Regulations
thereunder, and the provisions of the Securities Exchange Act of 1934 (the "1934
Act"), and the rules and regulations thereunder in connection with the offering
and issuance of the Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriter may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriter may reasonably
request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and either (i)
the out-of-pocket expenses of the Underwriter, not to exceed the $50,000
previously paid if the Underwriter elects to terminate the offering for any
reason; or (ii) the out-of-pocket expenses of the Underwriter if the Company
elects to terminate the offering for any reason. For the purposes of this
sub-section, the Underwriter shall be deemed to have assumed such expenses when
they are billed or incurred, regardless of whether such expenses have been paid.
The Underwriter shall not be responsible for any expenses of the Company or
others, or for any charges or claims relative to the proposed public offering if
it is not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the Underwriter, from time to time
until the Effective Date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date of
the Registration Statement as the Underwriter may reasonably request. The
Company will deliver to the Underwriter on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Definitive
Prospectus, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(e) For so long as the Company is a reporting company under
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<PAGE>
either Section 12 or 15 of the 1934 Act, the Company, at its expense, will
furnish to the Underwriter during the period ending five (5) years from the
Effective Date, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any of its subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of the
Company and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iii) as soon as they are
available, a copy of all non-confidential documents, including annual reports,
periodic reports and financial statements, furnished to or filed with the
Commission under the Act and the 1934 Act; (iv) copies of each press release,
news item and article with respect to the Company's affairs released by the
Company; and (v) such other information as you may from time to time reasonably
request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to the Underwriter as soon
as it is practicable, but in no event later than the first day of the sixteenth
full calendar month following the Effective Date, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to and will have obtained approval for
the listing of the Shares and Warrants on The Nasdaq SmallCap Market System, and
will use its best efforts to maintain such listing for at least seven (7) years
from the date of this Agreement.
(i) For a period of seven (7) years following the Effective Date, the
Company will hold an annual meeting of stockholders for the election of
Directors within 180 days after the end of each of the Company's fiscal years
and, within nine (9) months after the end of each of the Company's fiscal years
will provide the Company's stockholders with the audited financial statements of
the Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(j) The Company will apply the net proceeds from the sale of
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<PAGE>
the Securities substantially in accordance with its statement under the caption
"Use of Proceeds" in the Prospectus, and will file such reports with the
Commission with respect to the sale of the Securities and the application of the
proceeds therefrom as may be required by Sections 12, 13 and/or 15 of the 1934
Act and pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriter and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you
the Underwriter's Warrant Agreement. The Underwriter's Warrant Agreement and
Warrant Certificates will be substantially in the form of the Underwriter's
Warrant Agreement filed as an exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Underwriter's Warrants outstanding from time to time.
(n) All existing beneficial owners of the Company's securities
(including warrants, options and Preferred Stock of the Company) as of the
Effective Date shall agree in writing, in a form satisfactory to the
Underwriter, not to sell, transfer or otherwise dispose of any of such
securities (or underlying securities) of the Company for a period of twenty-four
(24) months from the Effective Date, or any longer period required by the NASD,
Nasdaq or any State, without the written consent of the Underwriter. For a
period of twenty-four (24) months following the Effective Date, all sales of the
Company's securities by officers and/or directors of the Company shall be
through the Underwriter.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on the each of the lives of Patrick A. Grotto, Rosanne Esposito,
and Todd L. Carter in an amount of not less than $1,000,000 each, and will use
its best efforts to maintain such insurance for a period of at least five (5)
years from the Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Underwriter may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The
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<PAGE>
Company hereby agrees to use its best efforts to maintain such listing for a
period of not less than five (5) years. The Company shall take such action as
may be reasonably requested by the Underwriter to obtain a secondary market
trading exemption in such states as may be reasonably requested by the
Underwriter.
(q) During the one (1) year period commencing on the Closing Date, the
Company will not, without the prior written consent of the Underwriter, grant
options or warrants to purchase the Company's Common Stock at a price less than
the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Underwriter as a
non-exclusive financial advisor to the Company for a period of twelve (12)
months commencing on the first day of the month following the Company's receipt
of the proceeds of this offering, at an aggregate fee of $108,000, all of which
shall be payable to the Underwriter on the Closing Date. The financial advisory
agreement will provide that the Underwriter shall, at the Company's request,
provide advice and consulting services to the Company concerning potential
merger and acquisition proposals and the obtaining of short or long-term
financing for the Company, whether by public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the mailing of quarterly financial information to stockholders.
(u) The Company shall retain American Securities Transfer, Inc. as the
transfer agent for the securities of the Company, or such other transfer agent
as you may agree to in writing. In addition, the Company shall direct such
transfer agent to furnish the Underwriter with daily transfer sheets as to each
of the Company's securities as prepared by the Company's transfer agent and
copies of lists of stockholders and warrantholders as
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<PAGE>
reasonably requested by the Underwriter, for a five (5) year period commencing
from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to furnish security position reports and
special DTC Tracking Reports to the Underwriter at the expense of the Company.
The security position reports shall be furnished on a weekly basis for a five
(5) year period from the Effective Date, and the DTC Tracking Reports shall be
furnished for the initial two (2) month period from the Effective Date, after
which time the Company's obligation to furnish such tracking reports will be
reviewed by the Company and the Underwriter.
(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such jurisdictions
as the Underwriter shall designate and the Company may reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. The
Underwriter shall have the opportunity to invite an observer to attend Board of
Directors meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and deliver to you a
non-exclusive M/A Agreement with the Underwriter in a form satisfactory to the
Underwriter, providing:
(1) that the Underwriter will be paid a finder's fee, of from
five percent (5%) of the first $1,000,000 ranging in $1,000,000
increments down to one percent (1%) of the excess, if any, over
$4,000,000 of the consideration involved in any transaction introduced
by the Underwriter (including mergers, acquisitions, joint ventures,
and any other business for the Company introduced by the Underwriter)
consummated by the Company, as an "Introduced, Consummated
Transaction", by which the Underwriter introduced the other party to
the Company during a period ending five (5) years from the date of the
M/A Agreement; and
(2) that any such finder's fee due to the Underwriter will be
paid in cash or stock as mutually agreed at the closing of the
particular Introduced, Consummated Transaction for which the finder's
fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Underwriter at a total cost not to exceed $15,000.
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(aa) For such period as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish the
Underwriter and each dealer as many copies of each such Prospectus as the
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statement shall also include the Underwriter's
Warrants and all the securities underlying the Underwriter's Warrants. The
Company shall not call for redemption any of the Warrants unless a Registration
Statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, the Warrants shall not be redeemable during the
first year after the Effective Date without the written consent of the
Underwriter.
(ab) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock Exchange, the
Company shall deliver to the Underwriter a written opinion detailing those
states in which the Shares and Warrants of the Company may be traded in
non-issuer transactions under the Blue Sky laws of the fifty states ("Secondary
Market Trading Opinion"). The initial Secondary Market Trading Opinion shall be
delivered to the Underwriter on the Effective Date, and the Company shall
continue to update such opinion and deliver same to the Underwriter on a timely
basis, but in any event at the beginning of each fiscal quarter, for a five (5)
year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Underwriter or counsel to the Underwriter.
4. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriter to purchase and pay for the Securities which the Underwriter has
agreed to purchase hereunder from the Company is subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, to the execution of this
Agreement by the Underwriter, to the continuing accuracy of, and compliance
with, the representations and warranties of the Company herein, to the accuracy
of statements of officers of the Company made pursuant to the provisions hereof,
to the performance by the Company of its obligations hereunder, and to the
following additional conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you
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<PAGE>
may agree to in writing; (ii) at or prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceeding for that purpose shall have been
initiated or pending, or shall be threatened, or to the knowledge of the
Company, contemplated by the Commission; (iii) no stop order suspending the
effectiveness of the qualification or registration of the Securities under the
securities or "blue sky" laws of any jurisdiction (whether or not a jurisdiction
which you shall have specified) shall be threatened or to the knowledge of the
Company contemplated by the authorities of any such jurisdiction or shall have
been issued and in effect; (iv) any request for additional information on the
part of the Commission or any such authorities shall have been complied with to
the satisfaction of the Commission and any such authorities, and to the
satisfaction of counsel to the Underwriter; and (v) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to the Underwriter and
the Underwriter did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any material subsidiary except as set forth
in or contemplated by the Registration Statement, (ii) there shall not have been
any material adverse change in the general affairs, business, properties,
condition (financial or otherwise), management, or results of operations of the
Company or any subsidiary, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement or Prospectus; (iii) neither the
Company nor any subsidiary shall have sustained any material interference with
its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and Prospectus; and (iv) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry,
20
<PAGE>
arbitration, or investigation, which might result in any material adverse change
in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date
shall have been duly performed, fulfilled or complied with.
(e) At the Closing Date, the Underwriter shall have received the
opinion, dated as of the Closing Date, from Thomas J. Prousalis, Jr., Esq.,
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriter, which in the aggregate shall state:
(i) the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate power
and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is in
good standing in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set
forth under "Capitalization" in the Prospectus; all shares of the
Company's outstanding stock and other securities requiring
authorization for issuance by the Company's Board of Directors have
been duly authorized, validly issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock of the Company and other securities
have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any
preemptive rights or, to such counsel's knowledge, other rights to
subscribe for or to purchase securities of the Company, nor, to such
counsel's knowledge, are there any restrictions upon the voting or
transfer of any of the securities of the Company, except as disclosed
in the Prospectus; the Common Stock, the Shares, the Warrants, and the
securities contained in the Underwriter's Warrant Agreement conform to
the respective descriptions thereof contained in the Prospectus;
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the Common Stock, the Shares, the Warrants, the shares of Common Stock
to be issued upon exercise of the Warrants and the securities contained
in the Underwriter's Warrant Agreement, have been duly authorized and,
when issued, delivered and paid for, will be duly authorized, validly
issued, fully paid, non-assessable, free of pre-emptive rights and no
personal liability will attach to the ownership thereof; all prior
sales by the Company of the Company's securities complied in all
material respects with, or were exempt from, applicable federal and
state securities laws; no shareholders of the Company have any
rescission rights against the Company with respect to the Company's
securities; a sufficient number of shares of Common Stock has been
reserved for issuance upon exercise of the Warrants and the Underwriter
Warrants, and to the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement have been duly and validly authorized, executed and delivered
by the Company and, assuming the due authorization, execution and
delivery of this Agreement by the Underwriter, are the valid and
legally binding obligations of the Company, enforceable in accordance
with their terms, except (a) as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which effect creditors' rights
generally; and (b) no opinion is expressed as to the enforceability of
the indemnity provisions or the contribution provisions contained in
this Agreement;
(iv) the certificates evidencing the outstanding securities of
the Company, the Shares, the Common Stock and the Warrants are in valid
and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or threatened any
material action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any subsidiary or any of the
officers of directors of the Company or any subsidiary, nor any
material action, suit, proceeding, inquiry, arbitration, or
investigation, which might materially and adversely affect the
condition (financial or otherwise), business prospects, net worth, or
properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement, the
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Financial Advisory Agreement, and the M/A Agreement, and the incurrence
of the obligations herein and therein set forth and the consummation of
the transactions herein or therein contemplated, will not result in a
violation of, or constitute a default under (a) the Articles of
Incorporation or By-Laws of the Company and each subsidiary; (b) to the
best of such counsel's knowledge, any material obligations, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to
which the Company or any subsidiary is a party or by which it or any of
its material properties is bound; or (c) to the best of such counsel's
knowledge, any material order, rule, regulation, writ, injunction, or
decree of any government, governmental instrumentality or court,
domestic or foreign;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Underwriter's Warrants or the Securities underlying the
Underwriter's Warrants, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky
laws and registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriter. The opinion of such counsel
to the Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Underwriter and they are justified in
relying thereon.
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Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment thereto
at the time it became effective contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make
statements therein, in light of the circumstances under which they are made, not
misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(f) You shall have received on the Closing Date, a certificate dated as
of the Closing Date, signed by the Chief Executive Officer and the Chief
Financial Officer of the Company and such other officers of the Company as the
Underwriter may reasonably request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities is in
effect and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to
their knowledge, threatened against the Company or any subsidiary or
any officer or director of the Company or any subsidiary of a character
required to be disclosed in the Registration Statement which is not
disclosed therein; they do not know of any contracts which are required
to be summarized in the Prospectus which are not so summarized; and
they do not know of any material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any amendment
or supplement to either of the foregoing contains an untrue statement
of any material fact or omits to state any material fact required to be
stated therein or necessary to make the statement therein, in light of
the circumstances under which they are made, not misleading; and since
the Effective Date, to the best of their knowledge, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth;
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(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects, and the
Company has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in
the filing of any federal, state and other tax return or the payment of
any federal, state or other taxes; they know of no proposed
redetermination or re-assessment of taxes, adverse to the Company or
any subsidiary, and the Company and each subsidiary has paid or
provided by adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company, contingent or otherwise, not disclosed in the Registration
Statement and Prospectus;
(viii) This Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement, the consummation of the transactions therein contemplated,
and the fulfillment of the terms thereof, will not result in a breach
by the Company of any terms of, or constitute a default under, the
Company's Articles of Incorporation or By-Laws, any indenture,
mortgage, lease, deed of trust, bank loan or credit agreement or any
other material agreement or undertaking of the Company or any
subsidiary including, by way of specification but not by way of
limitation, any agreement or instrument to which the Company or any
subsidiary is now a party or pursuant to which the Company or any
subsidiary has acquired any material right and/or obligations by
succession or otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. Since the respective dates of such
financial statements, there have been no material adverse change in the
condition or general affairs of the Company, financial or otherwise,
other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein or
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contemplated thereby, neither the Company nor any subsidiary has, prior
to the Closing Date, either (i) issued any securities or incurred any
material liability or obligation, direct or contingent, for borrowed
money, or (ii) entered into any material transaction other than in the
ordinary course of business. The Company has not declared, paid or made
any dividend or distribution of any kind on its capital stock;
(xi) They have reviewed the sections in the Prospectus
relating to their biographical data and equity ownership position in
the Company, and all information contained therein is true and
accurate; and
(xii) Except as disclosed in the Prospectus, during the past
five years, they have not been:
(1) The subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which any of them was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which any of them was
an executive officer at or within two years before the time of
such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
any of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with any such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
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with the purchase or sale of any security or
commodity or in connection with any violation of
federal or state securities law or federal commodity
laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for
more than sixty (60) days their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to
have violated any federal or state securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriter shall have received from Grant Thornton LLP,
independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing Date,
in form and substance satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) the financial statements and the schedules included in
the Registration Statement and the Prospectus were examined by them
and, in their opinion, comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally
accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial
information of the Company (with an indication of the date of the
latest available unaudited interim financial statements), inquiries of
officers of the Company who have responsibility for financial and
accounting matters,
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review of minutes of all meetings of the shareholders and the Board of
Directors of the Company and other specified inquiries and procedures,
nothing has come to their attention as a result of the foregoing
inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date
of the financial statements in the Registration Statement and
the Prospectus to a specified date not more than five days
prior to the date of such letters, there has been any change
in the Common Stock, long-term debt or other securities of the
Company (except as specifically contemplated in the
Registration Statement and Prospectus) or any material
decreases in net current assets, net assets, shareholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the Underwriter may
request advice, in each case as compared with amounts shown in
the balance sheet as of the date of the most recent financial
statements in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or will occur;
(b) during the period from (and including) the date
of the financial statements in the Registration Statement and
the Prospectus to such specified date there was any material
decrease in revenues or in the total or per share amounts of
income or loss before extraordinary items or net income or
loss, or any other material change in such other items
appearing in the Company's financial statements as to which
the Underwriter may request advice, in each case as compared
with the fiscal period ended as of the date of the most recent
financial statements in the Prospectus, except in each case
for increases, changes or decreases which the Prospectus
discloses have occurred or will occur;
(c) the unaudited interim financial statements of the
Company appearing in the Registration Statement and the
Prospectus (if any) do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations or are not fairly presented
in conformity with generally accepted accounting principles
and practices on a basis substantially consistent with the
audited financial statements included in the Registration
Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may
28
<PAGE>
be derived from the general accounting records, including work sheets,
of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letters and
found them to be in agreement; and
(v) they have not during the immediately preceding five (5)
year period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriter. Any changes, increases or decreases in
the items set forth in such letters which, in the judgment of the Underwriter,
are materially adverse with respect to the financial position or results of
operations of the Company shall be deemed to constitute a failure of the Company
to comply with the conditions of the obligations to the Underwriter hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof,
the obligation of the Underwriter to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriter.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Thomas J. Prousalis, Jr.,
Esq., counsel for the Company, dated as of the Option Closing Date, in
form and substance satisfactory to counsel to the Underwriter, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the Closing Date pursuant to Section 4(e)
hereof, except that such opinion, where appropriate, shall cover the
Option Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company, dated the Option Closing Date, in
form and substance satisfactory to counsel to the Underwriter,
substantially the same in scope and substance
29
<PAGE>
as the certificate furnished to you at the Closing Date pursuant to
Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from Grant Thornton LLP, independent auditors to the Company, dated the
Option Closing Date and addressed to the Underwriter confirming the
information in their letter referred to in Section 4(g) hereof and
stating that nothing has come to their attention during the period from
the ending date of their review referred to in said letter to a date
not more than five business days prior to the Option Closing Date,
which would require any change in said letter if it were required to be
dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriter, and the
Underwriter and counsel to the Underwriter shall have been furnished
with all such documents, certificates, and opinions as you may request
in connection with this transaction in order to evidence the accuracy
and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants
or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Securities and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise the
Underwriter of any NASD affiliations of any of its officers, directors, or
stockholders or their affiliates in accordance with Section 1(y) of this
Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with Section 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the Underwriter, and such counsel shall be furnished with such documents,
certificates and opinions as they
30
<PAGE>
may reasonably request to enable them to pass upon the matters referred to in
this sub-section.
(l) Prior to the Effective Date, the Underwriter shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(m) If any of the conditions provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all obligations
of the Underwriter under this Agreement may be canceled at, or at any time prior
to, the Closing Date and/or the Option Closing Date by the Underwriter notifying
the Company of such cancellation in writing or by facsimile at or prior to the
applicable Closing Date or Option Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell and deliver the Securities is subject to the execution of this
Agreement by the Company, and to the following conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or
on such later time or date as the Company and the Underwriter may agree
in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated
or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled after
the Closing Date and prior to the Option Closing Date, then only the obligation
of the Company to sell and deliver the Securities on exercise of the option
provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION. (a) The Company indemnifies and holds harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (ii) any blue sky
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<PAGE>
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company and filed in
any state or other jurisdiction in order to qualify any or all of the Securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use in
the Registration Statement or any amendment or supplement thereof or any Blue
Sky Application or any Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto. Notwithstanding the foregoing, the Company
shall have no liability under this Section if such untrue statement or omission
made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus
is not delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) The Underwriter indemnifies and holds harmless the Company, each of
its directors, each nominee (if any) for director named in the Prospectus, each
of the persons who have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, signer of the
Registration Statement, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statements or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in such
Registration Statement or Prospectus. Notwithstanding the foregoing, the
Underwriter shall have no
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<PAGE>
liability under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, promptly notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party other than
indemnification under this Section. In case any such action is brought against
any indemnified party, and it promptly notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Underwriter, it is advisable for the Underwriter or such Underwriter or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Underwriter or such controlling person). No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnifying party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnifying and indemnified parties.
7. CONTRIBUTION.
(a) If the indemnification provided for in this
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<PAGE>
Agreement is unavailable to any indemnified party in respect to any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, will
contribute to the amount paid or payable by such indemnified party, as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand, and by the Underwriter on the other hand, from the Offering, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above, but also the relative fault
of the Company on the one hand, and of the Underwriter on the other hand, in
connection with any statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses as well as any other relevant equitable
considerations; provided, that any contribution hereunder by the Underwriter
shall not exceed the amount of consideration received by the Underwriter
hereunder. The relative benefits received by the Company on the one hand, and by
the Underwriter on the other hand, shall be deemed to be in the same proportion
as the total proceeds from the Offering (net of sales commissions, and the
non-accountable expense allowance, but before deducting expenses) received by
the Company, bear to the commissions and the non-accountable expense allowance
received by the Underwriter. The relative fault of the Company on the one hand,
and of the Underwriter on the other hand, will be determined with reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Company, and its relative intent, knowledge, access or information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriter agree that it would not be just and equitable if contribution
pursuant to this Section were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in this paragraph.
(b) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit, or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party ("Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission to so notify
the Contributing Party will not relieve it from any liability which it may have
to any other party other than for contribution hereunder. In case any such
action, suit or proceeding is brought against any party, and such party notifies
a Contributing Party or its representative of the commencement thereof within
the aforesaid fifteen (15) days, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing Party
similarly notified. Any such Contributing Party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding which was effected by such party seeking contribution on
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<PAGE>
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the prior written consent of such
Contributing Party. The contribution provisions contained in this Section are
intended to supersede, to the extent permitted by law, any right to contribution
under the Act, the Exchange Act or otherwise available.
8. COSTS AND EXPENSES. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriter is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby; all state filing
fees, expenses and disbursements and legal fees of counsel to the Underwriter in
their capacity as Blue Sky counsel to the Company in connection with the filing
of applications to register the Securities under the state securities or blue
sky laws (which legal fees shall be payable by the Company in the sum of
$25,000, of which $12,500 has been paid); the cost of printing and furnishing to
the Underwriter copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, this Agreement, the Selected Dealers Agreement, and
the Blue Sky Memorandum; the cost of printing the certificates evidencing the
securities comprising the Securities; the cost of preparing and delivering to
the Underwriter and its counsel bound volumes containing copies of all documents
and appropriate correspondence filed with or received from the Commission and
the NASD and all closing documents; and the fees and disbursements of the
transfer agent for the Company's securities. The Company shall pay any and all
taxes (including any original issue, transfer, franchise, capital stock or other
tax imposed by any jurisdiction) on sales to the Underwriter hereunder. The
Company will also pay all costs and expenses incident to the furnishing of any
amended Prospectus or of any supplement to be attached to the Prospectus. The
Company shall also engage the Company's counsel to provide the Underwriter with
a written Secondary Market Trading Opinion in accordance with Sections 3(ab) and
4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $50,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the Underwriter
at the Option Closing Date an additional amount equal to three percent (3%) of
the gross proceeds received upon exercise of the overallotment option.
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<PAGE>
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter against any losses, claims, damages or liabilities,
which shall, for all purposes of this Agreement, include, but not be limited to,
all costs of defense and investigation and all attorneys' fees, to which the
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. EFFECTIVE DATE. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the execution
of this Agreement; or at such earlier time after the Effective Date of the
Registration Statement as you in your discretion shall first commence the public
offering of any of the Securities. The time of the public offering shall mean
the time after the effectiveness of the Registration Statement when the
Securities are first generally offered by you to the Selected Dealers and/or the
public. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14, 15,
16 and 17 shall remain in effect notwithstanding such termination.
10. TERMINATION. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
12, 13, 14, 15, 16, and 17 hereof, may be terminated at any time prior to the
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by Federal or New York or Florida state authorities; (v) an
outbreak of major international hostilities or other national or international
calamity having occurred; (vi) the passage by the Congress of the United States
or by any state legislative body of similar impact, of any act or measure, or
the adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Underwriter to have a material
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adverse impact on the business, financial condition or financial statements of
the Company or the market for the Securities offered hereby; (vii) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement; (viii) any
material adverse change having occurred, since the respective dates as of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business; (ix) a
pending or threatened legal or governmental proceeding or action relating
generally to the Company's business, or a notification having been received by
the Company of the threat of any such proceeding or action, which could, in the
reasonable judgment of the Underwriter, materially adversely affect the Company;
(x) except as contemplated by the Prospectus, the Company is merged or
consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs; or (xi) the Company shall not have complied in all
material respects with any term, condition or provisions on its part to be
performed, complied with or fulfilled (including but not limited to those set
forth in this Agreement) within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
11. UNDERWRITER'S WARRANT AGREEMENT. At the Closing Date, the Company
will issue to the Underwriter and/or persons related to the Underwriter, for an
aggregate purchase price of $10, and upon the terms and conditions set forth in
the form of Underwriter's Warrant Agreement annexed as an exhibit to the
Registration Statement, Underwriter Warrants to purchase up to an aggregate of
200,000 Shares and 200,000 Warrants, in such denominations as the Underwriter
shall designate. In the event of conflict in the terms of this Agreement and the
Underwriter's Warrant Agreement, the language of the form of Underwriter's
Warrant Agreement shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriter set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriter, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
13. NOTICE. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, will be mailed, delivered or telefaxed,
and confirmed:
37
<PAGE>
If to the Underwriter: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
If to the Company: Rosanne Esposito, President
busybox.com, inc.
701 Battery Street, Third Floor
San Francisco, CA 94111
Copy to: Thomas J. Prousalis, Jr., Esq.
1919 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20006
14. PARTIES IN INTEREST. This Agreement herein set forth is made solely
for the benefit of the Underwriter, the Company and, to the extent expressed,
the holders of the Underwriter Warrants, any person controlling the Company or
the Underwriter, and directors of the Company, nominees for director (if any)
named in the Prospectus, each person who has signed the Registration Statement,
and their respective executors, administrators, successors, assigns and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser of the Securities,
as such purchaser, from the Underwriter.
15. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted properly
in a federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
38
<PAGE>
17. ENTIRE AGREEMENT. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreements, understandings, negotiations and discussions,
whether written or oral, of the parties hereto.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
busybox.com, inc.
BY:
---------------------------
Rosanne Esposito, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY:
---------------------------
Robert T. Kirk, President
<PAGE>
Exhibit 1.1
busybox.com, inc.
2,000,000 Shares of Common Stock and
2,000,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Boca Raton, Florida
_____________, 1999
Gentlemen:
1. Barron Chase Securities, Inc. (the "Underwriter") is offering for
sale an aggregate of 2,000,000 Shares of Common Stock (the "Shares") and
2,000,000 Warrants (the "Warrants") (collectively the "Firm Securities") of
busybox.com, inc. (the "Company"), which the Underwriter has agreed to purchase
from the Company, and which are more particularly described in the Registration
Statement, Underwriting Agreement and Prospectus. In addition, the Underwriter
has been granted an option to purchase from the Company up to an additional
300,000 Shares and an additional 300,000 Warrants (the "Option Securities") to
cover overallotments in connection with the sale of the Firm Securities. The
Firm Securities and any Option Securities purchased are herein called the
"Securities". The Securities and the terms under which they are to be offered
for sale by the Underwriter is more particularly described in the Prospectus.
2. The Securities are to be offered to the public by the Underwriter at
the price per Share and price per Warrant set forth on the cover page of the
Prospectus (the "Public Offering Price"), in accordance with the terms of
offering set forth in the Prospectus.
3. The Underwriter, subject to the terms and conditions hereof, is
offering a portion of the Securities for sale to certain dealers who are
actually engaged in the investment banking or securities business and who are
either (a) members in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"), or (b) dealers with their principal places of
business located outside the United States, its territories and its possessions
and not registered as brokers or dealers under the Securities Exchange Act of
1934, as amended (the "1934 Act"), who have agreed not to make any sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein (such dealers who shall agree to sell
Securities hereunder being herein called "Selected Dealers") at the public
offering price, less a selling concession (which may be changed) of not in
excess of $______ per Share and/or $_______ per Warrant payable as hereinafter
provided, out of which concession an amount not exceeding $__________ per Share
and/or $__________ per
1
<PAGE>
Warrant may be reallowed by Selected Dealers to members of the NASD or foreign
dealers qualified as aforesaid. The Selected Dealers who are members of the NASD
agree to comply with all of the provisions of the NASD Conduct Rules. Foreign
Selected Dealers agree to comply with the provisions of Rule 2740 of the NASD
Conduct Rules, and, if any such dealer is a foreign dealer and not a member of
the NASD, such Selected Dealer also agrees to comply with the NASD's
Interpretation with Respect to Free-Riding and Withholding, and to comply, as
though it were a member of the NASD, with the provisions of Rules 2730 and 2750
of the NASD Conduct Rules, and to comply with Rule 2420 thereof as that Rule
applies to non-member foreign dealers. The Underwriter has agreed that, during
the term of this Agreement, it will be governed by the terms and conditions
hereof.
4. The Underwriter shall act as Underwriter and shall have full
authority to take such action as it may deem advisable in respect to all matters
pertaining to the public offering of the Securities.
5. If you desire to act as a Selected Dealer and purchase any of the
Securities, your application should reach us promptly by facsimile or letter at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton,
Florida 33433, Attention: Robert T. Kirk. We reserve the right to reject
subscriptions in whole or in part, to make allotments, and to close the
subscription books at any time without notice. The Securities allotted to you
will be confirmed, subject to the terms and conditions of this Selected Dealers
Agreement (the "Agreement").
6. The privilege of subscribing for the Securities is extended to you
only on the condition that the Underwriter may lawfully sell the Securities to
Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the account of the Underwriter an
amount equal to the Selected Dealer concession as to any Securities purchased by
you hereunder which, prior to the completion of the public offering as defined
in paragraph 8 below, we may purchase or contract to purchase for our account
and, in addition, we may charge you with any broker's commission and transfer
tax paid in connection with such purchase or contract to purchase. Certificates
for Securities delivered on such repurchases need not be the identical
certificates originally purchased.
2
<PAGE>
You agree to advise us from time to time, upon request, of the number
of Securities purchased by you hereunder and remaining unsold at the time of
such request, and, if in our opinion any such Securities shall be needed to make
delivery of the Securities sold or overallotted for the account of the
Underwriter, you will, forthwith upon our request, grant to us for the account
of the Underwriter the right, exercisable promptly after receipt of notice from
you that such right has been granted, to purchase, at the Public Offering Price
less the selling concession or such part thereof as we shall determine, such
number of Securities owned by you as shall have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the Underwriter to you will
be paid when such Securities are delivered to you. However, you shall pay any
transfer tax on sales of Securities by you and you shall pay your proportionate
share of any transfer tax (other than the single transfer tax described above)
in the event that any such tax shall from time to time be assessed against you
and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate when
we shall have determined that the public offering of the Securities has been
completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the 30th
full business day after the date hereof; provided, however, that we shall have
the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
9. For the purpose of stabilizing the market in the Securities, we have
been authorized to make purchases and sales of the Securities of the Company, in
the open market or otherwise, for long or short account, and, in arranging for
sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and will
comply therewith.
3
<PAGE>
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but we shall not assume any obligation or responsibility as
to the right of any Selected Dealer to sell the Securities in any state or other
jurisdiction or as to the eligibility of the Securities for sale therein. We
will, if requested, file a Further State Notice in respect of the Securities
pursuant to Article 23-A of the General Business Law of the State of New York.
12. No Selected Dealer is authorized to act as agent for the
Underwriter, or otherwise to act on our behalf, in offering or selling the
Securities to the public or otherwise or to furnish any information or make any
representation except as contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriter, or with each other, but
you will be responsible for your share of any liability or expense based on any
claim to the contrary. We shall not be under any liability for or in respect of
value, validity or form of the Securities, or the delivery of the certificates
for the Securities, or the performance by anyone of any agreement on its part,
or the qualification of the Securities for sale under the laws of any
jurisdiction, or for or in respect of any other matter relating to this
Agreement, except for lack of good faith and for obligations expressly assumed
by us or by the Underwriter in this Agreement and no obligation on our part
shall be implied herefrom. The foregoing provisions shall not be deemed a waiver
of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at
the Public Offering Price less the above-mentioned selling concession on such
time and date as we may advise, at the office of Barron Chase Securities, Inc.,
7700 West Camino Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk, by
wire transfer to the account of the Underwriter, against delivery of
certificates for the Securities so purchased. If such payment is not made at
such time, you agree to pay us interest on such funds at the prevailing broker's
loan rate.
15. Notices to us should be addressed to us at the offices of Barron
Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
Attention: Robert T. Kirk. Notices to you shall be deemed to have been duly
given if telephoned, telefaxed or mailed
4
<PAGE>
to you at the address to which this Agreement or accompanying Selected Dealer
Letter is addressed.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to the choice of law
or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of the Selected Dealer Letter enclosed
herewith, even though you may have previously advised us thereof by telephone or
letter. Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
---------------------------------
Authorized Officer
<PAGE>
SELECTED DEALER LETTER
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
We hereby subscribe for Shares and/or Warrants of
busybox.com, inc. in accordance with the terms and conditions stated in the
foregoing Selected Dealers Agreement and this Selected Dealer letter. We
hereby acknowledge receipt of the Prospectus referred to in the Selected
Dealers Agreement and Selected Dealer letter. We further state that in
purchasing said Shares and/or Warrants we have relied upon said Prospectus
and upon no other statement whatsoever, whether written or oral. We confirm
that we are a dealer actually engaged in the investment banking or securities
business and that we are either (i) a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); or (ii) a dealer with its
principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer
under the Securities Exchange Act of 1934, as amended, who hereby agrees not
to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. As
a member of the NASD, we hereby agree to comply with all of the provisions of
NASD Conduct Rules. If we are a foreign Selected Dealer, we agree to comply
with the provisions of Rule 2740 of the NASD Conduct Rules, and if we are a
foreign dealer and not a member of the NASD, we agree to comply with the
NASD's interpretation with respect to free-riding and withholding, and agree
to comply, as though we were a member of the NASD, with provisions of Rules
2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 of the
NASD Conduct Rules as that Rule applies to non-member foreign dealers.
Firm:
--------------------------------
By:
--------------------------------
(Name and Position)
Address:
--------------------------------
--------------------------------
Telephone No.:
--------------------------------
Dated: , 1999
--------------------
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED O9:00 AM 10/26/1995
950247946 - 2555198
Exhibit 3.0
CERTIFICATE OF INCORPORATION
OF
Get Smart, Inc.
FIRST: The name of this corporation is Get Smart, Inc.
SECOND: Its registered office in the State of Delaware is to be located at
Three Christina Centre, 201 N. Walnut Street, Wilmington DE 19801, County of
New Castle. The registered agent in charge thereof is The Company
Corporation address "same as above".
THIRD: The nature of the business and, the objects and purposes proposed to
be transacted, promoted and carried on, are to do any or all the things
herein mentioned as fully and to the same extent as natural persons might or
could do, and in any part of the world, viz:
The purpose of the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The amount of the total authorized capital stock of this corporation
is divided into 1,500 shares of stock at NO par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Regina Cephas, Three Christina Centre, 201 N. Walnut St., Wilmington, DE 19801
SIXTH: The Directors shall have the power to make and to alter or amend the
By-Laws; to fix the amount to be reserved as working capital, and to
authorize and cause to be executed, mortgages and liens without limit as to
the amount, upon the property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the Directors shall
have the authority to dispose, in any manner, of the whole property of this
corporation.
The By-Laws shall determine whether and to what extent the accounts and books
of this corporation, or any of them shall be open to the inspection of the
stockholder: and no stockholder shall have any right of inspecting any
account, or book or document of this Corporation, except as conferred by the
law of the By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings and
keep the books, documents and papers of the Corporation outside of the State
of Delaware, at such places as may be from time to time designated by the
By-Laws or by resolution of the stockholders or directors, except as
otherwise required by the laws of Delaware.
SEVENTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach if
fiduciary duties unless the breach involves: (1) a director's duty of loyalty
to the corporation or its stockholders: (2) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law:
(3) liability for unlawful payments of dividends or unlawful stock purchase or
redemption by the corporation; or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws
of the State of Delaware, do make, file and record this Certificate and do
certify that the facts herein are true; and I have accordingly hereunto set
my hand.
DATED: OCTOBER 26, 1995
/s/ Regina Cephas
------------------------
<PAGE>
Exhibit 3.1
STATE OF DELAWARE Page 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "GET SMART, INC.", CHANGING ITS NAME FROM "GET SMART, INC." TO
"BUSY BOX, INC.", FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF DECEMBER,
A.D. 1998, AT 11:15 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
9478616
2555198 8100 AUTHENTICATION:
981491975 12-22-98
DATE:
<PAGE>
STATE OF DELAWARE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
Busy Box, Inc.
This amended and restated certificate of incorporation is being filed
pursuant to Sections 242 and 245. The name under which this company was
originally incorporated was Get Smart, Inc., the date of original filing was
October 26, 1995.
FIRST: The name of the corporation is
busybox.com, inc.
SECOND: The registered office of the corporation is to be located at
1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805.
The name and address of the Company's registered agent is The Company
Corporation, 1013 Centre Road, Wilmington, Delaware 19805.
THIRD: The purposes of the corporation are:
To furnish, perform and conduct services, undertakings, projects and
assignments of all kinds related to or useful in connection with corporation,
commercial, business, travel, entertainment, management, advisory,
environmental, medical, bio-medical, bio-technology, hydroponics,
aquaculture, engineering, telecommunications, computers, software, real
estate, aviation, aerospace, consulting, financial, insurance, investments,
mortgages, securities, mergers and acquisitions.
To create purchase, finance, invest in, lend to, own, control, operate,
manage, engage in, conduct or otherwise acquire, take any other interest in,
deal with, and dispose of corporations, businesses, joint ventures,
undertakings and projects of every description in the United States an any
other country, and to furnish services and assistance of all kinds to and on
behalf of their corporations, persons and entities, including managerial,
planning, advisory, financial, investment, technical, administrative
consulting, marketing, promotional, distributive, research and reporting
services on a state, national and international scale.
The corporation shall have the power to do any and all acts and things
necessary or useful to its business and purposes, and shall have the general,
specific and incidental powers and privileges granted to it by statute,
including, but not limited to:
To enter into and perform contracts; to acquire and exploit patents,
trademarks, rights of all kinds and related and other interests; to acquire,
use, deal in and with, encumber and dispose of
<PAGE>
real and personal property without limitation, including obligations and
securities, to borrow and lend money for its corporate purposes, to invest
and reinvest in funds, and to take, hold and deal with real and personal
property as security for the payment of funds loaned or invested or
otherwise, to vary any investment or employment of capital of the corporation
from time to time, to create or participate with other corporations and
entities for the performance of all undertakings as partner, joint venturer
or otherwise, and to share or delegate control therewith or thereto.
To pay pensions and establish and carry out pension, profit sharing,
stock option, stock purchase, stock bonus, retirement, benefit, incentive or
commission plans, trusts and provisions for any or all of the directors,
officers or employees of its subsidiaries; and to provide insurance for its
benefit of the life of any of its directors, officers or employees, or on the
life of any stockholder for the purpose of acquiring at his death shares of
its stock owned by such stockholder.
To invest in, merger or consolidate with any corporation in such manner
as may be permitted by law, to aid in any manner any corporation whose
stocks, bonds or other obligations are held or in any manner guaranteed by
this corporation or in which this corporation is in any way interested; to do
any other act or thing for the preservation, protection, improvement or
enhancement of the value of any such stock, bonds or other securities and
while owner thereof to exercise all the rights, powers and privileges of
ownership and any voting powers thereon, and to guarantee the indebtedness of
others and the payment of dividends upon the stock the principal and/or
interests of any bonds or other securities, and the performance of any
contracts.
To do all and everything, suitable and proper for the accomplishment of
any of the purposes, the attainment of any of the objects, or the furtherance
of any of the powers hereinbefore set forth either alone or in association
with other corporations, firms, partnerships or individuals, to do every
other act and thing incidental or appurtenant to, growing out of, or
connected with the aforesaid business or powers to the extent permitted by
the laws of Delaware under which this corporation is organized, and to do all
such acts and things, conduct business, have one or more offices, and
exercise its corporate powers in any and all places without limitation.
FOURTH: 1) The total number of shares of common stock which the
corporation is authorized to issue is twenty-five million (25,000,000)
shares, $.01 par value per share.
2) The corporation is hereby empowered to issue from time to time its
authorized shares and securities, options, warrants and other rights
convertible thereinto for such lawful consideration, whether money or
otherwise, as the Board of Directors shall determine. Any shares issued for
which the consideration so fixed has been paid or delivered shall be fully
paid stock and the holder of such shares shall not be liable for any further
call or assessment or any other payment thereon, provided that the actual
value of the consideration is not less than the par value of the shares so
issued.
<PAGE>
3) The stockholders of the corporation do not have any preemptive or
preferential right to subscribe to or purchase unissued shares of any class
or stock of the corporation whether such shares are now or hereafter
authorized, or any Treasury shares to be sold by the corporation.
Transferability of the shares of the corporation is restricted in the
following manner.
The price to be paid for the shares which shall be set forth in the
written offers and notices prescribed above, shall be the fair market value
thereof, or, if there is no established market value, the book value thereof
("book value" being the appraised value of all corporate assets and
liabilities as of the date of the last balance sheet), or at a price not
exceeding the amount offered in writing by a bona fide offer to purchase said
shares, whichever shall be higher.
These terms shall be binding upon all stockholders of record, their
heirs, executors, administrators and assigns, and shall include transfers by
will, gift, intestacy, and to all third parties or otherwise.
All offers and notices, if mailed, shall be deemed to have been
delivered on the day mailed postage prepaid, addressed to the stockholders of
the corporation, as above, according to the books of the corporation, and the
shares shall be transferable, other than to the corporations's shareholders
in the manner required herein, only upon proof of compliance herewith.
FIFTH: The corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever, and they shall not be
personally liable for the payment of the corporation's debts except as they
may be liable by reason of their own conduct or acts.
SEVENTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the corporation, and for
further definition, limitation and regulation of the powers of the
corporation and of its directors and stockholders.
1) The number of directors comprising the Board of Directors of the
corporation shall be fixed by or in the manner provided in the By-Laws, but
shall not be less than one. Election of directors need not be by ballot
unless the By-Laws so provide.
2) The Board of Directors shall have the power, unless and to the
extent that the Board may from time to time by resolution relinquish or
modify the power, without the assent or vote of the shareholders:
a) To make, alter, amend, change, add to or repeal the By-Laws of
the corporation; to fix and vary the amount of capital of the corporation
to be reserved for any proper purpose; to authorize and cause to be
executed mortgages and liens upon all or any part of the property of the
corporation; to determine the use and disposition of any surplus or net
profits, and to fix the times for the declaration and payment of dividends.
<PAGE>
3) The Board of Directors in its discretion may submit any contract or
act for approval or ratification at any annual meeting of the stockholders or
at any meeting of the stockholders called for the purpose of considering any
act or contract. Any contract or act that shall be approved or ratified by
the vote of the holders of a majority of the stock represented in person or
by proxy at such meeting and entitled to vote (provided that a lawful quorum
of stockholders be there represented in person or by proxy) shall be as valid
and as binding upon the corporation and its stockholders as though it had
been approved or ratified by every stockholder of the corporation, whether or
not the contract or act would otherwise be open to legal attack because of the
corporation, whether or not the contract or act would otherwise be open to
legal attack because of a director's interest or for any other reason.
4) No contract or transaction between this corporation and one or more
of its directors or officers or between this corporation and any other
corporation, partnership, association or other organization in which one or
more of its directors or officers are directors or officers or have a
financial interest shall be void solely for this reason or solely because the
director or officer is present at or participates in the meeting of the board
or committee thereof which authorizes the contract or transaction is fair as
to the corporation or if the material facts relating thereto are disclosed to
or are known by the directors or shareholders, and are approved thereby
pursuant to Section 144 of Title 8 of the Delaware Code.
5) In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the Board of Directors is hereby empowered to
exercise all such powers and to do all such acts and things as may be
exercised or done by the corporation, subject to the provisions of the
statutes of Delaware, of this Certificate, and to any By-Laws from time to
time made by the stockholders, and provided that no By-Laws so made shall
invalidate any prior act of the Board which would have been valid if such
By-Law had not been made.
EIGHTH: The corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto. To the
fullest extent permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the corporation shall not
be liable to the corporation or its stockholders for monetary damages for the
breach of fiduciary duty as a director.
NINTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them, any court of equitable
jurisdiction within the State of Delaware may, in the application in a
summary way of this corporation of any receiver or receivers appointed for
this corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of the trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
section 279 of Title 8 of the Delaware Code, order a meeting of the creditors
of the stockholders or class of stockholders of this corporation, as the case
may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors or of the stockholders or class of stockholders, as the
case may be, agree to any compromise or said compromise, arrangement or
reorganization shall, if sanctioned by the court to which the said
<PAGE>
application has been made, be binding on all the creditors or class of
creditors or on all the stockholders or class of stockholders, as the case
may be, and also on this corporation.
TENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
Executed as of the 9th day of December, 1998.
/s/ Jon M. Bloodworth, Esq. 12/09/98
--------------------------------------
Jon M. Bloodworth, Esq.
General Counsel & Secretary
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
BUSYBOX.COM, INC.
1. OFFICES
1.1 REGISTERED OFFICE: The corporation shall maintain a registered office
and registered agent in the State of Delaware. The corporation may
have other offices, including its executive offices, either within or
without the State of Delaware, at such place or places as the board
of directors ("Board") may from time to time determine.
2. MEETINGS OF STOCKHOLDERS
2.1 ANNUAL MEETINGS: An annual meeting of stockholders for the election
of directors and for the transaction of any other proper business
shall be held at the executive office of the corporation or at such
other place and at such time and date as the Board, by resolution,
shall determine and cause to be specified in the notice of the
meeting, provided that in the absence of any contrary determination
by the Board, the date of the annual meeting shall be on or before
October 31 of each year. If the date of the annual meeting should
fall upon a legal holiday, the meeting shall be held on the next
succeeding business day. At each annual meeting, the stockholders
entitled to vote shall elect a Board and they may transact such other
corporate business as shall be stated in the notice of the meeting.
2.2 SPECIAL MEETINGS: Special meetings of the stockholders for any
purpose or purposes may be held at the call of the President or by
resolution of the directors or by the written request of a majority
of the stockholders, to be held at such time and place within or
without the State of Delaware as shall be stated in the notice of the
meeting.
2.3 VOTING: Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person
or by proxy, for each share of stock entitled to vote held by him,
but no proxy shall be voted after three years from its date unless
such proxy provides for a longer period. Upon the demand of any
stockholder, the vote for directors and the vote upon any question
before the meeting shall be by ballot. All
1.
<PAGE>
elections for directors shall be decided by plurality vote, all other
questions shall be decided by majority vote, except as otherwise
provided by the Certificate of Incorporation or the laws of the State
of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, with the address of each and the number of shares held by
each, shall be open to examination by any stockholder for any purpose
germane to the meeting during ordinary business hours for a period of
at least ten days prior to the meeting either at a place within the
city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
2.4 QUORUM: Except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, the presence in person or by proxy of
stockholders holding a majority of stock of the corporation entitled
to vote shall constitute a quorum at all meetings of stockholders. In
case a quorum shall not be present at any meeting, a majority in
interest of stockholders entitled to vote thereat, present in person
or by proxy, shall have the power to adjourn the meeting from time to
time without notice, other than announcement at the meeting, until
the requisite amount of stock entitled to vote shall be present. At
any adjourned meeting at which the requisite amount of stock entitled
to vote shall be represented, any business may be transacted which
might have been transacted at the meeting as originally noticed, but
only those stockholders entitled to vote at the meeting as originally
noticed shall be entitled to vote at any adjournment.
2.5 NOTICE OF MEETINGS: Written notice of all meetings stating the place,
date and time of the meeting and the general nature of the business
to be considered shall be given to each stockholder entitled to vote
thereat, at his address as it appears on the records of the
corporation not less than ten nor more than sixty (60) days before
the date of the meeting. No business other than that stated in the
notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
2.6 ACTION WITHOUT MEETING: Unless otherwise provided by the Certificate
of Incorporation, any action required or which may be taken at an
annual or special meeting of stockholders may be taken without a
meeting and without prior notice and a vote if a consent in writing
setting forth the action so taken shall be signed by the holders of
outstanding stock having no less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking
2.
<PAGE>
of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in
writing.
3. DIRECTORS
3.1 NUMBER & TERM: The number of directors comprising the Board shall be
not less than one nor more than nine. The number of directors may
from time to time be increased or decreased by amendment of this
Section but shall in no event be reduced to less than one. The Board
shall be elected at the annual meeting of stockholders and each
director shall be elected to serve until his successor is elected and
qualified. Directors need not be stockholders.
3.2 RESIGNATIONS: Any Director, member of a committee or other officer
may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be
specified, at the time of its receipt by the President or Secretary.
The acceptance of a resignation shall not be necessary to make it
effective.
3.3 VACANCIES: If the office of a director, a member of a committee or
other officer becomes vacant, the remaining directors in office,
though less than a quorum, or the sole remaining director, may by a
majority vote appoint any qualified person to fill such vacancy, who
shall hold office for the unexpired term or until his successor is
duly chosen.
3.4 REMOVAL: A director may be removed either for or without cause at any
time by the affirmative vote of the holders of a majority of all the
shares of stock outstanding and entitled to vote at a special meeting
of the stockholders called for that purpose and the vacancy thus
created may be filled by the affirmative vote of a majority in
interest of the stockholders entitled to vote thereat.
3.5 INCREASE OF NUMBER: The number of directors may be increased by
amendment of these By-Laws by the affirmative vote of a majority of
the directors, though less than a quorum, or by the affirmative vote
of a majority in interest of the stockholders at the annual meeting
or at a special meeting called for that purpose. By like vote,
additional directors may be chosen at such meeting to hold office
until the next annual election and until their successors are elected
and qualified.
3.6 POWERS: The Board shall exercise all powers of the corporation except
those which by law or the Certificate of Incorporation or these
By-Laws are conferred upon or reserved to stockholders.
3.7 COMMITTEES: The Board may by resolution passed by a majority of
directors designate one or more committees, each committee to consist
of one or more directors. The Board may designate one or more
directors as alternate
3.
<PAGE>
members of any committee, who may replace an absent or disqualified
member at any meeting of the committee. Any such committee, to the
extent provided in the resolution, shall have and may exercise the
powers of the Board in the management of business and affairs of the
corporation. However, in the absence or disqualification of any
member of such committee, the members thereof present at the meeting
and not disqualified from voting, whether constituting a quorum or
not, may unanimously appoint another member of the Board to act in
the place of such absent or disqualified member.
3.8 MEETINGS: The newly elected directors may hold their first meeting
for the purposed of organization and the transaction of business of
business immediately after the annual meeting of the stockholders, if
a quorum be present, or the time and place of such meeting may be
fixed by the consent in writing of all directors. Regular meetings of
the directors may be held without notice at such place and time as
shall be determined by resolution of the directors. Special meetings
of the Board may be called by the President or by the Secretary on
the written request of any two directors on at least two days notice
to each director and shall be held at such place as may be determined
by the directors or as shall be stated in the call of the meeting.
3.9 QUORUM: A majority of the directors shall constitute a quorum for the
transaction of business. If at any meeting of the Board there shall
be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained and
no further notice thereof need be given other than by announcement at
the meeting so adjourned.
3.10 COMPENSATION: Directors shall not receive any stated salary for their
services as directors or as members of committees, but by resolution
of the Board, a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in
any other capacity as an officer, agent or otherwise and from
receiving compensation.
3.11 ACTION WITHOUT MEETING: Any action required or permitted to be taken
at any meeting of the Board, or any committee thereof may be taken
without a meeting if all members of the Board, as the case may be,
consent thereto in writing and the writing or writings are filed with
the minutes of proceedings of the Board or Committee.
3.12 ACTION BY TELEPHONE CONFERENCE: Members of the Board or any committee
designated thereby may participate in meeting of such Board or
Committee by means of conference telephone or similar communications
equipment in which all persons participating can hear each other.
Participation in a meeting pursuant to this section shall constitute
presence in person at such meeting.
4.
<PAGE>
4. OFFICERS
4.1 OFFICERS: The officers of the corporation shall include a President,
Treasurer, and Secretary, all of whom shall be elected by the Board
and shall not hold office until their successors are elected and
qualified. In addition, the Board may elect a Chairman, one or more
Vice Presidents and such Assistant Secretaries and Assistant
Treasurers as they may deem proper. None of the officers of the
corporation need be directors. The officers shall be elected at the
first meeting of the Board after each annual meeting. Any number of
offices may be held by the same person.
4.2 OTHER OFFICERS AND AGENTS: The Board may appoint such other officers
and agents as it may deem advisable. They shall hold their offices
for such terms and exercise such powers and perform such duties as
may be determined from time to time by the Board.
4.3 CHAIRMAN: The Chairman of the Board, if one be elected, shall preside
at all meetings of the Board and he shall have and perform such other
duties as from time to time may be assigned to him by the Board.
4.4 PRESIDENT: The President shall be the chief executive officer of the
corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President
of a corporation. He shall preside at all meetings of stockholders if
present thereat and, in the absence or non-election of a Chairman of
the Board, at all meetings of the Board. He shall have general
supervision, direction and control of the business of the corporation
and, except as the Board shall authorize the execution thereof in
some other manner, shall execute bonds, mortgages and other contracts
on behalf of the corporation and cause the seal to be affixed to any
instrument requiring it. When so affixed, the seal shall be attested
by the signature of the Secretary or the Treasurer.
4.5 VICE PRESIDENT: Each Vice President shall have such powers and
perform such duties as shall be assigned to him by the directors.
4.6 TREASURER: The treasurer shall have custody of corporate funds and
securities and keep full and accurate account of receipts and
disbursements in books belonging to the corporation. He shall deposit
all moneys and other valuables in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
4.7 SECRETARY: The Secretary shall give or cause to be given notice of
all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws. In case of his absence, refusal
or neglect to do so, the
5.
<PAGE>
notice may be given by any person thereunto directed by the
President, the directors, or the stockholders, upon whose requisition
the meeting is called as provided in these By-Laws. He shall record
all proceedings of the meetings of the corporation and its directors
in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President.
He shall have custody of the corporate seal, affix it to all
instruments requiring it when authorized by the directors or the
President, and attest the same.
4.8 ASSISTANT TREASURERS & ASSISTANT SECRETARIES: Assistant Treasurers
and Assistant Secretaries, if any, shall be elected and shall have
such powers and perform such duties as shall be assigned to them
respectively by the directors.
5. MISCELLANEOUS
5.1 CERTIFICATES OF STOCK: Certificates of stock, signed by the President
or Vice President and the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, shall be issued to each
stockholder certifying the number of shares owned by him in the
corporation. When such certificates are countersigned (1) by a
transfer agent other than the corporation or its employee, or (2) by a
registrar other than the corporation or its employee, the signatures of
such officers may be facsimiles.
5.2 LOST CERTIFICATES: A new certificate of stock may be issued in the
place of any certificate theretofore issued by the corporation alleged
to have been lost or destroyed. The directors may, in their
discretion, require the owner of the lost or destroyed certificate,
or his legal representatives to give the corporation a bond in such
sum as they may direct not exceeding twice the fair market value of
the stock, to indemnify the corporation against any claim that may be
made against it on account of the alleged loss of certificates or the
issuance of all new certificates.
5.3 TRANSFER OF SHARES: Shares of stock of the corporation shall be
transferable only upon it books by the holders thereof in person or
by their duly authorized attorneys or legal representatives. Upon
such transfer the old certificates shall be surrendered to the
corporation by delivery thereof to the person in charge of the stock
and the transfer books and ledgers, or to such other person as the
directors may designate, by whom they shall be canceled and new
certificates issued. A record shall be made of each transfer and
whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.
5.4 STOCKHOLDERS RECORD DATE: In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or adjournment thereof, or to express consent to
corporate action in writing without a
6.
<PAGE>
meeting, or entitled to receive payment of dividends or other
distribution or allotment of rights, or entitled to exercise rights
in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix in advance a
record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting nor more than sixty days
prior to any other action. A determination of stockholders shall
apply to any adjournment of the meeting, provided that the Board may
fix a new record date for the adjourned meeting.
5.5 DIVIDENDS: Subject to the provisions of the Certificate of
Incorporation, the Board may, out of funds legally available therefor
at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of funds of the
corporation available for dividends such sums as the directors from
time to time in their discretion deem proper for working capital, a
reserve to meet contingencies, equalizing dividends or such other
purposes as the directors shall deem consistent with the interests of
the corporation.
5.6 SEAL: The corporate seal shall be circular in form and shall contain
the name of the corporation, the year of its creation, and the words
"Corporate Seal Delaware." The seal may be used by causing it or a
facsimile to be impressed, affixed or reproduced.
5.7 FISCAL YEAR: The fiscal year of the corporation shall close on such
date as the Board may from time to time determine and specify by
resolution, provided that in the absence of any contrary determination
by the Board the fiscal year shall close on December 31.
5.8 CHECKS: All checks, drafts, or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or
agents of the corporation, and in such manner as shall be determined
from time to time by resolution of the Board.
5.9 NOTICE AND WAIVER OF NOTICE: Whenever any notice is required by these
By-Laws, personal notice is not meant unless expressly so stated. Any
notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it
appears on the records of the corporation, or alternatively, by email
to the email address as it appears on the records of the corporation,
and such notice shall be deemed to have been given on the day of
mailing. Stockholders not entitled to vote shall not be entitled to
receive notice of any meetings except as otherwise provided by
statute. Whenever notice is required to be given under the provisions
of any
7.
<PAGE>
law or under the provisions of the Certificate of Incorporation or
these By-Laws, a waiver thereof in writing signed by the person or
persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
These By-Laws may be modified, repealed or new By-Laws adopted at any annual
or special meeting of stockholders, if notice thereof is contained in the
notice of such meeting, by affirmative vote of a majority of the holders of
issued and outstanding stock entitled to vote thereat, or by affirmative vote
of a majority of directors at any regular or special meeting of the Board, if
notice thereof is contained in the notice of such special meeting.
<TABLE>
<S> <C>
Dated as of this date, /s/ JON M. BLOODWORTH
December 9, 1998, by: ---------------------------
Jon M. Bloodworth
Secretary & General Counsel
</TABLE>
8.
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT (the "Underwriter's Warrant Agreement"
or "Agreement"), dated as of ____________, 1999, between busybox.com, inc. (the
"Company") and Barron Chase Securities, Inc. (the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Underwriter has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the Underwriter, to act as the Underwriter in connection with the
Company's proposed public offering (the "Public Offering") of 2,000,000 shares
of the Company's Common Stock at $5.00 per share and 2,000,000 Warrants ("Public
Warrants") at $.125 per Public Warrant; and
WHEREAS, the Company proposes to issue to the Underwriter and/or
persons related to the Underwriter as those persons are defined in Rule 2710 of
the NASD Conduct Rules (the "Holder"), 200,000 warrants ("Common Stock
Underwriter Warrants") to purchase 200,000 shares of the Company's Common Stock
(the "Shares") and 200,000 warrants ("Warrant Underwriter Warrants") to purchase
200,000 Common Stock Purchase Warrants ("Underlying Warrants") exercisable to
purchase 200,000 shares of the Company's Common Stock. The "Common Stock
Underwriter Warrants" and the "Warrant Underwriter Warrants" are collectively
referred to as the "Warrants". The "Shares" and the "Underlying Warrants" are
collectively referred to as the "Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Underwriter acting as Underwriter
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment to the
Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. GRANT AND PERIOD.
The above recitals are true and correct. The Public Offering has been
registered under a Registration Statement on Form SB-2 (File No. _________) and
declared effective by the Securities and Exchange Commission (the "SEC" or
"Commission") on _______, 1999 (the "Effective Date"). This Agreement, relating
to the purchase of the Warrants, is entered into pursuant to the Underwriting
Agreement between the Company and the Underwriter in connection with the Public
Offering.
1
<PAGE>
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 200,000 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $8.25 per share (165% of the public offering
price) and/or 200,000 non-redeemable Underlying Warrants at an initial exercise
price of $.20625 per warrant (165% of the public offering price) (the "Exercise
Price" or "Purchase Price"), subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of
Common Stock at $8.25 per share during the five (5) year period commencing on
the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption "Description
of Securities" in the Registration Statement, and as designated in the Company's
Articles of Incorporation and any amendments thereto, and the Underlying
Warrants shall be governed by the terms of the Warrant Agreement executed in
connection with the Company's public offering (the "Warrant Agreement"), except
as provided herein, and the Holders shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Warrants, the Shares,
the Underlying Warrants, and the shares of Common Stock underlying the
Underlying Warrants, as more fully described in paragraph seven (7) of this
Underwriter's Warrant Agreement. In the event of any extension or change of the
expiration date or reduction or change of the exercise price of the Public
Warrants, the same expiration date and percentage price change to the Underlying
Warrants shall be simultaneously effected, except that the Underlying Warrants
shall expire no later than five (5) years from the Effective Date.
2. WARRANT CERTIFICATES.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
3.1 FULL EXERCISE.
(i) The Holder may effect a cash exercise of the Common Stock
Underwriter Warrants and/or the Warrant Underwriter Warrants and/or the
Underlying Warrants by surrendering the Warrant Certificate, together
with a Subscription in the form of Exhibit "A" attached thereto, duly
executed by such Holder
2
<PAGE>
to the Company, at any time prior to the Expiration Time, at the
Company's principal office, accompanied by payment in cash or by
certified or official bank check payable to the order of the Company in
the amount of the aggregate purchase price (the "Aggregate Price"),
subject to any adjustments provided for in this Agreement. The
aggregate price hereunder for each Holder shall be equal to the
exercise price as set forth in Section six (6) hereof multiplied by the
number of Warrants, Underlying Warrants or Shares that are the subject
of each Holder's Warrant (as adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the
Common Stock Underwriter Warrants and/or the Underlying Warrants by
delivering the Warrant Certificate to the Company together with a
Subscription in the form of Exhibit "B" attached thereto, duly executed
by such Holder, in which case no payment of cash will be required. Upon
such cashless exercise, the number of Shares to be purchased by each
Holder hereof shall be determined by dividing: (i) the number obtained
by multiplying the number of Shares that are the subject of each
Holder's Warrant Certificate by the amount, if any, by which the then
Market Value (as hereinafter defined) exceeds the Purchase Price; by
(ii) the then per share Market Value or Purchase Price, whichever is
greater. In no event shall the Company be obligated to issue any
fractional securities and, at the time it causes a certificate or
certificates to be issued, it shall pay the Holder in lieu of any
fractional securities or shares to which such Holder would otherwise be
entitled, by the Company check, in an amount equal to such fraction
multiplied by the Market Value. The Market Value shall be determined on
a per Share basis as of the close of the business day preceding the
exercise, which determination shall be made as follows: (a) if the
Common Stock is listed for trading on a national or regional stock
exchange or is included on the NASDAQ National Market or Small-Cap
Market, the average closing sale price quoted on such exchange or the
NASDAQ National Market or Small-Cap Market which is published in THE
WALL STREET JOURNAL for the ten (10) trading days immediately preceding
the date of exercise, or if no trade of the Common Stock shall have
been reported during such period, the last sale price so quoted for the
next day prior thereto on which a trade in the Common Stock was so
reported; or (b) if the Common Stock is not so listed, admitted to
trading or included, the average of the closing highest reported bid
and lowest reported ask price as quoted on the National Association of
Securities Dealer's OTC Bulletin Board or in the "pink sheets"
published by the National Daily Quotation Bureau for the first day
immediately preceding the date of exercise on which the Common Stock is
traded.
3.2 PARTIAL EXERCISE. The securities referred to in
3
<PAGE>
paragraph 3.1 above also may be exercised from time to time in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof, except that with respect to a cash exercise, the Purchase Price payable
shall be equal to the number of securities being purchased hereunder multiplied
by the per security Purchase Price, subject to any adjustments provided for in
this Agreement. Upon any such partial exercise, the Company, at its expense,
will forthwith issue to the Holder hereof a new Warrant Certificate or Warrants
of like tenor calling in the aggregate for the number of securities (as
constituted as of the date hereof) for which the Warrant Certificate shall not
have been exercised, issued in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company, attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary of the Company. Warrant Certificates shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the Effective Date of the Public Offering, except (a) to officers
of the Underwriter or to officers and partners of the Selected Dealers
4
<PAGE>
participating in the Public Offering; (b) by will; or (c) by operation of law.
6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICES.
The initial exercise price of each Common Stock Underwriter Warrant
shall be $8.25 per share (165% of the public offering price). The initial
exercise price of each Warrant Underwriter Warrant shall be $.20625 per
Underlying Warrant (165% of the public offering price). The initial exercise
price of each Underlying Warrant shall be $8.25 per share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof. The Warrant Underwriter Warrants and the Underlying Warrants
are exercisable during the five (5) year period commencing on the Effective
Date.
6.2 EXERCISE PRICE.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933.
The Warrants, the Shares, the Underlying Warrants and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (collectively the
"Registrable Securities") have been registered under the Securities Act of 1933,
as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares, the Underlying Warrants and/or the shares
of Common Stock issuable upon exercise of the Underlying Warrants shall bear the
following legend in the event there is no current registration statement
effective with the Commission at such time as to such securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act and applicable state securities laws is
available.
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7.2 PIGGYBACK REGISTRATION.
If, at any time commencing after the Effective Date of the offering and
expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new Registration
Statement under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the Underwriter
and to all other Holders of the Registrable Securities of its intention to do
so. If the Underwriter and/or other Holders of the Registrable Securities notify
the Company within twenty (20) days after receipt of any such notice of its or
their desire to include any such Registrable Securities in such proposed
Registration Documents, the Company shall afford the Underwriter and such
Holders of such Registrable Securities the opportunity to have any Registrable
Securities registered under such Registration Documents or any other available
Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 DEMAND REGISTRATION.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Underwriter and Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale of their respective Registrable
Securities for nine (9) consecutive months (or such longer period of time as
permitted by the Act) by such Holders and any other Holders of any of the
Registrable Securities who notify the Company within twenty (20) days after
receipt of notice from the Company of such request. A Demand Registration shall
not be counted as a Demand Registration hereunder until such Demand Registration
has been declared effective by the SEC and maintained continuously effective for
a period of at least nine months or such
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shorter period when all Registrable Securities included therein have been sold
in accordance with such Demand Registration, provided that a Demand Registration
shall be counted as a Demand Registration hereunder if the Company ceases its
efforts in respect of such Demand Registration at the request of the majority
Holders making the demand for a reason other than a material and adverse change
in the business, assets, prospects or condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year after
the Effective Date of the offering, and expiring four (4) years thereafter, the
Holders of a majority of the Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare and
file, on one occasion, with the Commission a registration statement or any other
appropriate disclosure document so as to permit a public offering and sale for
nine (9) consecutive months (or such longer period of time as permitted by the
Act) by any such Holder of Registrable Securities; provided, however, that the
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section
7.3 shall:
(i) specify the number of Registrable Securities which the
Holders intend to offer and sell and the minimum price at which the
Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable requirements of the Commission
and to obtain acceleration of the effective date of the registration
statement.
(e) In the event the Company receives from the Holders of any
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Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company. Registrations effected pursuant to this Section 7.3(e) shall not be
counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof.
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
In connection with the filing of any Registration Document by the
Company, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company will
promptly notify each seller of such Registrable Securities and confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
such registration statement or any prospectus relating thereto or for additional
information.
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any,
and fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of
the selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to Section
7.3(c). If the Company shall fail to comply with the provisions of Section
7.3(a), the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any or all special and consequential
damages sustained by the Holder(s)
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requesting registration of their Registrable Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any proceedings
for the purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as reasonably are
required by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction. The
Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities of the United States
or any State thereof as may be reasonably necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter as contained in the Underwriting
Agreement.
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of the Holder(s) of the
Registrable Securities to be sold pursuant to
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a registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from written
information furnished by such Holder, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in the Underwriting Agreement
pursuant to which the Underwriter has agreed to indemnify the Company, except
that the maximum amount which may be recovered from each Holder pursuant to this
paragraph or otherwise shall be limited to the amount of net proceeds received
by the Holder from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants or Underlying Warrants prior to the
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof without the prior written consent of the
Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall deliver promptly to each Holder participating in
the offering and to the managing underwriter
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copies of all correspondence between the Commission and the Company, its counsel
or auditors and all non-privileged memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and permit
each Holder and underwriter to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section
7.3, the Company, if requested, shall enter into an underwriting agreement with
the managing underwriter, reasonably satisfactory to the Company, selected for
such underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
Underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of
this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have issued
a no-action position, in form and substance satisfactory to counsel for the
Holder(s) requesting registration of such Registrable Securities, to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may be
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sold by it, in the manner proposed by such Holder(s), without registration under
the Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
8.1 ADJUSTMENT FOR DIVIDENDS, SUBDIVISIONS, COMBINATIONS OR
RECLASSIFICATIONS.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
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Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 ADJUSTMENT FOR REORGANIZATION, MERGER OR CONSOLIDATION.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant Agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant Agreement shall provide
for adjustments which shall be identical to the adjustments provided in Section
8 and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations of the
Company under this Agreement. The above provision of this Subsection shall
similarly apply to successive consolidations or successively whenever any event
listed above shall occur.
8.3 DIVIDENDS AND OTHER DISTRIBUTIONS.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution made as a cash dividend payable out of earnings or out of any
earned surplus legally available for dividends under the laws of
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the jurisdictions of incorporation of the Company), whether issued by the
Company or by another, the Holders of the unexercised Warrants shall thereafter
be entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such distribution as if the Warrants had been exercised
immediately prior to such distribution. At the time of any such distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this subsection or an adjustment to the Exercise Price, which
shall be effective as of the day following the record date for such
distribution.
8.4 ADJUSTMENT IN NUMBER OF SECURITIES.
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 8, the number of securities issuable upon the exercise of each
Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of securities issuable upon exercise of the
Warrants and/or the Underlying Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.5 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
8.6 ACCOUNTANT'S CERTIFICATE OF ADJUSTMENT.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent certified public accountants then auditing the books of
the Company) to compute such adjustment or readjustment in accordance herewith
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to any Holder(s) of
the Warrants and/or Underlying Warrants at the Holder(s) address as shown on the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
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readjustment is based including, but not limited to, a statement of (i) the
Exercise Price at the time in effect, and (ii) the number of additional or fewer
securities and the type and amount, if any, of other property which at the time
would be receivable upon exercise of the Warrants and/or Underlying Warrants.
8.7 ADJUSTMENT OF UNDERLYING WARRANT EXERCISE PRICE.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTEREST.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants and/or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
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11. RESERVATION, VALIDITY AND LISTING.
The Company covenants and agrees that during the exercise period, the
Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants and the Underlying Warrants, such number of shares of Common Stock
or other securities, properties or rights as shall be issuable upon the exercise
under this Warrant Certificate. The Company covenants and agrees that, upon
exercise of the Warrants and/or the Underlying Warrants, and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly authorized, validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants and/or Underlying Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants and the Underlying
Warrants to be listed and quoted (subject to official notice of issuance) on all
securities exchanges and systems on which the Common Stock and/or the Public
Warrants are then listed and/or quoted, including Nasdaq.
12. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants and/or Underlying Warrants the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and/or Underlying Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
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then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. UNDERLYING WARRANTS.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one (1) Underlying Warrant shall
evidence the right to initially purchase one (1) fully-paid and non-assessable
share of Common Stock at an initial purchase price of $8.25 during the five (5)
year period commencing on the Effective Date of the Registration Statement, at
which time the Underlying Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Underlying Warrants and the
number of shares of Common Stock issuable upon the exercise of the Underlying
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Underlying Warrants have been issued, in the manner and upon
the occurrence of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the Underlying Warrants, each registered holder of such Underlying Warrant
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully-paid and non-assessable
shares of Common Stock (subject to adjustment as provided in the Warrant
Agreement) set forth in such Warrant Certificate, free and clear of all
preemptive rights of stockholders, provided that such registered Holder complies
with the terms governing exercise of the Underlying Warrant set forth in the
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
Underlying Warrants, the Company shall forthwith issue to the registered Holder
of any such Underlying Warrant in his name or in such name as may be directed by
him, certificates for the number of shares of Common Stock so purchased. Except
as otherwise provided herein and in this
17
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Agreement, the Underlying Warrants shall be governed in all respects by the
terms of the Warrant Agreement. The Underlying Warrants shall be transferrable
in the manner provided in the Warrant Agreement, and upon any such transfer, a
new Underlying Warrant certificate shall be issued promptly to the transferee.
The Company covenants to send to each Holder, irrespective of whether or not the
Warrants have been exercised, any and all notices required by the Warrant
Agreement to be sent to holders of Underlying Warrants.
14. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when sent by
facsimile and delivered personally or by overnight courier, or mailed by
registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth below or to
such other address as the Company may designate by notice to the
Holders.
Rosanne Esposito, President
busybox.com, inc.
701 Battery Street, Third Floor
San Francisco, CA 94111
Copy to: Thomas J. Prousalis, Jr., Esq.
1919 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20006
and
David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
15. ENTIRE AGREEMENT: MODIFICATION.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of
18
<PAGE>
shares of Common Stock). Notice of any modification, waiver or amendment shall
be promptly provided to any Holder not consenting to such modification, waiver
or amendment.
16. SUCCESSORS.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. TERMINATION.
This Agreement shall terminate at the earlier of the public sale of all
of the Registrable Securities or at the close of business on ________, 2006.
Notwithstanding the foregoing, the indemnification provisions of Section 7 shall
survive such termination.
18. GOVERNING LAW; SUBMISSION TO JURISDICTION.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Florida and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Underwriter and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for
Palm Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriter and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. A party to this Agreement named as
a Defendant in any action brought in connection with this Agreement in any court
outside of the above named designated county or district shall have the right to
have the venue of said action changed to the above designated county or district
or, if necessary, have the case dismissed, requiring the other party to refile
such action in an appropriate court in the above designated county or federal
district.
19. SEVERABILITY.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. CAPTIONS.
The caption headings of the Sections of this Agreement are for
19
<PAGE>
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
21. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
Holder(s) of the Warrant Certificates or Registrable Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and any
other Holder(s) of the Warrant Certificates or Registrable Securities.
22. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
busybox.com, inc.
BY:
--------------------------------
Rosanne Esposito, President
Attest:
- ----------------------------
Jon M. Bloodworth, Secretary
BARRON CHASE SECURITIES, INC.
By:
--------------------------------
Robert Kirk, President
20
<PAGE>
busybox.com, inc.
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON ___________, 2004
NO. W-
--------
Common Stock Warrant
-----------Underwriter -------- Underwriter
Warrants Warrants
or
---------
Underlying
Warrants
This Warrant Certificate certifies that _______________, or
registered assigns, is the registered holder of ________ Common Stock
Underwriter Warrants and/or _______________ Warrant Underwriter Warrants
and/or ____________ Underlying Warrants of busybox.com, inc. (the "Company").
Each Common Stock Underwriter Warrant permits the Holder hereof to purchase
initially, at any time from _______, 1999 ("Purchase Date") until 5:30
p.m. Eastern Time on _______, 2004 ("Expiration Date"), one (1) share of the
Company's Common Stock at the initial exercise price, subject to adjustment in
certain events (the "Exercise Price"), of $8.25 per share (165% of the public
offering price). Each Warrant Underwriter Warrant permits the Holder hereof to
purchase initially, at any time from the Purchase Date until five (5) years from
the Purchase Date, one (1) Underlying Warrant at the Exercise Price of $.20625
per Underlying Warrant. Each Underlying Warrant permits the Holder thereof to
purchase, at any time from the Purchase Date until five (5) years from the
Purchase Date, one (1) share of the Company's Common Stock at the Exercise Price
of $8.25 per share.
21
<PAGE>
Any exercise of Common Stock Underwriter Warrants and/or Warrant
Underwriter Warrants and/or Underlying Warrants shall be effected by surrender
of this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein and in the
Underwriter's Warrant Agreement dated as of _______, 1999, between the Company
and Barron Chase Securities, Inc. (the "Underwriter's Warrant Agreement").
Payment of the Exercise Price shall be made by certified check or official bank
check in New York Clearing House funds payable to the order of the Company in
the event there is no cashless exercise pursuant to Section 3.1(ii) of the
Underwriter's Warrant Agreement. The Common Stock Underwriter Warrants, the
Warrant Underwriter Warrants, and the Underlying Warrants are collectively
referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events, the Exercise Price and the type and/or number of the
Company's securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue a
new Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Underwriter's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
22
<PAGE>
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.
Dated as of _______, 1999
busybox.com, inc.
BY:
-------------------------------
Rosanne Esposito, President
Attest:
- -------------------------------
Jon M. Bloodworth, Secretary
23
<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Rosanne Esposito, President
busybox.com, inc.
701 Battery Street, Third Floor
San Francisco, CA 94111
The undersigned, the Holder of Warrant Certificate number
_________(the "Warrant"), representing ________ Common Stock Underwriter
Warrants and/or ___________ Warrant Underwriter Warrants and/or __________
Underlying Warrants of busybox.com, inc. (the "Company"), which Warrant
Certificate is being delivered herewith, hereby irrevocably elects to
exercise the purchase right provided by the Warrant Certificate for, and to
purchase thereunder, ________ Shares and/or __________ Underlying Warrants of
the Company, and herewith makes payment of $_____________ therefor, and
requests that the certificates for such securities be issued in the name of,
and delivered to, _________________, whose address
is___________________________________, all in accordance with the
Underwriter's Warrant Agreement and the Warrant Certificate.
Dated:
--------------------------------
------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
------------------------------
------------------------------
(Address)
------------------------------
(Social Security Number or Tax
Identification Number)
24
<PAGE>
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Rosanne Esposito, President
busybox.com, inc.
701 Battery Street, Third Floor
San Francisco, CA 94111
The undersigned, the Holder of Warrant Certificate number
_____________ (the "Warrant"), representing __________ Common Stock
Underwriter Warrants and/or _____________ Underlying Warrants of busybox.com,
inc. (the "Company"), which Warrant is being delivered herewith, hereby
irrevocably elects the cashless exercise of the purchase right provided by
the Underwriter's Warrant Agreement and the Warrant Certificate for, and to
purchase thereunder, Shares of the Company in accordance with the formula
provided at Section three (3) of the Underwriter's Warrant Agreement. The
undersigned requests that the certificates for such Shares be issued in the
name of, and delivered
to,___________________________________________________________
__________________, whose address is,__________________________________________
_________ , all in accordance
with the Warrant Certificate.
Dated:
------------------
------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
------------------------------
------------------------------
(Address)
------------------------------
(Social Security Number or Tax
Identification Number)
25
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: Signature:
- ---------------------------- ------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
26
<PAGE>
Exhibit 10.0
busybox.com, inc.
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is entered into as of the date
specified on the signature page ("Effective Date") by and between
busybox.com, inc., a Delaware corporation located at 701 Battery Street, 3rd
floor, San Francisco, California 94111 ("Company") and the individual
specified on the signature page ("Employee").
RECITALS
R1. Employee is currently serving as President and Chief Executive Officer
of the Company.
R2. The parties desire to memorialize the employment relationship of
Employee with the Company.
R3. The Board of Directors of the Company ("Board") has approved and
authorized the entry into this Agreement with Employee.
R4. The parties hereby enter into this Agreement setting forth the terms
and conditions for the employment relationship of Employee with the
Company.
TERMS & CONDITIONS
1. EMPLOYMENT. From the Effective Date through the term of this
Agreement Employee is employed as President and Chief Executive
Officer of the Company and of any subsidiary or other affiliate that
it may acquire. Employee shall render executive, policy and other
management services to the Company and subsidiaries/affiliates of the
type customarily performed by persons serving in similar executive
officer capacities. Employee shall devote substantially all of his
working time and his best efforts to the Company and his position, which
shall include such duties as the Board may from time to time reasonably
direct that are reasonably consistent with Employee's education,
experience and background. During the term of this Agreement, there
shall be no material increase or decrease in the duties and
responsibilities of Employee otherwise than as provided herein, unless
the parties otherwise agree in writing.
2. COMPENSATION.
2.1 SALARY. The Company agrees to pay Employee from the
Effective Date at an annual rate equal to ONE HUNDRED SEVENTY
FIVE THOUSAND dollars ($175,000), with such subsequent
increases in salary during the term of this Agreement as may
be determined by the Compensation Committee of the Board;
PROVIDED, HOWEVER, that during the first three years following
the effective date of the registration statement with respect
to the initial public offering of the Company's stock,
Employee's salary hereunder shall not exceed to ONE HUNDRED
SEVENTY FIVE THOUSAND dollars ($175,000) per annum
without the approval of the Compensation Committee. In
determining salary increases, the Compensation Committee may
compensate Employee for increases in the cost of living and may
also provide for
1.
<PAGE>
performance or merit increases. The salary of Employee shall not
be decreased at any time during the term of this Agreement from
the amount then in effect, unless Employee otherwise agrees in
writing. Participation in deferred compensation, bonus,
discretionary bonus, retirement and other employee benefit
plans in the fringe benefits shall not reduce the salary
payable to Employee under this Section 2.1. The salary under
this Section 2.1 shall be payable to Employee not less
frequently than monthly. Employee shall not be entitled to
receive fees for serving as a director of the Company or of any
subsidiary or affiliate of the company or for serving as a
member of any committee of any such board of directors.
2.2 ANNUAL BONUS. In addition to his salary under Section 2.1
above, the Company shall pay to Employee an annual bonus of
FIFTY PERCENT (50%) of his salary under such subsection. The
annual bonus shall be payable in January following each
calendar year during the term of this Agreement and shall be
prorated for any partial years.
3. DISCRETIONARY AND PERFORMANCE INCENTIVE BONUSES. During the term of
this Agreement, Employee shall be entitled to participate in an
equitable manner with all other executive employees of the Company in
such discretionary bonuses as may be authorized, declared and paid by
the Compensation Committee to its executive employees. The Company will
adopt an incentive bonus plan providing for the payment of annual
performance incentive bonuses to Employee and other executive officers
based upon the increase in the Company's operating profit or other
appropriate performance objectives. The incentive bonus arrangement
will provide Employee with an opportunity to earn additional incentive
compensation in an amount up to THREE PERCENT (3%) of the annual
increase in the Company's net income before taxes as reported in the
Company's audited annual financial statement (for fiscal year 1999, net
income shall be determined on a pro forma basis). No other compensation
provided for in this Agreement shall be deemed a substitute for
Employee's right to participate in such bonuses.
4. INSURANCE, RETIREMENT AND EMPLOYEE BENEFIT PLANS, FRINGE BENEFITS;
BUSINESS EXPENSES.
4.1 OTHER BENEFITS AND PREREQUISITES. Employee shall be entitled
to participate in any plan of the Company relating to stock
options, restricted stock, employee stock purchase or ownership,
pension, thrift, profit sharing, group life insurance, medical
coverage, education or other retirement or employee benefit
plans or arrangements that the Company has adopted or may adopt
for the benefit of its employees or executive officers.
Employee shall also be entitled to participate in, or enjoy the
benefit of, any other fringe benefits or prerequisites that are
now or may be or become applicable to the Company's executive
employees.
4.2 BUSINESS EXPENSES. During the term of Employee's employment
by the Company, the Company shall promptly reimburse Employee
for all reasonable and customary expenses incurred by Employee
in performing services for the Company, including all expenses
of travel and living expenses while away from home on business
or at the request of and in the service of the Company,
provided that such expenses are
2.
<PAGE>
incurred and accounted for in accordance with the policies
and procedures established by the Company. Employee shall be
entitled to first or business class for all business air
travel. Employee shall be entitled to parking expenses,
excluding violations, when on the job, be it at the office or
while on business trips. Employee shall be entitled to a
reasonable per diem for living expenses while in San Francisco.
4.3 DIRECTOR & OFFICER INSURANCE: At all times during the term
of this Agreement the Company shall maintain in full force and
effect a director and office insurance policy with a national
insurance underwriter insuring Employee for his acts and
omissions in his capacity as an Officer and Director of the
Company, with coverage under such policy of not less than ONE
MILLION dollars ($1,000,000).
5. TERM. The initial term of employment under this Agreement shall be
from the date of this Agreement until December 31, 2001. This
Agreement shall be automatically renewed for an additional three-year
term, unless either Employee of the Company gives contrary written
notice to the other party hereto not less than 180 days before the
scheduled expiration of the initial term of this Agreement. Each term
and all such renewal terms are collectively referred to herein as the
term of this Agreement.
6. VOLUNTARY ABSENCES; VACATIONS. Employee shall be entitled, without
loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise approves. Employee shall be entitled
to an annual paid vacation of at least six weeks per year or such
longer period as the Board may approve. The timing of paid vacations
shall be scheduled in a reasonable manner by Employee.
7. TERMINATION OF EMPLOYMENT. Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
7.1 DEATH. Employee's Employment shall terminate upon his death.
7.2 DISABILITY. The Company may terminate Employee's employment
because of disability. For this purpose, "Disability" shall mean
the inability of Employee to perform his duties under this
Agreement because of physical or mental illness or incapacity for
a continuous period of six months during which Employee shall
have been absent from his duties under this Agreement on a
substantially full-time basis.
7.3 CAUSE. The Company may terminate Employee's employment for
Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment only in the event of
(a) the willful and continued failure by Employee to
substantially perform his duties hereunder (other than any such
failure resulting from Employee's inability to perform such
duties as a result of physical or mental illness or incapacity or
any such actual or anticipated failure after the delivery of a
Notice of Termination, as defined in Section 7.5, by Employee for
Good Reason, as
3.
<PAGE>
defined in Section 7.4.2) after delivery to Employee of a written
demand for substantial performance that specifically identifies
the manner in which the Company believes that Employee has not
substantially performed his duties and a reasonable opportunity
to cure; (b) willful misconduct by Employee that causes
substantial and material injury to the business and operations of
the Company, the continuation of which, in the reasonable judgment
of the Board, will continue to substantially and materially injure
the business and operations of the Company in the future; or
(b) conviction of Employee of a felony. No act or failure to act
shall be considered "willful" for this purpose unless done, or
omitted to be done, by Employee other than in good faith and other
than with a reasonable belief that his action or omission was in
the best interests of the Company. Employee shall not be deemed
to have been terminated for Cause unless Employee shall have
been provided with (i) a reasonable notice setting forth the
reasons that the Company believes constitute Cause for the
termination of his employment; (ii) a Notice of Termination as
defined in Section 7.5, from the Board finding that, in the
reasonable good faith opinion of the Board, Cause for the
termination exists and specifying the particulars thereof in
reasonable detail.
7.4 TERMINATION BY EMPLOYEES. Employee may terminate his
employment (a) for Good Reason by giving ten days prior written
notice to the Company or (b) at any time by giving 120 days prior
written notice to the Company.
7.4.1 GOOD REASON. For purposes of this Section, "Good
Reason" shall mean (a) the assignment to Employee of any
duties inconsistent with Employee's status or any
substantial adverse alteration in the nature or status of
Employee's responsibilities; (b) any change in Employee's
reporting responsibility such that Employee is required to
report other than exclusively to the Chief Executive
Officer; (c) any purported termination of Employee's
employment by the Company that is not effected pursuant to
a Notice of Termination satisfying the requirements of
Section 7.5 hereof; (d) any other failure by the Company
to comply with any material provision of this Agreement
which failure continues for more than ten days after
written notice of such noncompliance from Employee; or (e)
any notices given by the Company to Employee under Section
5 hereof that this Agreement will not be renewed on any
anniversary date.
7.5 NOTICE OF TERMINATION. Any termination of Employee's
employment by the Company or by Employee (other than termination
pursuant to Section 7.1 or 7.2 hereof) shall be communicated to
the other party by a written Notice of Termination. Any Notice
of Termination given by a party shall specify the particular
termination provision of this Agreement relied upon by such
party and shall set forth in reasonable detail the facts and
circumstances relied upon as providing a basis for the
termination under the provision so specified.
4.
<PAGE>
7.6 TERMINATION DATE. The Termination Date shall mean (a) if
Employee's employment is terminated by his death, the date
of his death; (b) if Employee's employment is terminated
pursuant to Section 7.2 hereof, the date specified in the Notice
of Termination, which shall be after the expiration of the
six-month period specified in that subsection; (c) if Employee's
employment is terminated by the Company for Cause, the date
specified in the Notice of Termination; or (d) if Employee's
employment is terminated for any other reason, sixty days
following the date on which the Notice of Termination is given.
8. COMPENSATION UPON TERMINATION OF EMPLOYMENT.
8.1 TERMINATION BECAUSE OF DEATH FOR CAUSE OR WITHOUT GOOD
REASON. If Employee's employment is terminated because of his
death, by the Company for Cause or by Employee other than for
Good Reason, the Company shall pay Employee his salary and a
pro rata portion of the bonus specified in Section 2(b) (based
upon the bonus paid in respect of the preceding year) through
the Termination Date of the Company shall have no further
obligation to Employee hereunder.
8.2 TERMINATION BECAUSE OF DISABILITY. If Employee's employment
is terminated by the Company because of Disability under
Section 7.2 hereof the Company shall pay Employee an annual
disability benefit equal to the excess of (a) 60 percent of his
salary at the rate in effect under Section 2.1 hereof on the
Termination Date plus 60 percent of the bonus amount specified
in Section 2.1 hereof (based upon the bonus paid in respect of
the preceding year) over (b) the amount of the long term
disability benefit that is payable to Employee under any policy
of disability insurance provided for Employee by the Company at
its expense. The disability benefit shall be paid for such
period as is determined by the Board of Directors for the
Company's senior executives but shall not be less than the
remainder of the scheduled term of employment.
8.3 TERMINATION WITHOUT CAUSE OR WITH GOOD REASON. If (a) in
breach of this Agreement, the Company shall terminate
Employee's employment other than for Cause or because of
Disability or (b) Employee shall terminate his employment for
Good Reason; then:
8.3.1 The Company shall pay Employee his salary and a pro
rata portion of the bonus specified in Section 2.1 hereof
(based upon the bonus paid in respect of the preceding
year) through the Termination Date and all other unpaid
and pro rata amounts to which Employee is entitled as of
the Termination Date under any compensation plan or
program of the Company, including, without limitation,
any incentive performance bonus and all accrued vacation
time;
8.3.2 The Company shall pay as liquidated damages to
Employee, an in lieu of any further salary payments
hereunder for periods after the Termination Date,
Employee's then current salary (payable in installments
in accordance with the Company's normal payroll
practices) for the remainder of the scheduled
5.
<PAGE>
term of employment and the product of (a) the sum of (i)
Employee's annual bonus specified in Section 2.1 hereof
(based upon the bonus paid in respect of the preceding
year) and (ii) the maximum annual bonus amount that
could have been paid to Employee under the Company's
performance incentive bonus plan for the year in which
the Termination Date occurs, and (b) the number of years
(and any fraction of a year) remaining in the term of
this Agreement under Section 5 hereof as of the
Termination Date, which amount shall be payable in equal
monthly installments during the remainder of the
scheduled term of employment;
8.3.3 In addition to the liquidated amounts that are payable
to Employee, the following shall apply: (a) Employee
shall continue to participate in, and accrue benefits
under, all retirement, pension, profit sharing, employee
stock ownership, thrift and other deferred compensation
plans of the Company for the remaining term of this
Agreement as if the termination of employment of
Employee had not occurred (with Employee being deemed to
receive annually for the purposes of such plans
Employee's then current salary and bonus (at the time of
his termination) under Sections 2.1 and 2.2 of this
Agreement), except to the extent that such continued
participation and accrual is expressly prohibited by
law, or to the extent such plan constitutes a "qualified
plan" under Section 401 of the Internal Revenue Service
Code of 1986, as amended ("Code"), by the terms of the
plan, in which case the Company shall provide Employee
a substantially equivalent, unfunded, non-qualified
benefit; (b) Employee shall be entitled to continue to
receive all other employee benefits and then existing
fringe benefits referred to in Sections 4.1 and 4.2
hereof for the remaining term of this Agreement as if
the termination of employment had not occurred; and (c)
all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the
Company that are in effect on the date the Notice of
Termination is sent to Employee shall continue for the
benefit of Employee with respect to all of his acts and
omissions while an officer or director as fully and
completely as if such termination had not occurred, and
until the final expiration or running of all periods of
limitation against action which may be applicable to
such acts or omissions; and
8.3.4 The liquidated amount and other benefits provided for
in this Section 8.3 shall not be reduced by any
compensation or benefits that Employee may receive for
other employment with another employer or through
self-employment after termination of employment with the
Company.
8.4 COST OF ENFORCEMENT. In the event the employment of
Employee is terminated by the Company because of Disability or
without Cause, or by Employee for Good Reason, and the Company
fails to make timely payment of the amounts owed to Employee
under this Agreement, Employee shall be entitled to
reimbursement for all reasonable costs, including attorney's
6.
<PAGE>
fees, incurred in Employee in taking action to collect
such amounts or otherwise to enforce this Agreement, plus
interest on such amounts at the rate of one percent above
the prime rate (defined as the base rate on corporate loans
at large U.S. money center commercial banks as published by
THE WALL STREET JOURNAL), compounded monthly, for the period
from the date of employment termination until payment is made
to Employee. Such reimbursement and interest shall be
in addition to all rights to which Employee is otherwise
entitled under this Agreement.
8.5 PARACHUTE PAYMENT LIMITATION. If any payment or benefit to
Employee under this Agreement would be considered a
"parachute payment" within the meaning of Section 280(g)(b)(2)
of the Code and if, after reduction for any applicable federal
excise tax imposed by Section 4999 of the Code ("Excise Tax")
and federal income tax imposed by the Code, Employee's net
proceeds of the amounts payable and the benefits provided
under this Agreement would be less than the amount of
Employee's net proceeds resulting from the payment of the
Reduced Amount described below, after reduction for
federal income taxes, then the amount payable and the
benefits provided under this Agreement shall be limited to
the Reduced Amount. The "Reduced Amount" shall be the
largest amount that could be received by Employee under this
Agreement such that no amount paid to Employee under this
Agreement and any other agreement, contract or understanding
heretofore or hereafter entered into between Employee and the
Company ("Other Agreements") and any formal or informal plan
or other arrangement heretofore or hereafter adopted by the
Company for the direct or indirect provision of compensation
to Employee (including groups or classes or participants or
beneficiaries of which Employee is a member), whether or not
such compensation is deferred, is in cash, or is in the form
of a benefit to or for Employee ("Benefit Plan") would be
subject to the Excise Tax. In the event that the amount
payable to Employee shall be limited to the Reduced Amount,
then Employee shall have the right, in Employee's sole
discretion, to designate those payments or benefits under
this Agreement, any other Agreements, and/or Benefit Plank,
that should be reduced or eliminated so as to avoid having
the payment to Employee under this Agreement be subject to
the Excise Tax.
9. CONFIDENTIALITY. In consideration of the willingness of the
Company to employ Employees and the compensation to be paid and
benefits to be received therefor, any for other good and valuable
consideration, the receipt and adequacy of which is hereby
acknowledged, Employee agrees as follows:
9.1 THE COMPANY OWNS ALL OF EMPLOYEES' WORK. All improvements,
discoveries, inventions, designs, documents, licenses and
patents, or other data devised, conceived, made, developed,
obtained, filed, perfected, acquired, or first reduced to
practice, in whole or in part, or in the regular cause of
employment by Employee during the term of this Agreement, and
related in any way to the business, including development and
research, of the Company or any subsidiary or affiliate engaged
in business substantially similar to that of the Company, shall
be promptly disclosed to the Company. Employee hereby assigns
and transfers to the
7.
<PAGE>
Company all his right, interest and title thereto, and such
improvements, discoveries, inventions, designs, documents,
licenses and patents, or other data shall become the
property of the Company. During the term of this Agreement and
at any time thereafter, upon request of the Company, Employee
will join and render assistance in any proceedings and execute
any papers necessary to file and prosecute applications for,
and to acquire, maintain and enforce, letters patent,
trademarks, registrations and/or copyrights, both domestic
and foreign, with respect to such improvements, discoveries,
inventions, designs, documents, licenses and patents, or other
data as required for vesting and maintaining title to same in
the Company.
9.2 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees
and acknowledges that the term "Confidential and Proprietary
Information" shall mean any and all information not in the
public domain, in any form, emanating from or relating to the
Company and its subsidiaries and affiliates, including, but
not limited to, trade secrets, technical information, costs,
designs, drawings, processes, systems, methods of operation
and procedures, formulae, test data, know-how, improvements,
price lists, financial data, code books, invoices and other
financial statements, computer programs, discs and printouts,
sketches, and plans (engineering, architectural or otherwise),
customer list, telephone numbers, names, addresses,
information about equipment and processes (including
specifications and operating manuals), or any other
complication of information written or unwritten that is used
in the business of the Company or any subsidiary or affiliate
that gives the Company or any subsidiary of affiliate any
opportunity to obtain an advantage over competitors of the
Company who do not know or use such information. Employee
agrees and acknowledges that all Confidential and Proprietary
Information, in any form, and all copies and extracts thereof,
is and are shall remain the sole and exclusive property of the
Company and, upon termination of his employment with the
Company, Employee hereby agrees to return to the Company
the originals and all copies of any Confidential and
Proprietary Information provided to or acquired by Employee
during the period of his employment. Except as ordered by a
court of competent jurisdiction, Employee expressly agrees
never to disclose to any person (except to other Company
employees, and then only on a "need to know" bases) or entity
any Confidential an Proprietary Information either during the
term of this Agreement or at any time after termination of his
employment, except with the express written authorization and
consent of the Company.
9.3 CUSTOMER & CLIENT INFORMATION. Employee understands and
acknowledges that each customer and client of the Company or
its subsidiaries or affiliates will disclose information that
will be within the Company's control in connection with the
Company's furnishing of services to its customers and clients.
Employee covenants and agrees to hold such information in the
strictest confidence and shall treat such information in the
same manner and be obligated by the provisions of this
Agreement as if such information were Confidential and
Proprietary Information, as defined in Section 9.2 hereof.
8.
<PAGE>
10. COVENANT NOT TO COMPETE. During the term of employment and for a
period of TWO (2) years after the termination of Employee's
employment by the Company, Employee shall not directly or indirectly
own, manage, operate, control or be employed by or participate in the
ownership, management, operation or control of any business in the area
which is the type and character engaged in and competitive with that of
the Employer. Employee shall not, during the term of this Agreement,
have any other paid employment other than with a subsidiary of
affiliate of the Company, except with the Prior approval of the Board.
11. AMENDMENTS OR ADDITIONS; ACTION BY BOARD. No amendments or
additions to the Agreement shall be binding unless in writing and
signed by all parties thereto. The prior approval by a majority
affirmative vote of the full Board shall be required in order for the
Company to authorize any amendments or additions to this Agreement, to
give any consents or waivers of provisions of this Agreement, or to take
any other action under this Agreement including any Notice of
Termination.
12. MISCELLANEOUS.
12.1 NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be personally delivered or mailed by
first class registered or certified mail, postage prepaid,
return-receipt-requested, or transmitted by facsimile, telegram
or telex, addressed to the Company or Employee at the address set
forth on the signature page of this Agreement, or at such other
addresses as such party may designate by five business day advance
written notice to the other party. Each notice or communication
that shall have been transmitted in the manner described above, or
that shall have been delivered to a telegraph company, shall be
deemed sufficiently given, served, sent or received for
purposes at such time as it is sent to the addressee (with the
return receipt, delivery receipt or (with respect to a telex) the
answer back being deemed conclusive, but not exclusive, evidence
of such sending) or at such time as delivery is refused by the
addressee upon presentation.
12.2 SEVERABILITY. Nothing in this Agreement shall be construed so
as to require the commission of any act contrary to law and
wherever there is any conflict between any provision of this
Agreement and any law, statute, ordinance, order or regulation,
the latter shall prevail, but in such event any necessary action
will be taken to bring it within applicable legal requirements.
If any provision of this Agreement should be held invalid or
unenforceable, the remaining provisions shall be unaffected by
such a holding.
12.3 COMPLETE AGREEMENT. This Agreement contains the entire
Agreement and understanding between the parties relating to the
subject matter hereof, and supersedes any prior understandings,
agreements or representations by or between the parties, written
or oral, relating to the subject matter hereof.
12.4 SUCCESSORS OR ASSIGNS. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by
9.
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way of reorganization, merger or consolidation and any
assignee of all or substantially all of its business assets,
but except as to any such successor or assignee of the
Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of death of Employee all rights to
receive payments hereunder shall become rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of the death of Employee all rights to
receive payments hereunder shall become rights of Employee's
estate.
12.5 SECTION HEADINGS. The section heading used in this
Agreement are included solely for convenience and shall not
affect, or be used in connection with, the interpretation
of this Agreement.
12.6 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware.
12.7 ARBITRATION: All disputes between the parties arising under
this Agreement shall be finally decided through binding
arbitration before Judicial Arbitration & Mediation Services,
Inc. ("JAMS/ENDISPUTE") in San Francisco, California, and
judgment on any arbitration award may be entered in any court
having jurisdiction over the parties or their assets.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of this date, January 1, 1999
COMPANY: EMPLOYEE:
By: /s/ Patrick A. Grotto By: /s/ Patrick A. Grotto
--------------------- ---------------------
Name: Patrick A. Grotto Name: Patrick A. Grotto
Title: President & CEO SSN:
By: /s/ Jon M. Bloodworth
-------------------------
Name: Jon M. Bloodworth
Title: Secretary General Counsel
10.
<PAGE>
Exhibit 10.1
busybox.com, inc.
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is entered into as of the date
specified on the signature page ("Effective Date") by and between
busybox.com, inc., a Delaware corporation located at 701 Battery Street, 3rd
floor, San Francisco, California 94111 ("Company") and the individual
specified on the signature page ("Employee").
RECITALS
R1. Employee is currently serving as Executive Vice President and Chief
Operations Officer of the Company.
R2. The parties desire to memorialize the employment relationship of
Employee with the Company.
R3. The Board of Directors of the Company ("Board") has approved and
authorized the entry into this Agreement with Employee.
R4. The parties hereby enter into this Agreement setting forth the terms
and conditions for the employment relationship of Employee with the
Company.
TERMS & CONDITIONS
1. EMPLOYMENT. From the Effective Date through the term of this
Agreement Employee is employed as Executive Vice President and Chief
Operations Officer of the Company and of any subsidiary or other
affiliate that it may acquire. Employee shall render executive, policy
and other management services to the Company and subsidiaries/affiliates
of the type customarily performed by persons serving in similar
executive officer capacities. Employee shall devote substantially all of
his working time and his best efforts to the Company and his position,
which shall include such duties as the Board may from time to time
reasonably direct that are reasonably consistent with Employee's
education, experience and background. During the term of this Agreement,
there shall be no material increase or decrease in the duties and
responsibilities of Employee otherwise than as provided herein, unless
the parties otherwise agree in writing.
2. COMPENSATION.
2.1 SALARY. The Company agrees to pay Employee from the
Effective Date at an annual rate equal to ONE HUNDRED TWENTY
FIVE THOUSAND dollars ($125,000), with such subsequent
increases in salary during the term of this Agreement as may
be determined by the Compensation Committee of the Board;
PROVIDED, HOWEVER, that during the first three years following
the effective date of the registration statement with respect
to the initial public offering of the Company's stock,
Employee's salary hereunder shall not exceed to ONE HUNDRED
TWENTY FIVE THOUSAND dollars ($125,000) per annum
without the approval of the Compensation Committee. In
determining salary increases, the Compensation Committee may
compensate Employee for increases in the cost of living and may
also provide for performance
1.
<PAGE>
or merit increases. The salary of Employee shall not be
decreased at any time during the term of this Agreement from
the amount then in effect, unless Employee otherwise agrees in
writing. Participation in deferred compensation, bonus,
discretionary bonus, retirement and other employee benefit
plans in the fringe benefits shall not reduce the salary
payable to Employee under this Section 2.1. The salary under
this Section 2.1 shall be payable to Employee not less
frequently than monthly. Employee shall not be entitled to
receive fees for serving as a director of the Company or of any
subsidiary or affiliate of the company or for serving as a
member of any committee of any such board of directors.
2.2 ANNUAL BONUS. In addition to his salary under Section 2.1
above, the Company shall pay to Employee an annual bonus of
FIFTY PERCENT (50%) of his salary under such subsection. The
annual bonus shall be payable in January following each
calendar year during the term of this Agreement and shall be
prorated for any partial years.
3. DISCRETIONARY AND PERFORMANCE INCENTIVE BONUSES. During the term of
this Agreement, Employee shall be entitled to participate in an
equitable manner with all other executive employees of the Company in
such discretionary bonuses as may be authorized, declared and paid by
the Compensation Committee to its executive employees. The Company will
adopt an incentive bonus plan providing for the payment of annual
performance incentive bonuses to Employee and other executive officers
based upon the increase in the Company's operating profit or other
appropriate performance objectives. The incentive bonus arrangement
will provide Employee with an opportunity to earn additional incentive
compensation in an amount up to THREE PERCENT (3%) of the annual
increase in the Company's net income before taxes as reported in the
Company's audited annual financial statement (for fiscal year 1999, net
income shall be determined on a pro forma basis). No other compensation
provided for in this Agreement shall be deemed a substitute for
Employee's right to participate in such bonuses.
4. INSURANCE, RETIREMENT AND EMPLOYEE BENEFIT PLANS, FRINGE BENEFITS;
BUSINESS EXPENSES.
4.1 OTHER BENEFITS AND PREREQUISITES. Employee shall be entitled
to participate in any plan of the Company relating to stock
options, restricted stock, employee stock purchase or ownership,
pension, thrift, profit sharing, group life insurance, medical
coverage, education or other retirement or employee benefit
plans or arrangements that the Company has adopted or may adopt
for the benefit of its employees or executive officers.
Employee shall also be entitled to participate in, or enjoy the
benefit of, any other fringe benefits or prerequisites that are
now or may be or become applicable to the Company's executive
employees.
4.2 BUSINESS EXPENSES. During the term of Employee's employment
by the Company, the Company shall promptly reimburse Employee
for all reasonable and customary expenses incurred by Employee
in performing services for the Company, including all expenses
of travel and living expenses while away from home on business
or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in
accordance with the policies
2.
<PAGE>
and procedures established by the Company. Employee shall be
entitled to first or business class for all business air
travel. Employee shall be entitled to parking expenses,
excluding violations, when on the job, be it at the office or
while on business trips. Employee shall be entitled to a
reasonable per diem for living expenses while in San Francisco.
4.3 DIRECTOR & OFFICER INSURANCE: At all times during the term
of this Agreement the Company shall maintain in full force and
effect a director and office insurance policy with a national
insurance underwriter insuring Employee for his acts and
ommissions in his capacity as an Officer and Director of the
Company, with coverage under such policy of not less than ONE
MILLION dollars ($1,000,000).
5. TERM. The initial term of employment under this Agreement shall be
from the date of this Agreement until December 31, 2001. This
Agreement shall be automatically renewed for an additional three-year
term, unless either Employee of the Company gives contrary written
notice to the other party hereto not less than 180 days before the
scheduled expiration of the initial term of this Agreement. Each term
and all such renewal terms are collectively referred to herein as the
term of this Agreement.
6. VOLUNTARY ABSENCES; VACATIONS. Employee shall be entitled, without
loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise approves. Employee shall be entitled
to an annual paid vacation of at least six weeks per year or such
longer period as the Board may approve. The timing of paid vacations
shall be scheduled in a reasonable manner by Employee.
7. TERMINATION OF EMPLOYMENT. Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
7.1 DEATH. Employee's Employment shall terminate upon his death.
7.2 DISABILITY. The Company may terminate Employee's employment
because of disability. For this purpose, "Disability" shall mean
the inability of Employee to perform his duties under this
Agreement because of physical or mental illness or incapacity for
a continuous period of six months during which Employee shall
have been absent from his duties under this Agreement on a
substantially full-time basis.
7.3 CAUSE. The Company may terminate Employee's employment for
Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment only in the event of
(a) the willful and continued failure by Employee to
substantially perform his duties hereunder (other than any such
failure resulting from Employee's inability to perform such
duties as a result of physical or mental illness or incapacity or
any such actual or anticipated failure after the delivery of a
Notice of Termination, as defined in Section 7.5, by Employee for
Good Reason, as defined in Section 7.4.2) after delivery to
Employee of a written demand for substantial performance that
specifically identifies the manner in which the Company believes
that
3.
<PAGE>
Employee has not substantially performed his duties and a
reasonable opportunity to cure; (b) willful misconduct by
Employee that causes substantial and material injury to the
business and operations of the Company, the continuation of which,
in the reasonable judgment of the Board, will continue to
substantially and materially injure the business and operations of
the Company in the future; or (b) conviction of Employee of a
felony. No act or failure to act shall be considered "willful" for
this purpose unless done, or omitted to be done, by Employee other
than in good faith and other than with a reasonable belief that
his action or omission was in the best interests of the Company.
Employee shall not be deemed to have been terminated for Cause
unless Employee shall have been provided with (i) a reasonable
notice setting forth the reasons that the Company believes
constitute Cause for the termination of his employment; (ii) a
Notice of Termination as defined in Section 7.5, from the Board
finding that, in the reasonable good faith opinion of the Board,
Cause for the termination exists and specifying the particulars
thereof in reasonable detail.
7.4 TERMINATION BY EMPLOYEES. Employee may terminate his
employment (a) for Good Reason by giving ten days prior written
notice to the Company or (b) at any time by giving 120 days prior
written notice to the Company.
7.4.1 GOOD REASON. For purposes of this Section, "Good
Reason" shall mean (a) the assignment to Employee of any
duties inconsistent with Employee's status or any
substantial adverse alteration in the nature or status of
Employee's responsibilities; (b) any change in Employee's
reporting responsibility such that Employee is required to
report other than exclusively to the Chief Executive
Officer; (c) any purported termination of Employee's
employment by the Company that is not effected pursuant to
a Notice of Termination satisfying the requirements of
Section 7.5 hereof; (d) any other failure by the Company
to comply with any material provision of this Agreement
which failure continues for more than ten days after
written notice of such noncompliance from Employee; or (e)
any notices given by the Company to Employee under Section
5 hereof that this Agreement will not be renewed on any
anniversary date.
7.5 NOTICE OF TERMINATION. Any termination of Employee's
employment by the Company or by Employee (other than termination
pursuant to Section 7.1 or 7.2 hereof) shall be communicated to
the other party by a written Notice of Termination. Any Notice
of Termination given by a party shall specify the particular
termination provision of this Agreement relied upon by such
party and shall set forth in reasonable detail the facts and
circumstances relied upon as providing a basis for the
termination under the provision so specified.
7.6 TERMINATION DATE. The Termination Date shall mean (a) if
Employee's employment is terminated by his death, the date
of his death; (b) if Employee's employment is terminated
pursuant to Section 7.2 hereof, the date specified in the
4.
<PAGE>
Notice of Termination, which shall be after the expiration of the
six-month period specified in that subsection; (c) if Employee's
employment is terminated by the Company for Cause, the date
specified in the Notice of Termination; or (d) if Employee's
employment is terminated for any other reason, sixty days
following the date on which the Notice of Termination is given.
8. COMPENSATION UPON TERMINATION OF EMPLOYMENT.
8.1 TERMINATION BECAUSE OF DEATH FOR CAUSE OR WITHOUT GOOD
REASON. If Employee's employment is terminated because of his
death, by the Company for Cause or by Employee other than for
Good Reason, the Company shall pay Employee his salary and a
pro rata portion of the bonus specified in Section 2(b) (based
upon the bonus paid in respect of the preceding year) through
the Termination Date of the Company shall have no further
obligation to Employee hereunder.
8.2 TERMINATION BECAUSE OF DISABILITY. If Employee's employment
is terminated by the Company because of Disability under
Section 7.2 hereof the Company shall pay Employee an annual
disability benefit equal to the excess of (a) 60 percent of his
salary at the rate in effect under Section 2.1 hereof on the
Termination Date plus 60 percent of the bonus amount specified
in Section 2.1 hereof (based upon the bonus paid in respect of
the preceding year) over (b) the amount of the long term
disability benefit that is payable to Employee under any policy
of disability insurance provided for Employee by the Company at
its expense. The disability benefit shall be paid for such
period as is determined by the Board of Directors for the
Company's senior executives but shall not be less than the
remainder of the scheduled term of employment.
8.3 TERMINATION WITHOUT CAUSE OR WITH GOOD REASON. If (a) in
breach of this Agreement, the Company shall terminate
Employee's employment other than for Cause or because of
Disability or (b) Employee shall terminate his employment for
Good Reason; then:
8.3.1 The Company shall pay Employee his salary and a pro
rata portion of the bonus specified in Section 2.1 hereof
(based upon the bonus paid in respect of the preceding
year) through the Termination Date and all other unpaid
and pro rata amounts to which Employee is entitled as of
the Termination Date under any compensation plan or
program of the Company, including, without limitation,
any incentive performance bonus and all accrued vacation
time;
8.3.2 The Company shall pay as liquidated damages to
Employee, an in lieu of any further salary payments
hereunder for periods after the Termination Date,
Employee's then current salary (payable in installments
in accordance with the Company's normal payroll
practices) for the remainder of the scheduled term of
employment and the product of (a) the sum of (i)
Employee's annual bonus specified in Section 2.1
hereof (based upon the bonus paid in respect of the
preceding year) and (ii) the maximum annual bonus
5.
<PAGE>
amount that could have been paid to Employee under the
Company's performance incentive bonus plan for the year
in which the Termination Date occurs, and (b) the number
of years (and any fraction of a year) remaining in the
term of this Agreement under Section 5 hereof as of the
Termination Date, which amount shall be payable in equal
monthly installments during the remainder of the
scheduled term of employment;
8.3.3 In addition to the liquidated amounts that are payable
to Employee, the following shall apply: (a) Employee
shall continue to participate in, and accrue benefits
under, all retirement, pension, profit sharing, employee
stock ownership, thrift and other deferred compensation
plans of the Company for the remaining term of this
Agreement as if the termination of employment of
Employee had not occurred (with Employee being deemed to
receive annually for the purposes of such plans
Employee's then current salary and bonus (at the time of
his termination) under Sections 2.1 and 2.2 of this
Agreement), except to the extent that such continued
participation and accrual is expressly prohibited by
law, or to the extent such plan constitutes a "qualified
plan" under Section 401 of the Internal Revenue Service
Code of 1986, as amended ("Code"), by the terms of the
plan, in which case the Company shall provide Employee
a substantially equivalent, unfunded, non-qualified
benefit; (b) Employee shall be entitled to continue to
receive all other employee benefits and then existing
fringe benefits referred to in Sections 4.1 and 4.2
hereof for the remaining term of this Agreement as if
the termination of employment had not occurred; and (c)
all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the
Company that are in effect on the date the Notice of
Termination is sent to Employee shall continue for the
benefit of Employee with respect to all of his acts and
omissions while an officer or director as fully and
completely as if such termination had not occurred, and
until the final expiration or running of all periods of
limitation against action which may be applicable to
such acts or omissions; and
8.3.4 The liquidated amount and other benefits provided for
in this Section 8.3 shall not be reduced by any
compensation or benefits that Employee may receive for
other employment with another employer or through
self-employment after termination of employment with the
Company.
8.4 COST OF ENFORCEMENT. In the event the employment of
Employee is terminated by the Company because of Disability or
without Cause, or by Employee for Good Reason, and the Company
fails to make timely payment of the amounts owed to Employee
under this Agreement, Employee shall be entitled to
reimbursement for all reasonable costs, including attorney's
fees, incurred in Employee in taking action to collect
such amounts or otherwise to enforce this Agreement, plus
interest on such amounts at the rate of one percent above
the prime rate (defined as the base rate on corporate loans
6.
<PAGE>
at large U.S. money center commercial banks as published by
THE WALL STREET JOURNAL), compounded monthly, for the period
from the date of employment termination until payment is made
to Employee. Such reimbursement and interest shall be
in addition to all rights to which Employee is otherwise
entitled under this Agreement.
8.5 PARACHUTE PAYMENT LIMITATION. If any payment or benefit to
Employee under this Agreement would be considered a
"parachute payment" within the meaning of Section 280(g)(b)(2)
of the Code and if, after reduction for any applicable federal
excise tax imposed by Section 4999 of the Code ("Excise Tax")
and federal income tax imposed by the Code, Employee's net
proceeds of the amounts payable and the benefits provided
under this Agreement would be less than the amount of
Employee's net proceeds resulting from the payment of the
Reduced Amount described below, after reduction for
federal income taxes, then the amount payable and the
benefits provided under this Agreement shall be limited to
the Reduced Amount. The "Reduced Amount" shall be the
largest amount that could be received by Employee under this
Agreement such that no amount paid to Employee under this
Agreement and any other agreement, contract or understanding
heretofore or hereafter entered into between Employee and the
Company ("Other Agreements") and any formal or informal plan
or other arrangement heretofore or hereafter adopted by the
Company for the direct or indirect provision of compensation
to Employee (including groups or classes or participants or
beneficiaries of which Employee is a member), whether or not
such compensation is deferred, is in cash, or is in the form
of a benefit to or for Employee ("Benefit Plan") would be
subject to the Excise Tax. In the event that the amount
payable to Employee shall be limited to the Reduced Amount,
then Employee shall have the right, in Employee's sole
discretion, to designate those payments or benefits under
this Agreement, any other Agreements, and/or Benefit Plank,
that should be reduced or eliminated so as to avoid having
the payment to Employee under this Agreement be subject to
the Excise Tax.
9. CONFIDENTIALITY. In consideration of the willingness of the
Company to employ Employees and the compensation to be paid and
benefits to be received therefor, any for other good and valuable
consideration, the receipt and adequacy of which is hereby
acknowledged, Employee agrees as follows:
9.1 THE COMPANY OWNS ALL OF EMPLOYEES' WORK. All improvements,
discoveries, inventions, designs, documents, licenses and
patents, or other data devised, conceived, made, developed,
obtained, filed, perfected, acquired, or first reduced to
practice, in whole or in part, or in the regular cause of
employment by Employee during the term of this Agreement, and
related in any way to the business, including development and
research, of the Company or any subsidiary or affiliate engaged
in business substantially similar to that of the Company, shall
be promptly disclosed to the Company. Employee hereby assigns
and transfers to the Company all his right, interest and title
thereto, and such improvements, discoveries, inventions,
designs, documents, licenses and patents, or other data shall
become the property of the Company. During the term of this
Agreement
7.
<PAGE>
and at any time thereafter, upon request of the Company,
Employee will join and render assistance in any proceedings and
execute any papers necessary to file and prosecute applications
for, and to acquire, maintain and enforce, letters patent,
trademarks, registrations and/or copyrights, both domestic
and foreign, with respect to such improvements, discoveries,
inventions, designs, documents, licenses and patents, or other
data as required for vesting and maintaining title to same in
the Company.
9.2 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees
and acknowledges that the term "Confidential and Proprietary
Information" shall mean any and all information not in the
public domain, in any form, emanating from or relating to the
Company and its subsidiaries and affiliates, including, but
not limited to, trade secrets, technical information, costs,
designs, drawings, processes, systems, methods of operation
and procedures, formulae, test data, know-how, improvements,
price lists, financial data, code books, invoices and other
financial statements, computer programs, discs and printouts,
sketches, and plans (engineering, architectural or otherwise),
customer list, telephone numbers, names, addresses,
information about equipment and processes (including
specifications and operating manuals), or any other
complication of information written or unwritten that is used
in the business of the Company or any subsidiary or affiliate
that gives the Company or any subsidiary of affiliate any
opportunity to obtain an advantage over competitors of the
Company who do not know or use such information. Employee
agrees and acknowledges that all Confidential and Proprietary
Information, in any form, and all copies and extracts thereof,
is and are shall remain the sole and exclusive property of the
Company and, upon termination of his employment with the
Company, Employee hereby agrees to return to the Company
the originals and all copies of any Confidential and
Proprietary Information provided to or acquired by Employee
during the period of his employment. Except as ordered by a
court of competent jurisdiction, Employee expressly agrees
never to disclose to any person (except to other Company
employees, and then only on a "need to know" bases) or entity
any Confidential an Proprietary Information either during the
term of this Agreement or at any time after termination of his
employment, except with the express written authorization and
consent of the Company.
9.3 CUSTOMER & CLIENT INFORMATION. Employee understands and
acknowledges that each customer and client of the Company or
its subsidiaries or affiliates will disclose information that
will be within the Company's control in connection with the
Company's furnishing of services to its customers and clients.
Employee covenants and agrees to hold such information in the
strictest confidence and shall treat such information in the
same manner and be obligated by the provisions of this
Agreement as if such information were Confidential and
Proprietary Information, as defined in Section 9.2 hereof.
10. COVENANT NOT TO COMPETE. During the term of employment and for a
period of TWO (2) years after the termination of Employee's
employment by the Company, Employee shall not directly or
8.
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indirectly own, manage, operate, control or be employed by or
participate in the ownership, management, operation or control of any
business in the area which is the type and character engaged in and
competitive with that of the Employer. Employee shall not, during the
term of this Agreement, have any other paid employment other than with
a subsidiary of affiliate of the Company, except with the Prior approval
of the Board.
11. AMENDMENTS OR ADDITIONS; ACTION BY BOARD. No amendments or
additions to the Agreement shall be binding unless in writing and
signed by all parties thereto. The prior approval by a majority
affirmative vote of the full Board shall be required in order for the
Company to authorize any amendments or additions to this Agreement, to
give any consents or waivers of provisions of this Agreement, or to take
any other action under this Agreement including any Notice of
Termination.
12. MISCELLANEOUS.
12.1 NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be personally delivered or mailed by
first class registered or certified mail, postage prepaid,
return-receipt-requested, or transmitted by facsimile, telegram
or telex, addressed to the Company or Employee at the address set
forth on the signature page of this Agreement, or at such other
addresses as such party may designate by five business day advance
written notice to the other party. Each notice or communication
that shall have been transmitted in the manner described above, or
that shall have been delivered to a telegraph company, shall be
deemed sufficiently given, served, sent or received for
purposes at such time as it is sent to the addressee (with the
return receipt, delivery receipt or (with respect to a telex) the
answer back being deemed conclusive, but not exclusive, evidence
of such sending) or at such time as delivery is refused by the
addressee upon presentation.
12.2 SEVERABILITY. Nothing in this Agreement shall be construed so
as to require the commission of any act contrary to law and
wherever there is any conflict between any provision of this
Agreement and any law, statute, ordinance, order or regulation,
the latter shall prevail, but in such event any necessary action
will be taken to bring it within applicable legal requirements.
If any provision of this Agreement should be held invalid or
unenforceable, the remaining provisions shall be unaffected by
such a holding.
12.3 COMPLETE AGREEMENT. This Agreement contains the entire
Agreement and understanding between the parties relating to the
subject matter hereof, and supersedes any prior understandings,
agreements or representations by or between the parties, written
or oral, relating to the subject matter hereof.
12.4 SUCCESSORS OR ASSIGNS. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by way of
reorganization, merger or consolidation and any
assignee of all or substantially all of its business assets,
but except as to any such successor or assignee of the
Company, neither this Agreement nor any rights or benefits
9.
<PAGE>
hereunder may be assigned by the Company or Employee.
However, in the event of death of Employee all rights to
receive payments hereunder shall become rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of the death of Employee all rights to
receive payments hereunder shall become rights of Employee's
estate.
12.5 SECTION HEADINGS. The section heading used in this
Agreement are included solely for convenience and shall not
affect, or be used in connection with, the interpretation
of this Agreement.
12.6 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware.
12.7 ARBITRATION: All disputes between the parties arising under
this Agreement shall be finally decided through binding
arbitration before Judicial Arbitration & Mediation Services,
Inc. ("JAMS/ENDISPUTE") in San Francisco, California, and
judgment on any arbitration award may be entered in any court
having jurisdiction over the parties or their assets.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of this date, January 1, 1999
COMPANY: EMPLOYEE:
By: /s/ Patrick A. Grotto By: /s/ Rosanne Esposito
--------------------- ---------------------
Name: Patrick A. Grotto Name: Rosanne Esposito
Title: President & CEO SSN: ###-##-####
By: /s/ Jon M. Bloodworth
-------------------------
Name: Jon M. Bloodworth
Title: Secretary General Counsel
10.
<PAGE>
Exhibit 10.2
busybox.com, inc.
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is entered into as of the date
specified on the signature page ("Effective Date") by and between
busybox.com, inc., a Delaware corporation located at 701 Battery Street, 3rd
floor, San Francisco, California 94111 ("Company") and the individual
specified on the signature page ("Employee").
RECITALS
R1. Employee is currently serving as Vice President and Chief Technology
Officer of the Company.
R2. The parties desire to memorialize the employment relationship of
Employee with the Company.
R3. The Board of Directors of the Company ("Board") has approved and
authorized the entry into this Agreement with Employee.
R4. The parties hereby enter into this Agreement setting forth the terms
and conditions for the employment relationship of Employee with the
Company.
TERMS & CONDITIONS
1. EMPLOYMENT. From the Effective Date through the term of this
Agreement Employee is employed as Vice President and Chief Technology
Officer of the Company and of any subsidiary or other affiliate that
it may acquire. Employee shall render executive, policy and other
management services to the Company and subsidiaries/affiliates of the
type customarily performed by persons serving in similar executive
officer capacities. Employee shall devote substantially all of his
working time and his best efforts to the Company and his position, which
shall include such duties as the Board may from time to time reasonably
direct that are reasonably consistent with Employee's education,
experience and background. During the term of this Agreement, there
shall be no material increase or decrease in the duties and
responsibilities of Employee otherwise than as provided herein, unless
the parties otherwise agree in writing.
2. COMPENSATION.
2.1 SALARY. The Company agrees to pay Employee from the
Effective Date at an annual rate equal to ONE HUNDRED TWENTY
FIVE THOUSAND dollars ($125,000), with such subsequent
increases in salary during the term of this Agreement as may
be determined by the Compensation Committee of the Board;
PROVIDED, HOWEVER, that during the first three years following
the effective date of the registration statement with respect
to the initial public offering of the Company's stock,
Employee's salary hereunder shall not exceed to ONE HUNDRED
TWENTY FIVE THOUSAND dollars ($125,000) per annum
without the approval of the Compensation Committee. In
determining salary increases, the Compensation Committee may
compensate Employee for increases in the cost of living and may
also provide for performance
1.
<PAGE>
or merit increases. The salary of Employee shall not be
decreased at any time during the term of this Agreement from
the amount then in effect, unless Employee otherwise agrees in
writing. Participation in deferred compensation, bonus,
discretionary bonus, retirement and other employee benefit
plans in the fringe benefits shall not reduce the salary
payable to Employee under this Section 2.1. The salary under
this Section 2.1 shall be payable to Employee not less
frequently than monthly. Employee shall not be entitled to
receive fees for serving as a director of the Company or of any
subsidiary or affiliate of the company or for serving as a
member of any committee of any such board of directors.
2.2 ANNUAL BONUS. In addition to his salary under Section 2.1
above, the Company shall pay to Employee an annual bonus of
FIFTY PERCENT (50%) of his salary under such subsection. The
annual bonus shall be payable in January following each
calendar year during the term of this Agreement and shall be
prorated for any partial years.
3. DISCRETIONARY AND PERFORMANCE INCENTIVE BONUSES. During the term of
this Agreement, Employee shall be entitled to participate in an
equitable manner with all other executive employees of the Company in
such discretionary bonuses as may be authorized, declared and paid by
the Compensation Committee to its executive employees. The Company will
adopt an incentive bonus plan providing for the payment of annual
performance incentive bonuses to Employee and other executive officers
based upon the increase in the Company's operating profit or other
appropriate performance objectives. The incentive bonus arrangement
will provide Employee with an opportunity to earn additional incentive
compensation in an amount up to THREE PERCENT (3%) of the annual
increase in the Company's net income before taxes as reported in the
Company's audited annual financial statement (for fiscal year 1999, net
income shall be determined on a pro forma basis). No other compensation
provided for in this Agreement shall be deemed a substitute for
Employee's right to participate in such bonuses.
4. INSURANCE, RETIREMENT AND EMPLOYEE BENEFIT PLANS, FRINGE BENEFITS;
BUSINESS EXPENSES.
4.1 OTHER BENEFITS AND PREREQUISITES. Employee shall be entitled
to participate in any plan of the Company relating to stock
options, restricted stock, employee stock purchase or ownership,
pension, thrift, profit sharing, group life insurance, medical
coverage, education or other retirement or employee benefit
plans or arrangements that the Company has adopted or may adopt
for the benefit of its employees or executive officers.
Employee shall also be entitled to participate in, or enjoy the
benefit of, any other fringe benefits or prerequisites that are
now or may be or become applicable to the Company's executive
employees.
4.2 BUSINESS EXPENSES. During the term of Employee's employment
by the Company, the Company shall promptly reimburse Employee
for all reasonable and customary expenses incurred by Employee
in performing services for the Company, including all expenses
of travel and living expenses while away from home on business
or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in
accordance with the policies
2.
<PAGE>
and procedures established by the Company. Employee shall be
entitled to first or business class for all business air
travel. Employee shall be entitled to parking expenses,
excluding violations, when on the job, be it at the office or
while on business trips. Employee shall be entitled to a
reasonable per diem for living expenses while in San Francisco.
4.3 DIRECTOR & OFFICER INSURANCE: At all times during the term
of this Agreement the Company shall maintain in full force and
effect a director and office insurance policy with a national
insurance underwriter insuring Employee for his acts and
omissions in his capacity as an Officer and Director of the
Company, with coverage under such policy of not less than ONE
MILLION dollars ($1,000,000).
5. TERM. The initial term of employment under this Agreement shall be
from the date of this Agreement until December 31, 2001. This
Agreement shall be automatically renewed for an additional three-year
term, unless either Employee of the Company gives contrary written
notice to the other party hereto not less than 180 days before the
scheduled expiration of the initial term of this Agreement. Each term
and all such renewal terms are collectively referred to herein as the
term of this Agreement.
6. VOLUNTARY ABSENCES; VACATIONS. Employee shall be entitled, without
loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise approves. Employee shall be entitled
to an annual paid vacation of at least six weeks per year or such
longer period as the Board may approve. The timing of paid vacations
shall be scheduled in a reasonable manner by Employee.
7. TERMINATION OF EMPLOYMENT. Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
7.1 DEATH. Employee's Employment shall terminate upon his death.
7.2 DISABILITY. The Company may terminate Employee's employment
because of disability. For this purpose, "Disability" shall
mean the inability of Employee to perform his duties under
this Agreement because of physical or mental illness or
incapacity for a continuous period of six months during which
Employee shall have been absent from his duties under this
Agreement on a substantially full-time basis.
7.3 CAUSE. The Company may terminate Employee's employment for
Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment only in the event
of (a) the willful and continued failure by Employee to
substantially perform his duties hereunder (other than any
such failure resulting from Employee's inability to perform
such duties as a result of physical or mental illness or
incapacity or any such actual or anticipated failure after
the delivery of a Notice of Termination, as defined in
Section 7.5, by Employee for Good Reason, as defined in
Section 7.4.2) after delivery to Employee of a
3.
<PAGE>
written demand for substantial performance that specifically
identifies the manner in which the Company believes that
Employee has not substantially performed his duties and a
reasonable opportunity to cure; (b) willful misconduct by
Employee that causes substantial and material injury to the
business and operations of the Company, the continuation of
which, in the reasonable judgment of the Board, will continue
to substantially and materially injure the business and
operations of the Company in the future; or (b) conviction of
Employee of a felony. No act or failure to act shall be
considered "willful" for this purpose unless done, or omitted
to be done, by Employee other than in good faith and other
than with a reasonable belief that his action or omission was
in the best interests of the Company. Employee shall not be
deemed to have been terminated for Cause unless Employee
shall have been provided with (i) a reasonable notice setting
forth the reasons that the Company believes constitute Cause
for the termination of his employment; (ii) a Notice of
Termination as defined in Section 7.5, from the Board finding
that, in the reasonable good faith opinion of the Board,
Cause for the termination exists and specifying the
particulars thereof in reasonable detail.
7.4 TERMINATION BY EMPLOYEES. Employee may terminate his
employment (a) for Good Reason by giving ten days prior
written notice to the Company or (b) at any time by giving
120 days prior written notice to the Company.
7.4.1 GOOD REASON. For purposes of this Section, "Good
Reason" shall mean (a) the assignment to Employee of
any duties inconsistent with Employee's status or any
substantial adverse alteration in the nature or status
of Employee's responsibilities; (b) any change in
Employee's reporting responsibility such that Employee
is required to report other than exclusively to the
Chief Executive Officer; (c) any purported termination
of Employee's employment by the Company that is not
effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.5 hereof; (d)
any other failure by the Company to comply with any
material provision of this Agreement which failure
continues for more than ten days after written notice
of such noncompliance from Employee; or (e) any
notices given by the Company to Employee under Section
5 hereof that this Agreement will not be renewed on
any anniversary date.
7.5 NOTICE OF TERMINATION. Any termination of Employee's
employment by the Company or by Employee (other than
termination pursuant to Section 7.1 or 7.2 hereof) shall be
communicated to the other party by a written Notice of
Termination. Any Notice of Termination given by a party shall
specify the particular termination provision of this
Agreement relied upon by such party and shall set forth in
reasonable detail the facts and circumstances relied upon as
providing a basis for the termination under the provision so
specified.
7.6 TERMINATION DATE. The Termination Date shall mean (a) if
Employee's employment is terminated by his death, the date
4.
<PAGE>
of his death; (b) if Employee's employment is terminated
pursuant to Section 7.2 hereof, the date specified in the
Notice of Termination, which shall be after the expiration of
the six-month period specified in that subsection; (c) if
Employee's employment is terminated by the Company for Cause,
the date specified in the Notice of Termination; or (d) if
Employee's employment is terminated for any other reason,
sixty days following the date on which the Notice of
Termination is given.
8. COMPENSATION UPON TERMINATION OF EMPLOYMENT.
8.1 TERMINATION BECAUSE OF DEATH FOR CAUSE OR WITHOUT GOOD
REASON. If Employee's employment is terminated because of his
death, by the Company for Cause or by Employee other than for
Good Reason, the Company shall pay Employee his salary and a
pro rata portion of the bonus specified in Section 2(b) (based
upon the bonus paid in respect of the preceding year) through
the Termination Date of the Company shall have no further
obligation to Employee hereunder.
8.2 TERMINATION BECAUSE OF DISABILITY. If Employee's employment
is terminated by the Company because of Disability under
Section 7.2 hereof the Company shall pay Employee an annual
disability benefit equal to the excess of (a) 60 percent of his
salary at the rate in effect under Section 2.1 hereof on the
Termination Date plus 60 percent of the bonus amount specified
in Section 2.1 hereof (based upon the bonus paid in respect of
the preceding year) over (b) the amount of the long term
disability benefit that is payable to Employee under any policy
of disability insurance provided for Employee by the Company at
its expense. The disability benefit shall be paid for such
period as is determined by the Board of Directors for the
Company's senior executives but shall not be less than the
remainder of the scheduled term of employment.
8.3 TERMINATION WITHOUT CAUSE OR WITH GOOD REASON. If (a) in
breach of this Agreement, the Company shall terminate
Employee's employment other than for Cause or because of
Disability or (b) Employee shall terminate his employment for
Good Reason; then:
8.3.1 The Company shall pay Employee his salary and a pro
rata portion of the bonus specified in Section 2.1 hereof
(based upon the bonus paid in respect of the preceding
year) through the Termination Date and all other unpaid
and pro rata amounts to which Employee is entitled as of
the Termination Date under any compensation plan or
program of the Company, including, without limitation,
any incentive performance bonus and all accrued vacation
time;
8.3.2 The Company shall pay as liquidated damages to
Employee, an in lieu of any further salary payments
hereunder for periods after the Termination Date,
Employee's then current salary (payable in installments
in accordance with the Company's normal payroll
practices) for the remainder of the scheduled term of
employment and the product of (a) the sum of (i)
Employee's annual bonus specified in Section 2.1
5.
<PAGE>
hereof (based upon the bonus paid in respect of the
preceding year) and (ii) the maximum annual bonus amount
that could have been paid to Employee under the
Company's performance incentive bonus plan for the year
in which the Termination Date occurs, and (b) the number
of years (and any fraction of a year) remaining in the
term of this Agreement under Section 5 hereof as of the
Termination Date, which amount shall be payable in equal
monthly installments during the remainder of the
scheduled term of employment;
8.3.3 In addition to the liquidated amounts that are payable
to Employee, the following shall apply: (a) Employee
shall continue to participate in, and accrue benefits
under, all retirement, pension, profit sharing, employee
stock ownership, thrift and other deferred compensation
plans of the Company for the remaining term of this
Agreement as if the termination of employment of
Employee had not occurred (with Employee being deemed to
receive annually for the purposes of such plans
Employee's then current salary and bonus (at the time of
his termination) under Sections 2.1 and 2.2 of this
Agreement), except to the extent that such continued
participation and accrual is expressly prohibited by
law, or to the extent such plan constitutes a "qualified
plan" under Section 401 of the Internal Revenue Service
Code of 1986, as amended ("Code"), by the terms of the
plan, in which case the Company shall provide Employee
a substantially equivalent, unfunded, non-qualified
benefit; (b) Employee shall be entitled to continue to
receive all other employee benefits and then existing
fringe benefits referred to in Sections 4.1 and 4.2
hereof for the remaining term of this Agreement as if
the termination of employment had not occurred; and (c)
all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the
Company that are in effect on the date the Notice of
Termination is sent to Employee shall continue for the
benefit of Employee with respect to all of his acts and
omissions while an officer or director as fully and
completely as if such termination had not occurred, and
until the final expiration or running of all periods of
limitation against action which may be applicable to
such acts or omissions; and
8.3.4 The liquidated amount and other benefits provided for
in this Section 8.3 shall not be reduced by any
compensation or benefits that Employee may receive for
other employment with another employer or through
self-employment after termination of employment with the
Company.
8.4 COST OF ENFORCEMENT. In the event the employment of
Employee is terminated by the Company because of Disability or
without Cause, or by Employee for Good Reason, and the Company
fails to make timely payment of the amounts owed to Employee
under this Agreement, Employee shall be entitled to
reimbursement for all reasonable costs, including attorney's
fees, incurred in Employee in taking action to collect
such amounts or otherwise to enforce this Agreement, plus
6.
<PAGE>
interest on such amounts at the rate of one percent above
the prime rate (defined as the base rate on corporate loans
at large U.S. money center commercial banks as published by
THE WALL STREET JOURNAL), compounded monthly, for the period
from the date of employment termination until payment is made
to Employee. Such reimbursement and interest shall be
in addition to all rights to which Employee is otherwise
entitled under this Agreement.
8.5 PARACHUTE PAYMENT LIMITATION. If any payment or benefit to
Employee under this Agreement would be considered a
"parachute payment" within the meaning of Section 280(g)(b)(2)
of the Code and if, after reduction for any applicable federal
excise tax imposed by Section 4999 of the Code ("Excise Tax")
and federal income tax imposed by the Code, Employee's net
proceeds of the amounts payable and the benefits provided
under this Agreement would be less than the amount of
Employee's net proceeds resulting from the payment of the
Reduced Amount described below, after reduction for
federal income taxes, then the amount payable and the
benefits provided under this Agreement shall be limited to
the Reduced Amount. The "Reduced Amount" shall be the
largest amount that could be received by Employee under this
Agreement such that no amount paid to Employee under this
Agreement and any other agreement, contract or understanding
heretofore or hereafter entered into between Employee and the
Company ("Other Agreements") and any formal or informal plan
or other arrangement heretofore or hereafter adopted by the
Company for the direct or indirect provision of compensation
to Employee (including groups or classes or participants or
beneficiaries of which Employee is a member), whether or not
such compensation is deferred, is in cash, or is in the form
of a benefit to or for Employee ("Benefit Plan") would be
subject to the Excise Tax. In the event that the amount
payable to Employee shall be limited to the Reduced Amount,
then Employee shall have the right, in Employee's sole
discretion, to designate those payments or benefits under
this Agreement, any other Agreements, and/or Benefit Plank,
that should be reduced or eliminated so as to avoid having
the payment to Employee under this Agreement be subject to
the Excise Tax.
9. CONFIDENTIALITY. In consideration of the willingness of the
Company to employ Employees and the compensation to be paid and
benefits to be received therefor, any for other good and valuable
consideration, the receipt and adequacy of which is hereby
acknowledged, Employee agrees as follows:
9.1 THE COMPANY OWNS ALL OF EMPLOYEES' WORK. All improvements,
discoveries, inventions, designs, documents, licenses and
patents, or other data devised, conceived, made, developed,
obtained, filed, perfected, acquired, or first reduced to
practice, in whole or in part, or in the regular cause of
employment by Employee during the term of this Agreement, and
related in any way to the business, including development and
research, of the Company or any subsidiary or affiliate engaged
in business substantially similar to that of the Company, shall
be promptly disclosed to the Company. Employee hereby assigns
and transfers to the Company all his right, interest and title
thereto, and such improvements, discoveries, inventions,
designs, documents,
7.
<PAGE>
licenses and patents, or other data shall become the
property of the Company. During the term of this Agreement and
at any time thereafter, upon request of the Company, Employee
will join and render assistance in any proceedings and execute
any papers necessary to file and prosecute applications for,
and to acquire, maintain and enforce, letters patent,
trademarks, registrations and/or copyrights, both domestic
and foreign, with respect to such improvements, discoveries,
inventions, designs, documents, licenses and patents, or other
data as required for vesting and maintaining title to same in
the Company.
9.2 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees
and acknowledges that the term "Confidential and Proprietary
Information" shall mean any and all information not in the
public domain, in any form, emanating from or relating to the
Company and its subsidiaries and affiliates, including, but
not limited to, trade secrets, technical information, costs,
designs, drawings, processes, systems, methods of operation
and procedures, formulae, test data, know-how, improvements,
price lists, financial data, code books, invoices and other
financial statements, computer programs, discs and printouts,
sketches, and plans (engineering, architectural or otherwise),
customer list, telephone numbers, names, addresses,
information about equipment and processes (including
specifications and operating manuals), or any other
complication of information written or unwritten that is used
in the business of the Company or any subsidiary or affiliate
that gives the Company or any subsidiary of affiliate any
opportunity to obtain an advantage over competitors of the
Company who do not know or use such information. Employee
agrees and acknowledges that all Confidential and Proprietary
Information, in any form, and all copies and extracts thereof,
is and are shall remain the sole and exclusive property of the
Company and, upon termination of his employment with the
Company, Employee hereby agrees to return to the Company
the originals and all copies of any Confidential and
Proprietary Information provided to or acquired by Employee
during the period of his employment. Except as ordered by a
court of competent jurisdiction, Employee expressly agrees
never to disclose to any person (except to other Company
employees, and then only on a "need to know" bases) or entity
any Confidential an Proprietary Information either during the
term of this Agreement or at any time after termination of his
employment, except with the express written authorization and
consent of the Company.
9.3 CUSTOMER & CLIENT INFORMATION. Employee understands and
acknowledges that each customer and client of the Company or
its subsidiaries or affiliates will disclose information that
will be within the Company's control in connection with the
Company's furnishing of services to its customers and clients.
Employee covenants and agrees to hold such information in the
strictest confidence and shall treat such information in the
same manner and be obligated by the provisions of this
Agreement as if such information were Confidential and
Proprietary Information, as defined in Section 9.2 hereof.
8.
<PAGE>
10. COVENANT NOT TO COMPETE. During the term of employment and for a
period of TWO (2) years after the termination of Employee's
employment by the Company, Employee shall not directly or indirectly
own, manage, operate, control or be employed by or participate in the
ownership, management, operation or control of any business in the area
which is the type and character engaged in and competitive with that of
the Employer. Employee shall not, during the term of this Agreement,
have any other paid employment other than with a subsidiary of
affiliate of the Company, except with the Prior approval of the Board.
11. AMENDMENTS OR ADDITIONS; ACTION BY BOARD. No amendments or
additions to the Agreement shall be binding unless in writing and
signed by all parties thereto. The prior approval by a majority
affirmative vote of the full Board shall be required in order for the
Company to authorize any amendments or additions to this Agreement, to
give any consents or waivers of provisions of this Agreement, or to take
any other action under this Agreement including any Notice of
Termination.
12. MISCELLANEOUS.
12.1 NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be personally delivered or mailed
by first class registered or certified mail, postage prepaid,
return-receipt-requested, or transmitted by facsimile,
telegram or telex, addressed to the Company or Employee at
the address set forth on the signature page of this
Agreement, or at such other addresses as such party may
designate by five business day advance written notice to the
other party. Each notice or communication that shall have
been transmitted in the manner described above, or that shall
have been delivered to a telegraph company, shall be deemed
sufficiently given, served, sent or received for purposes at
such time as it is sent to the addressee (with the return
receipt, delivery receipt or (with respect to a telex) the
answer back being deemed conclusive, but not exclusive,
evidence of such sending) or at such time as delivery is
refused by the addressee upon presentation.
12.2 SEVERABILITY. Nothing in this Agreement shall be construed so
as to require the commission of any act contrary to law and
wherever there is any conflict between any provision of this
Agreement and any law, statute, ordinance, order or
regulation, the latter shall prevail, but in such event any
necessary action will be taken to bring it within applicable
legal requirements. If any provision of this Agreement should
be held invalid or unenforceable, the remaining provisions
shall be unaffected by such a holding.
12.3 COMPLETE AGREEMENT. This Agreement contains the entire
Agreement and understanding between the parties relating to
the subject matter hereof, and supersedes any prior
understandings, agreements or representations by or between
the parties, written or oral, relating to the subject matter
hereof.
12.4 SUCCESSORS OR ASSIGNS. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by way of
reorganization, merger or consolidation and any
9.
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assignee of all or substantially all of its business assets,
but except as to any such successor or assignee of the
Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of death of Employee all rights to
receive payments hereunder shall become rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of the death of Employee all rights to
receive payments hereunder shall become rights of Employee's
estate.
12.5 SECTION HEADINGS. The section heading used in this Agreement
are included solely for convenience and shall not affect, or
be used in connection with, the interpretation of this
Agreement.
12.6 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware.
12.7 ARBITRATION: All disputes between the parties arising under
this Agreement shall be finally decided through binding
arbitration before Judicial Arbitration & Mediation Services,
Inc. ("JAMS/ENDISPUTE") in San Francisco, California, and
judgment on any arbitration award may be entered in any court
having jurisdiction over the parties or their assets.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of this date, January 1, 1999
COMPANY: EMPLOYEE:
By: /s/ Patrick A. Grotto By: /s/ Todd Carter
--------------------- ---------------------
Name: Patrick A. Grotto Name: Todd Carter
Title: President & CEO SSN:
By: /s/ Jon M. Bloodworth
-------------------------
Name: Jon M. Bloodworth
Title: Secretary General Counsel
<PAGE>
Exhibit 10.3
busybox.com, inc.
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is entered into as of the date
specified on the signature page ("Effective Date") by and between
busybox.com, inc., a Delaware corporation located at 701 Battery Street, 3rd
floor, San Francisco, California 94111 ("Company") and the individual
specified on the signature page ("Employee").
RECITALS
R1. Employee is currently serving as Vice President, Secretary and General
Counsel of the Company.
R2. The parties desire to memorialize the employment relationship of
Employee with the Company.
R3. The Board of Directors of the Company ("Board") has approved and
authorized the entry into this Agreement with Employee.
R4. The parties hereby enter into this Agreement setting forth the terms
and conditions for the employment relationship of Employee with the
Company.
TERMS & CONDITIONS
1. EMPLOYMENT. From the Effective Date through the term of this
Agreement Employee is employed as Vice President, Secretary and General
Counsel of the Company and of any subsidiary or other affiliate that
it may acquire. Employee shall render executive, policy and other
management services to the Company and subsidiaries/affiliates of the
type customarily performed by persons serving in similar executive
officer capacities. Employee shall devote substantially all of his
working time and his best efforts to the Company and his position, which
shall include such duties as the Board may from time to time reasonably
direct that are reasonably consistent with Employee's education,
experience and background. During the term of this Agreement, there
shall be no material increase or decrease in the duties and
responsibilities of Employee otherwise than as provided herein, unless
the parties otherwise agree in writing.
2. COMPENSATION.
2.1 SALARY. The Company agrees to pay Employee from the
Effective Date at an annual rate equal to ONE HUNDRED FIFTY
THOUSAND dollars ($150,000), with such subsequent increases
in salary during the term of this Agreement as may be
determined by the Compensation Committee of the Board;
PROVIDED, HOWEVER, that during the first three years following
the effective date of the registration statement with respect
to the initial public offering of the Company's stock,
Employee's salary hereunder shall not exceed to ONE HUNDRED
FIFTY THOUSAND dollars ($150,000) per annum without the approval
of the Compensation Committee. In determining salary increases,
the Compensation Committee may compensate Employee for increases
in the cost of living and may also provide for performance
1.
<PAGE>
or merit increases. The salary of Employee shall not be
decreased at any time during the term of this Agreement from
the amount then in effect, unless Employee otherwise agrees in
writing. Participation in deferred compensation, bonus,
discretionary bonus, retirement and other employee benefit
plans in the fringe benefits shall not reduce the salary
payable to Employee under this Section 2.1. The salary under
this Section 2.1 shall be payable to Employee not less
frequently than monthly. Employee shall not be entitled to
receive fees for serving as a director of the Company or of any
subsidiary or affiliate of the company or for serving as a
member of any committee of any such board of directors.
2.2 ANNUAL BONUS. In addition to his salary under Section 2.1
above, the Company shall pay to Employee an annual bonus of
FIFTY PERCENT (50%) of his salary under such subsection. The
annual bonus shall be payable in January following each
calendar year during the term of this Agreement and shall be
prorated for any partial years.
3. DISCRETIONARY AND PERFORMANCE INCENTIVE BONUSES. During the term of
this Agreement, Employee shall be entitled to participate in an
equitable manner with all other executive employees of the Company in
such discretionary bonuses as may be authorized, declared and paid by
the Compensation Committee to its executive employees. The Company will
adopt an incentive bonus plan providing for the payment of annual
performance incentive bonuses to Employee and other executive officers
based upon the increase in the Company's operating profit or other
appropriate performance objectives. The incentive bonus arrangement
will provide Employee with an opportunity to earn additional incentive
compensation in an amount up to THREE PERCENT (3%) of the annual
increase in the Company's net income before taxes as reported in the
Company's audited annual financial statement (for fiscal year 1999, net
income shall be determined on a pro forma basis). No other compensation
provided for in this Agreement shall be deemed a substitute for
Employee's right to participate in such bonuses.
4. INSURANCE, RETIREMENT AND EMPLOYEE BENEFIT PLANS, FRINGE BENEFITS;
BUSINESS EXPENSES.
4.1 OTHER BENEFITS AND PREREQUISITES. Employee shall be entitled
to participate in any plan of the Company relating to stock
options, restricted stock, employee stock purchase or ownership,
pension, thrift, profit sharing, group life insurance, medical
coverage, education or other retirement or employee benefit
plans or arrangements that the Company has adopted or may adopt
for the benefit of its employees or executive officers.
Employee shall also be entitled to participate in, or enjoy the
benefit of, any other fringe benefits or prerequisites that are
now or may be or become applicable to the Company's executive
employees.
4.2 BUSINESS EXPENSES. During the term of Employee's employment
by the Company, the Company shall promptly reimburse Employee
for all reasonable and customary expenses incurred by Employee
in performing services for the Company, including all expenses
of travel and living expenses while away from home on business
or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in
accordance with the policies
2.
<PAGE>
and procedures established by the Company. Employee shall be
entitled to first or business class for all business air
travel. Employee shall be entitled to parking expenses,
excluding violations, when on the job, be it at the office or
while on business trips. Employee shall be entitled to a
reasonable per diem for living expenses while in San Francisco.
4.3 DIRECTOR & OFFICER INSURANCE; LEGAL MALPRACTICE INSURANCE: At
all times during the term of this Agreement the Company shall
maintain in full force and effect a director and office
insurance policy with a national insurance underwriter insuring
Employee for his acts and ommissions in his capacity as an
Officer and Director of the Company, with coverage under such
policy of not less than ONE MILLION dollars ($1,000,000). At
all times during the term of this Agreement the Company shall
maintain in full force and effect a legal malpractice
insurance policy with a national insurance underwriter
insuring Employee for his acts and ommissions in his capacity
as legal counsel to the Company, with coverage under such
policy of not less than ONE MILLION dollars ($1,000,000).
5. TERM. The initial term of employment under this Agreement shall be
from the date of this Agreement until December 31, 2001. This
Agreement shall be automatically renewed for an additional three-year
term, unless either Employee of the Company gives contrary written
notice to the other party hereto not less than 180 days before the
scheduled expiration of the initial term of this Agreement. Each term
and all such renewal terms are collectively referred to herein as the
term of this Agreement.
6. VOLUNTARY ABSENCES; VACATIONS. Employee shall be entitled, without
loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise approves. Employee shall be entitled
to an annual paid vacation of at least six weeks per year or such
longer period as the Board may approve. The timing of paid vacations
shall be scheduled in a reasonable manner by Employee.
7. TERMINATION OF EMPLOYMENT. Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
7.1 DEATH. Employee's Employment shall terminate upon his death.
7.2 DISABILITY. The Company may terminate Employee's employment
because of disability. For this purpose, "Disability" shall mean
the inability of Employee to perform his duties under this
Agreement because of physical or mental illness or incapacity for
a continuous period of six months during which Employee shall
have been absent from his duties under this Agreement on a
substantially full-time basis.
7.3 CAUSE. The Company may terminate Employee's employment for
Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment only in the event of
(a) the willful and continued failure by Employee to
substantially perform his duties hereunder (other than any such
failure resulting from Employee's inability to
3.
<PAGE>
perform such duties as a result of physical or mental illness or
incapacity or any such actual or anticipated failure after the
delivery of a Notice of Termination, as defined in Section 7.5,
by Employee for Good Reason, as defined in Section 7.4.2) after
delivery to Employee of a written demand for substantial
performance that specifically identifies the manner in which the
Company believes that Employee has not substantially performed his
duties and a reasonable opportunity to cure; (b) willful
misconduct by Employee that causes substantial and material injury
to the business and operations of the Company, the continuation of
which, in the reasonable judgment of the Board, will continue to
substantiallyand materially injure the business and operations of
the Company in the future; or (b) conviction of Employee of a
felony. No act or failure to act shall be considered "willful" for
this purpose unless done, or omitted to be done, by Employee other
than in good faith and other than with a reasonable belief that
his action or omission was in the best interests of the Company.
Employee shall not be deemed to have been terminated for Cause
unless Employee shall have been provided with (i) a reasonable
notice setting forth the reasons that the Company believes
constitute Cause for the termination of his employment; (ii) a
Notice of Termination as defined in Section 7.5, from the Board
finding that, in the reasonable good faith opinion of the Board,
Cause for the termination exists and specifying the particulars
thereof in reasonable detail.
7.4 TERMINATION BY EMPLOYEES. Employee may terminate his
employment (a) for Good Reason by giving ten days prior written
notice to the Company or (b) at any time by giving 120 days prior
written notice to the Company.
7.4.1 GOOD REASON. For purposes of this Section, "Good
Reason" shall mean (a) the assignment to Employee of any
duties inconsistent with Employee's status or any
substantial adverse alteration in the nature or status of
Employee's responsibilities; (b) any change in Employee's
reporting responsibility such that Employee is required to
report other than exclusively to the Chief Executive
Officer; (c) any purported termination of Employee's
employment by the Company that is not effected pursuant to
a Notice of Termination satisfying the requirements of
Section 7.5 hereof; (d) any other failure by the Company
to comply with any material provision of this Agreement
which failure continues for more than ten days after
written notice of such noncompliance from Employee; or (e)
any notices given by the Company to Employee under Section
5 hereof that this Agreement will not be renewed on any
anniversary date.
7.5 NOTICE OF TERMINATION. Any termination of Employee's
employment by the Company or by Employee (other than termination
pursuant to Section 7.1 or 7.2 hereof) shall be communicated to
the other party by a written Notice of Termination. Any Notice
of Termination given by a party shall specify the particular
termination provision of this Agreement relied upon by such
party and shall set forth in reasonable detail the facts and
circumstances relied upon as
4.
<PAGE>
providing a basis for the termination under the provision so
specified.
7.6 TERMINATION DATE. The Termination Date shall mean (a) if
Employee's employment is terminated by his death, the date
of his death; (b) if Employee's employment is terminated
pursuant to Section 7.2 hereof, the date specified in the Notice
of Termination, which shall be after the expiration of the
six-month period specified in that subsection; (c) if Employee's
employment is terminated by the Company for Cause, the date
specified in the Notice of Termination; or (d) if Employee's
employment is terminated for any other reason, sixty days
following the date on which the Notice of Termination is given.
8. COMPENSATION UPON TERMINATION OF EMPLOYMENT.
8.1 TERMINATION BECAUSE OF DEATH FOR CAUSE OR WITHOUT GOOD
REASON. If Employee's employment is terminated because of his
death, by the Company for Cause or by Employee other than for
Good Reason, the Company shall pay Employee his salary and a
pro rata portion of the bonus specified in Section 2(b) (based
upon the bonus paid in respect of the preceding year) through
the Termination Date of the Company shall have no further
obligation to Employee hereunder.
8.2 TERMINATION BECAUSE OF DISABILITY. If Employee's employment
is terminated by the Company because of Disability under
Section 7.2 hereof the Company shall pay Employee an annual
disability benefit equal to the excess of (a) 60 percent of his
salary at the rate in effect under Section 2.1 hereof on the
Termination Date plus 60 percent of the bonus amount specified
in Section 2.1 hereof (based upon the bonus paid in respect of
the preceding year) over (b) the amount of the long term
disability benefit that is payable to Employee under any policy
of disability insurance provided for Employee by the Company at
its expense. The disability benefit shall be paid for such
period as is determined by the Board of Directors for the
Company's senior executives but shall not be less than the
remainder of the scheduled term of employment.
8.3 TERMINATION WITHOUT CAUSE OR WITH GOOD REASON. If (a) in
breach of this Agreement, the Company shall terminate
Employee's employment other than for Cause or because of
Disability or (b) Employee shall terminate his employment for
Good Reason; then:
8.3.1 The Company shall pay Employee his salary and a pro
rata portion of the bonus specified in Section 2.1 hereof
(based upon the bonus paid in respect of the preceding
year) through the Termination Date and all other unpaid
and pro rata amounts to which Employee is entitled as of
the Termination Date under any compensation plan or
program of the Company, including, without limitation,
any incentive performance bonus and all accrued vacation
time;
8.3.2 The Company shall pay as liquidated damages to
Employee, an in lieu of any further salary payments
hereunder for periods after the Termination Date,
5.
<PAGE>
Employee's then current salary (payable in installments
in accordance with the Company's normal payroll
practices) for the remainder of the scheduled term of
employment and the product of (a) the sum of (i)
Employee's annual bonus specified in Section 2.1
hereof (based upon the bonus paid in respect of the
preceding year) and (ii) the maximum annual bonus amount
that could have been paid to Employee under the
Company's performance incentive bonus plan for the year
in which the Termination Date occurs, and (b) the number
of years (and any fraction of a year) remaining in the
term of this Agreement under Section 5 hereof as of the
Termination Date, which amount shall be payable in equal
monthly installments during the remainder of the
scheduled term of employment;
8.3.3 In addition to the liquidated amounts that are payable
to Employee, the following shall apply: (a) Employee
shall continue to participate in, and accrue benefits
under, all retirement, pension, profit sharing, employee
stock ownership, thrift and other deferred compensation
plans of the Company for the remaining term of this
Agreement as if the termination of employment of
Employee had not occurred (with Employee being deemed to
receive annually for the purposes of such plans
Employee's then current salary and bonus (at the time of
his termination) under Sections 2.1 and 2.2 of this
Agreement), except to the extent that such continued
participation and accrual is expressly prohibited by
law, or to the extent such plan constitutes a "qualified
plan" under Section 401 of the Internal Revenue Service
Code of 1986, as amended ("Code"), by the terms of the
plan, in which case the Company shall provide Employee
a substantially equivalent, unfunded, non-qualified
benefit; (b) Employee shall be entitled to continue to
receive all other employee benefits and then existing
fringe benefits referred to in Sections 4.1 and 4.2
hereof for the remaining term of this Agreement as if
the termination of employment had not occurred; and (c)
all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the
Company that are in effect on the date the Notice of
Termination is sent to Employee shall continue for the
benefit of Employee with respect to all of his acts and
omissions while an officer or director as fully and
completely as if such termination had not occurred, and
until the final expiration or running of all periods of
limitation against action which may be applicable to
such acts or omissions; and
8.3.4 The liquidated amount and other benefits provided for
in this Section 8.3 shall not be reduced by any
compensation or benefits that Employee may receive for
other employment with another employer or through
self-employment after termination of employment with the
Company.
8.4 COST OF ENFORCEMENT. In the event the employment of
Employee is terminated by the Company because of Disability or
without Cause, or by Employee for Good Reason, and the
6.
<PAGE>
Company fails to make timely payment of the amounts owed to
Employee under this Agreement, Employee shall be entitled to
reimbursement for all reasonable costs, including attorney's
fees, incurred in Employee in taking action to collect
such amounts or otherwise to enforce this Agreement, plus
interest on such amounts at the rate of one percent above
the prime rate (defined as the base rate on corporate loans
at large U.S. money center commercial banks as published by
THE WALL STREET JOURNAL), compounded monthly, for the period
from the date of employment termination until payment is made
to Employee. Such reimbursement and interest shall be
in addition to all rights to which Employee is otherwise
entitled under this Agreement.
8.5 PARACHUTE PAYMENT LIMITATION. If any payment or benefit to
Employee under this Agreement would be considered a
"parachute payment" within the meaning of Section 280(g)(b)(2)
of the Code and if, after reduction for any applicable federal
excise tax imposed by Section 4999 of the Code ("Excise Tax")
and federal income tax imposed by the Code, Employee's net
proceeds of the amounts payable and the benefits provided
under this Agreement would be less than the amount of
Employee's net proceeds resulting from the payment of the
Reduced Amount described below, after reduction for
federal income taxes, then the amount payable and the
benefits provided under this Agreement shall be limited to
the Reduced Amount. The "Reduced Amount" shall be the
largest amount that could be received by Employee under this
Agreement such that no amount paid to Employee under this
Agreement and any other agreement, contract or understanding
heretofore or hereafter entered into between Employee and the
Company ("Other Agreements") and any formal or informal plan
or other arrangement heretofore or hereafter adopted by the
Company for the direct or indirect provision of compensation
to Employee (including groups or classes or participants or
beneficiaries of which Employee is a member), whether or not
such compensation is deferred, is in cash, or is in the form
of a benefit to or for Employee ("Benefit Plan") would be
subject to the Excise Tax. In the event that the amount
payable to Employee shall be limited to the Reduced Amount,
then Employee shall have the right, in Employee's sole
discretion, to designate those payments or benefits under
this Agreement, any other Agreements, and/or Benefit Plank,
that should be reduced or eliminated so as to avoid having
the payment to Employee under this Agreement be subject to
the Excise Tax.
9. CONFIDENTIALITY. In consideration of the willingness of the
Company to employ Employees and the compensation to be paid and
benefits to be received therefor, any for other good and valuable
consideration, the receipt and adequacy of which is hereby
acknowledged, Employee agrees as follows:
9.1 THE COMPANY OWNS ALL OF EMPLOYEES' WORK. All improvements,
discoveries, inventions, designs, documents, licenses and
patents, or other data devised, conceived, made, developed,
obtained, filed, perfected, acquired, or first reduced to
practice, in whole or in part, or in the regular cause of
employment by Employee during the term of this Agreement, and
related in any way to the business, including development and
research, of the Company or any subsidiary
7.
<PAGE>
or affiliate engaged in business substantially similar to that
of the Company, shall be promptly disclosed to the Company.
Employee hereby assigns and transfers to the Company all his
right, interest and title thereto, and such improvements,
discoveries, inventions, designs, documents, licenses and
patents, or other data shall become the property of the
Company. During the term of this Agreement and at any time
thereafter, upon request of the Company, Employee will join
and render assistance in any proceedings and execute any
papers necessary to file and prosecute applications for,
and to acquire, maintain and enforce, letters patent,
trademarks, registrations and/or copyrights, both domestic
and foreign, with respect to such improvements, discoveries,
inventions, designs, documents, licenses and patents, or other
data as required for vesting and maintaining title to same in
the Company.
9.2 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees
and acknowledges that the term "Confidential and Proprietary
Information" shall mean any and all information not in the
public domain, in any form, emanating from or relating to the
Company and its subsidiaries and affiliates, including, but
not limited to, trade secrets, technical information, costs,
designs, drawings, processes, systems, methods of operation
and procedures, formulae, test data, know-how, improvements,
price lists, financial data, code books, invoices and other
financial statements, computer programs, discs and printouts,
sketches, and plans (engineering, architectural or otherwise),
customer list, telephone numbers, names, addresses,
information about equipment and processes (including
specifications and operating manuals), or any other
complication of information written or unwritten that is used
in the business of the Company or any subsidiary or affiliate
that gives the Company or any subsidiary of affiliate any
opportunity to obtain an advantage over competitors of the
Company who do not know or use such information. Employee
agrees and acknowledges that all Confidential and Proprietary
Information, in any form, and all copies and extracts thereof,
is and are shall remain the sole and exclusive property of the
Company and, upon termination of his employment with the
Company, Employee hereby agrees to return to the Company
the originals and all copies of any Confidential and
Proprietary Information provided to or acquired by Employee
during the period of his employment. Except as ordered by a
court of competent jurisdiction, Employee expressly agrees
never to disclose to any person (except to other Company
employees, and then only on a "need to know" bases) or entity
any Confidential an Proprietary Information either during the
term of this Agreement or at any time after termination of his
employment, except with the express written authorization and
consent of the Company.
9.3 CUSTOMER & CLIENT INFORMATION. Employee understands and
acknowledges that each customer and client of the Company or
its subsidiaries or affiliates will disclose information that
will be within the Company's control in connection with the
Company's furnishing of services to its customers and clients.
Employee covenants and agrees to hold such information in the
strictest confidence and shall treat such information in the
same manner and be obligated by the
8.
<PAGE>
provisions of this Agreement as if such information were
Confidential and Proprietary Information, as defined in
Section 9.2 hereof.
10. COVENANT NOT TO COMPETE. During the term of employment and for a
period of TWO (2) years after the termination of Employee's
employment by the Company, Employee shall not directly or indirectly
own, manage, operate, control or be employed by or participate in the
ownership, management, operation or control of any business in the area
which is the type and character engaged in and competitive with that of
the Employer. Employee shall not, during the term of this Agreement,
have any other paid employment other than with a subsidiary of
affiliate of the Company, except with the Prior approval of the Board.
11. AMENDMENTS OR ADDITIONS; ACTION BY BOARD. No amendments or
additions to the Agreement shall be binding unless in writing and
signed by all parties thereto. The prior approval by a majority
affirmative vote of the full Board shall be required in order for the
Company to authorize any amendments or additions to this Agreement, to
give any consents or waivers of provisions of this Agreement, or to take
any other action under this Agreement including any Notice of
Termination.
12. MISCELLANEOUS.
12.1 NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be personally delivered or mailed by
first class registered or certified mail, postage prepaid,
return-receipt-requested, or transmitted by facsimile, telegram
or telex, addressed to the Company or Employee at the address set
forth on the signature page of this Agreement, or at such other
addresses as such party may designate by five business day advance
written notice to the other party. Each notice or communication
that shall have been transmitted in the manner described above, or
that shall have been delivered to a telegraph company, shall be
deemed sufficiently given, served, sent or received for
purposes at such time as it is sent to the addressee (with the
return receipt, delivery receipt or (with respect to a telex) the
answer back being deemed conclusive, but not exclusive, evidence
of such sending) or at such time as delivery is refused by the
addressee upon presentation.
12.2 SEVERABILITY. Nothing in this Agreement shall be construed so
as to require the commission of any act contrary to law and
wherever there is any conflict between any provision of this
Agreement and any law, statute, ordinance, order or regulation,
the latter shall prevail, but in such event any necessary action
will be taken to bring it within applicable legal requirements.
If any provision of this Agreement should be held invalid or
unenforceable, the remaining provisions shall be unaffected by
such a holding.
12.3 COMPLETE AGREEMENT. This Agreement contains the entire
Agreement and understanding between the parties relating to the
subject matter hereof, and supersedes any prior understandings,
agreements or representations by or between the parties, written
or oral, relating to the subject matter hereof.
9.
<PAGE>
12.4 SUCCESSORS OR ASSIGNS. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by way of
reorganization, merger or consolidation and any
assignee of all or substantially all of its business assets,
but except as to any such successor or assignee of the
Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of death of Employee all rights to
receive payments hereunder shall become rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of the death of Employee all rights to
receive payments hereunder shall become rights of Employee's
estate.
12.5 SECTION HEADINGS. The section heading used in this
Agreement are included solely for convenience and shall not
affect, or be used in connection with, the interpretation
of this Agreement.
12.6 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware.
12.7 ARBITRATION: All disputes between the parties arising under
this Agreement shall be finally decided through binding
arbitration before Judicial Arbitration & Mediation Services,
Inc. ("JAMS/ENDISPUTE") in San Francisco, California, and
judgment on any arbitration award may be entered in any court
having jurisdiction over the parties or their assets.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of this date, January 1, 1999
COMPANY: EMPLOYEE:
By: /s/ Patrick A. Grotto By: /s/ Jon M. Bloodworth
--------------------- ---------------------
Name: Patrick A. Grotto Name: Jon M. Bloodworth
Title: President & CEO SSN: ###-##-####
By: /s/ Jon M. Bloodworth
-------------------------
Name: Jon M. Bloodworth
Title: Secretary General Counsel
10.
<PAGE>
Exhibit 10.4
busybox.com, inc.
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is entered into as of the date
specified on the signature page ("Effective Date") by and between
busybox.com, inc., a Delaware corporation located at 701 Battery Street, 3rd
floor, San Francisco, California 94111 ("Company") and the individual
specified on the signature page ("Employee").
RECITALS
R1. Employee is currently serving as Vice President, Chief Financial
Officer and Treasurer of the Company.
R2. The parties desire to memorialize the employment relationship of
Employee with the Company.
R3. The Board of Directors of the Company ("Board") has approved and
authorized the entry into this Agreement with Employee.
R4. The parties hereby enter into this Agreement setting forth the terms
and conditions for the employment relationship of Employee with the
Company.
TERMS & CONDITIONS
1. EMPLOYMENT. From the Effective Date through the term of this
Agreement Employee is employed as Vice President, Chief Financial
Officer and Treasurer of the Company and of any subsidiary or other
affiliate that it may acquire. Employee shall render executive, policy
and other management services to the Company and subsidiaries/affiliates
of the type customarily performed by persons serving in similar
executive officer capacities. Employee shall devote substantially all of
his working time and his best efforts to the Company and his position,
which shall include such duties as the Board may from time to time
reasonably direct that are reasonably consistent with Employee's
education, experience and background. During the term of this Agreement,
there shall be no material increase or decrease in the duties and
responsibilities of Employee otherwise than as provided herein, unless
the parties otherwise agree in writing.
2. COMPENSATION.
2.1 SALARY. The Company agrees to pay Employee from the
Effective Date at an annual rate equal to ONE HUNDRED TWENTY
FIVE THOUSAND dollars ($125,000), with such subsequent
increases in salary during the term of this Agreement as may
be determined by the Compensation Committee of the Board;
PROVIDED, HOWEVER, that during the first three years following
the effective date of the registration statement with respect
to the initial public offering of the Company's stock,
Employee's salary hereunder shall not exceed to ONE HUNDRED
TWENTY FIVE THOUSAND dollars ($125,000) per annum
without the approval of the Compensation Committee. In
determining salary increases, the Compensation Committee may
compensate Employee for increases in the cost of living and may
also provide for performance
1.
<PAGE>
or merit increases. The salary of Employee shall not be
decreased at any time during the term of this Agreement from
the amount then in effect, unless Employee otherwise agrees in
writing. Participation in deferred compensation, bonus,
discretionary bonus, retirement and other employee benefit
plans in the fringe benefits shall not reduce the salary
payable to Employee under this Section 2.1. The salary under
this Section 2.1 shall be payable to Employee not less
frequently than monthly. Employee shall not be entitled to
receive fees for serving as a director of the Company or of any
subsidiary or affiliate of the company or for serving as a
member of any committee of any such board of directors.
2.2 ANNUAL BONUS. In addition to his salary under Section 2.1
above, the Company shall pay to Employee an annual bonus of
FIFTY PERCENT (50%) of his salary under such subsection. The
annual bonus shall be payable in January following each
calendar year during the term of this Agreement and shall be
prorated for any partial years.
3. DISCRETIONARY AND PERFORMANCE INCENTIVE BONUSES. During the term of
this Agreement, Employee shall be entitled to participate in an
equitable manner with all other executive employees of the Company in
such discretionary bonuses as may be authorized, declared and paid by
the Compensation Committee to its executive employees. The Company will
adopt an incentive bonus plan providing for the payment of annual
performance incentive bonuses to Employee and other executive officers
based upon the increase in the Company's operating profit or other
appropriate performance objectives. The incentive bonus arrangement
will provide Employee with an opportunity to earn additional incentive
compensation in an amount up to THREE PERCENT (3%) of the annual
increase in the Company's net income before taxes as reported in the
Company's audited annual financial statement (for fiscal year 1999, net
income shall be determined on a pro forma basis). No other compensation
provided for in this Agreement shall be deemed a substitute for
Employee's right to participate in such bonuses.
4. INSURANCE, RETIREMENT AND EMPLOYEE BENEFIT PLANS, FRINGE BENEFITS;
BUSINESS EXPENSES.
4.1 OTHER BENEFITS AND PREREQUISITES. Employee shall be entitled
to participate in any plan of the Company relating to stock
options, restricted stock, employee stock purchase or ownership,
pension, thrift, profit sharing, group life insurance, medical
coverage, education or other retirement or employee benefit
plans or arrangements that the Company has adopted or may adopt
for the benefit of its employees or executive officers.
Employee shall also be entitled to participate in, or enjoy the
benefit of, any other fringe benefits or prerequisites that are
now or may be or become applicable to the Company's executive
employees.
4.2 BUSINESS EXPENSES. During the term of Employee's employment
by the Company, the Company shall promptly reimburse Employee
for all reasonable and customary expenses incurred by Employee
in performing services for the Company, including all expenses
of travel and living expenses while away from home on business
or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in
accordance with the policies
2.
<PAGE>
and procedures established by the Company. Employee shall be
entitled to first or business class for all business air
travel. Employee shall be entitled to parking expenses,
excluding violations, when on the job, be it at the office or
while on business trips. Employee shall be entitled to a
reasonable per diem for living expenses while in San Francisco.
4.3 DIRECTOR & OFFICER INSURANCE: At all times during the term
of this Agreement the Company shall maintain in full force and
effect a director and office insurance policy with a national
insurance underwriter insuring Employee for his acts and
ommissions in his capacity as an Officer and Director of the
Company, with coverage under such policy of not less than ONE
MILLION dollars ($1,000,000).
5. TERM. The initial term of employment under this Agreement shall be
from the date of this Agreement until December 31, 2001. This
Agreement shall be automatically renewed for an additional three-year
term, unless either Employee of the Company gives contrary written
notice to the other party hereto not less than 180 days before the
scheduled expiration of the initial term of this Agreement. Each term
and all such renewal terms are collectively referred to herein as the
term of this Agreement.
6. VOLUNTARY ABSENCES; VACATIONS. Employee shall be entitled, without
loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise approves. Employee shall be entitled
to an annual paid vacation of at least six weeks per year or such
longer period as the Board may approve. The timing of paid vacations
shall be scheduled in a reasonable manner by Employee.
7. TERMINATION OF EMPLOYMENT. Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
7.1 DEATH. Employee's Employment shall terminate upon his death.
7.2 DISABILITY. The Company may terminate Employee's employment
because of disability. For this purpose, "Disability" shall mean
the inability of Employee to perform his duties under this
Agreement because of physical or mental illness or incapacity for
a continuous period of six months during which Employee shall
have been absent from his duties under this Agreement on a
substantially full-time basis.
7.3 CAUSE. The Company may terminate Employee's employment for
Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment only in the event of
(a) the willful and continued failure by Employee to
substantially perform his duties hereunder (other than any such
failure resulting from Employee's inability to perform such
duties as a result of physical or mental illness or incapacity or
any such actual or anticipated failure after the delivery of a
Notice of Termination, as defined in Section 7.5, by Employee for
Good Reason, as defined in Section 7.4.2) after delivery to
Employee of a
3.
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written demand for substantial performance that specifically
identifies the manner in which the Company believes that Employee
has not substantially performed his duties and a reasonable
opportunity to cure; (b) willful misconduct by Employee that
causes substantial and material injury to the business and
operations of the Company, the continuation of which, in the
reasonable judgment of the Board, will continue to substantially
and materially injure the business and operations of the Company
in the future; or (b) conviction of Employee of a felony. No act
or failure to act shall be considered "willful" for this purpose
unless done, or omitted to be done, by Employee other than in
good faith and other than with a reasonable belief that his
action or omission was in the best interests of the Company.
Employee shall not be deemed to have been terminated for Cause
unless Employee shall have been provided with (i) a reasonable
notice setting forth the reasons that the Company believes
constitute Cause for the termination of his employment; (ii) a
Notice of Termination as defined in Section 7.5, from the Board
finding that, in the reasonable good faith opinion of the Board,
Cause for the termination exists and specifying the particulars
thereof in reasonable detail.
7.4 TERMINATION BY EMPLOYEES. Employee may terminate his
employment (a) for Good Reason by giving ten days prior written
notice to the Company or (b) at any time by giving 120 days prior
written notice to the Company.
7.4.1 GOOD REASON. For purposes of this Section, "Good
Reason" shall mean (a) the assignment to Employee of any
duties inconsistent with Employee's status or any
substantial adverse alteration in the nature or status of
Employee's responsibilities; (b) any change in Employee's
reporting responsibility such that Employee is required to
report other than exclusively to the Chief Executive
Officer; (c) any purported termination of Employee's
employment by the Company that is not effected pursuant to
a Notice of Termination satisfying the requirements of
Section 7.5 hereof; (d) any other failure by the Company
to comply with any material provision of this Agreement
which failure continues for more than ten days after
written notice of such noncompliance from Employee; or (e)
any notices given by the Company to Employee under Section
5 hereof that this Agreement will not be renewed on any
anniversary date.
7.5 NOTICE OF TERMINATION. Any termination of Employee's
employment by the Company or by Employee (other than termination
pursuant to Section 7.1 or 7.2 hereof) shall be communicated to
the other party by a written Notice of Termination. Any Notice
of Termination given by a party shall specify the particular
termination provision of this Agreement relied upon by such
party and shall set forth in reasonable detail the facts and
circumstances relied upon as providing a basis for the
termination under the provision so specified.
7.6 TERMINATION DATE. The Termination Date shall mean (a) if
Employee's employment is terminated by his death, the date
4.
<PAGE>
of his death; (b) if Employee's employment is terminated
pursuant to Section 7.2 hereof, the date specified in the Notice
of Termination, which shall be after the expiration of the
six-month period specified in that subsection; (c) if Employee's
employment is terminated by the Company for Cause, the date
specified in the Notice of Termination; or (d) if Employee's
employment is terminated for any other reason, sixty days
following the date on which the Notice of Termination is given.
8. COMPENSATION UPON TERMINATION OF EMPLOYMENT.
8.1 TERMINATION BECAUSE OF DEATH FOR CAUSE OR WITHOUT GOOD
REASON. If Employee's employment is terminated because of his
death, by the Company for Cause or by Employee other than for
Good Reason, the Company shall pay Employee his salary and a
pro rata portion of the bonus specified in Section 2(b) (based
upon the bonus paid in respect of the preceding year) through
the Termination Date of the Company shall have no further
obligation to Employee hereunder.
8.2 TERMINATION BECAUSE OF DISABILITY. If Employee's employment
is terminated by the Company because of Disability under
Section 7.2 hereof the Company shall pay Employee an annual
disability benefit equal to the excess of (a) 60 percent of his
salary at the rate in effect under Section 2.1 hereof on the
Termination Date plus 60 percent of the bonus amount specified
in Section 2.1 hereof (based upon the bonus paid in respect of
the preceding year) over (b) the amount of the long term
disability benefit that is payable to Employee under any policy
of disability insurance provided for Employee by the Company at
its expense. The disability benefit shall be paid for such
period as is determined by the Board of Directors for the
Company's senior executives but shall not be less than the
remainder of the scheduled term of employment.
8.3 TERMINATION WITHOUT CAUSE OR WITH GOOD REASON. If (a) in
breach of this Agreement, the Company shall terminate
Employee's employment other than for Cause or because of
Disability or (b) Employee shall terminate his employment for
Good Reason; then:
8.3.1 The Company shall pay Employee his salary and a pro
rata portion of the bonus specified in Section 2.1 hereof
(based upon the bonus paid in respect of the preceding
year) through the Termination Date and all other unpaid
and pro rata amounts to which Employee is entitled as of
the Termination Date under any compensation plan or
program of the Company, including, without limitation,
any incentive performance bonus and all accrued vacation
time;
8.3.2 The Company shall pay as liquidated damages to
Employee, an in lieu of any further salary payments
hereunder for periods after the Termination Date,
Employee's then current salary (payable in installments
in accordance with the Company's normal payroll
practices) for the remainder of the scheduled term of
employment and the product of (a) the sum of (i)
Employee's annual bonus specified in Section 2.1
5.
<PAGE>
hereof (based upon the bonus paid in respect of the
preceding year) and (ii) the maximum annual bonus amount
that could have been paid to Employee under the
Company's performance incentive bonus plan for the year
in which the Termination Date occurs, and (b) the number
of years (and any fraction of a year) remaining in the
term of this Agreement under Section 5 hereof as of the
Termination Date, which amount shall be payable in equal
monthly installments during the remainder of the
scheduled term of employment;
8.3.3 In addition to the liquidated amounts that are payable
to Employee, the following shall apply: (a) Employee
shall continue to participate in, and accrue benefits
under, all retirement, pension, profit sharing, employee
stock ownership, thrift and other deferred compensation
plans of the Company for the remaining term of this
Agreement as if the termination of employment of
Employee had not occurred (with Employee being deemed to
receive annually for the purposes of such plans
Employee's then current salary and bonus (at the time of
his termination) under Sections 2.1 and 2.2 of this
Agreement), except to the extent that such continued
participation and accrual is expressly prohibited by
law, or to the extent such plan constitutes a "qualified
plan" under Section 401 of the Internal Revenue Service
Code of 1986, as amended ("Code"), by the terms of the
plan, in which case the Company shall provide Employee
a substantially equivalent, unfunded, non-qualified
benefit; (b) Employee shall be entitled to continue to
receive all other employee benefits and then existing
fringe benefits referred to in Sections 4.1 and 4.2
hereof for the remaining term of this Agreement as if
the termination of employment had not occurred; and (c)
all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the
Company that are in effect on the date the Notice of
Termination is sent to Employee shall continue for the
benefit of Employee with respect to all of his acts and
omissions while an officer or director as fully and
completely as if such termination had not occurred, and
until the final expiration or running of all periods of
limitation against action which may be applicable to
such acts or omissions; and
8.3.4 The liquidated amount and other benefits provided for
in this Section 8.3 shall not be reduced by any
compensation or benefits that Employee may receive for
other employment with another employer or through
self-employment after termination of employment with the
Company.
8.4 COST OF ENFORCEMENT. In the event the employment of
Employee is terminated by the Company because of Disability or
without Cause, or by Employee for Good Reason, and the Company
fails to make timely payment of the amounts owed to Employee
under this Agreement, Employee shall be entitled to
reimbursement for all reasonable costs, including attorney's
fees, incurred in Employee in taking action to collect
such amounts or otherwise to enforce this Agreement, plus
6.
<PAGE>
interest on such amounts at the rate of one percent above
the prime rate (defined as the base rate on corporate loans
at large U.S. money center commercial banks as published by
THE WALL STREET JOURNAL), compounded monthly, for the period
from the date of employment termination until payment is made
to Employee. Such reimbursement and interest shall be
in addition to all rights to which Employee is otherwise
entitled under this Agreement.
8.5 PARACHUTE PAYMENT LIMITATION. If any payment or benefit to
Employee under this Agreement would be considered a
"parachute payment" within the meaning of Section 280(g)(b)(2)
of the Code and if, after reduction for any applicable federal
excise tax imposed by Section 4999 of the Code ("Excise Tax")
and federal income tax imposed by the Code, Employee's net
proceeds of the amounts payable and the benefits provided
under this Agreement would be less than the amount of
Employee's net proceeds resulting from the payment of the
Reduced Amount described below, after reduction for
federal income taxes, then the amount payable and the
benefits provided under this Agreement shall be limited to
the Reduced Amount. The "Reduced Amount" shall be the
largest amount that could be received by Employee under this
Agreement such that no amount paid to Employee under this
Agreement and any other agreement, contract or understanding
heretofore or hereafter entered into between Employee and the
Company ("Other Agreements") and any formal or informal plan
or other arrangement heretofore or hereafter adopted by the
Company for the direct or indirect provision of compensation
to Employee (including groups or classes or participants or
beneficiaries of which Employee is a member), whether or not
such compensation is deferred, is in cash, or is in the form
of a benefit to or for Employee ("Benefit Plan") would be
subject to the Excise Tax. In the event that the amount
payable to Employee shall be limited to the Reduced Amount,
then Employee shall have the right, in Employee's sole
discretion, to designate those payments or benefits under
this Agreement, any other Agreements, and/or Benefit Plank,
that should be reduced or eliminated so as to avoid having
the payment to Employee under this Agreement be subject to
the Excise Tax.
9. CONFIDENTIALITY. In consideration of the willingness of the
Company to employ Employees and the compensation to be paid and
benefits to be received therefor, any for other good and valuable
consideration, the receipt and adequacy of which is hereby
acknowledged, Employee agrees as follows:
9.1 THE COMPANY OWNS ALL OF EMPLOYEES' WORK. All improvements,
discoveries, inventions, designs, documents, licenses and
patents, or other data devised, conceived, made, developed,
obtained, filed, perfected, acquired, or first reduced to
practice, in whole or in part, or in the regular cause of
employment by Employee during the term of this Agreement, and
related in any way to the business, including development and
research, of the Company or any subsidiary or affiliate engaged
in business substantially similar to that of the Company, shall
be promptly disclosed to the Company. Employee hereby assigns
and transfers to the Company all his right, interest and title
thereto, and such improvements, discoveries, inventions,
designs, documents,
7.
<PAGE>
licenses and patents, or other data shall become the
property of the Company. During the term of this Agreement and
at any time thereafter, upon request of the Company, Employee
will join and render assistance in any proceedings and execute
any papers necessary to file and prosecute applications for,
and to acquire, maintain and enforce, letters patent,
trademarks, registrations and/or copyrights, both domestic
and foreign, with respect to such improvements, discoveries,
inventions, designs, documents, licenses and patents, or other
data as required for vesting and maintaining title to same in
the Company.
9.2 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees
and acknowledges that the term "Confidential and Proprietary
Information" shall mean any and all information not in the
public domain, in any form, emanating from or relating to the
Company and its subsidiaries and affiliates, including, but
not limited to, trade secrets, technical information, costs,
designs, drawings, processes, systems, methods of operation
and procedures, formulae, test data, know-how, improvements,
price lists, financial data, code books, invoices and other
financial statements, computer programs, discs and printouts,
sketches, and plans (engineering, architectural or otherwise),
customer list, telephone numbers, names, addresses,
information about equipment and processes (including
specifications and operating manuals), or any other
complication of information written or unwritten that is used
in the business of the Company or any subsidiary or affiliate
that gives the Company or any subsidiary of affiliate any
opportunity to obtain an advantage over competitors of the
Company who do not know or use such information. Employee
agrees and acknowledges that all Confidential and Proprietary
Information, in any form, and all copies and extracts thereof,
is and are shall remain the sole and exclusive property of the
Company and, upon termination of his employment with the
Company, Employee hereby agrees to return to the Company
the originals and all copies of any Confidential and
Proprietary Information provided to or acquired by Employee
during the period of his employment. Except as ordered by a
court of competent jurisdiction, Employee expressly agrees
never to disclose to any person (except to other Company
employees, and then only on a "need to know" bases) or entity
any Confidential an Proprietary Information either during the
term of this Agreement or at any time after termination of his
employment, except with the express written authorization and
consent of the Company.
9.3 CUSTOMER & CLIENT INFORMATION. Employee understands and
acknowledges that each customer and client of the Company or
its subsidiaries or affiliates will disclose information that
will be within the Company's control in connection with the
Company's furnishing of services to its customers and clients.
Employee covenants and agrees to hold such information in the
strictest confidence and shall treat such information in the
same manner and be obligated by the provisions of this
Agreement as if such information were Confidential and
Proprietary Information, as defined in Section 9.2 hereof.
8.
<PAGE>
10. COVENANT NOT TO COMPETE. During the term of employment and for a
period of TWO (2) years after the termination of Employee's
employment by the Company, Employee shall not directly or indirectly
own, manage, operate, control or be employed by or participate in the
ownership, management, operation or control of any business in the area
which is the type and character engaged in and competitive with that of
the Employer. Employee shall not, during the term of this Agreement,
have any other paid employment other than with a subsidiary of
affiliate of the Company, except with the Prior approval of the Board.
11. AMENDMENTS OR ADDITIONS; ACTION BY BOARD. No amendments or
additions to the Agreement shall be binding unless in writing and
signed by all parties thereto. The prior approval by a majority
affirmative vote of the full Board shall be required in order for the
Company to authorize any amendments or additions to this Agreement, to
give any consents or waivers of provisions of this Agreement, or to take
any other action under this Agreement including any Notice of
Termination.
12. MISCELLANEOUS.
12.1 NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be personally delivered or mailed by
first class registered or certified mail, postage prepaid,
return-receipt-requested, or transmitted by facsimile, telegram
or telex, addressed to the Company or Employee at the address set
forth on the signature page of this Agreement, or at such other
addresses as such party may designate by five business day advance
written notice to the other party. Each notice or communication
that shall have been transmitted in the manner described above, or
that shall have been delivered to a telegraph company, shall be
deemed sufficiently given, served, sent or received for
purposes at such time as it is sent to the addressee (with the
return receipt, delivery receipt or (with respect to a telex) the
answer back being deemed conclusive, but not exclusive, evidence
of such sending) or at such time as delivery is refused by the
addressee upon presentation.
12.2 SEVERABILITY. Nothing in this Agreement shall be construed so
as to require the commission of any act contrary to law and
wherever there is any conflict between any provision of this
Agreement and any law, statute, ordinance, order or regulation,
the latter shall prevail, but in such event any necessary action
will be taken to bring it within applicable legal requirements.
If any provision of this Agreement should be held invalid or
unenforceable, the remaining provisions shall be unaffected by
such a holding.
12.3 COMPLETE AGREEMENT. This Agreement contains the entire
Agreement and understanding between the parties relating to the
subject matter hereof, and supersedes any prior understandings,
agreements or representations by or between the parties, written
or oral, relating to the subject matter hereof.
12.4 SUCCESSORS OR ASSIGNS. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by way of
reorganization, merger or consolidation and any
9.
<PAGE>
assignee of all or substantially all of its business assets,
but except as to any such successor or assignee of the
Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of death of Employee all rights to
receive payments hereunder shall become rights or benefits
hereunder may be assigned by the Company or Employee.
However, in the event of the death of Employee all rights to
receive payments hereunder shall become rights of Employee's
estate.
12.5 SECTION HEADINGS. The section heading used in this
Agreement are included solely for convenience and shall not
affect, or be used in connection with, the interpretation
of this Agreement.
12.6 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware.
12.7 ARBITRATION: All disputes between the parties arising under
this Agreement shall be finally decided through binding
arbitration before Judicial Arbitration & Mediation Services,
Inc. ("JAMS/ENDISPUTE") in San Francisco, California, and
judgment on any arbitration award may be entered in any court
having jurisdiction over the parties or their assets.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of this date, January 1, 1999
COMPANY: EMPLOYEE:
By: /s/ Patrick A. Grotto By: /s/ Mark B. Leffers
--------------------- ---------------------
Name: Patrick A. Grotto Name: Mark B. Leffers
Title: President & CEO SSN: ###-##-####
By: /s/ Jon M. Bloodworth
-------------------------
Name: Jon M. Bloodworth
Title: Secretary General Counsel
10.
<PAGE>
Exhibit 10.5
FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of the ____ day of ________,
1999, between busybox.com, inc. (the "Company") and Barron Chase Securities,
Inc. (the "Financial Advisor").
W I T N E S S E T H :
WHEREAS, The Company has engaged the Financial Advisor to act as the
Underwriter in connection with the public offering of the Company's securities;
and
WHEREAS, the Financial Advisor has experience in providing financial
and business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is willing to
furnish business and financial related advice and services to the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. PURPOSE. The Company hereby engages the Financial Advisor on a
non-exclusive basis for the term specified in this Agreement to render financial
advisory and consulting advice to the Company as an investment banker relating
to financial and similar matters upon the terms and conditions set forth herein.
However, the advisory will only be rendered if specifically requested in writing
by the Chief Executive Officer of the Company.
2. REPRESENTATIONS OF THE FINANCIAL ADVISOR AND THE COMPANY. The
Financial Advisor represents and warrants to the Company that (i) it is a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD") and that it is engaged in the securities brokerage business; (ii) in
addition to its securities brokerage business, the Financial Advisor provides
consulting advisory services; and (iii) it is free to enter into this Agreement
and the services to be provided pursuant to this Agreement are not in conflict
with any other contractual or other obligation to which the Financial Advisor is
bound. The Company acknowledges that the Financial Advisor is in the business of
providing financial services and consulting advice (of the type contemplated by
this Agreement) to others and that nothing herein contained shall be construed
to limit or restrict the Financial Advisor in conducting such business with
respect to others, or rendering such advice to others.
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<PAGE>
3. DUTIES OF THE FINANCIAL ADVISOR. During the term of this Agreement,
the Financial Advisor will provide the Company with consulting advice as
specified below at the request of the Company, provided that the Financial
Advisor shall not be required to undertake duties not reasonably within the
scope of the consulting advisory service in which the Financial Advisor is
engaged generally. In performance of these duties, the Financial Advisor shall
provide the Company with the benefits of its best judgment and efforts. It is
understood and acknowledged by the parties that the value of the Financial
Advisor's advice is not measurable in any quantitative manner, and that the
amount of time spent rendering such consulting advice shall be determined
according to the Financial Advisor's discretion.
The Financial Advisor's duties may include, but will not necessarily be
limited to:
1) Advice relating to corporate financing activities;
2) Recommendations relating to specific business operations and
investments;
3) Advice relating to financial planning; and
4) Advice regarding future financings involving securities of the
Company or any subsidiary.
4. TERM. The term of this Agreement shall be for twelve (12) months
commencing on the first day of the month following the Company's receipt of the
proceeds from the contemplated public offering (the "Commencement Date");
provided, however, that this Agreement may be renewed or extended upon such
terms and conditions as may be mutually agreed upon by the parties hereto.
5. FEE. The Company shall pay the Financial Advisor a fee of $108,000
for the financial services to be rendered pursuant to this Agreement, all of
which shall be payable at the Closing Date of the Company's proposed public
offering.
6. EXPENSES. In addition to the fees payable hereunder, the Company
shall reimburse the Financial Advisor, within five (5) business days of its
request, for any and all reasonable out-of-pocket expenses incurred in
connection with the services performed by the Financial Advisor and its counsel
pursuant to this Agreement, including (i) reasonable hotel, food and associated
expenses; (ii) reasonable charges for travel; (iii) reasonable long-distance
telephone calls; and (iv) other reasonable expenses spent or incurred on the
Company's behalf. All such expenses in excess of $500 shall be pre-approved by
the Company.
7. USE OF ADVICE BY THE COMPANY; PUBLIC MARKET FOR THE COMPANY'S
SECURITIES. The Company acknowledges that all opinions
2
<PAGE>
and advice (written or oral) given by the Financial Advisor to the Company in
connection with the engagement of the Financial Advisor are intended solely for
the benefit and use of the Company in considering the transaction to which they
relate, and the Company agrees that no person or entity other than the Company
shall be entitled to make use of or rely upon the advice of the Financial
Advisor to be given hereunder, and no such opinion or advice shall be used for
any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose, nor may the Company make any public
references to the Financial Advisor, or use the Financial Advisor's name in any
annual reports or any other reports or releases of the Company without the prior
written consent of the Financial Advisor.
The Company acknowledges that the Financial Advisor makes no commitment
whatsoever as to making a public trading market in the Company's securities or
to recommending or advising its clients to purchase the Company's securities.
Research reports or corporate finance reports that may be prepared by the
Financial Advisor will, when and if prepared, be done solely on the merits or
judgment and analysis of the Financial Advisor or any senior corporate finance
personnel of the Financial Advisor.
8. COMPANY INFORMATION; CONFIDENTIALLY. The Company recognizes and
confirms that, in advising the Company and in fulfilling its engagement
hereunder, the Financial Advisor will use and rely on data, material and other
information furnished to the Financial Advisor by the Company. The Company
acknowledges and agrees that in performing its services under this engagement,
the Financial Advisor may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same. In addition, in the performance of its
services, the Financial Advisor may look to such others for such factual
information, economic advice and/or research upon which to base its advice to
the Company hereunder as the Financial Advisor shall in good faith deem
appropriate.
Except as contemplated by the terms hereof or as required by applicable
law, the Financial Advisor shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as the Financial Advisor determines to have a need to
know.
9. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Financial Advisor against any and all liabilities, claims, lawsuits, including
any and all awards and/or judgments to which it may become subject under the
Securities Act of 1933, (the "Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act") or any other federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including costs,
expenses, awards and/or judgments) arise out of or are in connection with the
services rendered by the Financial Advisor or any transactions in connection
with this Agreement, except for any liabilities, claims and lawsuits
3
<PAGE>
(including awards and/or judgments), arising out of willful misconduct or
willful omissions of the Financial Advisor. In addition, the Company shall also
indemnify and hold harmless the Financial Advisor against any and all reasonable
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
The Financial Advisor shall give the Company prompt notice of any such
liability, claim or lawsuit which the Financial Advisor contends is the subject
matter of the Company's indemnification and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right to settle, compromise and dispose of such liability, claim or lawsuit,
excepting therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
The Financial Advisor shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the 1934
Act or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including costs, expenses, awards
and/or judgments) arise out of or are based upon willful misconduct or willful
omissions of the Financial Advisor. In addition, the Financial Advisor shall
also indemnify and hold the Company harmless against any and all reasonable
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
The Company shall give the Financial Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
the Financial Advisor's indemnification and the Financial Advisor thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise or dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
10. THE FINANCIAL ADVISOR AS AN INDEPENDENT CONTRACTOR. The Financial
Advisor shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof. It is expressly
understood and agreed to by the parties hereto that the Financial Advisor shall
have no authority to act for, represent or bind the Company or any affiliate
thereof in any manner, except as may be agreed to expressly by the Company in
writing from time to time.
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11. MISCELLANEOUS.
(a) This Agreement between the Company and the Financial Advisor
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand-delivered or sent
by facsimile and postage prepaid by certified or registered mail, return receipt
requested, to the respective parties as set forth below, or to such other
address as either party may notify the other in writing:
If to the Company: Rosanne Esposito, President
busybox.com, inc.
701 Battery Street, Third Floor
San Francisco, CA 94111
Copy to: Thomas J. Prousalis, Jr., Esq.
1919 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20006
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts, each
of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida applicable to contracts made and to be
performed entirely within the State of Florida. The parties agree that any
action brought by any party against another party in connection with any rights
or obligations arising out of this Agreement shall be instituted properly in a
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federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
(g) This Agreement has been duly authorized, executed and delivered by
and on behalf of the Company and the Financial Advisor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Very truly yours,
busybox.com, inc.
BY:
-----------------------------------
Rosanne Esposito, President
BARRON CHASE SECURITIES, INC.
BY:
-----------------------------------
Robert T. Kirk, President
6
<PAGE>
Exhibit 10.6
____________, 1999
Rosanne Esposito, President
busybox.com, inc.
701 Battery Street, Third Floor
San Francisco, CA 94111
RE: MERGER AND ACQUISITION AGREEMENT
Dear Ms. Esposito:
You have agreed that Barron Chase Securities, Inc., (the "Finder") may
act as a non-exclusive finder or financial consultant in various transactions in
which busybox.com, inc. (the "Company") may be involved, including but not
limited to, mergers, acquisitions, business combinations, joint ventures, debt
or equity placements or other on-balance sheet or off-balance sheet corporate
transactions (the ATransaction@). The Company hereby agrees that in the event
that the Finder shall first introduce to the Company another party or entity,
and that as a result of such introduction, a Transaction between such entity and
the Company is consummated ("Consummated Transaction"), then the Company shall
pay to the Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the consideration
paid in such transaction;
b. Four percent (4%) of the consideration in excess of $1,000,000
and up to $2,000,000;
c. Three percent (3%) of the consideration in excess of $2,000,000
and up to $3,000,000;
d. Two percent (2%) of the consideration in excess of $3,000,000 and
up to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed between
the Company and the Finder, without regard to whether the Consummated
Transaction involves payments in cash, in stock, or a combination of stock and
cash, or is made on an installment sale basis. By way of example, if the
Consummated Transaction involves securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party, or securities
of another entity, if the Company is the selling party) having a value of
$5,000,000, the finders fee to be paid by the Company to the Finder at closing
shall be $150,000.
<PAGE>
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder from
the date when first due through and including that date when actually collected
by the Finder, at a rate equal to two (2) points over the prime rate of
Citibank, N.A. in New York, New York, computed on a daily basis and adjusted as
announced from time to time.
This agreement shall be effective on the date hereof and shall expire
on the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year period
provided above, conclude a Consummated Transaction with any party introduced by
the Finder to the Company prior to the termination of said five year period, the
Company shall also pay the Finder the fee determined above.
The Company represents and warrants to the Finder that the engagement
of the Finder hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State of Florida
and shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters contained
herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
-----------------------------------
Robert T. Kirk, President
Agreed to and Accepted:
busybox.com, inc.
BY:
- -------------------------------------
Rosanne Esposito, President
<PAGE>
Exhibit 10.7
REVISED MASTER AGREEMENT FOR SERVICES
This Revised Master Agreement for Services ("Revised Agreement") is
entered into this 6th day of May, 1998 ("Effective Date") by and between
CORBIS CORPORATION, a Washington corporation with its principal place of
business at 15395 S.E. 30th Place, Suite 300, Bellevue, Washington 98007
("Corbis"), and GET SMART, INC., a Delaware corporation d/b/a BUSY BOX
PRODUCTIONS and MEDIA NETWORK with its principal place of business at
701 Battery Street, 2nd Floor, San Francisco, California 94111 ("Busy Box").
RECITALS
WHEREAS, Busy Box and Digital Stock Corporation ("DSC") entered into a
Master Agreement for Services, dated December 22, 1995 (the "Master
Agreement"), inclusive of Exhibit A comprising the Statement of Work for
Phases 1-3 (as originally planned) of the web site to be developed by Busy
Box for DSC; Addendum to Exhibit A, dated November 20, 1997, setting forth
revisions to Exhibit A; and any other exhibits, addenda and amendments, if
any;
WHEREAS, Busy Box and DSC had certain differences and disputes under the
Master Agreement, both as to services provided by Busy Box and amounts to be
paid by DSC;
WHEREAS, on January 30, 1998, Corbis acquired the business of DSC,
including all rights in and to the Master Agreement; and
WHEREAS, Corbis and Busy Box would like to resolve all differences and
disputes under the Master Agreement and to enter into a new agreement to
complete certain Internet projects that were begun under the Master Agreement;
NOW, THEREFORE, Corbis and Busy Box hereby agree as follows:
1. RESOLUTION OF DISPUTES UNDER MASTER AGREEMENT
1.1. PAYMENT FOR PAST WORK. Corbis and Busy Box agree that as full and
final payment for all services provided and all costs and
expenses incurred under the Master Agreement, from the
commencement of the Master Agreement through the Effective Date
of this Revised Agreement, Corbis will pay Busy Box seventy-seven
thousand seven hundred fifty dollars ($77,750) (the "Master
Agreement Fee") within ten (10) business days of the Effective
Date of this Revised Agreement. Payment shall be made by check.
1.2. RELEASE. Busy Box and Corbis hereby mutually release each other,
and their predecessors in interest, affiliates, successors,
assigns, officers, agents, employees and other representatives,
from all fees, costs, expenses, claims, damages, losses and
liabilities of any nature whatsoever arising under the Master
Agreement.
1.3. TERMINATION OF MASTER AGREEMENT. Corbis and Busy Box hereby
acknowledge and agree that the Master Agreement is hereby
terminated and of no further force and effect; provided
that Section 3 (Proprietary Rights), 4 (Licenses),
6 (Representations & Warranties), 7 (Indemnity) and
8 (Confidentiality) of the Master Agreement shall be replaced
and superseded by the respective provisions of this Revised
Agreement.
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2. NEW WORK UNDER THIS REVISED AGREEMENT
2.1. NEW WORK. Corbis and Busy Box agree that all services Busy Box
provides to Corbis on and after the Effective Date, and all
payments Corbis makes to Busy Box for such services, shall be
governed by the terms and conditions of this Revised Agreement.
2.2. COMPLETION OF THE SITE. Busy Box shall develop the Internet
commerce site (the "Site") as described in the specifications
attached hereto (the "Specifications") in accordance with the
schedules set forth in the Specifications. Corbis and Busy Box
acknowledge that Busy Box began development of the Site under the
Master Agreement and will complete development of the Site under
this Revised Agreement. As used herein, "Site" shall include
those portions of the Site created under this Revised Agreement
and under the Master Agreement, including but not limited to all
Custom Work and Enabling Technologies (as those terms are defined
in the Master Agreement) developed under the Master Agreement.
3. OWNERSHIP AND LICENSE OF RIGHTS
3.1. CORBIS CONTENT. Corbis shall provide Busy Box with certain
content (for example, graphic design, digital images, keywords
and caption information), in various media (for example, film,
paper and digital), as needed for the development of the Site
("Content"). Corbis shall provide the Content solely for Busy
Box's internal use in developing the Site. Except for such
limited use, Busy Box agrees that it will not reproduce, display,
distribute, incorporate into other works or otherwise use the
Content in any manner whatsoever. All rights to the Content shall
remain with Corbis (as owner, agent or as licensee of such
content). Busy Box will return all Content provided by Corbis
upon completion of the Site, termination or expiration of this
Revised Agreement or upon Corbis' request. As used herein,
"Content" includes all such Content provided by DSC under the
Master Agreement.
3.1.1. Busy Box agrees that Corbis shall own all copies,
reproductions, modifications, new versions and
derivative works created by Busy Box of the Content,
including but not limited to cutdowns and new versions
of Corbis digital images, and edited caption information
and keywords, but exclusive of quality control,
processing, and auditing attributes independently
created by Busy Box. Busy Box will deliver all Content,
including Content created under the Master Agreement and
all copies, reproductions, modifications, new versions
and derivative works created by Busy Box of the Content,
to Corbis upon termination or expiration of this Revised
Agreement or upon Corbis' request.
3.1.2. Busy Box acknowledges and agrees that Busy Box will
collect and store Corbis' customer information and that
all such customer information will be the exclusive
property of Corbis. Busy Box will deliver all such
customer information (including all customer information
it may have collected and stored for DSC) to Corbis upon
termination or expiration of this Revised Agreement or
upon Corbis' request. Busy Box is expressly prohibited
from making any use of the customer information, except
as may be requested by Corbis.
3.2. BUSY BOX ASSIGNMENT AND LICENSES.
3.2.1. CUSTOM WORK. As of the Effective Date, Busy Box hereby
irrevocably assigns to Corbis all right, title and
interest, including copyright, in and to the Custom
Work as defined in the Master Agreement. Henceforth,
under this Revised Agreement, the Site shall be
comprised only of Content and Enabling Technologies.
3.2.2. ENABLING TECHNOLOGIES. Upon Corbis' acceptance of the
final version of the site and payment to Busy Box of the
full amount of the Master Agreement Fee and the Fee for
work performed under this Revised Agreement, Busy Box
shall irrevocably grant Corbis,
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its affiliates, successors, and assigns, a
non-exclusive worldwide license to use Enabling
Technologies, in all media whether now known or
hereafter devised, in connection with the Site and
future versions of the Site, if applicable. As used
herein, "Enabling Technologies" means all Busy Box
technologies deployed or otherwise required to operate
the Site in accordance with the Specifications, and
includes all Enabling Technologies licensed under the
Master Agreement (as Enabling Technologies is defined
therein).
3.2.3. Except for the licenses granted above and as may be
provided elsewhere in this Revised Agreement, all right,
title and interest in and to the Enabling Technologies
shall remain the property of Busy Box.
3.2.4. The licenses granted by Busy Box in this Section 3.2
shall be in effect for a period of 100 years from the
Effective Date or until all copyright protection in and
to the Enabling Technologies has expired, whichever is
later.
3.3. THIRD-PARTY TECHNOLOGIES. Subject to Corbis' approval as may be
required under Paragraph 5.4 below, Busy Box shall obtain
third-party technologies (including but not limited to both
hardware and software) on Corbis' behalf. Such technologies will
be standard, off-the-shelf technologies with licensed rights at
least as broad as those specified in Paragraphs 3.2.1 and 3.2.2
above. Subject to payment under Paragraph 5.4 below, Corbis shall
own all right, title and interest to such technologies, or to the
license of such technologies, as the case may be. Busy Box will
deliver all such third-party technologies to Corbis upon
termination or expiration of this Revised Agreement or upon
Corbis' request.
4. ACCEPTANCE OF SITE
4.1. TESTING. After delivery of each of the beta and final versions of
the Site to Corbis in accordance with the development schedule
set forth in the Specifications, Corbis shall test the particular
version of the site Site (I.E., the beta or final version, as the
case may be) for a trial period of up to seven (7) days. During
the respective trial periods, Corbis may perform any tests it may
choose on the particular version of the Site to determine if such
Site performs according to the Specifications.
4.2. PROCEDURE. In the event that, Corbis determines that the
particular version of the Site does not perform according to the
Specifications, Corbis shall notify Busy Box of the deficiency in
the Site before the expiration of the trial period. Upon receipt
of such notice, Busy Box shall use its best efforts to remedy the
deficiency within seven (7) days. After Busy Box's attempt to
remedy the deficiency has been completed, Corbis shall have seven
(7) days in which to test the particular version of the Site in
order to determine in its discretion if the deficiency has been
remedied. If the deficiency has not been remedied by the end of
this second seven-day period. Corbis may terminate this Revised
Agreement upon notice to Busy Box, and upon payment to Busy Box
of fifty percent (50%) of the payment specified in Paragraph 5.1,
Corbis shall have no further liability to Busy Box.
4.3. AUTOMATIC ACCEPTANCE. In the event that Corbis does not notify
Busy Box of any deficiencies in the Site within seven (7) days of
the initial seven-day trial period, Corbis shall be deemed to
have accepted the Site.
4.4. LAUNCH OF SITE PRIOR TO ACCEPTANCE. Both parties agree that the
Site may be made available over the Internet before Corbis has
accepted the Site, and that such a launch of the Site in no way
indicates acceptance of the Site by Corbis. Acceptance shall
follow the procedures set forth in this Section 4 and may occur
after the launch of the Site.
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5. FEE, EXPENSES AND PAYMENTS
5.1. FEE. Within ten (10) business days of the date on which Corbis
accepts the final version of the Site, in accordance with Section 4
above, Corbis will pay Busy Box a fee of eighty-seven thousand
two hundred fifty dollars ($87,250)(the "Fee"). Payments shall
be made by check.
5.2. FIXED FEE. Both parties agree that the Fee is a firm, fixed fee
for completion of the Site in accordance with the Specifications,
and Corbis shall not be responsible for paying any additional
amounts to Busy Box, including but not limited to hourly fees, to
complete the Site.
5.3. LATE PENALTY. Both parties agree that time is of the essence, and
Corbis will suffer significant damage if the Site is not
completed by May 11, 1998. Accordingly, if the Site is not
completed (including Corbis' acceptance of the final version of
the Site) by May 18, 1998, Busy Box will pay Corbis a late
penalty of $1000 per day for each day of delay, which amount may
be applied against the Fee owned by Corbis to Busy Box. In no
event will the cumulative late penalty exceed $20,000. The late
penalty shall not apply to delays caused by MetaDesign's material
delay in providing Busy Box with design work needed to complete
the Site, or any force majeure or other event beyond Busy Box's
reasonable control.
5.4. EXPENSES. Corbis agrees to reimburse Busy Box for its reasonable
out-of-pocket expenses incurred in obtaining third-party
technologies in accordance with Paragraph 3.3 above; provided
that Busy Box must obtain Corbis' prior approval for any singlel
expense that exceeds $1000, and further provided that Busy Box
must provide Corbis with receipts for all reimbursable expenses.
Corbis will make payment to Busy Box for reimbursable expenses
after Corbis' acceptance of the project, within 30 days of
receipt of an invoice from Busy Box.
6. MAINTENANCE AND HOSTING OF SITE
6.1. Corbis and Busy Box intend to enter into a separate agreement
governing the ongoing maintenance and hosting of the Site. Both
parties agree to use good-faith efforts to enter into such
agreement prior to the completion of the Site.
7. REPRESENTATIONS AND WARRANTIES
7.1. Busy Box hereby represents and warrants the following as of the
date hereof and upon delivery of the final Site to Corbis:
7.1.1. the Site will be free from significant programming
errors and from defects in materials and workmanship;
7.1.2. the Site will conform to the performance capabilities,
characteristics, and other descriptions and standards
applicable thereto as set forth in the Specifications;
7.1.3. Busy Box is the sole and exclusive owner of all rights
in the Enabling Technologies, including all patent
rights, copyright and all other intellectual property
rights therein, and Busy Box has the right to grant to
Corbis all rights granted in this Revised Agreement free
and clear of any and all agreements, liens, adverse
claims, encumbrances and interests of any third party;
and
7.1.4. the Site, Custom Work and Enabling Technologies and the
exercise by Corbis of its rights hereunder with respect
to those items will not infringe upon, violate or
misappropriate any patent, copyright, trade secret,
trademark, contract or other right or interest of any
third party, provided, that Busy Box makes no warranties
or representations with respect to the content provided
by Corbis.
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7.2. If Corbis believes that there is a breach of any warranty contained
in Section 7.1, Corbis shall notify Busy Box, setting forth the
nature of such claimed breach. Busy Box shall promptly investigate
such claimed breach and shall either (a) provide information
satisfactory to Corbis that no breach of warranty in act occurred,
or (b) advise Corbis of Busy Box's planned corrective action. In the
event that a breach of warranties has occurred, Busy Box shall, at
no additional charge, promptly take such action as may be required
to correct such breach.
7.3. In the event that the Site, Custom Work or Enabling Technologies
(excluding the content provided by Corbis) is finally determined by
a court of competent jurisdiction to constitute an infringement of a
patent, copyright, trade secret or other proprietary right and its
use is enjoined, Busy Box shall, at its own expense, either
(a) procure the right for Corbis to continue its use of the Site,
Custom Work or Enabling Technologies under this Revised Agreement,
or (b) replace or modify the Site, Custom Work or Enabling
Technologies with a version of the same that is not infringing and
is a product of equal or greater value and meets the performance
criteria and functions outlined in the Specifications.
7.4. The remedies provided for herein are cumulative and are in addition
to all other remedies Corbis may have under applicable law or in
equity.
7.5. These representations and warranties shall be in effect for a period
of 100 years from the Effective Date.
8. INDEMNIFICATION AND HOLD HARMLESS FOR CLAIMS OF INFRINGEMENT
8.1 Busy Box shall defend, hold harmless, and indemnify Corbis from
and against any and all damages, liabilities, obligations,
expenses, costs and attorneys' fees incurred by or awarded
against Corbis in any claim, action, or judicial or other
proceeding based upon a breach of Busy Box's representations and
warranties provided in Section 7.1 above. This indemnification
shall be in effect for a period of 100 years from the Effective
Date.
9. DEFAULT AND REMEDIES
9.1. Corbis shall be in default of this Revised Agreement upon the
breach by Corbis of any material covenant or obligation of Corbis
to be performed under this Revised Agreement, if not cured within
ten (10) business days after receipt by Corbis of written notice
thereof. At any time after the occurrence of an event of default,
Busy Box may (a) terminate this Revised Agreement by giving
written notice to Corbis; and (b) enforce Corbis' performance of
the applicable covenants or recover damages for the breach
thereof.
9.2. Busy Box shall be in default of this Revised Agreement upon
breach by Busy Box of any covenant or obligation of Busy Box, if
not cured within five (5) business days after Busy Box's receipt
of written notice thereof. At any time after the occurrence of an
event of default, Corbis may terminate this Revised Agreement by
giving written notice to Busy Box, and (b) enforce Busy Box's
performance of the applicable covenants or recover damages for
the breach thereof.
9.3. The remedies provided for herein are cumulative and are in
addition to all other remedies Corbis or Busy Box may have under
applicable law or in equity.
10. CONFIDENTIALITY
10.1. Each party hereto (the "Disclosing Party") will disclose to the
other party ("Recipient") information in connection with the
performance of this Revised Agreement. All non-public information
disclosed by the Disclosing Party to the Recipient during the
term of this Revised Agreement, including but not limited to
technical and business information relating to Disclosing Party's
products, research and development, production, costs,
engineering processes, profit or
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margin information, finances, customers, marketing, and future
business plans, shall be deemed "Confidential Information." In
addition, "Confidential Information" shall include all
Confidential Information disclosed by DSC and Busy Box during the
term of the Master Revised Agreement. All Confidential
Information shall remain the sole property of Disclosing Party,
and Recipient shall have no rights to or in the Confidential
Information. Recipient shall hold the Confidential Information in
strict confidence. Recipient shall not make any disclosure of the
Confidential Information to anyone without the express written
consent of Disclosing Party, except (i) to employees,
consultants, advisors or agents to whom disclosure is necessary
to the performance of this Revised Agreement, or the conduct of
Recipient's business, and who shall be bound by the terms hereof;
or (ii) in the context of any administrative or judicial
proceeding, provided that prior written notice of such required
disclosure and an opportunity to oppose or limit disclosure is
given to Disclosing Party.
10.2. After termination of this Revised Agreement, upon written
request, Recipient shall return, within ten (10) business days,
all originals and copies any requested Confidential Information
disclosed by Disclosing Party which has been fixed in any
tangible means of expression.
10.3. Notwithstanding the other provisions of this Revised Agreement,
nothing received by Recipient shall be considered to be
Confidential Information of the other, if: (i) it has been
published or is otherwise readily available to the public other
than by a breach of this Revised Agreement; (ii) it has been
rightfully received by Recipient from a third party without
confidentiality limitations; or (iii) it was known to Recipient
prior to its first receipt by Recipient, as shown by files
existing at the time of initial disclosure.
10.4. The confidentiality obligations under this Section 10 shall be in
effect for a period of five (5) years from the Effective Date.
11. GENERAL PROVISIONS
11.1. ASSIGNMENT. This Revised Agreement shall be binding upon the
parties, their heirs, representatives, executors, administrators,
successors, licensees and assigns, Notwithstanding the foregoing,
Busy Box shall not, without the prior written consent of Corbis,
sell, assign or otherwise transfer this Revised Agreement or any
right or obligation hereunder, without the prior written consent
of Corbis.
11.2. SEVERABILITY. If any provision or any part of a provision of this
Revised Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall not invalidate or render
unenforceable this entire Revised Agreement, but rather the
entire provision or this Revised Agreement shall be construed as
if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of the
parties shall be construed and enforced accordingly.
11.3. NOTICES. All notices hereunder shall be in writing and shall be
deemed given when sent by certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
If to Busy Box:
Get Smart, Inc. dba Busy Box Productions
P O Box 191712
San Francisco, CA 94119
Attention: Rosanne Esposito, President
Fax: (415) 283-1806
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If to Corbis:
Corbis Corporation
15395 S.E. 30th Place, Suite 300
Bellevue, WA 98007
Attention: Director of Products and Systems, Corbis Images
Fax: (425) 746-1618
With a copy to the General Counsel
Fax: (425) 746-1618
or such other address as a party may so designate by written
notice to the other in the manner provided herein.
11.4. ENTIRE AGREEMENT. Each party acknowledges that it has read this
Revised Agreement and agrees to be bound by its terms. This
Revised Agreement is the complete and exclusive agreement and
understanding between the parties concerning the subject matter
hereof, which supersede all previous understandings negotiations
and proposals, whether oral or written. No modification,
amendment, consent or discharge in connection with this Revised
Agreement or any of its provisions shall be binding upon either
party unless in writing and signed by the party sought to be
charged with the same.
11.5. GOVERNING LAW. This Revised Agreement shall be governed and
interpreted under the laws of the State of California. Any and
all disputes arising under this Agreement shall be finally
decided through arbitration before Judicial Arbitration and
Mediation Services, Inc. ("JAMS/Endispute") in accordance with
JAMS/Endispute rules and procedures, and judgment on any
JAMS/Endispute award may be entered in any court having
jurisdiction over the parties or their assets.
IN WITNESS WHEREOF, the parties have caused this Revised Agreement to be
executed by their respective duly authorized representatives as of the date
first written above.
CORBIS CORPORATION GET SMART, INC.
d/b/a/ BUSY BOX and MEDIA NETWORK
By: /s/ Leslie Hughes 5-14-98 By: /s/ Rosanne Esposito
--------------------------------- -----------------------------
Leslie Hughes Rosanne Esposito
Vice President, Corbis Images Its: President
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Exhibit 10.8
MAINTENANCE AGREEMENT
This Maintenance Agreement ("Agreement") is entered into this 22 day of
May, 1998 ("Effective Date") by and between CORBIS CORPORATION, a Washington
corporation d/b/a/ DIGITAL STOCK with its principal place of business at 15395
S.E. 30th Place, Suite 300, Bellevue, Washington 98007 ("Corbis"), and GET
SMART, INC., a Delaware corporation d/b/a BUSY BOX PRODUCTIONS and MEDIA
NETWORK with its principal place of business at 701 Battery Street, 2nd
Floor, San Francisco, California 94111 ("Busy Box").
RECITALS
WHEREAS, Corbis and Busy Box entered into a Revised Master Agreement for
Services, dated May 6, 1998 (the "Revised Agreement"), pursuant to which Busy
Box developed an Internet site for Corbis to be located at
www.digitalstock.com (the "Site");
WHEREAS, Corbis would like Busy Box to operate, maintain, monitor and
update the Site under the terms and conditions set forth in this Agreement;
WHEREAS, Busy Box would like to operate, maintain, monitor and update the
Site under the terms and conditions set forth in this Agreement;
NOW, THEREFORE, Corbis and Busy Box hereby agree as follows:
1. BUSY BOX RESPONSIBILITIES.
1.1. THE SITE. Busy Box's services with respect to the Site shall include
all services necessary, appropriate, or as otherwise requested by
Corbis to operate, maintain, monitor and update the Site 24 hours
per day, 7 days per week including but not limited to: Internet
operations; e-commerce operations; image processing; image and
product updates; bug fixes; Corbis-requested changes, or
enhancements to Site; and Site monitoring with escalation tools and
backup options. These services, which are not exhaustive of all
services, to be provided hereunder, are described in greater detail
below;
1.1.1. OVERALL INFRASTRUCTURE. Busy Box will be responsible for
setting up, operating, maintaining and monitoring the
infrastructure necessary to operate the Site in accordance
with current specifications for the Site, as such
specifications may be updated by Corbis and Busy Box from time
to time. Such services shall include, but are not limited to,
the following: database performance tuning and maintenance;
database backup administration; database installation and
configuration; database configuration review, calculation of
optimum parameters; indexing; monitoring performance;
technical support and bug fixes to keep the Site operating in
accordance with the Specifications (as defined in the Revised
Agreement); and recommendations as to Site modifications. At
a minimum, the Site's infrastructure shall include an OC-3
Internet connection; adequate server space; adequate rack
space for servers; sufficient air conditioning for servers;
back-up power source; and other back-up systems. Corbis
understands that Busy Box has contracted with ConXioN, an
Internet access service provider, to provide certain of these
hosting services. Corbis consents to such arrangements with
ConXioN, provided that such arrangement shall not relieve
Busy Box of any of its responsibilities or obligations under
this Agreement.
1.1.2. E-COMMERCE. Busy Box will be responsible for all e-commerce
operations and security on the Site, including but not
limited to the following:
1.1.2.1. Operating, maintaining, monitoring and updating all
merchant server operations, such as user account
set up, transactions, order baskets, check-out,
encrypted
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credit-card information, and download permissions;
1.1.2.2. Operating, maintaining, monitoring and updating the
secured download site for image files and associated
user permissions;
1.1.2.3. Operating, maintaining, monitoring and updating the
Cybercash (VPOS) server and transaction connections
to Cybercash for credit card authorizations and
posting credit card charges;
1.1.2.4. Transmitting FPT files to Corbis' Digital Stock
division containing order information and encrypted
credit card authorizations to enable Digital Stock
to fulfill orders and otherwise complete
transactions.
Busy Box will be responsible for all security on the Site related to
e-commerce operations. Without limiting the foregoing, Busy
Box expressly acknowledges and agrees that it will be
responsible for all security related to customer credit card
information as such information is received, stored and
transmitted by Busy Box. Busy Box understands that Corbis'
good will and business reputation will be affected by the
level of security provided on the Site in processing customer
orders. To that end, Busy Box agrees that Corbis may specify
security levels and protocol for Site operations, and Busy
Box agrees to implement such security and protocol
immediately upon request. Notwithstanding the foregoing, Busy
Box shall not be responsible for customer credit card fraud,
provided that all customer orders are processed through
Cybercash.
1.1.3. IMAGE PROCESSING. Busy Box will process and update images for
the Site on a regular basis, as requested by Corbis. In
processing and updating images, Busy Box agrees to the
following:
1.1.3.1. Busy Box will pre-process all images provided by
Corbis. Busy Box agrees that pre-processing
includes: Converting images to a specified format;
naming images according to specified naming
conventions; assigning specified prices to images;
mapping relationships among keywords, images and PDF
files; maintaining disc image source file and
description; conducting a quality assurance check of
all of the foregoing. In addition, Busy Box will
follow the pre-processing specifications attached
hereto as EXHIBIT A.
1.1.3.2. Busy Box will process all images provided by Corbis.
Busy Box agrees that processing includes:
Verification of adherence to standards; creating
and uploading appropriate CPD files (including
multiple resolutions, Photoshop header, watermarked
preview image and keywords); CD asset update
(including creation of disc icon, PDF files and link
from disc area to render appropriate search
results); image asset update (including updating
search index and multiple "addinventory" function);
"What's New" update (including manual HTML coding);
and post-production error checking and other quality
assurance measures.
1.1.3.3. Busy Box will update images and CD's as requested by
Corbis. Busy Box will endeavor to update images and
CD's while providing Internet access to the Site
with reasonable minimal interruption. However, in no
event will any Site downtime exceed one hour as a
result of any image update. Further, Busy Box agrees
that any Site downtime resulting from any image
update shall occur only between the hours of 1:00
a.m. and 3:00 a.m. Pacific Standard Time.
1.1.3.4. Corbis will provide Busy Box up to twelve (12) disc
titles (100 images per title) per month to
pre-process and process. These images will be
provided on disc
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titles of 100 images each on or before the fifteenth
day of each month. Busy Box agrees that it will
pre-process, process and update these twelve (12)
disc titles before the end each month in accordance
with this Paragraph 1.1.3. Upon ten (10) days advance
notice from Corbis, Busy Box agrees that it will use
best efforts to change this processing schedule to
accommodate Corbis special events, such as trade
shows and special presentations.
1.1.4. COMPATIBILITY WITH OTHER SITES. Busy Box will maintain
compatibility and interactivity features between the Site and
other Internet sites designated by Corbis, including but not
limited to the site located at www.corbis.com. Such features
will include, among other possible features, the ability to
search for images on the Site from the www.corbis.com site.
1.1.5. PROCURING EQUIPMENT, PRODUCTS AND THIRD-PARTY SERVICES. Busy
Box will purchase equipment and products,and secure
third-party services, as necessary and appropriate to operate,
maintain and update the Site. As provided in Paragraph 3.2
below, Corbis will reimburse Busy Box for all such equipment,
products and services, provided that Busy Box must receive
Corbis' prior approval for any purchase in excess of $500 and
for all third-party services. Corbis will own all such
equipment and products as provided in Paragraph 4.3 below.
Notwithstanding the foregoing, Corbis shall not be
responsible to reimburse Busy Box for services beyond the
expiration or termination of this Agreement. (For example, if
Busy Box enters into an agreement for Internet service for
one-year, and the Site uses this service for 9 months of that
one-year term, then Corbis shall reimburse Busy Box only for
the 9 months of Internet service, not for the entire year.)
1.1.6. REPORTS. Busy Box agrees to provide Corbis with reports,
every other week, as to the following items:
1.1.6.1. Sales from the Site on a CD and image basis;
1.1.6.2. Customer information;
1.1.6.3. Images downloaded for comping;
1.1.6.4. Standard Web traffic reports, as currently provided
to Corbis, and browser statistics; and
1.1.6.5. Such other information as may be reasonable
requested by Corbis.
1.1.7. ADDITIONAL SERVICES. At Corbis' request and discretion, Busy
Box shall provide up to 15 hours of general services each
month for buy fixes, text changes and associated HTML
coding, and other items not otherwise covered in this
Agreement. Both parties understand and agree that bug fixes
for items and processes, and text changes and associates HTML
coding, already covered in this Section 1.1 shall not be
included in the 15 hours. Busy Box agrees that it will
provide Corbis with a monthly statement of work services
provided within the 15 hours which clearly describes the work
performed. If Corbis does not use the full 15 hours in any
month, the unused hours will be carried over into the next
month, provided that such carry-over time may not exceed
fifteen (15) hours in any given month.
1.2. BACKUP SITE. Busy Box understands that original Digital Stock site
will be used as a backup site the "Backup Site") until August 1,
1998. To that end, Busy Box agrees that it will maintain the
original Digital Stock site, as such site existed as of the date it
was replaced by the Site, until August 1, 1998. If, for any reason,
Corbis determines that the Site is unusable, Corbis will notify Busy
Box to switch over to the Backup Site, and Busy Box will use best
efforts to complete the
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switch over to the Backup Site within one hour of Corbis'
notification.
2. PROBLEM REPORTS AND SITE OUTAGES. In the event of problems with or
outages of the Site, Busy Box will provide the following levels of support:
2.1. URGENT. Corbis shall designate a problems as "URGENT" if there is an
outage of the Site, or if the Site is otherwise unusable. Corbis
will call Busy Box at 1-800-847-7813 to report the URGENT problem,
and Busy Box will respond to such report within 1 hour of Corbis'
initial call. Busy Box understands that time is of the essence and
will use best efforts to correct the reported problem as soon as
possible. Further, Busy Box will provide Corbis with a status report
of the problem, including problems with third-party services, as
least once per hour until the problem is fixed. Busy Box's
obligations under this Paragraph 2.1 shall be for 24 hours per day, 7
days per week. Corbis' contact shall be at (425) 649-3440.
2.2. NOT CRITICAL. Corbis shall designate a problem as "NOT CRITICAL" if
there is problem with the Site that is not URGENT. Corbis will call
Busy Box at 1-800-847-7813 or send e-mail to Busy Box at
[email protected] to report the NOT CRITICAL problem, and Busy
Box will respond to such report within 24 hours of Corbis' initial
call. Busy Box understands that time is of the essence and will use
best efforts to correct the reported problem as soon as possible.
Busy Box will report to Corbis as soon as the problem is corrected.
Busy Box's obligations under this Paragraph 2.3 shall be for 24 hours
per day, 7 days per week. Corbis' contact shall be at (425) 649-3440.
2.3. BUSY BX REPORTS. If Busy Box becomes aware of problems or outages of
the Site before receiving a call from Corbis, Busy Box will
immediately report any URGENT problems with the Site to Corbis.
Further, Busy Box will report all NOT CRITICAL problems promptly
during normal business hours. Corbis' contact shall be at (425)
649-3440.
3. FEES AND COSTS.
3.1. FIXED FEES. The fixed monthly fee for services described in Sections
1 and 2 above will be $10,000. Busy Box shall invoice Corbis for
this amount each month, and corbis will pay such invoices by check
within 30 days of its receipt of each such invoice.
3.2. REIMBURSEMENT FOR COSTS. Subject to the terms of Paragraph 1.1.5
above, Corbis shall reimburse Busy box for its actual out-of-pocket
costs, without any mark-up thereon. Busy Box shall invoice Corbis
for reimbursements each month and provide receipts for all such
costs to be reimbursed. Corbis will pay such invoices by check within
30 days of its receipt of each such invoice and related receipts.
3.2.1. Subject to the requirements of Paragraphs 3.2 and 1.1.5,
Corbis expressly acknowledges and consents to a quarterly
reimbursement of $8550 for services provided by ConXioN,
in addition to any usage fees assessed by ConXioN in
accordance with the applicable ConXioN usage fee schedule.
3.3. HOURLY FEES. Corbis agrees to pay Busy Box the hourly fee of $150 per
hour for development time, and $75 per hour for non-development time,
for services performed that are not described in Sections 1 and 2
above. Such services may not be performed without Corbis' prior
consent. Busy Box shall invoice Corbis for such services each month
and provide a detailed statement of work performed. Corbis will pay
such invoices by check within 30 days of its receipt of each such
invoice and statement of work.
4. OWNERSHIP.
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4.1. CORBIS CONTENT. Corbis shall provide Busy Box with certain Content, in
various media (for example, film, paper and digital), as needed to
operate, maintain and update the Site. Corbis shall provide the Content
solely for Busy Box's internal use in operating, maintaining and
updating the Site. Except for such limited use, Busy Box agrees that it
will not reproduce, display, distribute, incorporate into other works
or otherwise use the Content in any manner whatsoever. All rights to
the Content shall remain with Corbis (as owner, agent or as licensee of
such content). Busy Box will return all Content provided by Corbis upon
termination or expiration of this Agreement or upon Corbis' request.
4.1.1. Busy Box agrees that Corbis shall own all copies, reproductions,
modifications, new versions and derivative works created by Busy
Box of the Content, including but not limited to cutdowns and
new versions of Corbis digital images, and edited caption
information and keywords, but exclusive of quality control,
processing, and auditing attributes independently created by
Busy Box. Busy Box will deliver all Content and all copies,
reproductions, modifications, new versions and derivative works
created by Busy Box of the Content, to Corbis upon termination
or expiration of this Agreement or upon Corbis' request.
4.2. CUSTOMER INFORMATION. Busy Box acknowledges and agrees that Busy Box
will collect and store Corbis' customer information and that all such
customer information will be the exclusive property of Corbis. Busy
Box will deliver all such customer information (including all customer
information it may have collected and stored for DSC) to Corbis upon
termination or expiration of this Agreement or upon Corbis' request.
Busy Box is expressly prohibited from making any use of the customer
information, except as may be requested by Corbis.
4.3. EQUIPMENT AND PRODUCTS PURCHASED BY BUSY BOX. Busy Box will be
purchasing equipment and products under this Agreement, and that Corbis
will be reimbursing Busy Box for such equipment and products. Busy Box
acknowledges and agrees that all such equipment and products purchased
by Busy Box for which Corbis provides reimbursement shall be the
property of Corbis. All right, title and interest in and to such
equipment and products shall vest in Corbis upon reimbursement to Busy
Box as provided in this Agreement.
5. TERM AND EVENTS UPON TERMINATION.
5.1. TERM. This Agreement shall be effective as of April 1, 1998 and
continue for a period of six months. Thereafter, this Agreement shall
automatically renew on a monthly basis until one party provides the
other with written notice of termination. Busy Box agrees to provide
Corbis with no less than 90 days' prior written notice of termination,
and Corbis agrees to provide Busy Box with no less than 90 days' prior
written notice of termination.
5.2. EVENTS UPON NOTICE OF TERMINATION. Upon notice of termination of this
Agreement, Corbis and Busy Box agree to the following for the fixed
fees specified in Paragraph 3.1:
5.2.1. During the 60 days immediately following the notice of
termination, Busy Box agrees that it will allow no new purchases
from the Site. However, Busy Box will continue to operate,
maintain and monitor the Site as otherwise provided herein,
including but not limited to allowing customers to download
images which were licensed prior to the notice of termination.
5.2.2. During the 30 days immediately preceding the termination of this
Agreement, in order to wind down and close down the Site, Busy
Box agrees to the following:
5.2.2.1. In accordance with instructions from Corbis, Busy Box
will dismantle the Site;
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5.2.2.2. In accordance with instructions from Corbis, Busy Box
will pack and deliver to Corbis (at Busy Box's expense)
all Content (as specified in Section 4.1 above),
customer information (other than credit card
information), equipment and other such items belonging
to Corbis as specified in Section 4 and other
provisions of this Agreement;
5.2.2.3. Busy Box will destroy all customer credit card
information;
5.2.2.4. Busy Box will provide such other reasonable services as
requested by Corbis.
5.2.3. At all times during the 90 days following the notice of
termination, Busy Box agrees to reasonably cooperate with Corbis
to wind down and close down the Site.
6. DEFAULT AND REMEDIES.
6.1. Corbis shall be in default of this Agreement upon the breach by Corbis
of any material covenant or obligation of Corbis to be performed under
this Agreement, if not cured within ten (10) business days after
receipt by Corbis of written notice thereof. At any time after the
occurrence of an event of default, Busy Box may (a) terminate this
Agreement by giving written notice to Corbis; and (b) enforce Corbis'
performance of the applicable covenants or recover damages for the
breach thereof.
6.2. Busy Box shall be in default of this Agreement upon breach by Busy Box
of any covenant or obligation of Busy Box, if not cured within five (5)
business days after Busy Box's receipt of written notice thereof. At
any time after the occurrence of an event of default, Corbis may (a)
terminate this Agreement by giving written notice to Busy Box, and (b)
enforce Busy Box's performance of the applicable covenants or recover
damages for the breach thereof.
6.3. If this Agreement is terminated before the end of this initial
six-month term through no fault of Corbis, Busy Box agrees to provide
Corbis with access to and a license for the Enabling Technologies (as
defined in the Revised Agreement) such that Corbis will be able to
operate, maintain, monitor and update the Site to Corbis' reasonable
satisfaction. Further, Busy Box agrees to use its best efforts to
enable Corbis to operate, maintain, monitor and update the Site, to
Corbis' reasonable satisfaction.
6.4. The remedies provided for herein are cumulative and are in addition to
all other remedies Corbis or Busy Box may have under applicable law or
in equity.
7. RISK OF LOSS. Busy Box agrees that it shall be responsible for and bear all
risk of loss for all Corbis property, including but not limited to Content,
customer information, software and hardware, that is in Busy Box's
possession or control, or in the possession or control of a third party with
which Busy Box has contracted, including but not limited to ConXioN and
other Internet access service providers. Busy Box shall indemnify Corbis for
any loss or damage to Corbis property.
8. INDEMNIFICATION. Busy Box expressly acknowledges and agrees that it is
responsible for processing all credit card transactions conducted on the
Site, including the security of receiving, storing and transmitting credit
card information, and will indemnify, defend and hold Corbis harmless from
all liabilities, costs and expenses, including reasonable attorneys' fees,
incurred as a result of Busy Box's actions, inaction and/or security in
processing credit card transactions, including the security of receiving,
storing and transmitting credit card information.
9. CONFIDENTIALITY.
9.1. Each party hereto (the "Disclosing Party") will disclose to the other
party ("Recipient") information in connection with the performance of
this Agreement. All non-public information
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disclosed by the Disclosing Party to the Recipient during the term
of this Agreement, including but not limited to technical and
business information relating to Disclosing Party's products,
research and development, production, costs, engineering processes,
profit or margin information, finances, customers, marketing, and
future business plans, shall be deemed "Confidential Information."
In addition, "Confidential Information" shall include all
Confidential Information disclosed by DSC and Busy Box during the
term of the Master Agreement. All Confidential Information shall
remain the sole property of Disclosing Party, and Recipient shall
have no rights to or in the Confidential Information. Recipient
shall hold the Confidential Information in strict confidence.
Recipient shall not make any disclosure of the Confidential
Information to anyone without the express written consent of
Disclosing Party, except (i) to employees, consultants, advisors or
agents to whom disclosure is necessary to the performance of this
Agreement, or the conduct of Recipient's business, and who shall be
bound by the terms hereof; or ((ii) in the context of any
administrative or judicial proceeding, provided that prior written
notice of such required disclosure and an opportunity to oppose or
limit disclosure is given to Disclosing Party.
9.2. After termination of this Agreement, upon written request, Recipient
shall return, within ten (10) business days, all originals and copies
any requested Confidential Information disclosed by Disclosing Party
which has been fixed in any tangible means of expression.
9.3. Notwithstanding the other provisions of this Agreement, nothing
received by Recipient shall be considered to be Confidential
Information of the other, if: (i) it has been published or is
otherwise readily available to the public other than by a breach of
this Agreement; (ii) it has been rightfully received by Recipient from
a third party without confidentiality limitations; or (iii) it was
known to Recipient prior to its first receipt by Recipient, as shown
by files existing at the time of initial disclosure.
9.4. The confidentiality obligations under this Section 9 shall be in
effect for a period of five (5) years from the Effective Date.
10. GENERAL PROVISIONS
10.1. ASSIGNMENT. This Agreement shall be binding upon the parties, their
heirs, representatives, executors, administrators, successors,
licensees and assigns. Notwithstanding the foregoing, Busy Box shall
not, without the prior written consent of Corbis, sell, assign or
otherwise transfer this Agreement or any right or obligation
hereunder, without the prior written consent of Corbis.
10.2. SEVERABILITY. If any provision or any part of a provision of this
Agreement shall be held invalid or unenforceable, such invalidity
or unenforceability shall not invalidate or render unenforceable
this entire Agreement, but rather the entire provision or this
Agreement shall be construed as if not containing the particular
invalid or unenforceable provision or provisions, and the rights
and obligations of the parties shall be construed and enforced
accordingly.
10.3. SURVIVAL OF TERMS. Notwithstanding any provision of this Agreement
to the contrary, Sections 4, 5.2, 7, 8 and 9 will survive the
expiration or termination of this Agreement.
10.4. NOTICES. All notices hereunder shall be in writing and shall be
deemed given when sent by certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
If to Busy Box:
Get Smart, Inc.
701 Battery Street, 2nd Floor
San Francisco, CA 94111
Attention: Rosanne Esposito, President
Fax: (415) 283-1806
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If to Corbis:
Corbis Corporation
15395 S.E. 30th Place, Suite 300
Bellevue, WA 98007
Attention: Director of Products and Systems, Corbis Images
Fax: (425) 746-1618
With a copy to the General Counsel
Fax: (425) 746-1618
or such other address as a party may so designate by written notice
in the manner provided herein.
10.5. ENTIRE AGREEMENT. Each party acknowledges that it has read this
Agreement and agrees to be bound by its terms. This Agreement and
the Revised Agreement are the complete and exclusive agreements and
understandings between the parties concerning the subject matter
hereof, which supersede all previous understandings, negotiations
and proposals, whether oral or written. No modification, amendment,
consent or discharge in connection with this Agreement or its
provisions shall be binding upon either party unless in writing and
signed by the party sought to be charged with the same.
10.6. GOVERNING LAW. This Agreement shall be governed and interpreted
under the laws of the State of California. Any and all disputes
arising under this Agreement shall be finally decided through
arbitration before Judicial Arbitration and Mediation Services,
Inc. ("JAMS/Endispute") in accordance with JAMS/Endispute rules and
procedures, and judgment on any JAMS/Endispute award may be entered
in any court having jurisdiction over the parties or their assets.
10.7. INDEPENDENT PARTIES. The parties hereto are independent contracting
parties, and no partnership, joint venture, agency or other form of
agreement or relationship is intended.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized representatives as of the date first
written above.
CORBIS CORPORATION GET SMART, INC.
d/b/a BUSY BOX and MEDIA NETWORK
By: /s/ Leslie Hughes By: /s/ Rosanne Esposito
------------------------------ ------------------------------
Leslie Hughes Rosanne Esposito
Vice President, Corbis Images President
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