U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _______________
Commission File Number 0-22182
BROWSESAFE.COM, INC.
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(Name of small business issuer in its charter)
Nevada 35-2090110
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(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
7202 East 87th Street, Indianapolis, Indiana 46256
(Address of principal executive offices) (Zip Code)
(317) 915-9301
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [ ] NO [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year $865.
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 6, 2000 was $36,095,566 based on a closing bid price of
$5.25 as reported on the National Quotation Bureau "Pink Sheets."
At March 6, 2000, 18,075,346 shares of common stock, par value $.001 per share
(the registrant's only class of voting stock) were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
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TABLE OF CONTENTS
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PART I
ITEM 1. Description of Business 3
ITEM 2. Description of Property 17
ITEM 3. Legal Proceedings 17
ITEM 4. Submission of Matters to a Vote of Security Holders 18
PART II
ITEM 5. Market for Common Equity and Related 18
Stockholder Matters
ITEM 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
ITEM 7. Financial Statements 23
ITEM 8. Changes in and Disagreements with Accountants on 23
Accounting and Financial Disclosure
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons; 24
Compliance With Section 16(a) of the Exchange Act
ITEM 10. Executive Compensation 26
ITEM 11. Security Ownership of Certain Beneficial Owners and Management 29
ITEM 12. Certain Relationships and Related Transactions 30
ITEM 13. Exhibits and Reports on Form 8-K 32
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB, including all documents incorporated by
reference, includes "forward-looking" statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act and the Private
Securities Litigation Reform Act of 1995, and we desire to take advantage of the
"safe harbor" provisions thereof. Therefore, we are including this statement for
the express purpose of availing ourselves of the protections of such safe harbor
with respect to all of such forward-looking statements. The forward-looking
statements in this Report reflect our current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including specifically the absence of
significant revenues, a history of losses, no assurance that we can review sites
accurately and on a timely basis due to the explosive growth of the Internet,
significant competition, the uncertainty of protecting our intellectual
property, uncertainty as to indemnification risks, possible adverse effects of
future sales of shares on the market, trading risks of low-priced stocks and
those other risks and uncertainties discussed herein, that could cause actual
results to differ materially from historical results or those anticipated. In
this report, the words "anticipates," "believes," "expects," "intends," "future"
and similar expressions identify certain of the forward-looking statements.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We
undertake no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that may arise after the date hereof. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by this
section.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Products and Services.
BrowseSafe is a web content review Company whose web program tool is called
"PlanetGood". PlanetGood is not a filter or blocker. The families, schools and
businesses using PlanetGood will be afforded Internet safety while still having
the freedom to choose the content they determine is appropriate for themselves
and their children. PlanetGood is a browsing device that includes a world-wide
site submission and review process and offers continual updating for its users.
PlanetGood offers several levels or modes of protection when viewing the
Internet: (1) a mode called "PlanetWow" designed to direct children 10 and under
to educational and fun web sites; (2) a level called "PlanetCool" to direct
teens aged 11 to 16 to sites appropriate for teens; and (3) a level called
"PlanetHome" that allows adults to reach sites consistent with adult interests.
PlanetGood compliments or replaces existing browsers, such as Microsoft
Internet Explorer or Netscape Navigator, with a PlanetGood customized version of
these browsers. PlanetGood installs a client-side program called PlanetGood
Stealth which can be customized by the parent (or teacher, system administrator,
librarian) and it runs transparently on the personal computer. The Stealth
program empowers the parent to allow or disallow non-protected browsers, chat
programs and audio or video utilities and has a selectable parental bypass
feature. PlanetGood can also be installed in networked environments.
Once installed on a personal computer or in a networked environment, the
user is prompted to type in their personalized user name and password and is
directed to the PlanetGood's server-side technology. This technology allows
parents the flexibility to customize the Internet sites available to each member
of the family, depending upon their personal preferences and the ages of their
children. Parents are empowered to choose the web content by selecting browsing
variables for each member of their family. They also benefit from parental
controls such as "site preview" and "site over-ride" so they can further
customize the content and time frames for their children to view individual web
sites.
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Each site which is available on PlanetGood is personally reviewed by
BrowseSafe's trained staff. A basic principle which governs BrowseSafe is that
the site review system is the only process that can insure accuracy. An
illustration of this feature is the area of nudity and sexual language. On the
web, these topics are seen in many forms and technology alone cannot decipher
the vast differences that may occur between a pornographic site, a photography
studio site containing nude pictures, a medical sexual anatomy site, a 16th
century art site containing nude paintings, a medical site containing sexually
related diagrams, a lingerie and intimate apparel site or sites that simply
discuss mature sexual language in an explicit way without any graphics or
pictures whatsoever. The only reliable way to properly analyze these diverse
sites is through human review. Further, without human review, there is no other
accurate way to segment a site so that parents can allow access to certain areas
of a site but restrict access to other areas of the site that they deem to be
inappropriate.
During the review process, each site is given a topic and, if applicable,
may also be assigned a combination of any of the following characteristics:
Alcohol, Alternative Lifestyles, Art - Nudity, Chat, Extreme Beach / Intimate
Apparel, Firearms and Hunting, Gambling, Games, Illegal Drugs, Jokes & Humor,
Mature Sexual Language, Mature Subject Matter, Medical Anatomy, Medical
Terminology - Sexual, Message Boards, Music, New Age / Eastern Religions, News,
Occult, Ordering on-line, Paranormal, Personal Web Pages, Pop-Culture, Profanity
- - Excessive, Profanity - Mild, Reviews & Critiques, Science-Fiction, Search
Engine, Sports, Television & Movies, Tobacco, Video or Audio, Violence - Mild,
Violence - Moderate and Violence - Excessive.
For a web site to be accessible to any PlanetWow or PlanetCool account, the
site must have been reviewed and assigned a topic and, if appropriate,
applicable characteristics. If a PlanetWow or PlanetCool user wants to go to a
site that has not been reviewed, they can immediately submit the site for review
or the parent can preview the site to determine whether to allow access by a
child until the site has been reviewed by the BrowseSafe reviewer. Users of
PlanetHome may opt for the same level of security as either PlanetWow or
PlanetCool. In the alternative, the parent may utilize "Free Roam Browsing" or
choose to bypass the PlanetGood system altogether.
In order to stay ahead of demand, the Company has a review capacity of 10,500
sites per week as of March, 2000, with a goal of 25,000 by the second quarter of
2000. In order to grow to this capacity, the Company intends to triple the size
of its site review team.
In addition, BrowseSafe is developing a fourth product that is currently a
pilot program scheduled for full release later in 2000 under the name
"PlanetGood Enterprise". This business productivity tool will be functionally
different than BrowseSafe's home product, however, it can be customized by each
business to give an unlimited number of employees predetermined safe access to
the Internet. PlanetGood Enterprise will have full reporting capabilities by
individual employee and will be easily managed by the business owner or system
administrator.
Employees and Training.
As of March, 2000, BrowseSafe has 13 full-time employees, including executive
officers. It also has 27 part-time employees and 26 outside sales
representatives. The Company does not have any agreements with labor unions, and
experiences a low turnover rate among its employees and independent contractors.
All of the employees are required to complete in-house training programs which
include an orientation, review of standard operating procedures manual, seminars
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in updated and new techniques and information and regular performance reviews.
The review staff is provided with an initial intensive training program
that consists of an overview of the Company, its policies, products and the
basic technology, including topics and characteristics training. Reviewers must
then complete several rigorous training sessions interacting with BrowseSafe's
proprietary technology and incorporating the human interaction necessary to
provide accuracy in the content review process.
During and after completion of training, each reviewer is monitored by and
in contact with their site review manager. New reviewers are evaluated by
managers and based on their level of competency, may receive more
responsibilities in the review process. The most efficient and competent
reviewers may move on to become site review managers and take on the added tasks
that are required by the site review manager's job description. Site reviewers
are regularly monitored for accuracy and further training is assigned as
warranted.
Competition.
The Company under its business plan, which was completed in September,
1999, will be competing for a share of the Internet safety browser business
dominated presently by a number of large, full-service organizations. The
principal competitors include Cyber Patrol, Cyber Sitter, Net Nanny and Surf
Watch. Most Internet filters merely provide a list of prohibited web sites and
are weakened by changes in the Internet and by clever users who learn how to
circumvent them. PlanetGood provides a positive list of sites that have been
reviewed for content and are updated on BrowseSafe servers for all users to
freely access. Every web site viewable through "PlanetGood" has been viewed and
characterized for content by the Company's staff review team - sites are not
determined to be "good" or "bad", they are simply reviewed objectively for the
content actually contained on the site.
Business Development.
BrowseSafe, LLC was formed as an Indiana limited liability company in the first
quarter of 1998 in Indianapolis, Indiana, as a result of a growing demand by
families and businesses for a safe Internet browser. On July 28, 1998,
BrowseSafe.com, Inc. was incorporated as a Nevada corporation but conducted no
operations and had no assets until May, 1999.
In contemplation of the share exchange with Motioncast Television Corporation of
America described below, BrowseSafe, LLC and BrowseSafe.com, Inc. entered into
an Asset & Liability Contribution Agreement in May, 1999. The other parties to
the Asset & Liability Contribution Agreement were Minati Financial, Inc.,
Torquay Holdings, Ltd.,Vista Financial Corp., El Coyote Capital Corp., Jupiter
Financial Services, Inc., Kyline Investment Corp., Chariot Group, Ltd.,
Sid-Barney, Inc., Sterling Overseas Investments SA, Albury Capital Corp.,
Eivissa Capital Corp., Hemisphere & Associates, Ltd., Barisal Capital
Corporation and Fergus Capital Corporation (collectively the "Funding Group").
Pursuant to the Asset & Liability Contribution Agreement, the Funding Group
agreed to contribute or cause to be contributed the following funds to
BrowseSafe.com, Inc. $27,380 upon execution of the Agreement; $300,000 on or
before June 10, 1999; and $1,500,000 not later than November 30, 1999.
In exchange, BrowseSafe.com, Inc. agreed to issue 2,738,000 shares of its common
stock to the Funding Group. In addition, BrowseSafe, LLC agreed to contribute
all of its assets and liabilities, including its intellectual
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property to BrowseSafe.com, Inc. in exchange for 11,200,000 shares of its common
stock. For accounting purposes BrowseSafe LLC was treated as the acquirer. All
transferred assets and liabilities were recorded at their historical cost.
The primary business reasons for the Asset and Liability Contribution Agreement
were: 1) to raise additional funds for the operation of the business; and 2) to
contribute all assets to an entity that could then be merged into a corporation
whose stock was listed on the OTC Bulletin Board (a limited liability company
could not be merged into a corporation). At the time of the execution of the
Asset & Liability Contribution Agreement it was contemplated that the merger
candidate would be Motioncast Television Corporation of America.
Effective as of June 24, 1999, BrowseSafe.com, Inc. and its shareholders,
BrowseSafe, LLC and the Funding Group, entered into a Share Exchange Agreement
with Motioncast. Motioncast was a Nevada corporation incorporated on June 8,
1990, whose stock was listed on the OTC Bulletin Board under the trading symbol
MCTV. As of the date of the share exchange, Motioncast had no operations, had
assets consisting of only of cash and had minimal liabilities. Motioncast was
considered a development stage company.
The Share Exchange Agreement provided that 13,938,000 shares of the common stock
of BrowseSafe.com, Inc. would be exchanged for 13,938,000 shares of the common
stock of Motioncast. In addition, the Share Exchange Agreement provided for: a)
representations and warranties by BrowseSafe.com, Inc. and Motioncast, which
representations and warranties were typical of transactions of this nature; b)
an indemnity agreement by BrowseSafe.com, Inc and Motioncast; and c)conditions
precedent to the exchange all of which were satisfied prior to the closing. The
Share Exchange Agreement also required the Funding Group to contribute or cause
to be contributed additional funds to the Company and required the Company to
issue an additional 120,000 shares would be issued to the Funding Group.
On the date of the share exchange, certain members of the Funding Group were
also shareholders of Motioncast. The Company has identified the following
entities that were both members and shareholders: Barisal Capital Corp. (owned
100,000 shares of Motioncast), Eivissa Capital Corp. (owned 100,000 shares of
Motioncast), Fergus Capital Corp. (owned 100,000 shares of Motioncast) and
Albury Capital Corp. (owned 100,000 shares of Motioncast). It was the Company's
understanding that the Funding Group had direct or indirect control of
Motioncast prior to the date the Share Exchange Agreement was executed.
As a result of the share exchange, BrowseSafe.com, Inc. became a wholly owned
subsidiary of Motioncast. Motioncast changed its name to BrowseSafe.com, Inc.
and changed its trading symbol to PGPG. BrowseSafe.com, Inc. changed its name to
BrowseSafe Technology, Inc. As of November, 1999, all operations are conducted
in BrowseSafe Technology, Inc. For financial statement purposes, BrowseSafe
Technology, Inc. is considered the acquiring Company and the merger is treated
as a "reverse acquisition". Pursuant to this accounting treatment, BrowseSafe
Technology, Inc. is deemed to have issued stock for the acquisition of
Motioncast.
The Funding Group's direct obligation under the Share Exchange Agreement was to
contribute to the Company $600,000. Through November 8, 1999, the Funding Group
contributed approximately $440,000 ($402,200 net of expenses of $37,800).
Additionally, the Funding Group was obligated under the Asset & Liability
Contribution Agreement to cause the Company to receive at least $1,500,000 of
proceeds from the sale of common stock no later than November 30, 1999. The
Funding Group also failed to meet this obligation.
The Company has issued but has not delivered the 2,738,000 shares and has not
issued any
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of the 120,000 shares to the Funding Group due to its failure complete the
requirements of the two agreements. The Company advised all members of the
Funding Group in writing that they were in breach of the Share Exchange
Agreement and the Asset & Liability Contribution Agreement and provided them an
opportunity to remedy the breach.
The Company received two letters dated March 1, 2000, from an attorney, one of
which states that he represents the Funding Group aka Hemisphere Group of
Companies and the other stating that he represents the Funding Group aka Next
Millennium Management, Ltd. The letters demand that the Company deliver the
2,738,000 shares and alleges that the Form 10-SB filed by the Company contains
false and misleading disclosures relating to the Funding Group. The Company
disputes the Funding Group's claim to the 2,738,000 shares and believes that its
disclosures relating to the Funding Group are accurate. The Company's attorneys
are in discussions with the attorney for the Funding Group. The Company is
continuing to evaluate what actions to take with respect to this matter.
Intellectual Property.
The Company, or its wholly owned subsidiary, BrowseSafe Technology, Inc.,
own all of the intellectual property assets utilized in the business of
BrowseSafe.
Trademarks and Trademark Registrations
The Company owns the following trademarks for which a registration has issued or
an application for registration is pending on the Principal Register of the U.S.
Patent and Trademark Office:
1. Mark: PLANETGOOD (typed form)
Serial No.: 75-481,989
Filing Date: May 8, 1998
Goods: software for personal computer security while
accessing a global computer network
Int'l Class: 09
Status: Registered (Reg. No. 2,288,288, issued October 19, 1999)
2. Mark: BrowseSafe (stylized form)
Serial No.: 75-509,479
Filing Date: June 26, 1998
Goods: software for personal computer security while
accessing a global computer network
Int'l Class: 09
Status: Registration application pending (Statement of Use filed;
non-final Office Action mailed on November 2, 1999)
3. Mark: PLANETHOME (typed form)
Serial No.: 75-583,955
Filing Date: November 6, 1998
Services: computer services, namely, providing quality assurance
services and usability reviews in the field of web sites
Int'l Class: 42
Status: Registration application pending (Statement of Use filed;
assigned to examiner on February 4, 2000)
4. Mark: PLANETWOW (typed form)
Serial No.: 75-584,324
Filing Date: November 6, 1998
Services: computer services, namely, providing quality assurance
services and usability reviews in the field of web sites
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Int'l Class: 42
Status: Registration application pending (Statement of Use filed;
assigned to examiner on February 4, 2000)
5. Mark: PLANETCOOL (typed form)
Serial No.: 75-584,378
Filing Date: November 6, 1998
Services: computer services, namely, providing quality assurance
services and usability reviews in the field of web sites
Int'l Class: 42
Status: Registration application pending (Notice of Allowance
mailed on January 25, 2000)
All registrations and applications are presently of record in the name of the
Company's predecessor-in-interest, BrowseSafe, LLC (an Indiana limited liability
company). BrowseSafe, LLC contributed all of its assets and liabilities,
including its intellectual property, to BrowseSafe Technology, Inc., a wholly
owned subsidiary of the Company pursuant to an Asset & Liability Contribution
Agreement in May, 1999. The Company intends to make the necessary filings with
U.S. Patent and Trademark Office to reflect this transfer.
The Company uses various designs, logos and composite marks on its product
packaging, promotional materials and website (found at (www.browsesafe.com))
which are trademarks of the Company, but for which no applications for
registration have been filed to-date with the U.S. Patent and Trademark Office
or any other registration authority. These include:
1. A logo depicting the planet Earth, sometimes used with the trade name
"BrowseSafe.com" and a shadow grounding effect directly below (see
website at: (www.browsesafe.com/aboutbrowsesafe/main)).
2. A logo consisting of a square block design with the letters "PG"
depicted in large, bold letters against a gold color background in a
center panel of the block, with narrower panels of blue and red across
the top and bottom, respectively. This design is sometimes depicted
with the trademark "PlanetGood" in the top panel and the phrase
"Family Safe Internet Browsing" directly below the "PG" in the center
and bottom panels. (see website at:
(www.browsesafe.com/aboutplanetgood/main) and at:
(www.browsesafe.com/newsandpress/order)).
3. The mark "PlanetBiz", which has been adopted by the Company and
introduced on its website for a forthcoming Internet utilization
control product intended for use by businesses.
Trade Names
The Company uses the trade names "BrowseSafe" and "BrowseSafe.com".
Copyrights
The Company holds copyrights in various computer programs, including
existing versions of "PlanetGood" browser software and programs used
in-house by the Company. The Company also holds copyrights in the
technical manuals and instructional materials for its software
products as well as promotional materials associated with its products
and services. No applications for registration of a copyright in any
of the Company's computer programs or other copyrightable works have
been filed to-date.
Licenses and Assignments by the Company
Use of the Company's software products by consumers and others is
subject to the terms and conditions of an end-user license agreement
which accompanies the software. The Company authorizes various Internet
Service Providers (ISP's) to promote and distribute the Company's
products and services online to consumers and other end-users.
Except for such licenses and authorizations, the Company has neither
assigned nor otherwise transferred any of its intellectual property
necessary to the conduct of its business.
Licenses Granted to the Company
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The Company has not been granted any licenses, know-how, technology
and/or other intellectual property that is necessary to the conduct of
its business, other than standard end-user licenses for the use of
various commercially available software products used by the Company for
office administration, management and operations.
Patents
The Company has no patents or patent applications.
Marketing.
The Company's core product, PlanetGood, has been in development for more than
two years. Since September 1999, PlanetGood has undergone extensive beta testing
from schools, individuals and ISPs from all over North America. The Company is
in the process of adding additional staff and is preparing for the public launch
of PlanetGood version 3.0.
The marketing plan as adopted by the Company has been divided into primary,
secondary and tertiary target market groups. These target market groups allow
the Company to tailor its marketing approach and concentrate campaigns on
specific segments that include public and private schools, libraries, retail,
business and organizations.
The primary markets identified by the Company are:
Internet Service Providers (ISP)
Key ISP's around the country will be solicited by the Company to
implement a three-month marketing plan designed specifically for their market.
The campaign will consist of materials to introduce the ISP's customers to
PlanetGood (e-mail, print ads, direct mail, etc.), materials for their web site
(FAQ's, online demo, downloadable product, etc.) and a local public relations
campaign.
Many small to medium sized ISP's are struggling to be profitable while offering
a $19.95 unlimited usage plan. BrowseSafe's plan will be to offer through ISP's
a value-added program to their current and future customers for an additional
fee added to customers' monthly bills. This fee will be divided between the ISP
and BrowseSafe. BrowseSafe will provide all of the marketing materials and will
provide the customized ISP's with public relations support to show them how to
promote the BrowseSafe products.
Direct Sales over the Internet
The Company anticipates that this area has great potential as the US
population becomes accustomed to purchasing goods and services on the Internet.
By selling PlanetGood on the Internet, the market expands from a national to an
international audience.
Private Label
The BrowseSafe private label national ISP program has been designed to
allow the Company to partner with organizations to offer privately branded
Internet access as a base product or as a compliment to their current line of
business. In addition to offering a service that organizations can resell, the
Company will also be able to offer unlimited Internet access to millions of
American households that have an Internet capable computer but are not currently
online. Although this Internet service was set up to assist the Private Label
organizations, the Company will be branding its own ISP service called Just
Browse It. In summary, the Company can realize additional revenue by offering
national ISP service as a stand alone product or in combination with PlanetGood.
Retail Market
The Company will focus its initial marketing and sales efforts on
general retail, certain markets within computer retail and Christian retail
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segments because these markets allow the Company access to customers who fit a
target demographic profile without requiring the Company to buy shelf space or
pay advertising fees.
General Retail
The Company believes that there are millions of homes that own a
computer but do not have Internet access. The Company also believes that
a primary reasons given for not being connected to the Internet is the
issue of on-line predators. Through groundwork already laid and a public
relations campaign designed for retailers, BrowseSafe plans to enter
into agreements to allow it the opportunity to position PlanetGood in
retail outlets. A visual presence on the shelves of retailers will
expose PlanetGood to a large volume of potential new customers.
Computer Retail
To enter into the computer retail market the Company is pursuing
a professional computer sales representation firm with 24 local and
regional representatives to position its product on the shelves of the
independent computer software retailers. This effort encompasses the
major national chains. A presence in this market is expected to enhance
the position of the Company's product nationwide.
Christian Retail
The Company has entered into an agreement with Riverside Book &
Bible House, Incorporated d/b/a Riverside Distribution & Fulfillment
Services, a distributor which specializes in selling products to the
Christian retail market. Through this organization, the Company's
products will be sold to Christian stores allowing strategic product
positioning. This retail segment is a natural market for PlanetGood as
the demographics suggest a strong family orientation.
The secondary markets are:
Business
This area has great potential since currently many businesses using the
Internet allow employees access to the Internet either directly or through a
network. The business owner or its system administrator will be able to
customize the PlanetGood Enterprise to allow employees only into areas and sites
that are most productive for the Company. Efficiencies can be gained by the
Company since employees will not be able to spend time in non-work related
sites.
Cable Companies
As technology continues to improve, new methods of Internet access are
becoming available. One of these new avenues is the cable modem through which
cable companies can provide Internet access utilizing television cable that has
already been installed into customers' homes. Depending upon the acceptance by
consumers and marketing efforts by cable companies, this niche could grow
significantly over the next year. BrowseSafe plans to offer the same programs to
cable companies as it does to traditional ISP's.
Schools
Schools are an important area of focus because of the concern for safety
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by parents and educators and their desire to offer children a positive
educational experience when browsing the Internet. Schools will be approached
with two options: The first will be the opportunity to purchase PlanetGood for
use in the classrooms. The second will be to use the fund raising program to
generate additional revenues for the school. The Company has targeted schools as
a secondary market only because there is generally a time line for
decision-making and budgeting.
According to information provided by the U.S. Department of Education
for the school year 1999-2000, there are estimated over 80,000 public elementary
and secondary schools and over 26,000 private elementary and secondary schools
in the U.S. The Department of Education reports that over 95% of these 106,000
schools have computers, but less than 50% of the schools and 15% of the
computers are connected to the Internet. In the 26,000 private schools in the
U.S., there are over 626,000 computers with less than 9% of those computers
connected to the Internet. A main concern of schools without Internet
connections is exposure to unwanted or inappropriate information and sites.
Libraries
Like schools, libraries are an important area of focus because of the
concern for safety by parents and educators. PlanetGood is a suitable tool for
libraries since it is not a "one size fits all" product. BrowseSafe's
classification of web site content will permit the library to select the type of
content for its internet access as it selects for the books it has on its
shelves.
Market OEM (Original Equipment Manufacture)
This market segment is made up of computer and parts manufacturers. By
bundling PlanetGood within new computers, users will be able to install
PlanetGood with the initial setup of the computer.
Telecommunications Companies
The telecommunications industry has recently begun to focus on the
Internet as a mean to gain new customers and keep current customers. Depending
upon the acceptance by consumers and marketing effort from the
telecommunications companies, this niche appears to be a growth area over the
next years. BrowseSafe plans to offer the same programs to these companies as it
does to traditional ISP's.
The tertiary markets are:
Advertising Sales
The Company intends to pursue the sale of advertising space on
PlanetWow, PlanetCool and PlanetHome web pages. Advertisers pay a premium for
search words so that their ad is displayed to people looking for their product
or service. BrowseSafe will be able to provide a better alternative because each
of the sites is age specific. This offers the Company the opportunity to achieve
a better target audience for a given advertiser.
e-Commerce
As Internet sales continue to grow, BrowseSafe plans to offer special
products and services to its customer base through direct marketing as well as
through an online store. This area of expansion is still in the planning stages.
Market Research Information
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The list of reviewed web sites in combination with the characteristics
that describe their content will be a valuable marketing tool for marketers
around the world. The sales of segments of this list can provide an additional
revenue stream for the Company in the future.
Year 2000 Compliance.
The Year 2000 problem is the inability of some software, hardware and
systems to determine the correct century. For example, software with
date-sensitive functions that are not Year 2000 compliant may not be able to
determine whether "00" means 1900 or 2000, which may result in computer failures
or the failure of the computer to produce accurate information.
The Company made an assessment of the Year 2000 readiness of its
internal software and hardware systems. Its assessment plan also included:
o contacting third party vendors from whom the Company purchases or
licenses its hardware, software, services and supplies;
o assessing repair, upgrade or replacement requirements and
implementing repair, software patches, upgrade or replacement;
o testing certain internal and third party, hardware, software and
systems; and
o contacting certain customers.
Most of the Company's hardware is new and was already Year 2000 and
leap-year compliant, Based on the results of this assessment, the Company
upgraded its computer systems and determined that its software, hardware and
computer systems were Year 2000 compliant. In 1999, the Company spent
approximately $4,000 to upgrade its computer systems. These expenses were
related to time spent by employees and consultants in the evaluation process as
well as any needed repair, upgrade or replacement. The Company also verified
that its suppliers were Year 2000 compliant. The Company has experienced no Year
2000 compatibility problems with its equipment.
ITEM 2. DESCRIPTION OF PROPERTY
Office Space
Effective March 13, 2000, the Company moved into new suburban offices at
7202 East 87th Street, Suite 109, Indianapolis, Indiana 46256 and is leasing
4,139 square feet of office space from New Boston Citimark Limited Partnership
at $11 per square foot which the prevalent market rental rates for comparable
office space in northeast suburban Indianapolis. The lease is for five years
with a right of first refusal to renew and certain expansion options.
The Company believes that this space will provide adequate office and working
space to build a "virtual office" model to support the Company's national
technical and administrative needs . Long-range future growth can be
accommodated by leasing additional space nearby if necessary.
Equipment
BrowseSafe leases most of its computer system from two principal
computer leasing companies upon terms which are generally commercially
available. The system includes state-of-the-art server equipment from Compaq
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and other leading server manufacturing companies. The equipment has built-in
redundant server architecture, including RAID hard drives and power supplies.
Each server is installed with an up-to-date system software configuration,
database applications, email servers, spider and robot technology and other
proprietary BrowseSafe software.
The Company also maintains three separate in-house programming test environments
which emulate the proprietary software that it uses for its PlanetGood service.
This includes both client-side and server-side emulations. Beyond this, the
Company also owns personal computer equipment, routers and hubs for its internal
operations and infrastructure.
Redundancy.
The system has been designed so that the Company will have enough
hardware to handle double the number of current customers. If loss of a server
occurs, the other servers compensate for the unit that is down until the
disabled server is back online. In addition to having redundant server
architecture, each server has redundant power supplies with the RAID
configuration of hard drives. The Raid configuration allows for multiple drives
to fail in each server without the loss of data or functionality.
Exodus Communications, Inc.
BrowseSafe also has a maintenance/operation agreement for its servers
from Exodus Communications, Inc. This Internet data facility is located on one
of the main Internet backbones and offers scalability, reliability and
manageability to run the Company's web applications. Exodus manages Internet web
sites and network infrastructure from Internet data centers located in various
major cities. The Exodus agreement is a one year agreement with monthly payments
approximating $4,300 per month prior to March 2000 and current payment is $4800
per month. This amount may increase as the Company determines the need to expand
the number of servers and/or increase the telecommunications bandwidth necessary
to facilitate its customer base. All amounts paid to Exodus are immediately
expensed by the Company. This relationship ensures that BrowseSafe customers are
given access to an Internet network with the monitoring and security as detailed
below:
The Network
o OC-12c network architecture provides global network connectivity to
businesses worldwide.
o High-bandwidth capacity available in a variety of options ensures speed
and performance for crucial Internet applications.
o The Exodus network can sustain over 3 Gbps of traffic to the Internet so
you can make sure your Web communications keep up with elevated Internet
traffic.
o Transmit data through shortest available paths thanks to an
industry-leading combination of public and private peering
relationships.
o While ISPs commonly oversubscribe their networks by nearly four times
their capacities, the Exodus network is designed for unanticipated
spikes in demand. This means our network is managed to have excess
capacity when needed.
o Exodus uses redundant fiber paths to prevent any single point of failure
in the Exodus backbone.
Services and Monitoring
o 24 x 7 service and monitoring
o Secure private state-of-the-art Internet Data Center facilities
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o URL Monitoring checks URL for appropriate response times and pings
your Web server application for status verification.
o Complete access and routes to all peers
o Usage based bandwidth services with reporting of bandwidth usage
o Bandwidth allocation changes made within minutes
o Tape and media management
Security
o Biometric key-lock doors
o Alarm systems
o Video surveillance cameras
o Air vents
o Motion and temperature sensors
o Locked-down floor tiles
o Windows with horizontal privacy blinds
o Dedicated services for power, lighting and fire suppression
o Dedicated, shielded connections to the Exodus network
Exodus is experienced at hosting these prominent companies.
o GeoCities
o Hewlett-Packard
o Lycos
o MCI Worldcom
o Microsoft Hotmail
o MSNBC
o Oracle
o USA Today
o Yahoo
ITEM 3. LEGAL PROCEEDINGS
Due to the failure of a group of outside investors (the "Funding Group")
to complete the requirements of an Asset & Liability Contribution Agreement and
Share Exchange Agreement, the Company did not deliver 2,738,000 shares to the
Funding Group and has not issued an additional 120,000 shares to the Funding
Group. The Company advised all members of the Funding Group in writing that they
were in breach of the Share Exchange Agreement and the Asset & Liability
Contribution Agreement and provided them an opportunity to remedy the breach.
The Company received two letters dated March 1, 2000, from an attorney, one of
which states that he represents the Funding Group aka Hemisphere Group of
Companies and the other stating that he represents the Funding Group aka Next
Millennium Management, Ltd. The letters demand that the Company deliver the
2,738,000 shares and alleges that the Form 10-SB filed by the Company contains
false and misleading disclosures relating to the Funding Group. The Company
disputes the Funding Group's claim to the 2,738,000 shares and believes that its
disclosures relating to the Funding Group are accurate. The Company's attorneys
are in discussions with the attorney for the Funding Group. The Company is
continuing to evaluate what actions to take with respect to this matter.
Keith Balderson, one of the Company's directors, is a principal of Next
Millennium Group, Ltd. In light of the attorney's letter stating that he
represented the Funding Group aka Next Millenium Group, Ltd., the Company
suggested to Mr. Balderson that he resign as a director. Mr. Balderson submitted
his resignation effective March 2, 2000, a copy of which has been included as an
exhibit to this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is publicly traded in the over-the-counter
market and quoted on the NASD OTC Bulletin Board maintained by the National
Association of Securities Dealers, Inc. under the trading symbol "PGPG". The
Company's stock
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first began trading in the over-the-counter market on the OTC Bulletin Board
under the symbol "MCTV" in October, 1998. In August, 1999, the Company changed
its trading symbol to "PGPG". The OTC Bulletin Board is an electronic quotation
service that displays real-time quotes, last sale prices and volume information
in certain domestic and foreign issuers whose securities are traded in the
over-the-counter market.
The following states the range of high and low bid prices for each
quarter from October 26, 1998 through December 31, 1999. No information is
available to trading prices prior to that time.
Calendar Quarter Ending High Low
- ------------------------------ ---- ---
December 31, 1998 $ 34.375 $14.063 (1)
March 31, 1999 $ 34.375 $0.0625 (1)(2)
June 30, 1999 $ 5.6250 $0.0625 (3)
September 30, 1999 $ 3.6250 $0.9375
December 31, 1999 $ 1.5313 $0.2000
(1) On March 10, 1999, the Company effected a 25 to 1 reverse split
decreasing the issued and outstanding shares of common stock to 400,000.
The trading prices have been adjusted to give a retroactive effect of
the reverse split.
(2) On March 27, 1999, the Company issued an additional 500,000 shares of
common stock at $0.10 per share pursuant to a Rule 504 offering.
(3) On April 5, 1999, the Company issued an additional 1,000,000 shares at
$0.10 per share pursuant to a second Rule 504 offering.
The High/Low bid prices for each quarter of the last fiscal year were obtained
from NASDAQ Trading and Market Services. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
No dividends on the Company's common stock have been declared or paid
since the Company's inception. The Company intends to retain earnings to finance
the growth and development of its business and does not anticipate paying cash
dividends on its common stock in the foreseeable future. As of December 31, 1999
there were approximately 40 holders of record of the Company's common stock.
Eligibility Rule 6530 (the "Rule") was issued on January 4, 1999 by the
National Association of Securities Dealers, Inc. The Rule requires companies to
file annual and quarterly reports under to Sections 13 and 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") in order to be eligible for
listing on the OTC Bulletin Board. The Rule provides that companies which do not
file those reports will have their stock removed from the OTC Bulletin Board
under a phase-in schedule based upon the company's trading symbol on January 4,
1999. If a company's stock is removed from the OTC Bulletin Board, its stock may
be quoted on the National Quotation Bureau "Pink Sheets."
Quotation of the Company's stock was removed from the OTC Bulletin Board
on January 20, 2000, due to its inability to clear comments received from the
Securities and Exchange Commission on its Form 10-SB prior to its compliance
date of January 20, 2000. The Company's Form 10-SB, which was filed on November
24, 2000, became effective by operation of law on January 22, 2000; however, the
Company did not clear the comments received from the Securities and Exchange
Commission in its review of the Form 10-SB until March 22, 2000. The Company's
common stock again became eligible for quotation on the OTC Bulletin Board on
March 28, 2000. During the period the stock was not quoted on the OTC Bulletin
Board, it was quoted on the National Quotation Bureau Pink Sheets.
Recent Sales Of Unregistered Securities.
During the last three years, the Company has sold the following
securities without registering them under the Securities Act of 1933 (the
"Securities Act"):
Prior to June, 1999, the Company's name was Motioncast Television
Corporation of America. Motioncast was incorporated in Nevada on June 8, 1990.
Its stock was listed on the OTC Bulletin Board beginning in October, 1998, under
the trading symbol MCTV. The Company had no operations, had assets consisting of
only of cash and had minimal liabilities and was considered a development stage
company.
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On March 10, 1999, the Company (which was still known as Motioncast
Television Corporation of America) issued 100,000 shares of the Company's common
stock (after a 25 to 1 reverse stock split) to Michael Zapara, the Company's
then president and director, in a transaction which was exempt from registration
under Section 4(2) of the Securities Act in exchange for a release of all claims
for salary due the previous two years. The issued shares were restricted and the
total valuation was recorded by the Company at $5,000. The Company valued the
shares at $.05 per share instead of the offering price of $.10 per share due to
the fact that the shares issued to Michael Zapara were restricted and the shares
issued in the offering were unrestricted.
Also in March, 1999, the Company conducted an offering of 500,000 shares
of common stock at $0.10 per share under Rule 504 of Regulation D raising
$50,000. In April, 1999, the Company conducted a second Rule 504 offering of
1,000,000 shares at $0.10 per share, raising $100,000.
In contemplation of the share exchange with Motioncast Television
Corporation of America described below, BrowseSafe, LLC and BrowseSafe.com, Inc.
entered into an Asset & Liability Contribution Agreement in May, 1999 with a
group of outside investors (the "Funding Group"). Pursuant to the Asset &
Liability Contribution Agreement, the Funding Group agreed to contribute or
cause to be contributed certain funds to BrowseSafe.com, Inc. In exchange,
BrowseSafe.com, Inc. agreed to issue in a private placement 2,738,000 shares of
its common stock to the Funding Group. In addition, BrowseSafe, LLC agreed to
contribute all of its assets and liabilities, including its intellectual
property to BrowseSafe.com, Inc. in exchange for 11,200,000 shares of its common
stock.
Effective as of June 24, 1999, BrowseSafe.com, Inc. and its
shareholders, BrowseSafe, LLC and the Funding Group, entered into a Share
Exchange Agreement with Motioncast. The Share Exchange Agreement provided that
13,938,000 shares of the common stock of BrowseSafe.com, Inc. would be exchanged
for 13,938,000 shares of the common stock of Motioncast in a transaction which
was exempt from registration under Section 4(2) of the Securities Act of 1933.
The Share Exchange Agreement also required the Funding Group to contribute or
cause to be contributed additional funds to the Company and required the Company
to issue an additional 120,000 shares would be issued to the Funding Group.
Since the Funding Group failed to fully perform their obligations under
the Asset & Liability Contribution Agreement and Share Exchange Agreement, the
Company has issued but has not delivered the 2,738,000 shares and has not issued
any of the 120,000 shares to the Funding Group.
On September 19, 1998, BrowseSafe, LLC, BrowseSafe.com, Inc. and
Winthrop Associates executed a Management Consulting Agreement. The Consulting
Agreement provided that Winthrop Associates would provide services to assist in
locating funding sources, assist in strategic planning, assist as a liaison with
the financial community and assist by arranging access to a database of brokers
and analysts. The term of the agreement was a period of one (1) year. As
compensation, Winthrop Associates was to receive $2500 per month, reimbursement
of expenses, finder's fee equal to 2.5% of the gross dollar funding and 431,250
shares of BrowseSafe.com, Inc. common stock.
Certain disputes arose between the parties to this agreement regarding
whether BrowseSafe.com obtained any funding from sources introduced by Winthrop
Associates. The Company believes that Winthrop did not provide the services
required by the agreement . These disputes were resolved in a Mutual Release and
Settlement Agreement dated October 11, 1999. Under the Settlement Agreement,
BrowseSafe.com, Inc. agreed to pay the owner of Winthrop Associates $200,000
within 120 days of the execution of the Settlement Agreement. In order to secure
the payment of this amount, BrowseSafe.com, Inc. issued 500,000 shares of its
common stock which was placed into escrow. The Company did not pay the $200,000
and the escrow agent distributed the 500,000 shares to the owner of Winthrop
Associates in February, 2000. The delivery of the 500,000 shares was in lieu of
payment of the $200,000. The shares are restricted securities subject to certain
piggy-back registration rights granted in connection with the Settlement
Agreement.
In July, 1999, the Company agreed to issue to vendors approximately
11,000 restricted shares of common stock in settlement of approximately $33,000
owed to three vendors. At the time, the Company entered into these agreements in
order to conserve cash reserves and at the request of the vendors. The Company's
stock was trading at $3.00 per share on the date that the vendors decided to
accept stock. The Company recorded an expense of $33,000 representing the value
of the services provided by the vendors. In February, 2000, at the request of
one of the vendors, the Company paid the vendor in cash instead of stock. The
other two vendors will be issued 459 shares and 450 shares of restricted stock
in April, 2000.
On December 6, 1999, the Company sold under Rule 504 of Regulation D of
the Securities Act of 1933 a Series A Senior Subordinated Convertible Redeemable
Debenture in a principal face amount not to exceed $750,000 to a single
accredited investor. The terms of the debenture allowed the investor to fund the
debenture through periodic payments to the Company;
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however, all terms of the debenture, including interest rate, conversion
provisions and maturity date, were set and were not subject to negotiation. An
initial funding of $100,000 was required in connection with the closing on the
debenture; however, future funding was discretionary by the investor. The
debenture bore interest at 8% per annum and had a maturity date of December 6,
2001 at which time any outstanding principal and unpaid interest was due in
full.
The debenture provided for the conversion of the outstanding principal
and interest into common stock at a conversion price equal to 75% of the lowest
closing bid price of the common stock as reported on the OTC Bulletin Board for
the three consecutive trading days immediately preceding the receipt of a notice
of conversion by the Company. At the time the investor exercised its conversion
option, no new or additional consideration was required. There were also
provisions that allowed the Company to terminate funding of the debenture prior
to the date the Company became a reporting company and required that all
conversions of outstanding principal to common stock must occur prior to the
date of funding termination. As of December 30, 1999, the investor had funded
$200,000 of the debenture and had converted all of this amount into 1,537,346
shares of common stock under the terms of the debenture (including 3,734 shares
issued for accrued interest of $476). The debenture was cancelled shortly before
the Company became a reporting company on January 22, 2000. The Company recorded
as interest expense the amount arising from the beneficial conversion feature
contained in the debenture. As of December 31, 1999, the discount was
approximately $65,000.
In February, 2000, the Company sold 128,571 shares of common stock at
the then prevailing market price of $.35 per share in a private placement to a
single investor. The shares are restricted subject to piggy-back registration
rights.
Also, in February, 2000, the Company entered into an agreement with
California Applied Research, Inc. ("CAR") (which is now known as
GenesisTank.com) under which CAR agreed to buy 6,000,000 shares of the Company's
common stock. The purchase price of the stock was $.50 per shares payable
$500,000 upon execution of the agreement, $1,000,000 on or before February 29,
2000 and $1,500,000 on or before March 31, 2000. The shares are restricted
subject to piggy-back registration rights. One-third of the shares may be sold
upon registration, one-third 90 days following registration and one-third 180
days following registration.
In addition, the Company issued five-year warrants to Michael Mercier
for his services in arranging the CAR financing. The warrants provide for the
purchase of the Company's common stock at the lower of $.50 per share or the
lowest reset price (the terms of the warrant provide that the purchase price
will be reset every six months). The warrants were issued according to the
following schedule: (a) 475,000 warrants issued prorata as funds were received
by the Company, and (b) 75,000 warrants to be issued as a bonus when and if the
full $3,000,000 is received by the Company on or before March 31, 2000. The
Company has valued these warrants at approximately $250,000 using the
Black-Scholes model as of the contract date. The Company will record the
$250,000 as a reduction of the related equity proceeds.
On February 9, 2000, , the Company agreed to issue 570,000 warrants to
purchase the Company's common stock to Swartz Private Equity LLC in connection
with an investment agreement . The warrants are exercisable as follows:
150,000 upon completion of due diligence
150,000 on closing the transaction
150,000 within 6 months of the agreement
120,000 six months after the effective date of an SEC
registration statement
The warrants are exercisable at the lower of .50 per share or the lowest closing
price during six-month periods coinciding with the closing date of the
agreement. The Company intends to record the fair value of the warrants using
the Black-Scholes model as a reduction of the related equity proceeds.
In January 2000, the Company entered into a consulting agreement with
Victoria Lee whereby she is entitled to receive a fee for financing secured by
her. The fee is 4% of the transaction, payable 3% in shares of the Company's
common stock (based on a market price of $2.50) and 1% in cash. In connection
with the CAR financing, in March 2000, the Company issued 36,000 shares to Ms.
Lee and remitted $30,000. The cash paid and the value of the stock on the date
the financing is complete (the measurement date) will be recorded as a reduction
of the related financing proceeds. The Company estimates the value of the stock
issued to be approximately $160,000.
On March 10, 2000, the Company entered into an Amended and Restated
Consulting Agreement for business advisory services with Len Shorkey in exchange
for 50,000 shares of common stock. The consultant is fully vested in the stock
as of the date of the contract. The Company will record this transaction based
on the quoted market value of the stock on the contract date ($225,000). The
amount will be expensed in 2000.
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On March 10, 2000, the Company also entered into an Amended and Restated
Consulting Agreement with Paladin Management Company, Ltd. and Don Gulliman to
provide financing, advisory and consulting services. The Company will issue up
to 450,000 shares of common stock if the quoted market price meets certain
levels.
In March, 2000 the Company agreed in principle to enter into a
consulting contract with Wall Street Marketing Group, Inc. and Sherry Vega for
advisory services. The Company anticipates the final contract will require a
monthly fee of $10,000, issuing consultants 275,000 shares of common stock
(200,000 restricted shares and 75,000 non-restricted shares) and warrants to
purchase 300,000 shares of common stock at prices ranging from $5 to $15 per
share. Upon execution of the contract, the Company will value the stock at its
quoted market price on the contract date and value the warrants, using the
Black-Scholes method. The amounts will be expensed over the six month term of
the agreement.
ITEM 6. PLAN OF OPERATION
The Company is a development stage company, has yet to generate any
material revenues and is seeking additional capital through an investment
capital company and other sources.
The Company incurred a net loss of $1,755,725 from February 10, 1998
(date of inception) through December 31, 1999 due to expenses related to the
formation and operation of the Company, continuing costs of raising capital,
normal expenses of operating over an extended period of time, funds applied to
research and development, product development and development of the Company's
website.
Total expenses increased from $541,420 for the period from February 10,
1998 (date of inception) to $1,214,305 for the year ended December 31, 1999. The
increase in expenses relates to a full year of operations, financing activities,
professional fees, product development expenditures and a $200,000 contract
settlement. The Company expects general and administrative expenses to increase
in the future as it completes development of its products, prepares for market
launch and begins to support its products. The Company will also begin to incur
additional sales and marketing expenses.
Research and development costs increased from $16,130 in 1998 to $78,950
in 1999. The increase is primarily related to increased activity in the
development stage of its products.
Interest expense of $91,378 increased significantly over interest
expense of $1,861 in 1998. This increase relates to increased debt and the
beneficial conversion feature of the convertible debentures issued in 1999.
For the year ended December 31, 1999 the Company had a loss of
$1,214,305 as compared to a loss of $541,420 for period from February 10, 1998
to December 31, 1998. This increase was a result of higher general and
administrative expenses (including an increase in payroll and payroll related
costs), interest expense and a non-cash charge of $200,000 for a contract
settlement.
As of December 31, 1999 the Company has obtained equity and debt
financing of approximately $1,261,000 since its inception. As of December 31,
1999 the Company has invested approximately $105,000 in purchased equipment
(including equipment subject to a capitalized lease of $74,000). The Company has
also invested approximately $101,000 in capitalized web site development costs
and approximately $79,000 in capitalized product development costs.
In May, 1999, in contemplation of the share exchange with Motioncast
Television Corporation of America described below, BrowseSafe, LLC and
BrowseSafe.com, Inc. entered into an Asset & Liability Contribution Agreement
with a group of outside investors (the "Funding Group"). Pursuant to the Asset &
Liability Contribution Agreement, the Funding Group agreed to contribute or
cause to be contributed certain funds to BrowseSafe.com, Inc. In exchange,
BrowseSafe.com, Inc. agreed to issue in a private placement 2,738,000 shares of
its common stock to the Funding Group. In addition, BrowseSafe, LLC agreed to
contribute all of its assets and liabilities, including its intellectual
property to BrowseSafe.com, Inc. in exchange for 11,200,000 shares of its common
stock.
Effective as of June 24, 1999, BrowseSafe.com, Inc. and its
shareholders, BrowseSafe, LLC and the Funding Group, entered into a Share
Exchange Agreement with Motioncast. The Share Exchange Agreement provided that
13,938,000 shares of the common stock of BrowseSafe.com, Inc. would be exchanged
for 13,938,000 shares of the common stock of Motioncast in a transaction which
was exempt from registration under Section 4(2) of the Securities Act of 1933.
The Share Exchange Agreement also required the Funding Group to contribute or
cause to be contributed additional funds to the Company and required the Company
to issue an additional 120,000 shares would be issued to the Funding Group.
Since the Funding Group failed to fully perform their obligations under
the Asset & Liability Contribution Agreement and
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Share Exchange Agreement, the Company has issued but has not delivered the
2,738,000 shares and has not issued any of the 120,000 shares to the Funding
Group.
On December 6, 1999, the Company sold under Rule 504 of Regulation D of
the Securities Act of 1933 a Series A Senior Subordinated Convertible Redeemable
Debenture in a principal face amount not to exceed $750,000 to a single
accredited investor. The terms of the debenture allowed the investor to fund the
debenture through periodic payments to the Company; however, all terms of the
debenture, including interest rate, conversion provisions and maturity date,
were set and were not subject to negotiation. An initial funding of $100,000 was
required in connection with the closing on the debenture; however, future
funding was discretionary by the investor. The debenture bore interest at 8% per
annum and had a maturity date of December 6, 2001 at which time any outstanding
principal and unpaid interest was due in full.
The debenture provided for the conversion of the outstanding principal
and interest into common stock at a conversion price equal to 75% of the lowest
closing bid price of the common stock as reported on the OTC Bulletin Board for
the three consecutive trading days immediately preceding the receipt of a notice
of conversion by the Company. At the time the investor exercised its conversion
option, no new or additional consideration was required. There were also
provisions that allowed the Company to terminate funding of the debenture prior
to the date the Company became a reporting company and required that all
conversions of outstanding principal to common stock must occur prior to the
date of funding termination. As of December 30, 1999, the investor had funded
$200,000 of the debenture and had converted all of this amount into 1,537,346
shares of common stock under the terms of the debenture (including 3,734 shares
issued for accrued interest of $476). The debenture was cancelled shortly before
the Company became a reporting company on January 22, 2000. The Company recorded
as interest expense the amount arising from the beneficial conversion feature
contained in the debenture. As of December 31, 1999, the discount was
approximately $65,000. These proceeds, net of fees and expenses associated with
obtaining the funding, were used in part to establish the backbone for the
private label internet service and to pay legal and accounting fees, payroll and
amounts due on equipment leases.
In November 1999, the Company entered into a six-month investment
banking and consulting agreement with Ronald D. Ardt to perform such services as
participating with management of the Company, professionals and advisors to
provide advice and counsel in relation to Company's strategic business and
financial plans, and other strategies and participating with management of the
Company, professionals, affiliates and advisors to undertake due diligence on
proposed transactions affecting the Company. In exchange for the consulting and
advisory services, the Company agreed to pay fees of approximately $27,000,
issue 100,000 shares of the Company's common stock to Ardt and grant warrants to
purchase up to 50,000 shares of the Company's common stock at $1.00 per share
exercisable for a three-year period. The warrants had to be exercised if the
Company's stock traded above $2.00 for any thirty-day period. The agreement also
provides that placement and finders fees will be due if the consultant secures
financing for the Company.
In accordance with the agreement, the shares and warrants were issuable
when the Company's Form 10SB became effective and upon the filing of the Form
S-8 registration statement. Management has estimated the value of the services
received in exchange for the issuance of the stock and warrants to be
approximately $125,000. The Company intends to expense these fees over the
corresponding term of the agreement. At December 31, 1999, $93,750 is included
in prepaid expenses relating to this agreement.
In December 1999, the Company agreed to issue 100,000 shares of its
common stock and grant warrants to purchase 300,000 shares of the Company's
common stock to Ardt for additional consulting and advisory services. The
warrants were exercisable in 100,000 increments at .35, .70 and 1.40 per share
over a three-year period. The consultant is fully vested in the warrants and
stock upon grant. At December 31, 1999, the Company had not yet received the
additional services. These amounts will be expensed when the services are
received. The total amount included in prepaid assets relating to this contract
is $83,594, which approximates the fair value of the equity instruments issued
as of the date of the agreement. The value assigned to the common stock was
based on the quoted market value of $37,500. The warrants, which were
nonforfeitable, fully vested and exercisable immediately, were valued at
approximately $46,000 using the Black-Scholes model as of the contract date,
which is the measurement date.
Following the filing of the Form S-8 by the Company in March 2000, the
consultant exercised all 350,000 warrants outstanding pursuant to the consulting
agreements for a total of $155,000. The Company also issued the 200,000 shares
of its common stock.
In February, 2000, the Company entered into an agreement with California
Applied Research, Inc. ("CAR") (which is now known as GenesisTank.com) under
which CAR agreed to buy 6,000,000 shares of the Company's common stock. The
purchase price of the stock was $.50 per shares payable $500,000 upon execution
of the agreement, $1,000,000 on or before February 29, 2000 and $1,500,000 on or
before March 31, 2000. The shares are restricted subject to piggy-back
registration
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rights. One-third of the shares may be sold upon registration, one-third 90 days
following registration and one-third 180 days following registration. The
proceeds from this financing are being used to obtain new office space and
equipment, hire staff, reduce debt, initiate a marketing and advertising
campaign and pay legal and accounting fees.
In addition, the Company issued five-year warrants to Michael Mercier
for his services in arranging the CAR financing. The warrants provide for the
purchase of the Company's common stock at the lower of $.50 per share or the
lowest reset price (the terms of the warrant provide that the purchase price
will be reset every six months). The warrants were issued according to the
following schedule: (a) 475,000 warrants issued prorata as funds were received
by the Company, and (b) 75,000 warrants to be issued as a bonus when and if the
full $3,000,000 is received by the Company on or before March 31, 2000. The
Company has valued these warrants at approximately $250,000 using the
Black-Scholes model as of the contract date. The Company will record the
$250,000 as a reduction of the related equity proceeds.
On March 14, 2000, the Company entered into an investment agreement with
Swartz Private Equity, LLC. The investment agreement entitles the Company to
issue and sell, at our option, common stock for up to an aggregate of
$30,000,000 from time to time during a three-year period commencing on the
effective date of a registration statement (a "Put Right"). The Company intends
to use the proceeds from the Swartz financing for production, server
infrastructure and bandwidth, marketing and public relations, internal
operations, research & development, programming, payment of creditors and
working capital.
Put Rights
In order to invoke a put right, the Company must have an effective
registration statement on file with the SEC registering the resale of the common
shares which may be issued as a consequence of the invocation of that put right.
Additionally, the Company must give at least ten but not more than twenty
business days' advance notice to Swartz of the date on which it intends to
exercise a particular put right and the Company must indicate the number of
shares of common stock it intends to sell to Swartz. At the Company's option, it
may also designate a maximum dollar amount of common stock (not to exceed
$2,000,000) which the Company will sell to Swartz during the put and/or a
minimum purchase price per common share, if applicable, at which Swartz may
purchase shares during the put. The designated minimum purchase price per common
share shall be no greater than 80% of the closing bid price of the common stock
on the advanced put notice date.
The number of common shares sold to Swartz in a given put may not exceed
the lesser of:
o 15% of the aggregate daily reported trading volume (excluding
certain block trades) during a pricing period (excluding certain
days where the common stock trade below a Company specified
minimum price),
o the intended put amount,
o 9.9% of the common stock outstanding upon completion of the put.
For each common share, Swartz will pay the Company the lesser of the
market price for the applicable pricing period, minus $.05, or 92% of the market
price for the applicable pricing period. However, the purchase price may not be
less than the designated minimum per share price, if any, that the Company
indicated in its notice.
Warrants
The Company has delivered to Swartz warrants to purchase 570,000 shares
of common stock during a five-year period at an exercise price of the lower of
$.50 per share or the lowest reset price (the terms of the warrant provide that
the purchase price will be reset every six months). In addition to the common
stock purchased, Swartz will receive warrants to purchase an additional 10% of
the common stock equal to 110% of the market price on the last day of the
purchasing period, subject to further semi-annual adjustments if the price of
the common stock goes down.
Non-Usage Fee
On the last business day of each six-month period, if the Company has
not put $500,000 of our stock to Swartz, the Company will be required to pay
Swartz a non-usage fee equal to the difference between $50,000 and 10% of the
aggregate put amounts to Swartz during such six month period.
Termination Of Investment Agreement
The Company may also terminate its right to initiate further puts or
terminate the investment agreement by providing Swartz with notice of such
intention to terminate; however, any such termination will not affect any other
rights or obligations
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the Company has concerning the investment agreement or any related agreement. In
the event of a termination by the Company, the Company will be required to pay a
termination fee equal to the difference between $100,000 and 10% of the
aggregate put amounts to Swartz during the term of the agreement.
Right Of First Refusal
During the term of the investment agreement and for one year after its
termination, the Company is prohibited from issuing or selling any capital stock
or securities convertible into the Company's capital stock for cash in private
capital raising transactions, without obtaining the prior written approval of
Swartz which Swartz has agreed to not unreasonably withhold. In addition, Swartz
has the option for 10 days after receiving notice to purchase such securities on
the same terms and conditions. This right of first refusal does not apply to
acquisitions, option plans or strategic partnership or joint ventures.
The Company's short and long term capital requirements will depend upon
many factors, including the ability to continue to obtain adequate funding, the
rate of market acceptance of the Company's products, the level of resources
required to expand the Company's marketing and sales organization and other
factors, some of which may be beyond the Company's control. A slower than
expected rate of acceptance of the Company's products or lower than expected
revenues generated from the sale of the products and other costs associated with
upgrading the Company's equipment would materially adversely affect the
Company's liquidity.
The Independent Auditor's Report dated March 10, 2000, and prepared by
Katz Sapper & Miller, LLP contains an explanatory paragraph regarding the
Company's ability to continue as a going concern. The Company believes that the
proceeds from the CAR financing will be sufficient to fund its working capital
needs through the date that cash proceeds become available under the Swartz
investment agreement. If they are not, there is substantial doubt about the
Company's ability to continue as a going concern.
If the Company obtains funding from Swartz of the full $30,000,000, it
anticipates incurring additional research and development costs estimated at
$885,000 and computer programming and web design costs of $975,000 over the next
12 months of operations. The Company has used outside vendors for a substantial
portion of its computer programming and web design. The Company expects to bring
more of these services in-house where efficiencies and savings can be expected.
Updating and maintaining its web design is critical to attract users and
potential advertisers to the BrowseSafe web site. In addition, one of the
by-products of the BrowseSafe business is the accumulation of an extensive web
site content database. The Company intends to investigate the commercial value
of such data to a variety of businesses.
The Company intends to use the proceeds from the Swartz financing to
fund equipment expenses over the next 12 months which are estimated at
$4,028,000 and will be largely related to acquiring additional servers and
increasing bandwidth. These expenses are necessary to service the volume of
users within the Company's telecommunications and server infrastructure. These
expenses also encompass wiring, routers, load balancing and back-ups, including
costs to maintain the servers, databases, tables of customer information, phone
equipment and support for web sites.
Other uses of the Swartz proceeds will be marketing and public relations
costs of $13,444,851, internal operations expenses of $8,740,683, production
costs of $326,542, debt payments of $730,923 and working capital of $838,917.
Over the next 12 months, the Company expects to add 20 full-time
employees to support technology, sales and service and marketing. The Company
also plans to hire managers in several key areas of the organization. In
addition, 35 to 40 part-time employees will be hired to support the web content
and review process.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this item begin on page F-1 with the
index to consolidated financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In September, 1998, the Company, which was then known as Medical
Accounting & Computers, engaged Barry L. Friedman, P.C., 1582 Tulita Drive, Las
Vegas, Nevada 89123, to audit the balance sheets of the Company as of August 31,
1998, December 31, 1997, and December 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the period January 1, 1998
to August 31, 1998, and the two years ending December 31, 1997 and December 31,
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1996. The Company's stock began trading in October, 1998, and is quoted on the
OTC Bulletin Board. The Company at that time had no operations, had assets
consisting of cash and only minimal liabilities and was considered a development
stage company. The engagement of Barry L. Friedman was limited to the
preparation of the financial statements described in this paragraph. Through the
mutual agreement of Mr. Friedman and the Company as approved by the board of
directors, Mr. Friedman did not stand for re-election as the company's
accountant. The Company did not have an active relationship with any accountants
between the end of Mr. Friedman's engagement and the selection of Katz Sapper &
Miller, LLP, the new accountants following the share exchange.
Barry L. Friedman's report on the financial statements did provide for a
going concern opinion since the Company did not at that time have a current
source of revenue and was seeking additional capital through a merger with an
existing operating company. It did not otherwise contain an adverse opinion or
disclaimer of opinion, nor was it modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements with Barry L. Friedman on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
In June, 1999, the Company which was then known as Motioncast Television
Corporation of America engaged in a share exchange with BrowseSafe.com, Inc. As
a result of the share exchange, BrowseSafe.com, Inc. became a wholly-owned
subsidiary of Motioncast. Motioncast changed its name to BrowseSafe.com, Inc.
and BrowseSafe.com, Inc. changed its name to BrowseSafe Technology, Inc.
In connection with the share exchange, the Company elected a new board
of Directors. The newly-elected board of directors determined that the Company
required accountants with experience in preparing financial statements and other
disclosure documents required of reporting companies under the Securities
Exchange Act of 1934 and wished to establish a relationship with such firm with
offices in Indianapolis, Indiana. On August 12, 1999, the Company engaged Katz
Sapper & Miller, LLP, 11711 North Meridian Street, Suite 8800, Indianapolis,
Indiana 46240-0857, to audit the Company's predecessor, BrowseSafe, LLC's
financial statements for fiscal year ending December 31, 1998, in accordance
with generally accepted accounting principles. Katz Sapper & Miller has
continued its relationship with the Company and has audited the Company's
financial statements for the fiscal year ending December 31, 1999.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Identification Of Directors And Executive Officers
The Company's directors and executive officers are as follows:
NAME AGE POSITION
---- --- --------
Mark W. Smith 42 President/Chief Executive
Officer/Director
Ted P. O'Brien 34 Vice President of Sales and
Marketing/Director
Gregory P. Urbanski 47 Chief Financial Officer/Director
J. Marshall Gage 63 Vice President/Director
Biographies of directors and executive officers are as follows:
20
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President/CEO/Director
----------------------
Mark W. Smith, President, Chief Executive Officer and Director. Since
1986, Mr. Smith has worked as an independent computer and management
consultant for businesses throughout the Midwest. Since 1996, he served
as Director of Electronic Publishing for Kirkbride Technology, a
subsidiary of B.B. Kirkbride, a publisher of books and electronic media
located in Indianapolis, Indiana. Over the past decade, Mr. Smith has
overseen the development of nearly a dozen sophisticated computer
software programs to the marketplace. His expertise is in development
and oversight of database programs, Mr. Smith is one of the founders of
BrowseSafe. Mr. Smith is a graduate of Anderson University, 1980, with
degrees in Business Management and Marketing.
Vice President/Director
-----------------------
Ted P. O'Brien, Secretary, Vice President of Sales & Marketing and
Director. Since 1990, Mr. O'Brien has held management positions with
publishing and distribution companies including Director of Publishing
at B.B. Kirkbride, Director of Marketing for Riverside Distributors and
Director of Marketing and Publishing Activity at World Publishing. Mr.
O'Brien's prior experience is in the areas of sales management,
diversified marketing and planning, product development, distribution
and order fulfillment. Mr. O'Brien is a co-founder of BrowseSafe and is
responsible for planning, budgeting and implementation of sales and
marketing plans, sales and customer service supervision and strategic
planning. Mr. O'Brien received a Bachelor of Science degree in Marketing
and Business Administration from the University of South Dakota in 1998.
Chief Financial Officer/Director
--------------------------------
Gregory P. Urbanski, Treasurer, Chief Financial Officer and Director.
Prior to co-founding BrowseSafe, Mr. Urbanski served as the controller
and operations manager with B.B Kirkbride, a publisher of books and
electronic media, for 15 years. His responsibilities with the Company
include day-to-day operations, purchasing, personnel and directing
financial and investor relations for the Company. Mr. Urbanski graduated
in 1975 with a Bachelor of Science Degree in Accounting from Butler
University in Indianapolis.
Vice President/Director
-----------------------
J. Marshall Gage, Vice President and Director. Mr. Gage is the CEO and
principal shareholder of B.B. Kirkbride, a publisher of books and
electronic media located in Indianapolis, Indiana. Mr. Gage has been
affiliated with Kirkbride for more than 35 years, beginning in customer
service and advancing through positions in credit management,
advertising and promotion, sales, treasurer, vice president and
ultimately becoming president of the organization. He has an in-depth
understanding of the publishing business and is well known in the
industry. He has served as a university trustee for Murray State
University, has sat on the boards of directors of several companies and
has served as chairman of numerous nonprofit associations. In 1960, Mr.
Gage graduated from Murray State University with a degree in Business
Administration.
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The other key employee is as follows:
Erik A. Hannemann, 27, Director of Information Technology. Mr.
Hannemann's expertise includes network development, implementation, and
administration. In addition to these skills he has also developed and
implemented database tools for business. The following are his areas of
expertise:
Technical Summary
Operating Systems: Database systems: Languages:
Windows 3.1 SQL Server 7.0 Visual Basic
Windows NT Microsoft Access VBScript
Windows 95 File Maker Pro Active Server
Windows 98 Pages
Windows 2000 HTML
DOS COBOL
Linux Borland Delphi
Tools & utilities: Office Products:
Visual SourceSafe MicroSoft Excel
Visual InterDev MicroSoft Access
Microsoft MicroSoft
Information Server PowerPoint
PhotoShop Microsoft Query
CorelDraw Microsoft Word
GoldMine 4.0 WordPerfect/ Lotus
MicroSoft Proxy 123
Server
Netscape SuiteSpot
MicroSoft IEAK Kit
Netscape CCK
ADDITIONAL
TRAINING
o Created Animated
Movies Using
Flash 4.0
o Configured Cisco
Routers for a LAN
environment.
(Internet Access)
o Extensive
knowledge of
TCP/IP protocol.
o Setup and
Administered
Secure Web Sites
Mr. Hannemann leads a programming team that collectively have expertise in
the following areas:
Technical Summary of BrowseSafe's Programming Team
--------------------------------------------------
Operating Systems: Database systems: Languages:
Windows 95 Visual FoxPro Visual Basic
(3.0, 5.0) (3.0, 4.0, 5.0)
Windows 98 SQL Server 7.0 VBScript
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Windows NT Sybase System 11 Active Server
Windows 3.1 Microsoft Access Pages
DOS (7.0) Javascript
UNIX limited FoxPro for DOS Paradox for
Novell 3.11, 4.0 (2.0, 2.5, 2.6) Windows (4.0,
LANtastic FoxPro for Windows 7.0)
(2.6) Paradox for DOS
Paradox (3.0, 4.0, 5.0)
IDMS Perl (Internet
Oracle CGI)
HTML
COBOL
Assembler
Borland C++
JCL
Borland Delphi
Tools & utilities: Office Products:
Visual SourceSafe Excel
(4.0)
Crystal Reports Access
(3.0, 4.0, 5.0,
6.0)
Multi 3rd Party PowerPoint
Products Microsoft Query
Microsoft Word
Certifications
Microsoft Certified Professional Microsoft Certified Solution
Developer Certified Sybase Professional DBA Oracle Certified
Professional DBA Microsoft Visual Basic Microsoft Visual FoxPro
Microsoft Access Microsoft Windows 95 Architecture Sybase System
11 - SQL Microsoft SQL Server
At present, there are no committees of the board of directors. There are
no arrangements or understanding between any director and any other person
pursuant to which any person was elected or nominated as a director.
The Company's bylaws provide that the size of the board of directors
shall be between one and five members with the exact number within that range
determined from time to time by resolution of the board of directors. There are
presently five authorized positions as members of the board, one of which is
vacant. Keith Balderson, one of the Company's directors, submitted his
resignation effective March 2, 2000. The vacancy has not been filled.
The five directors were originally appointed to the board in connection
with the closing of the share exchange effective as of June 24, 1999, to serve
until the next annual meeting of shareholders. The directors are elected by the
shareholders for one year terms. The Company anticipates expanding its board
when it has identified individuals who are prominent educators or have an
expertise in software development and other areas germane to the Company's
business.
Indemnification Of Officers, Directors And Others
The Company's bylaws provide that it shall indemnify its officers and
directors, and its former officers and directors, against all expenses
(including attorney's fees), claims, judgments, liabilities, and amounts paid in
settlement arising out of his or her services on behalf of the Company subject
to the qualifications contained in Nevada law as it now exists, except that no
23
<PAGE>
such persons shall be indemnified against, or be reimbursed for, any expense
incurred in connection with any claim or liability arising out of his or her own
negligence or willful misconduct. Nevada law provides the Company cannot
indemnify its officers, directors, employees and agents when it asserts a direct
claim against them and a court of competent jurisdiction finds that they are
liable to the Company except as allowed by a court of competent jurisdiction.
Nevada law generally provides that a corporation shall have such power
to indemnify officers, directors, employees and agents to the extent they acted
in good faith in a manner they reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the conduct was unlawful.
Nevada law also generally provides in the event an officer, director, employee
or agent shall be judged liable, enter into a settlement, or any other
resolution of the claim, except when a claim is brought by the Company, such
indemnification shall apply if approved by the court in which the action was
brought, or by a majority vote of the board of directors (excluding any
directors who were party to such action), or by independent legal counsel in a
written opinion, or by a majority vote of stockholders. Nevada law also
generally provides that in the event an officer, director, employee or agent is
successful on the merits or otherwise in defense of any action, suit or
proceeding, the Company shall indemnify him or her against expenses including
attorneys' fees.
As of November, 1999 the Company does not have, but reserves the right
to purchase and maintain, directors and officers insurance insuring its
directors and officers against any liability arising out of their status as
such, regardless of whether the Company has the power to indemnify such persons
against such liability under applicable law.
Insofar as indemnification for liabilities arising under the Securities
Exchange Act of 1934 may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Nevada Revised Statute Section 78.037 states that a Nevada corporation's
articles of incorporation may include provisions to the effect that directors of
the Company shall not be personally liable to the Company or its shareholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law, or (ii) for the payment of distributions under
Nevada Revised Statute Section 78.300. The Company's articles of incorporation
include provisions of the type permitted by Nevada Revised Statute Section
78.037.
Compliance With Section 16(A) Of The Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Act") requires
the Company's officers, directors and persons who own more than 10% of a
class of the securities registered under Section 12(g) of the Act to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10% shareholders
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based on a review of copies of the reports the Company has received from
persons required to make such filings and our own records, the persons subject
to the Section 16(a) reporting requirements should have filed the required
reports
24
<PAGE>
within five days of January 22, 2000, the date the Company's Form 10-SB
became automatically effective. However, the Company was still clearing comments
from the SEC on its Form 10-SB until March 22, 2000. The reports were filed by
the four current officers, directors and 10% shareholders on March 24, 2000. The
former director has not filed his report.
ITEM 10. EXECUTIVE COMPENSATION
For the two fiscal years ending December 31, 1997 and 1998, the Company,
which was then known as Motioncast Television Corporation of America, had no
operations and was considered a development stage company. During that period,
it paid no compensation to executive officers and directors. As of June, 1999,
the Company engaged in a share exchange with BrowseSafe.com, Inc. which resulted
in BrowseSafe.com, Inc becoming a wholly owned subsidiary of Motioncast.
Motioncast changed its name to BrowseSafe.com, Inc. and BrowseSafe.com, Inc.
changed its name to BrowseSafe Technology, Inc. As a result of the share
exchange, the Company became an operating Company engaged in the business
activities described in this report.
From inception to May 19, 1999, the BrowseSafe business was operated in
BrowseSafe, LLC, an Indiana limited liability company. The following table sets
forth certain information as to the Company's executive officers and directors
for the period ending December 31, 1998 and January 1, 1999 through December 31,
1999. Except as shown on the next table relating to Stock Options, no other
compensation was paid any such officers and directors.
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
Name and Options Other
Principal Position Period Salary (Shares) Compensation
- --------------------- ------ ------ -------- ------------
Mark W. Smith 1998 $18,560 (1) -0- -0-
Chief Executive 1/1/99-12/31/99 $91,000 (2) -0- -0-
Officer
Ted P. O'Brien 4/3/98-12/31/98 $13,520 (1) -0- -0-
Vice President 1/1/99-12/31/99 $78,000 (2) -0- -0-
of Sales & Marketing
Gregory P. Urbanski 4/3/98-12/31/98 $5,000 (1) -0- -0-
Chief Financial 1/1/99-12/31/99 $39,000 (2) -0- -0-
Officer
J. Marshall Gage 4/3/98-12/31/98 $5,400 (1) -0- -0-
Senior Vice 1/1/99-12/31/99 -0- -0- -0-
President
(1) In order to conserve cash flow, the Company accrued a portion of officers'
salaries and deferred payment until the Company had the financial
resources. Mr. Smith was paid $4,640 in salary in 1998 and was paid the
accrued balance of $13,920 on March 10, 2000. Mr. O'Brien was paid $3,380
in salary in 1998 and was paid the accrued balance of $10,140 on March 10,
2000. Mr. Urbanski was paid $1,250 in salary in 1998 and was paid the
accrued balance of $3,750 on March 10, 2000. Mr. Gage was paid $400 in
salary in 1998 and was paid the accrued balance of $5,020 on March 10,
2000.
(2) In order to conserve cash flow, the Company accrued a portion of officers'
salaries and is deferring payment until the Company has the financial
resources later in 2000. Mr. Smith was paid $58,778 in salary in 1999. The
Company has accrued $32,222 in deferred salary for Mr. Smith for 1999. Mr.
O'Brien was paid $48,290 in salary in 1999. The Company has accrued 29,710
in deferred salary for Mr. O'Brien. Mr. Urbanski was paid $15,670 in salary
in 1999. The Company has accrued $23,330 in deferred salary for Mr.
Urbanski.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 6, 2000 the beneficial
ownership of the Company's common stock by (i) all persons known by the Company
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<PAGE>
to beneficially own more than 5% of the Company's voting securities; (ii) each
executive officer and directors; and (iii) all executive officers and directors
as a group.
Common Stock (1)
----------------------
% of
Name or Group Number of Shares Voting Securities
- ------------- ---------------- -----------------
Executive Officers
and Directors (2)
Mark W. Smith 4,474,400 24.7541%
Ted P. O'Brien 2,237,200 12.3771%
Gregory P. Urbanski 2,237,200 12.3771%
J. Marshall Gage 2,237,200 12.3771%
Officers and Directors 11,186,000 61.8854%
as a group (4 persons)
5% Shareholders (2)
BrowseSafe, LLC 11,186,400 67.6398%
(1) Based upon a total of 18,075,346 shares outstanding as of March 6, 2000.
Stock issuable upon exercise of outstanding stock options, warrants and/or
convertible notes is shown on the table below.
(2) All of the shares beneficially owned by the Executive Officers and
Directors are held in the name of BrowseSafe, LLC, an Indiana limited
liability company, which is wholly owned by the Executive Officers and
Directors. Beneficial ownership of the shares is shown based upon the
ownership of BrowseSafe, LLC. Unless otherwise indicated, the business
address for the persons listed in the table is7202 East 87th Street, Suite
109, Indianapolis, Indiana 462256.
As of November 16, 1999, the Company adopted a stock option plan. The
Company may issue incentive stock options, as defined in the Internal Revenue
Code of 1986, or non-qualified stock options to purchase up to 3,000,000 shares
of common stock under the plan. The Company has issued stock options to purchase
an aggregate of 1,250,000 shares of common stock to its executive officers and
directors. The following table sets forth, as of December 31, 1999, the
beneficial ownership of options, warrants or rights to purchase the Company's
common stock by (i) all persons known by the Company to beneficially own more
than 5% of the Company's voting securities; (ii) each executive officer and
directors; and (iii) all executive officers and directors as a group. Except as
otherwise indicated, all options, warrants or rights are owned directly.
Officers and Directors No. of Options Exercise Price
---------------------- -------------- --------------
Mark Smith 450,000 $0.5625
Ted O'Brien 350,000 $0.5625
Greg Urbanski 350,000 $0.5625
All options vest at a rate of at least 20% per year over a period of five years
with the first 20% becoming exercisable on the first anniversary of the date
when the options were granted.
All options will lapse on the earliest of the following events:
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<PAGE>
(i) The tenth anniversary of the date of grant of the option;
(ii) The first anniversary of the optionee's death;
(iii) The first anniversary of the date when the optionee ceases to be an
employee due to total and permanent disability or death;
(iv) Thirty (30) days after the optionee ceases to be an employee for any
reason other than total and permanent disability or death;
(v) On the date determined by the Board of Directors for an extraordinary
corporate transaction such as a reorganization, consolidation,
dissolution, etc.;
(vi) The date the optionee files or has filed against him or her a petition
in bankruptcy; or
(vii) The expiration date specified in the optionee's stock option
agreement.
The Company has not awarded stock appreciation rights to any of its
employees and it has no long-term incentive plans, as that term is defined in
SEC regulations.
Compensation Of Directors
No direct or indirect remuneration has been paid or is payable by the
Company to the directors in their capacity as directors other than the granting
of stock options. It is anticipated that during the next twelve months the
Company will not pay any direct or indirect remuneration to any of its directors
in their capacity as directors other than in the form of stock option grants or
the reimbursement of expenses of attending directors' or committee meetings.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to June, 1999, the Company, which was then known as Motioncast
Television Corporation of America, had no operations, had assets consisting of
only of cash and had minimal liabilities. Motioncast was considered a
development stage company. Its stock was listed on the OTC Bulletin Board as of
October, 1998.
As of January 1, 1999, the Company entered into an employment agreement
for a period of two years with Michael Zapara, the principal shareholder of the
Company. Michael Zapara was hired as the Executive Manager of the Company to
perform such duties as were reasonably required of him in such capacity. The
compensation to be paid under this agreement was 200,000 shares of Company
common stock per year; however, pursuant to the mutual agreement of Michael
Zapara and the Company, such compensation was not paid. Effective upon the
closing of the Share Exchange Agreement, Michael Zapara and the Company agreed
to terminate the Employment Agreement in exchange for the issuance of 50,000
shares of the Company's common stock to Michael Zapara.
In addition, as of February 1, 1999, the Company entered into a
Placement Agreement with Alexis Capital, Inc., ("Alexis") under which Alexis was
to serve as a placer and consultant in connection with the merger or sale of
Motioncast. To the best of the Company's current knowledge, Alexis was one
hundred percent owned by Michael Zapara. The compensation to be paid was 10% of
the amount of the transaction, 5% in cash and 5% in stock. Pursuant to the
mutual agreement of Alexis and the Company, such compensation was not paid.
Effective upon the closing of the Share Exchange Agreement, Alexis and the
Company agreed to terminate the Placement Agreement in exchange for the issuance
of 50,000 shares of the Company's common stock to Alexis.
On November 1, 1998, the Company (which was still known as Motioncast)
also entered into a Securities Transfer Agent & Registrar Agreement with Alexis
Stock Transfer, under which Alexis Stock Transfer served as the transfer agent
and registrar for the Company. To the best
27
<PAGE>
of the Company's current knowledge, Alexis Stock Transfer is one hundred percent
owned by Gina Zapara, the wife of Michael Zapara. Alexis Stock Transfer is
currently being compensated pursuant to its current fee schedule. The basic fees
are as follows:
Setup Fee: $500
Monthly Maintenance Fee: $100
Cancel and Issue Certificate: $25 per certificate
Issuance of Rule 144/Restricted Certificate: $50 per certificate
Record Storage Fee: $50 per month
Following the share exchange, the Securities Transfer Agent & Registrar
Agreement remained in effect subject to an amendment which bound the transfer
agent to maintain the fee structure in effect as of the date of the share
exchange through December 31, 2000. The Company pays the customary and usual
fees to the transfer agent associated with its services.
In 1999, Mark Smith and Greg Urbanski, who are executive officers and
directors of the Company, made personal loans to the Company of approximately
$60,000 and $50,000, respectively, to fund operating expenses. These loans were
non-interest bearing and were not evidenced by promissory notes. The Company
repaid these loans without interest in February, 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following is a list and index of Exhibits required by Item 601 of
Regulation S-B along with an indication of the location of the Exhibit:
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Exh. No. Document No.
- ------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation of Orange County Bancorp, dated June 8, (1)
1990, incorporated by reference to Exhibit 2.1 to Form 10-SB12G
dated November 24, 1999
- ------------------------------------------------------------------------------------------
3.2 Bylaws of Medical Accounting & Computers (formerly Orange County (1)
Bancorp), dated June 8, 1990, incorporated by reference to
Exhibit 2.2 to Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
3.3 Certificate of Amendment of the Articles of Incorporation of (1)
Orange County Bancorp reflecting the Name change to Medical
Accounting & Computers, dated December 30, 1992, incorporated by
reference to Exhibit 2.3 to Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
3.4 Certificate of Amendment of the Articles of Incorporation of (1)
Medical Accounting & Computers reflecting the Name Change to
Motioncast Television Corporation of America and a 5 for 1 forward
stock split, dated October 22, 1998, incorporated by reference to
Exhibit 2.4 to Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
3.5 Certificate of Amendment of the Articles of Incorporation of (1)
Motioncast Television Corporation of America reflecting a 25 to 1
reverse stock split, dated February 26, 1999, incorporated by
reference to Exhibit 2.5 to Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
3.6 Articles of Incorporation of BrowseSafe.com, Inc., dated July 28, (1)
1999, incorporated by reference to Exhibit 2.6 to Form 10-SB12G
dated November 24, 1999
- ------------------------------------------------------------------------------------------
3.7 Bylaws of BrowseSafe.com, Inc., dated July 28, 1999, incorporated (1)
by reference to Exhibit 2.7 to Form 10-SB12G dated November 24,
1999
- ------------------------------------------------------------------------------------------
3.8 Secretary of State Corporate Charter for BrowseSafe.com, Inc., (1)
dated July 28, 1999, incorporated by reference to Exhibit 2.8 to
Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
3.9 Certificate of Amendment of the Articles of Incorporation of (1)
BrowseSafe.com, Inc. reflecting the Name Change to, BrowseSafe
Technology, Inc., dated July 28, 1999, incorporated by reference
to Exhibit 2.9 to Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
3.10 Certificate of Amendment of the Articles of Incorporation of (1)
Motioncast Television Corporation of America reflecting the Name
Change to BrowseSafe.com, Inc., dated July 28, 1999, incorporated
by reference to Exhibit 2.10 to Form 10-SB12G dated November 24,
1999
- ------------------------------------------------------------------------------------------
3.11 BrowseSafe LLC Operating Agreement, effective as of March 26, (1)
1998, incorporated by reference to Exhibit 2.11 to Form 10-SB12G
dated November 24, 1999
- ------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------
3.12 BrowseSafe LLC Articles of Organization, dated March 26, 1998, (1)
incorporated by reference to Exhibit 2.12 to Form 10-SB12G dated
November 24, 1999
- ------------------------------------------------------------------------------------------
3.13 BrowseSafe LLC Articles of Correction, dated June 22, 1998, (1)
incorporated by reference to Exhibit 2.13 to Form 10-SB12G dated
November 24, 1999
- ------------------------------------------------------------------------------------------
4.1 Share Exchange Agreement by and among Motioncast Television (1)
corporation of America, BrowseSafe.com, Inc. and all of the
shareholders of BrowseSafe, dated 1999, incorporated by reference
to Exhibit 3.1 to Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
4.2 Securities Subscription Agreement between BrowseSafe.com., Inc.
and Rim Capital, dated December 6, 1999
- ------------------------------------------------------------------------------------------
4.3 Escrow Agreement by and among Rim Capital Group, L.L.C. and Edward
H. Burnbaum, dated December 10, 1999
- ------------------------------------------------------------------------------------------
4.4 Warrant to Purchase Common Stock of BrowseSafe.com, Inc. by
Michael Mercier, dated February 10, 2000
- ------------------------------------------------------------------------------------------
4.5 Stockholder Lock-up Agreement between California Applied Research,
Inc. and BrowseSafe.com, Inc. dated February 10, 2000
- ------------------------------------------------------------------------------------------
4.6 Stockholder Lock-up Agreement between Michael Mercier and
BrowseSafe.com, Inc. dated February 10, 2000
- ------------------------------------------------------------------------------------------
4.7 Registration Rights Agreement by and among California Applied
Research, Inc., Michael Mercier and BrowseSafe.com, Inc. dated
February 10, 2000
- ------------------------------------------------------------------------------------------
4.8 Investment Agreement between BrowseSafe.com, Inc. and Swartz
Private Equity, LLC, dated March 14, 2000
- ------------------------------------------------------------------------------------------
4.9 Registration Rights Agreement between BrowseSafe.com, Inc. and
Swartz Private Equity, LLC, dated March 14, 2000
- ------------------------------------------------------------------------------------------
4.10 Warrant to Purchase Common Stock of BrowseSafe.com, Inc. by Swartz
Private Equity, LLC, dated March 14, 2000
- ------------------------------------------------------------------------------------------
4.11 Warrant Side Agreement between BrowseSafe.com, Inc. and Swartz
Private Equity, LLC, dated March 14, 2000
- ------------------------------------------------------------------------------------------
10.1 Securities Transfer Agent & Registrar Agreement by and between (1)
Alexis Stock Transfer and Motioncast Television Corporation of
America, dated November 1, 1998, incorporated by reference to
Exhibit 6.1 to Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
10.2 Note between Peoples Bank & Trust Company and BrowseSafe, LLC, (1)
dated November 9, 1998, incorporated by reference to Exhibit 6.2
to Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
10.3 Asset and Liability Contribution Agreement by and among (1)
BrowseSafe, LLC, BrowseSafe.com, Inc., Minati Financial, Inc.,
Torquay Holdings, Ltd., Vista Financial Corp., El Coyote Capital
Corp., Jupiter Financial Services, Inc., Kyline Investment Corp.,
Chariot Group, Ltd., Sid-Barney, Inc., Sterling Overseas
Investments SA, Albury Capital Corp., Eivissa Capital Corp.,
Hemisphere & Associates, Ltd., and Magellan Holdings, Ltd.,
incorporated by reference to Exhibit 6.3 to Form 10-SB12G dated
November 24, 1999
- ------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------
10.4 Agreement by and between BrowseSafe, LLC, BrowseSafe.com, Inc. (1)
Barisal Capital Corporation and Fergus Capital Corporation, dated
June 9, 1999, incorporated by reference to Exhibit 6.4 to Form
10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
10.5 Amendment to the Agreement between Motioncast Television (1)
Corporation of America and Alexis Stock Transfer, dated July 12,
1999, incorporated by reference to Exhibit 6.5 to Form 10-SB12G
dated November 24, 1999
- ------------------------------------------------------------------------------------------
10.6 Mutual Release and Settlement Agreement between Jerry E. Blythe, (1)
Winthrop Associates, BrowseSafe, LLC, BrowseSafe.com, Inc. and
BrowseSafe Technology, Inc., dated October 11, 1999, incorporated
by reference to Exhibit 6.6 to Form 10-SB12G dated November 24,
1999
- ------------------------------------------------------------------------------------------
10.7 Browsesafe.com, Inc. Stock Option Plan dated November 17, 1999. (1)
incorporated by reference to Exhibit 6.7 to Form 10-SB12G dated
November 24, 1999
- ------------------------------------------------------------------------------------------
10.8 Confidential Investment Banking Consulting Agreement for (1)
BrowseSafe.com, Inc., incorporated by reference to Exhibit 6.8 to
Form 10-SB12G dated November 24, 1999
- ------------------------------------------------------------------------------------------
10.9 Riverside /Vendor Fulfillment Agreement, dated August 1, 1998, (1)
Consent letter from Barry L. Friedman, P.C., dated November 17,
1999 incorporated by reference to Exhibit 6.9 to Form 10-SB12G/A
dated January 11, 2000
- ------------------------------------------------------------------------------------------
10.10 Exodus Communication, Inc., Internet Data Center Services (1)
Agreement, dated December 31, 1998, incorporated by reference to
Exhibit 6.10 to Form 10-SB12G/A dated January 11, 2000
- ------------------------------------------------------------------------------------------
10.11 Confidential Investment Banking Consulting Agreement with Ronald (1)
Ardt, incorporated by reference to Exhibit 4.1 to Form S-8 dated
March 21, 2000
- ------------------------------------------------------------------------------------------
10.12 Consulting Agreement with Len Shorkey, incorporated by reference (1)
to Exhibit 4.2 to Form S-8 dated March 21, 2000
- ------------------------------------------------------------------------------------------
10.13 Consulting Agreement by and between Victoria L. Lee and
BrowseSafe.com, Inc., dated January 5, 2000
- ------------------------------------------------------------------------------------------
10.14 Lease Agreeement between Browsesafe.com, Inc. and new Boston
Citimark Limited Partnership, dated March 1, 2000
- ------------------------------------------------------------------------------------------
27 Financial Data Schedule incorporated by reference to Exhibit 27 to (1)
Form 10-SB12G/A dated February 16, 2000
- ------------------------------------------------------------------------------------------
99.1 Consent letter from Barry L. Friedman, P.C., dated November 17, (1)
1999 incorporated by reference to Exhibit 10.1 to Form 10-SB12G
dated November 24, 1999
- ------------------------------------------------------------------------------------------
99.2 Consent letter from Barry L. Friedman, P.C., dated January 4, (1)
2000, incorporated by reference to Exhibit 10.2 to Form 10-SB12G/A
dated January 11, 2000
- ------------------------------------------------------------------------------------------
99.3 Resignation of Keith Balderson
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Previously filed in indicated registration statement or report.
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1999.
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934 the Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BROWSESAFE.COM, INC.
By: /s/ Greg Urbanski
-----------------------
Title: Chief Financial Officer
Date: April 6, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
By /s/ Greg Urbanski
-----------------------
Title: Chief Financial Officer
Date: April 6, 2000
<PAGE>
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
December 31, 1999 and 1998
<PAGE>
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report 1-2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Deficit 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-17
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
BrowseSafe.com, Inc. (A Development Stage Company)
We have audited the accompanying consolidated balance sheets of BrowseSafe.com,
Inc. and Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year ended December 31, 1999, the period from February 10, 1998 (date of
inception) to December 31, 1998, and the period from February 10, 1998 (date of
inception) to December 31, 1999. These consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BrowseSafe.com, Inc.
and Subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999, the period
from February 10, 1998 (date of inception) to December 31, 1998, and the period
from February 10, 1998 (date of inception) to December 31, 1999, in conformity
with generally accepted accounting principles.
1
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
consolidated financial statements, the Company is in the development stage and
has incurred significant losses since its inception. The Company will require
significant additional financing and ultimately must continue development of its
product and distribution channels, generate revenues and successfully attain
profitable operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 8. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KATZ, SAPPER & MILLER, LLP
Certified Public Accountants
Indianapolis, Indiana
March 10, 2000
2
<PAGE>
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 6,475 $ 418
Inventories-finished goods 6,889
Prepaid consulting expense-Note 12 177,344 --
Prepaid expenses and other 54,950 --
------------ ------------
Total Current Assets 238,769 7,307
OFFICE AND COMPUTER EQUIPMENT, at cost, less
accumulated depreciation of $11,395 in 1999 and $516
in 1998 93,281 21,137
WEB DESIGN COSTS, net of amortization of $50,430 in 1999 50,430 100,860
DEPOSITS 24,034 1,460
PRODUCT DEVELOPMENT COSTS 78,950 --
------------ ------------
TOTAL ASSETS $ 485,464 $ 130,764
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank line of credit-Note 4 $ 198,944 $ 106,066
Accounts payable 348,442 276,523
Accrued payroll 127,875 20,000
Payable to related party-Note 3 105,847 70,095
Accrued stock issuance-Notes 10 and 12 337,500
Current maturities of long-term debt-Note 4 34,314
Note payable-Note 3 176,389 9,500
------------ ------------
Total Current Liabilities 1,329,311 482,184
LONG-TERM DEBT-Note 4 29,310
CONTINGENCIES-Notes 5, 6, 8 and 16 -- --
------------ ------------
Total Liabilities 1,358,621 482,184
------------ ------------
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value, 25,000,000 shares authorized, 19,075,346
shares (11,200,000 shares in 1998) issued and 17,575,346 shares
(11,200,000 shares in 1998) outstanding 17,575 11,200
Additional paid-in capital 864,993 178,800
Accumulated deficit (1,755,725) (541,420)
------------ ------------
Total Stockholders' Deficit (873,157) (351,420)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 485,464 $ 130,764
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 10, February 10,
1998 1998
(Inception) (Inception)
Year Ended to to
December 31, December 31, December 31,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE $ 672 $ -- $ 672
------------ ------------ ------------
MARKETING, GENERAL AND ADMINISTRATIVE
EXPENSES
Product development and internet
expenses 1,940 117,471 119,411
Marketing and advertising 79,086 224,721 303,807
Payroll expenses 387,330 110,752 498,082
Legal and professional 206,287 23,314 229,601
Hardware lease expenses 75,940 943 76,883
Contract termination 200,000 200,000
Depreciation and Amortization 61,310 516 61,826
Interest expenses 91,378 1,861 93,239
Other expenses 111,706 61,842 173,548
------------ ------------ ------------
Total Expenses 1,214,977 541,420 1,756,397
------------ ------------ ------------
Net Loss before Income Taxes (1,214,305) (541,420) (1,755,725)
INCOME TAXES-Note 14 -- -- --
------------ ------------ ------------
NET LOSS $ (1,214,305) $ (541,420) $ (1,755,725)
============ ============ ============
NET LOSS PER COMMON SHARE-Note 9 $ (0.087) $ (0.048)
WEIGHTED AVERAGE SHARES OUTSTANDING 14,016,478 11,200,000
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
BROWSESAFE.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Year Ended December 31, 1999 and
Period from February 10, 1998 (date of inception) to December 31, 1998
<TABLE>
<CAPTION>
Additional
Members' Common Paid-in Accumulated
Deficit Stock Capital Deficit Total
------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Capital contributions from members of BrowseSafe LLC
at inception on February 10, 1998 $ 190,000 $ 190,000
Net loss (541,420) (541,420)
Reclassification of members' deficit to reflect
contribution of BrowseSafe LLC assets and liabilities
to BrowseSafe.com, Inc. in exchange for 11,200,000
shares of BrowseSafe.com, Inc. common stock-Note 2 351,420 $ 11,200 $ 178,800 $ (541,420) $ --
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 -- 11,200 178,800 (541,420) (351,420)
Issuance of common stock-Note 2 2,738 24,645 27,383
Effect of transaction with Motioncast-Note 2 2,100 372,720 374,820
500,000 shares issued and held in escrow as
collateral for liability-Note 10
1,000,000 shares issued and held in escrow pursuant
to consulting agreement-Note 12 --
Warrants issued for services 71,094 71,094
Interest expense attributable to the beneficial
conversion feature of debentures-Note 11 66,667 66,667
Conversion of debentures to common stock 1,537 151,067 152,604
Net loss -- -- -- (1,214,305) (1,214,305)
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 $ -- $ 17,575 $ 864,993 $(1,755,725) $ (873,157)
=========== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 10, February 10,
1998 1998
(Inception) (Inception)
Year Ended to to
December 31, December 31, December 31,
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,214,305) $ (541,420) $(1,755,725)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 61,310 516 61,826
Noncash services 31,250 31,250
Noncash settlement 200,000 200,000
Interest expense attributable to beneficial
conversion feature of debentures 66,667 66,667
(Increase) decrease in certain current assets:
Inventories 6,889 (6,889)
Prepaid expenses and other (54,950) (54,950)
Increase in certain current liabilities:
Accounts payable 71,919 276,523 348,442
Due to related party 35,752 70,095 105,847
Accrued payroll 107,875 20,000 127,875
----------- ----------- -----------
Net Cash (Used) by Operating
Activities (687,593) (181,175) (868,768)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (8,879) (21,653) (30,532)
Increase in deposits (22,574) (1,460) (24,034)
Product development costs (78,950) (78,950)
Web design costs -- (100,860) (100,860)
----------- ----------- -----------
Net Cash (Used) by Investing
Activities (110,403) (123,973) (234,376)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from note payable 184,889 9,500 194,389
Repayments of notes payable (18,000) (18,000)
Repayments of capital lease (10,521) (10,521)
Net proceeds of line of credit borrowings 92,878 106,066 198,944
Proceeds from debentures 152,604 152,604
Proceeds from issuance of common stock 402,203 402,203
Contributed capital -- 190,000 190,000
----------- ----------- -----------
Net Cash Provided by Financing
Activities 804,053 305,566 1,109,619
----------- ----------- -----------
NET INCREASE IN CASH 6,057 418 6,475
CASH
Beginning of Period 418 -- --
----------- ----------- -----------
End of Period $ 6,475 $ 418 $ 6,475
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 22,084 $ 795 $ 22,879
Noncash investing and financing activities:
Assets acquired through capital lease 74,145 74,145
Conversion of debentures to common stock 152,604 152,604
Warrants issued for consulting services 71,094 71,094
Stock to be issued for consulting
services 137,500 137,500
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: BrowseSafe.com, Inc. (the "Company") is a development stage company
which intends to develop and distribute computer software that will allow
families to use the Internet safely while giving parents the freedom to
choose what their children can and cannot access.
Principals of Consolidation: The consolidated financial statements include
the accounts BrowseSafe.com, Inc. and its wholly-owned subsidiary,
BrowseSafe Technology, Inc., as well as the accounts of the Company's
predecessor, BrowseSafe LLC, which was formed on February 10, 1998. All
intercompany balances and transactions have been eliminated from the
consolidated financial statements. See Note 2 regarding reorganization and
merger.
Estimates: Management uses estimates and assumptions in preparing these
financial statements in conformity with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities
and the reported revenues and expenses. Actual results could vary from the
estimates that were used.
Inventories are valued at the lower of cost or market as determined by the
first-in, first-out (FIFO) method.
Office and Computer Equipment are recorded at cost and are being depreciated
over the estimated useful lives of the assets using accelerated methods.
Cash: The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has never
experienced any losses in such accounts.
Marketing and Advertising Costs are expensed as incurred and totaled $79,086
in 1999 and $224,721 in 1998.
Start-Up Costs are expensed as incurred.
Research and Development Costs incurred by the Company to develop and
enhance its software are expensed until the product reaches technological
feasibility. Costs are then capitalized until the product is ready for the
general public. No such costs were capitalized in 1998. $78,950 of costs was
capitalized in 1999. These costs will be amortized at the greater of the
ratio of current earnings to total anticipated revenues for the software
times software costs or minimum straight-line amortization over the
estimated remaining economic life of the product. Research and development
costs were $63,257 for 1999 and $16,130 for 1998. See Note 5.
Web Design Costs incurred subsequent to the preliminary project stage are
capitalized until the website is operational. A total of $100,860 was
capitalized in 1998. Capitalized web design costs are amortized on a
straight-line basis over a period of 24 months. The Company began amortizing
these costs in 1999. Costs of maintaining and operating the website are
expensed as incurred.
7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-lived Assets, including the Company's equipment and web design and
product development costs, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability is measured by comparison of the carrying
amount to future net undiscounted cash flows expected to be generated by the
related asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount
exceeds the fair market value of the assets. To date, no adjustments to the
carrying amount of long-lived assets have been required.
Stock Based Compensation: The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principle Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(see Note 13).
NOTE 2 - REORGANIZATION AND MERGER
In July 1998, BrowseSafe.com, Inc. was incorporated as a Nevada corporation.
In May 1999, BrowseSafe LLC and BrowseSafe.com, Inc. entered into an Asset
and Liability Contribution agreement. Pursuant to that agreement, BrowseSafe
LLC exchanged all of its assets and liabilities for 80% (11,200,000 shares)
of the outstanding common stock of BrowseSafe.com, Inc. Simultaneously, an
outside group of investors agreed to contribute or cause to be contributed
$27,380 and other consideration for 2,738,000 shares of common stock of
BrowseSafe.com, Inc. Prior to this transaction, BrowseSafe.com, Inc. had not
commenced operations and had no assets or liabilities. For accounting
purposes, BrowseSafe LLC was treated as the acquirer. All transferred assets
and liabilities were recorded at their historical cost.
In June 1999, BrowseSafe.com, Inc. and its shareholder entered into a Share
Exchange agreement with Motioncast Television Corporation of America
(Motioncast). Pursuant to this agreement, all outstanding common shares
(13,938,000 total shares, of which 11,200,000 shares were held by BrowseSafe
LLC and 2,738,000 shares were held by the investment group as noted in the
above transaction) of BrowseSafe.com, Inc. were exchanged for 13,938,000
common shares of Motioncast. Prior to this transaction, Motioncast had
2,100,000 common shares outstanding. Motioncast was a publicly traded entity
in the development stage whose only asset was cash and had minimal
liabilities. BrowseSafe.com, Inc. survived this merger as a wholly-owned
subsidiary of Motioncast. Immediately following this transaction,
BrowseSafe.com, Inc. changed its name to BrowseSafe Technology, Inc. and
Motioncast changed its name to BrowseSafe.com, Inc. All ongoing operations
are conducted in BrowseSafe Technology, Inc.
Pursuant to the Asset and Liability Contribution agreement and the Share
Exchange agreement, the outside investors were required to contribute funds
of approximately $570,000 in exchange for 120,000 shares of common stock. To
date, the outside investors have contributed approximately $440,000
($402,200 net of expenses of $37,800). Additionally, the outside investors
were obligated to cause BrowseSafe.com, Inc. to receive at least $1,500,000
of proceeds from the sale of common stock no later than November 30, 1999.
The Company has issued but not delivered 2,738,000 shares and has not issued
120,000 shares to the outside investors due to their failure to complete the
requirements of the two agreements. Management has advised all these outside
investors they were in breach of the agreement and provided them an
opportunity to remedy the situation (see Note 16).
8
<PAGE>
NOTE 2 - REORGANIZATION AND MERGER (CONTINUED)
For financial statement purposes, BrowseSafe Technology, Inc. is considered
as the acquiring company, and the merger was treated as a "reverse
acquisition". Pursuant to this accounting treatment, BrowseSafe Technology,
Inc. is deemed to have issued stock for the acquisition of Motioncast. Prior
to this transaction, Motioncast had 2,100,000 common shares outstanding and
tangible net assets (cash) of $374,820. The accompanying consolidated
statement of stockholders' deficit for the year ended December 31, 1999,
reflects this transaction as if BrowseSafe.com issued 2,100,000 common
shares for Motioncast.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company had a demand note payable of $37,120, which bears interest at
12%, to a company controlled by one of its stockholders. This note was
repaid in February 2000.
The Company had non-interest bearing notes payable to its stockholders
totaling $139,269 at December 31, 1999. These notes were repaid in February
2000.
The Company also leased office space from the above-mentioned related entity
through February 2000. Rent expense paid to the entity was $8,140 in 1999
and $11,030 in 1998.
The Company also receives certain general and administrative services from
the related entity. Total charges for these services were $32,541 in 1999
and $50,000 for 1998. At December 31, 1999, the Company owed this entity
$105,847 (for these services and unpaid rents), which is included in
accounts payable. This amount was paid in February 2000.
NOTE 4 - DEBT AND CREDIT ARRANGEMENTS
The Company had a secured line of credit for short-term bank borrowings of
up to $200,000. Interest was payable monthly at the Bank's prime lending
rate. The line of credit was subject to renewal in November 1999 and is
guaranteed by certain stockholders of the Company. This line of credit was
converted to a short-term note payable on November 9, 1999, due with accrued
interest on February 15, 2000. The Company repaid this obligation in
February 2000.
At December 31, 1999, long-term debt of the Company was comprised of the
following:
Equipment lease obligation payable in quarterly installments
of $10,521, including interest imputed at 15.2%, through
July 2001. Secured by equipment recorded at a cost of
$74,145 with accumulated amortization of $3,707 at
December 31, 1999. $ 63,624
Less: Current maturities 34,314
--------
Total Long-term Debt $ 29,310
========
At December 31, 1999, the future required capital lease payments for the
above long-term obligation were as follows:
Capital Lease
Payable In Payments
---------- --------
2000 $ 42,084
2001 31,563
--------
Total Required Lease Payments 73,647
Less: Amount representing interest 10,023
--------
Net Lease Obligation $ 63,624
========
9
<PAGE>
NOTE 5 - ROYALTY AGREEMENT
The Company's product was developed with a third party and the Company
purchased software and technology from the third party. The purchase
agreement requires the Company to remit 2.5% of gross revenues received from
internet service providers (ISP's). Royalty payments continue for a two-year
period commencing when the Company has 15,000 active ISP customers. At
December 31, 1999 and 1998, the Company had not incurred any royalty
expenses relating to this contract.
NOTE 6 - COMMITMENTS
Rent and maintenance expense paid for computer hardware totaled $75,940 in
1999. Minimum rental commitments at December 31, 1999, under an operating
lease were as follows:
Payable In Equipment Rentals
---------- -----------------
2000 $ 17,491
2001 2,915
--------
Total Required Payments $ 20,406
========
In March 2000, the Company entered into a five-year lease agreement for
office space. This lease agreement calls for monthly lease payments of
$3,794 for the first twenty-four months of the lease, $3,967 for months
twenty-five through thirty-six and $4,122 for months thirty-seven through
sixty.
NOTE 7 - STOCK TRANSFER AGREEMENT
The Company has an agreement with a company related to one of its
stockholders to act as the Company's agent for transfers of stock and other
stock transactions. Total payments made under this agreement totaled $1,915
in 1999.
NOTE 8 - GOING CONCERN UNCERTAINTY
The Company is a development stage company which has incurred significant
losses since its inception. The Company will require significant additional
financing and ultimately must continue development of its product and
distribution channels, generate revenues and successfully attain profitable
operations.
As discussed in Note 15 to the financial statements the Company has obtained
financing of approximately $3,000,000. Additionally, the Company has entered
into an agreement to sell up to $30,000,000 of its common stock upon the
exercise of certain Put Rights (see note 15). The Put Rights become
available upon the effectiveness of a registration statement to be filed
with the Securities and Exchange Commission to register the stock that will
be sold under the Agreement. Management intends to use these proceeds to
fund its operations and expansion.
Since the Company does not have a definitive alternative financing
arrangement in place in the event the proceeds from private equity
financings are not sufficient to fund working capital needs through the
effectiveness of the registration statement described above, there is
substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any
adjustments to reflect the possible effects on the recoverability of assets
and classification of liabilities that may result from the outcome of this
uncertainty.
10
<PAGE>
NOTE 9 - NET INCOME (LOSS) PER SHARE
Basic and Diluted Net Income (Loss) per Share: Basic per share amounts are
computed, generally, by dividing net income (loss) by the weighted-average
number of common shares outstanding. Diluted per share amounts assume the
conversion, exercise, or issuance of all potential common stock instruments
unless the effect is antidilutive, thereby increasing the income per common
share.
The net income (loss) per share calculation is based on the number of share
issued and outstanding pursuant to the recapitalization.
The components of basic and diluted earnings per share were as follows:
1999 1998
---- ----
Net loss available for common shareholders (1,214,305) (541,420)
Weighted average outstanding shares of common stock 14,016,478 11,200,000
Earnings (loss) per share: Basic and Diluted (.087) (.048)
Stock options, warrants and contingent stock agreements have been excluded
from the diluted earnings per share calculation as their effect would be
anti-dilutive.
NOTE 10 - CONSULTING CONTRACT TERMINATION
On September 19, 1998, the Company entered into a consulting contract with a
consultant. The consultant was to provide marketing and business consulting
to the Company for a fixed fee of $2,500 per month. The agreement also
required the Company to issue 431,250 shares of BrowseSafe.com, Inc. common
stock. Additionally, the consultant was to assist the Company locate
additional capital and would receive a "finder's fee". In 1999, certain
disputes arose between the parties regarding whether the Company received
any funding from sources introduced by the consultant. The Company believes
the consultant did not provide the services required by the contract.
Accordingly, the Company did not pay any fees or issue any stock to the
consultant and notified the consultant that the contract was terminated. The
Company did not recognize any expense in connection with this agreement
during 1998.
On October 11, 1999, the Company agreed to pay the former consultant
$200,000 to settle their dispute. To secure the payment of this amount, the
Company issued and placed in escrow 500,000 shares of its common stock.
Because the $200,000 payment was not remitted within 120 days, the stock was
delivered to the consultant in February 2000.
NOTE 11 - SENIOR SUBORDINATED CONVERTIBLE DEBENTURES
In December 1999, the Company entered into an agreement to issue a senior
subordinated convertible debenture (the debenture) to a single investor. The
debenture (up to $750,000) bears interest at 8% and matures December 10,
2001. An initial funding of $100,000 was required in connection with the
closing of the debenture, however future funding is discretionary.
The debenture is convertible (at the holder's option) into shares of the
Company's common stock at a conversion price equal to 75% of the lowest
closing bid price for the three days preceding the notice of conversion.
Interest on the debenture is paid by issuing common stock of the Company
based on 75% of the closing bid price for the three days preceding the
monthly interest due date. All fundings outstanding must be converted to
stock prior to January 19, 2000. In connection with the debenture, the
Company placed 1,000,000 shares in escrow. The escrowed shares were returned
to the Company and were cancelled in March 2000.
11
<PAGE>
NOTE 11 - SENIOR SUBORDINATED CONVERTIBLE DEBENTURES (CONTINUED)
The Company will record as interest expense the amounts arising from the
beneficial conversion feature contained in the debenture. As of December 31,
1999, $200,000 of funding had been issued, with a discount at the date of
issuance of approximately $65,000. As of December 31, 1999 all of the
funding has been converted into 1,537,346 shares of the Company's common
stock (including 3,734 shares issued for $476 of accrued interest).
This debenture agreement was terminated in January 2000.
NOTE 12 - CONSULTING AGREEMENT
In November 1999, the Company entered into a six-month investment banking
and consulting agreement. In exchange for the consulting and advisory
services, the Company agreed to pay fees of approximately $27,000, issue
100,000 shares of the Company's common stock and grant warrants to purchase
up to 50,000 shares of the Company's common stock at $1 per share. The
warrants are exercisable for a three-year period. The warrants had to be
exercised if the Company's stock traded above $2 for any thirty-day period.
The agreement also provides that placement and finders fees will be due if
the consultant secures financing for the Company.
In accordance with the agreement, the shares and warrants are issuable when
the Company's Form 10SB is effective and the filing of the Form S-8
registration statement. Management has estimated the value of the services
received in exchange for the issuance of the stock and warrants to be
approximately $125,000. The Company intends to expense these fees over the
corresponding term of the agreement. At December 31, 1999, $93,750 is
included in prepaid expenses relating to this contract.
In December 1999, the Company agreed to issue 100,000 shares of its common
stock and grant warrants to purchase 300,000 shares of the Company's common
stock for additional consulting and advisory services from this same
consultant. The warrants are exercisable in 100,000 increments at .35, .70
and 1.40 per share. The warrants are exercisable over a three-year period.
The consultant is fully vested in the warrants and stock upon grant.
At December 31, 1999, the Company had not yet received the additional
services. These amounts will be expensed when the services are performed.
The total amount included in prepaid assets relating to this contract is
$83,594, which approximates the fair value of the equity instruments issued
as of the date of the agreement. The value assigned to the common stock was
based on the quoted market value of $37,500. The warrants, which are
nonforfeitable, fully vested and exercisable immediately, were valued at
approximately $46,000 using the Black-Scholes model as of the contract date,
which is the measurement date.
In March 2000, the consultant exercised all 350,000 warrants outstanding
pursuant to the consulting agreements for a total of $155,000. The Company
also issued the 200,000 shares of its common stock.
NOTE 13 - STOCK OPTION PLAN
In November 1999, the Company adopted a stock option plan. Under the terms
of the Plan, options and other equity incentive awards to purchase 3,000,000
shares of the Company's common stock may be granted to officers, directors,
key employees and consultants at the then current market value of the
Company's common shares, as determined by the Company's Board of Directors.
All options vest at a rate of at least 20% per year over a five-year period
with the first 20% becoming exercisable on the first anniversary of the date
when the options were granted. The options generally expire the earlier of
ten years, the recipient's death, termination of employment or one year
after total disability.
12
<PAGE>
NOTE 13 - STOCK OPTION PLAN (CONTINUED)
On November 16, 1999, the Company granted options to key employees to
purchase up to 1,250,000 shares of the Company's common stock at an exercise
price of $0.5625 per share. At December 31, 1999, no outstanding options
were exercisable.
Transactions involving stock options are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Option Remaining
Shares Price Contractual Life
------ ----- ----------------
<S> <C> <C> <C>
Balance, December 31, 1998 - - -
Granted 1,250,000 $.5625 9.875
Exercised - -
Expired - -
---------- ------
Balance, December 31, 1999 1,250,000 $.5625
========== ======
</TABLE>
As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its
related interpretations. Accordingly, no compensation expense has been
recognized in the consolidated financial statements for employee stock
arrangements which are granted with exercise prices equal to the fair market
value at grant date.
Had compensation cost for all of the stock-based compensation grants issued
been determined based on the grant date fair values of awards, reported net
loss attributable to common stockholders and net loss per common share would
have been increased to the pro forma amounts shown below:
1999
----
Net loss attributable to common stockholders, as reported $(1,214,305)
Net loss attributable to common stockholders, pro forma (1,224,722)
Net loss per basic and diluted common share, as reported (.087)
Net loss per basic and diluted common share, pro forma (.087)
The above pro forma effects on net loss and net loss per share are not
likely to be representative of the effects on reported net loss for future
years because options vest over several years and additional awards may be
made each year. The fair value of each option grant was estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1999: expected
option life of 2.5 years, dividend yield 0%, expected volatility of 97% and
risk free interest rates of 6.25%. The weighted average fair value of
options granted in 1999 was $.33.
13
<PAGE>
NOTE 14 - INCOME TAXES
During 1998 and through May 18, 1999, the Company's operated as a limited
liability company and income, losses, credits, etc. were recognized for
federal income tax reporting purposes by the individual members.
Accordingly, no provision for federal or state income taxes on revenue or
income was required or recognized in the accompanying 1998 financial
statements and for the period from January 1, 1999 through May 18, 1999. On
May 19, 1999, the net assets of BrowseSafe, LLC were contributed to
BrowseSafe.com, Inc. pursuant to an Asset and Liability Contribution
Agreement (Note 2). As a result, deferred tax assets and liabilities are
recognized for activity occurring subsequent to May 18, 1999, for the future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period of enactment.
The tax effect of the temporary differences comprising deferred income taxes
for the year ended December 31, 1999 are as follows:
Intangible assets $(336,000)
Depreciation and amortization (24,000)
Other (8,600)
Net operating loss carryforward (18,500)
Valuation allowance 387,100
---------
Total Deferred Income Taxes $ -0-
========
The provision for income taxes (benefit) differed from the tax provision
(benefit) computed by applying the expected future federal (34%) and state
(7.9) rates due primarily to the settlement of a liability through issuance
of stock ($200,476), interest expense related to the beneficial conversion
of debentures ($66,667) and through a valuation allowance of $387,100.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $44,200 that may be used to offset future taxable income. To
the extent not utilized, the net operating loss carryforwards will begin to
expire in 2014.
NOTE 15 - SUBSEQUENT EVENTS
In February, 2000, the Company sold 128,571 shares of its common stock at
the then prevailing market price of $.35 per share in a private placement to
a single investor. The shares are restricted subject to certain registration
rights.
Also, in February, 2000, the Company entered into an agreement with
California Applied Research, Inc. ("CAR" which is now known as
GenesisTank.com) under which CAR agreed to buy 6,000,000 shares of the
Company's common stock. The purchase price of the stock was $.50 per shares
payable $500,000 upon execution of the agreement, $1,000,000 on or before
February 29, 2000, and $1,500,000 on or before March 31, 2000. The shares
are restricted subject to certain registration rights. One-third of the
shares may be sold upon registration, one-third 90 days following
registration, and one-third 180 days following registration.
In addition, the Company issued five-year warrants to an individual for his
services in arranging the CAR financing. The warrants provide for the
purchase of the Company's common stock at the lower of $.50 per share or the
lowest reset price (the terms of the warrant provide that the purchase price
will be reset every six months). The warrants were issued according to the
following schedule: (a) 475,000 warrants issued prorata as funds were
received by the Company, and (b) 75,000 warrants to be issued as a bonus
when and if the full $3,000,000 is received by the Company on or before
March 31, 2000.
14
<PAGE>
NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)
The Company has valued these warrants at approximately $250,000 using the
Black-Scholes model as of the contract date. The Company will record the
$250,000 as a reduction of the related equity proceeds.
In January 2000, the Company entered into a consulting agreement whereby the
consultant will receive a fee for financing secured by the consultant. The
fee is 4% of the transaction, payable 3% in shares of its common stock
(based on a market price of $2.50) and 1% in cash. In connection with the
CAR financing, in March 2000, the Company issued 36,000 shares to this
consultant and remitted $30,000. The cash paid and the value of the stock on
the date the financing is complete (the measurement date) will be recorded
as a reduction of the related financing proceeds. The Company estimates the
value of the stock issued to be approximately $160,000.
On March 14, 2000, the Company entered into an investment agreement with
Swartz Private Equity, LLC. The investment agreement entitles the Company to
issue and sell, at the Company's option, common stock for up to an aggregate
of $30,000,000 during a three-year period commencing on the effective date
of a registration statement (a "Put Right"). In order to invoke a put right,
the Company must have an effective registration statement on file with the
SEC registering the resale of the common shares which may be issued as a
consequence of the invocation of that put right. Additionally, the Company
must give at least ten but not more than twenty business days' advance
notice to Swartz of the date on which it intends to exercise a particular
put right and the Company must indicate the number of shares of common stock
it intends to sell to Swartz. At the Company's option, it may also designate
a maximum dollar amount of common stock (not to exceed $2,000,000) which the
Company will sell to Swartz during the put and/or a minimum purchase price
per common share, if applicable, at which Swartz may purchase shares during
the put. The designated minimum purchase price per common share shall be no
greater than 80% of the closing bid price of the common stock on the
advanced put notice date.
The number of common shares sold to Swartz in a given put may not exceed the
lesser of:
15% of the aggregate daily reported trading volume (excluding certain
block trades) during a pricing period (excluding certain days where the
common stock trade below a Company specified minimum price);
the intended put amount; and
9.9% of the common stock outstanding upon completion of the put.
For each common share, Swartz will pay the Company the lesser of the market
price for the applicable pricing period, minus $.05, or 92% of the market
price for the applicable pricing period. However, the purchase price may not
be less than the designated minimum per share price, if any, that the
Company indicated in its notice.
In addition to the common stock purchased, Swartz will receive warrants to
purchase an additional 10% of the purchased common stock equal to 110% of
the market price on the last day of the purchasing period, subject to
further semi-annual adjustments if the price of the common stock goes down.
On the last business day of each six-month period, if the Company has not
put $500,000 of our stock to Swartz, the Company will be required to pay
Swartz a non-usage fee equal to the difference between $50,000 and 10% of
the aggregate put amounts to Swartz during such six-month period.
15
<PAGE>
NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)
The Company may also terminate its right to initiate further puts or
terminate the investment agreement by providing Swartz with notice of such
intention to terminate; however, any such termination will not affect any
other rights or obligations the Company has concerning the investment
agreement or any related agreement. In the event of a termination by the
Company, the Company will be required to pay a termination fee equal to the
difference between $100,000 and 10% of the aggregate put amounts to Swartz
during the term of the agreement.
During the term of the investment agreement and for one year after its
termination, the Company is prohibited from issuing or selling any capital
stock or securities convertible into the Company's capital stock for cash in
private capital raising transactions, without obtaining the prior written
approval of Swartz which Swartz has agreed to not unreasonably withhold. In
addition, Swartz has the option for 10 days after receiving notice to
purchase such securities on the same terms and conditions. This right of
first refusal does not apply to acquisitions, option plans or strategic
partnership or joint ventures.
On February 9, 2000, the Company agreed to issue 570,000 warrants to Swartz
to purchase the Company's common stock in connection with the investment
agreement. The warrants are exercisable as follows:
150,000 upon completion of due diligence
150,000 on closing the transaction
150,000 within 6 months of the agreement
120,000 six months after the effective date of an SEC registration
statement
The warrants are exercisable at the lower of .50 per share or the lowest
closing price during six-month periods coinciding with the closing date of
the agreement. The Company intends to record the fair value of the warrants
using the Black-Scholes model as a reduction of the related equity proceeds.
The Company will also pay a consultant a 4% fee for this transaction. The
consultant will receive 360,000 shares of the Company's common stock and up
to $30,000 in cash. The cash will be paid as the Put Rights are exercisable.
The Company will record as a reduction of the equity proceeds, the cash paid
and the value of the stock based on the quoted market value.
On March 10, 2000, the Company entered into an amended and restated
consulting agreement for business advisory services with an individual in
exchange for 50,000 shares of the Company's common stock. The consultant is
fully vested in the stock as of the date of the contract. The Company will
record this transaction based on the quoted market value of the stock on the
contract date ($225,000). The amount will be expensed in 2000.
On March 10, 2000, the Company also agreed to a contract with an
organization and its principal owner to provide financing, advisory and
consulting services. The Company will issue up to 450,000 shares of common
stock if the quoted market price meets certain levels. The Company will
record as an expense the value of the stock based on quoted market price on
the date the stock is earned.
In March 2000, the Company agreed in principle to enter into a contract with
consultant for advisory services. The Company anticipates the final contract
will require a monthly fee of $10,000, issuing consultant 275,000 shares of
the Company's common stock (of which 200,000 shares are restricted) and
warrants to purchase 300,000 shares of the Company's common stock at prices
ranging from $5 to $15 per share. Upon execution of the contract, the
Company will value the stock at its quoted market price on the contract date
and value the warrants, using the Black-Scholes method. The amounts will be
expensed over the term of the agreement.
16
<PAGE>
NOTE 16 - CONTINGENCIES
The Company has certain disputes with a group of entities (the "Funding
Group") which were parties to the Asset & Liability Contribution Agreement
and Share Exchange Agreement under which the Funding Group agreed to provide
or cause third parties to provide certain funding to the Company in 1999 in
exchange for the issuance shares of the Company's common stock. The Company
issued 2,738,000 common shares but has not delivered them to the Funding
Group due to the Group's failure to provide all of the funding required by
these agreements. In November 1999, the Company advised all members of the
Funding Group in writing that they were in breach of the Share Exchange
Agreement and the Asset & Liability Contribution Agreement and provided them
an opportunity to remedy the breach. The Company received two letters dated
March 1, 2000, from an attorney which stated that he represents the Funding
Group. The letter demanded delivery of the 2,738,000 shares and contends
that the Company made false and misleading disclosures about the Funding
Group.
The Company strongly disagrees with the Funding Group's allegations. The
Company believes it will prevail if this matter results in a lawsuit. The
Company's attorneys are in discussions with the attorney for the Funding
Group. The Company is currently evaluating what actions to take with respect
to the claims of the Funding Group.
NOTE 17 - OTHER
In July 1999, the Company agreed to issue approximately 11,000 shares of its
common stock to certain vendors in full satisfaction of a trade payable. The
Company entered into these agreements in order to conserve cash reserves and
at the request of the vendors. The Company has recorded the related expense
at $33,000 representing the value of the services provided by the vendors.
In February 2000, at the request of one of the vendors, the Company paid the
vendor in cash instead of stock. The other two vendors will be issued 459
shares and 450 shares of restricted stock in April 2000.
17
EXHIBIT 4.2
SECURITIES SUBSCRIPTION AGREEMENT
THIS SECURITIES SUBSCRIPTION AGREEMENT, dated as of December 6,
1999 ("Agreement"), is executed in reliance upon the exemption from registration
afforded by Rule 504 promulgated under Regulation D by the Securities and
Exchange Commission ("SEC"), under the Securities Act of 1933, as amended.
Capitalized terms used herein and not defined shall have the meanings given to
them in Rule 504 and Regulation D.
This Agreement has been executed by the undersigned buyer ("Buyer")
in connection with the private placement of 8% Series A Senior Subordinated
Convertible Debenture of BrowseSafe.com, Inc., a corporation organized under the
laws of Nevada, with its principal executive offices located at 335 West Ninth
Street, Indianapolis, Indiana 46202-3003 ("Seller"). Buyer hereby represents and
warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISION
OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER (THE "1933 ACT"), AND RULE 504 OF REGULATION D
PROMULGATED THEREUNDER.
1. Agreement to Subscribe: Purchase Price.
(a) Subscription. The undersigned Buyer hereby subscribes for and agrees to
purchase the Seller's 8% Series A Senior Subordinated Convertible Redeemable
Debenture substantially in the form of the Debenture attached as hereto and
having an aggregate original principal face amount of Seven Hundred Fifty
Thousand United States Dollars ($750,000) (singly, a "Debenture," and
collectively, the "Debentures"), at an aggregate purchase price of 100% of the
face amount of such Debenture as set forth in subsection (b) herein.
(b) Payment. The Purchase Price for the Debenture shall be seven hundred
fifty thousand United States Dollars (U.S. $750,000) ("Purchase Price"), which
shall be payable at closing, pursuant to paragraph c herein, in accordance with
the terms and conditions of an Escrow Agreement which shall be executed
simultaneously with this Agreement ("Escrow Agreement").
(c) Closing. Subject to the satisfaction of the conditions set forth in
Sections 7 and 8 hereof, the Closing of the transactions contemplated by this
Agreement shall take place when (i) Seller delivers the Debenture to the Escrow
Agent, as defined in an Escrow Agreement among Buyer, Seller and the Escrow
Agent of even date, (ii) Seller delivers the signed Escrow Agreement and
accompanying documents, and (iii) Buyer pays $100,000 towards the Purchase Price
for the Debenture ("Closing Date").
2. Buyer Representations and Covenants;
Access to Information .
In connection with the purchase and sale of the Debenture, Buyer
represents and warrants to, and covenants and agrees with Seller as follows:
(a) Buyer is a Texas limited liability company and is not, and on the
Closing Date will not be, an affiliate of Seller;
(b) Buyer is an "accredited investor" as defined in Rule 501 of Regulation
D promulgated under the 1933 Act, and is purchasing the Shares of its own
account and Buyer is qualified to purchase the Shares under the laws of the
State of Texas;
(c) All offers and sales of any of the Debenture by Buyer shall be made in
compliance with any applicable securities laws of any applicable jurisdiction
and in accordance with Rule 504, as applicable, of Regulation D or pursuant to
registration of securities under the 1933 Act or pursuant to an exemption from
registration;
(d) Buyer understands that the Debenture is not registered under the 1933
Act and are being offered and sold to it in reliance on specific exemptions from
the registration requirements of Federal and State securities laws, and that
Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of Buyer set forth
herein in order to determine the applicability of such exemptions and the
suitability of Buyer and any purchaser from Buyer to acquire the Debenture;
(e) Buyer shall comply with Rule 504 promulgated under Regulation D;
(f) Buyer has the full right, power and authority to enter into this
Agreement and to consummate the transaction contemplated herein. This Agreement
has been duly authorized, validly executed and delivered on behalf of Buyer and
is a valid and biding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally;
(g) The execution and delivery of this Agreement and the consummation of
the purchase of the Debenture and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Buyer of
any of the terms or provisions of, or constitute a default under, the articles
of incorporation or by-laws (or similar constitutive documents) of Buyer
-2-
<PAGE>
or any indenture, mortgage, deed of trust, or other material agreement or
instrument to which Buyer is a party or by which it or any of its properties or
assets are bound, or any existing applicable law, rule or regulation of the
United States or any State thereof or any applicable decree, judgment or order
of any Federal or State court, Federal or State regulatory body, administrative
agency or other United States governmental body having jurisdiction over buyer
or any of its properties or assets;
(h) All invitations, offers and sales of or in respect of, any of the
Debenture, by Buyer and any distribution by Buyer of any documents relating to
any invitation, offer or sale by it of any of the Debenture will be in
compliance with applicable laws and regulations, will be made in such a manner
that no prospectus need be filed and no other filing need be made by Seller with
any regulatory authority or stock exchange in any country or any political
sub-division of any country, and Buyer will make no misrepresentations nor
omissions of material fact in the invitation, offer or resale of the Debenture;
(i) The Buyer (or others for whom it is contracting hereunder) has been
advised to consult its own legal and tax advisors with respect to applicable
resale restrictions and applicable tax considerations and it (or others for whom
it is contracting hereunder) is solely responsible (and the Seller is not in any
way responsible) for compliance with applicable resale restrictions and
applicable tax legislation;
(j) Buyer understands that no Federal or State or foreign government agency
has passed on or made any recommendation or endorsement of the Debenture;
(k) Buyer has had an opportunity to receive and review all material
information and financial data and to discuss with the officers of Seller, all
matters relating to the securities, financial condition, operations and
prospects of Seller and any questions raised by Buyer have been answered to
Buyer's satisfaction.
(l) Buyer acknowledges that the purchase of the Debenture involve a high
degree of risk. Buyer has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks or
purchasing the Debenture. Buyer understands that the Debenture is not being
registered under the 1933 Act, or under any state securities laws, and
therefore, Buyer must bear the economic risk of this investment for an
indefinite period of time;
(m) Buyer is not a "10-percent Shareholder" (as defined in Section
871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller; and
(n) Buyer acknowledges and agrees that the transactions contemplated by
this Agreement have taken place solely and exclusively with the State of Texas.
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3. Seller Representations and Covenants.
(a) Seller is a corporation duly organized and validly existing under the
laws of the State of Nevada, and is in good standing under such laws. The Seller
has all requisite corporate power and authority to own, lease and operate its
properties and assets, and to carry on its business as presently conducted. The
Seller is qualified or is in the process of becoming qualified to do business as
a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Seller.
(b) There are 25,000,000 shares of Seller's common stock, $.001 par value
per share ("Common Stock"), authorized and approximately 16,500,000 as of
December 1, 1999 outstanding. The Common Stock is quoted on National Association
of Securities Dealers OTC Electronic Bulletin Board under the symbol "PGPG". All
issued and outstanding shares of Common Stock have been authorized and validly
issued and are fully paid and non-assessable.
(c) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or to a loss of a material benefit, under, any provision of
the Articles of Incorporation, and any amendments thereto, By-Laws, Stockholders
Agreements and any amendments thereto of the Seller or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law ordinance, rule or
regulation applicable to the Seller, its properties or assets. There is no
action, suit or proceeding pending, or to the knowledge of the Seller,
threatened against the Seller, before any court or arbitrator or any government
body, agency or official, which would have a material adverse affect on Seller's
operations or financial condition.
(d) The Seller is not subject to the reporting requirements of Sections 13
or 15(d) of the Securities and Exchange Act, is not an investment company or a
developmental stage company that either has no specific business plan or
purpose. The Debenture and any shares of Common Stock when issued upon
conversion of the Debenture, will be issued in compliance with all applicable
U.S. federal and state securities laws. The Seller understands and acknowledges
that, in certain, circumstances, the issuance of the shares of Common Stock upon
conversion of the Debenture could dilute the ownership interests of other
stockholders of the Seller. The execution and delivery by the Seller of this
Agreement and the issuance of any shares of Common Stock upon conversion of the
Debenture will not contravene or constitute a default under any provision of
applicable law or regulation. The Seller is in material compliance with and
materially conforms to all statues, laws, ordinances, rules, regulations,
orders, restrictions and all other legal requirements of any domestic or foreign
government or any instrumentality thereof having jurisdiction over the conduct
of its businesses or the ownership of its properties.
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(e) There is no fact known to Seller that has not been disclosed in writing
to the Buyer which could reasonably be expected to materially and adversely
affect the ability of the Seller to perform its obligations pursuant to this
Agreement.
(f) No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Seller is required in
connection with the valid execution and delivery of this Agreement, or the
offer, sale or issuance of the Debenture or Common Stock, or the consummation of
any other transaction contemplated hereby, except the filing with the SEC of
Form D.
(g) There is no action, proceeding or investigation pending, or to the
Seller's knowledge, threatened, against the Seller which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, conditions, affairs or operations of the Seller. The Seller
is not a party to or subject to the provision of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit proceeding or investigation by the Seller currently pending
or which the Seller intends to initiate. The SEC has not issued any order
suspending trading in the Seller's Common Stock and the Seller is not under
investigation by the SEC or the National Association of Securities Dealers, and
there are no proceedings pending or threatened before either regulatory body.
(h) There are no other material outstanding debt or equity securities
presently convertible into Common Stock other than the Debenture which are the
subject of this Agreement.
(i) The Seller has not received in excess of $250,000 from the sale of any
securities within the 12 month period prior to the date of this Agreement in
reliance on any exemption under Section 3(b) of the 1933 Act, Regulation D or
its rules or sold any securities in violation of Section 5(a) of the 1933 Act.
(j) The issuance, sale and delivery of the Debenture has been duly
authorized by all required corporate action on the part of the Seller, and when
issued, sold and delivered in accordance with the terms hereof and thereof for
the consideration expressed herein and therein, will be duly and validly issued,
fully paid and non-assessable. The Common Stock issuable upon conversion of the
Debenture has been duly and validly reserved for issuance and upon issuance in
accordance with the terms of the Debenture, shall be duly and validly issued,
fully paid, and non-assessable. There are no pre-emptive rights of any
shareholder of Seller.
(k) This Agreement has been duly authorized, validly executed and delivered
on behalf of Seller and is a valid and binding agreement in accordance with its
terms, subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally. The Seller has all
requisite right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Seller, its directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Debenture has been taken. Upon their issuance to the
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Buyer and delivery to the Escrow Agent, as defined in and pursuant to the Escrow
Agreement, the Debenture will be validly issued and nonassessable, and will be
free of any liens or encumbrances.
(l) Seller acknowledges and agrees that the transactions contemplated by
this the Agreement have taken place solely and exclusively with the State of
Texas.
4. Exemption: Reliance on Representations. Buyer understands that the offer
and sale of the Debenture is not being registered under the 1933 Act. Seller and
Buyer are relying on the rules governing offers and sales made pursuant to Rule
504 promulgated under Regulation D. The offer and sale of the Debenture are made
solely within the State and jurisdiction of Texas.
5. Transfer Agent Instructions.
(a) Debenture. Upon the conversion of the Debenture, the Buyer or holder
shall give a notice of conversion to the Seller and the Seller shall instruct
its transfer agent to issue one or more Certificates representing that number of
shares of Common Stock into which the Debenture is convertible in accordance
with the provisions regarding conversion set forth in Exhibit A. The Seller
shall act as Debenture Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture. There shall
be no requirement to surrender the Debenture upon each conversion which shall be
made as a book entry of the Debenture register. However, the Debenture shall be
surrendered to the Seller when fully converted, redeemed in full, paid in full
or cancelled under the terms of this Agreement or the Escrow Agreement, as the
case may be.
(b) Common Stock to be Issued Without Restrictive Legend. Upon the
conversion of any Debenture, Seller shall instruct Seller's transfer agent to
issue Stock Certificates up to the total of the "Conversion Amount" (as defined
in the Debenture) and any "Interest shares" (as defined in the Debenture)
without restrictive legend in the name of the Buyer (or its nominee) and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable. The Common Stock
shall be immediately freely transferable on the books and records of Seller.
Seller shall also instruct its attorney to issue and render any legal opinion
which is reasonable required at any time by Seller's transfer agent to permit
Seller's transfer agent to issue any and all Stock Certificates without a
restrictive legend as required by this Agreement.
6. Registration. If upon conversion of the Debenture effected by the Buyer
pursuant to the terms of this Agreement or payment of interest pursuant to the
Debenture the Seller fails to issue certificates for shares of Common Stock
issuable upon such conversion ("Underlying Shares") or the Interest Shares to
the Buyer bearing no restrictive legend for any reason, then the Seller shall be
required, at the request of the Buyer and at the Seller's expense, to effect the
registration of the Underlying Shares and/or Interest Shares issuable upon
conversion of the Debenture and payment of interest under the Act and relevant
Blue Sky laws as promptly as is practicable. The Seller and the Buyer shall
cooperate in good faith in connection with the
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furnishings of information required for such registration and the taking of such
other actions as may be legally or commercially necessary in order to effect
such registration. The Seller shall file such a registration statement within 30
days of Buyer's demand and shall use its good faith diligent efforts to cause
such registration statement to become effective as soon as practicable
thereafter. Such good faith diligent efforts shall include, but not be limited
to, promptly responding to all comments received from the staff of the SEC,
providing Buyer's counsel with a contemporaneous copy of all written
communications from and to the staff of the SEC with respect to such
registration statement and promptly preparing and filing amendments to such
registration statement which are responsive to the comments received from the
staff of the SEC. Once declared effective by the SEC, the Seller shall cause
such registration statement to remain effective until the earlier of (i) the
sale by the Buyer of all Underlying Shares registered or (ii) 120 days after the
effective date of such registration statement. In the event the Seller
undertakes to file a Registration Statement in connection with the Common Stock,
upon the effectiveness of such Registration, Buyer shall have the option to sell
the Common Stock pursuant thereto.
7. Delivery Instructions. The Debenture being purchased hereunder, and the
Purchase Price, shall be delivered to the Escrow Agent pursuant to the Escrow
Agreement.
8. Conditions To Seller's Obligation to Sell. Seller's obligation to sell
the Debenture is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as executed by
Buyer.
(b) All of the representations and warranties of the Buyer contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date. The Buyer shall have
performed or complied with all agreements and satisfied all conditions on its
parts to be performed, complied with or satisfied at or prior to the Closing
Date.
(c) No order asserting that the transactions contemplated by this Agreement
are subject to the registration requirements of the Act shall have been issued,
and no proceedings for that purpose shall have been commenced or shall be
pending or, to the knowledge of the Seller, be contemplated. No stop order
suspending the sale of the Debenture or Common Stock shall have been issued, and
no proceedings for that purpose shall have been commenced or shall be pending
or, to the knowledge of the Seller, be contemplated.
(d) Receipt of the Purchase Price as provided in Section 1(c) above.
9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation to
purchase the Debenture is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller of this Agreement
as evidenced by execution of this Agreement of the duly authorized officer of
Seller.
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(b) Delivery of the Debenture and the Escrow Agreement to the Escrow Agent.
10. No Shareholder Approval and No Dilution.
(a) Seller hereby agrees that from the Closing Date until the issuance of
Common Stock upon the conversion of the Debenture, Seller will not take any
action which would require Seller to seek shareholder approval of such issuance
unless such shareholder approval is required by law or regulatory body
(including but not limited to the NASDAQ Stock Market, Inc.) as a result of the
issuance of the Debenture or Common Stock hereunder.
(b) Provided the Debenture, or any Seller debentures from a series which
predate the Debenture remain outstanding and unpaid, or if there is any portion
of any such Debenture or debentures which have not been converted into the
Seller's Common Stock, then the Seller shall not split nor reverse split the
Common Stock, nor consolidate the outstanding number of shares of Common Stock
into a small number of shares, not otherwise take any similar action, directly
or indirectly, which would have a material adverse effect on the value of the
Debenture or the trading price of the Common Stock.
11. Miscellaneous.
(a) This Agreement together with the Debenture and Escrow Agreement,
constitutes the entire agreement between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations or
covenants except as specifically set forth herein. Any previous agreement among
the parties related to the transactions described herein is superseded hereby.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto, and the respective successors and assigns of
the parties hereto. Nothing in this Agreement, express or implied, is intended
to confer upon any party, other than the parties hereto, and their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement, except as expressly provided herein. Neither
party shall assign any of their rights or obligations described herein without
the prior written consent of the other party.
(b) Buyer is an independent contractor and is not the agent of Seller.
Buyer is not authorized to bind Seller or to make any representation or
warranties on behalf of Seller.
(c) All representations and warranties contained in this Agreement by
Seller and Buyer shall survive the closing of the transactions contemplated by
this Agreement.
(d) This Agreement shall be construed in accordance with the laws of Texas
applicable to contracts made and wholly to be performed within the State of
Texas and shall be binding upon the successors and assigns of each party hereto.
Buyer and Seller hereby mutually waive trial by jury and consent to exclusive
jurisdiction and venue in the courts of the State of Texas. At Buyer's election,
any dispute between the parties may be arbitrated rather than litigated
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<PAGE>
in the courts, before the arbitration board of the American Arbitration
Association in Dallas and pursuant to its rules. Upon demand made by the Buyer
to the Seller, Seller agrees to submit to and participate in such arbitration.
This Agreement may be executed in counterparts, and the facsimile transmission
of an executed counterpart to this Agreement shall be effective as an original.
(e) Seller agrees to indemnify and hold Buyer harmless from any and all
claims, damages and liabilities arising from Seller's breach of its
representations and/or covenants set forth herein.
(f) Buyer agrees to indemnify and hold Seller harmless from any and all
claims, damages and liabilities arising from Buyer's breach of its
representations and warranties set forth in this Agreement.
(g) In the event of a conflict between the terms of this Agreement, the
Debenture executed the same date hereof and the Escrow Agreement dated the same
date hereof, the terms of the Escrow Agreement shall prevail.
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first set forth above.
Official Signatory of Seller:
BROWSESAFE.COM, INC.
By: /S/
---------------------------
Mark W. Smith
Accepted this 10th day of December, 1999 Title: President
Official Signatory of Buyer:
RIM CAPITAL GROUP, L.L.C.
By: /S/
---------------------------
(Illegible)
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EXHIBIT A
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISION
OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER (THE "1933 ACT"), AND RULE 504 OF REGULATION D
PROMULGATED THEREUNDER.
A-001 US $750,000
BROWSESAFE.COM, INC.
8% SERIES A SENIOR SUBORDINATED CONVERTIBLE DEBENTURE
DUE DECEMBER ___, 2001
THIS DEBENTURE of BrowseSafe.Com, Inc., a corporation duly
organized and existing under the laws of Nevada ("Company"), designated as its
8% Series A Senior Subordinated Convertible Debenture Due December _____, 2001,
in an aggregate principal face amount not exceeding Seven Hundred Fifty Thousand
Dollars (U.S. $750,000), which Debenture is being purchased at 100% of the face
amount of such Debenture.
FOR VALUE RECEIVED, the Company promises to pay to the registered
holder hereof and his authorized successors and permitted assigns ("Holder"),
the aggregate principal face sum not to exceed Seven Hundred Fifty Thousand
Dollars (U.S. $750,000) on December ___, 2001 ("Maturity Date"), and to pay
interest on the principal sum outstanding, at the rate of 8% per annum
commencing January ___, 2000 and due in full at the Maturity Date pursuant to
paragraph 4(b) herein. The interest so payable will be paid to the person in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of the Debenture ("Debenture Register"); provided,
however, that the Company's obligation to a transferee of this Debenture arises
only if such transfer, sale or other disposition is made in accordance with the
terms and conditions of the Securities Subscription Agreement dated as of
December ___, 1999 between the Company and ________________ ("Subscription
Agreement"). The principal of, and interest on, this Debenture are payable at
the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder hereof from time to time. The Company will
pay the outstanding principal due upon this Debenture before or on the Maturity
Date, less any amounts required by law to be deducted or
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withheld, to the Holder of this Debenture by check if paid more than 10 days
prior to the Maturity Date or by wire transfer and addressed to such Holder at
the last address appearing on the Debenture register. The forwarding of such
check or wire transfer shall constitute a payment of outstanding principal
hereunder and shall satisfy and discharge the liability for principal on this
Debenture to the extent of the sum represented by such check or wire transfer.
Interest shall be payable in Common Stock (as defined below) pursuant to
paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
12. The Debenture is issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holders surrendering the same, but not less
than U.S. $10,000. No service charge will be made for such registration or
transfer or exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.
13. The Company shall be entitled to withhold from all payments any amounts
required to be withheld under the applicable laws.
14. This Debenture may be transferred or exchanged only in compliance with the
Securities Act of 1933, as amended ("Act") and applicable state securities laws.
Prior to due presentment for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Company's Debenture Register as the owner hereof for all other
purposes, whether or not this Debenture be overdue, and neither the Company nor
any such agent shall be affected or bound by notice to the contrary. Any Holder
of this Debenture, electing to exercise the right of conversion set forth in
Section 4(a) hereof, in addition to the requirements set forth in Section 4(a),
and any prospective transferee of this Debenture, are also required to give the
Company written confirmation that the Debenture is being converted ("Notice of
Conversion") in the form annexed hereto as Exhibit I.
15. (a) The Holder of this Debenture is entitled, at its option, at any time
immediately following execution of this Agreement and delivery of the Debenture
hereof, to convert all or any amount over $10,000 of the principal face amount
of this Debenture then outstanding into shares of common stock, $.001 par value
per share, of the Company ("Common Stock"), which shall be free trading and
without restrictive legend of any kind whatsoever, at a conversion price
("Conversion Price") for each share of Common Stock equal to 75% of the lowest
closing bid price of the Common Stock as reported on the National Association of
Securities Dealers Electronic Bulletin Board ("OTC Bulletin Board") for the 3
consecutive trading days day immediately preceding the date of receipt by the
Company of a Notice of Conversion ("Conversion Shares"). If the number of
resultant Conversion Shares would as a matter of law or pursuant to regulatory
authority require the Company to seek shareholder approval of such issuance, the
Company shall, as soon as practicable, take the necessary steps to seek such
approval. Such conversion shall be effectuated, as provided in a certain Escrow
Agreement executed simultaneously with this Debenture, by the Company delivering
the Conversion Shares
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to the Holder within 5 business days of receipt by the Company of the Notice of
Conversion. Once the Holder has received such Conversion Shares, the Escrow
Agent shall surrender the Debenture to be converted to the Company, executed by
the Holder of this Debenture evidencing such Holder's intention to convert this
Debenture or a specified portion hereof, and accompanied by proper assignment
hereof in blank. Accrued but unpaid interest shall be subject to conversion. No
fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share.
(b) Interest at the rate of 8% per annum shall be paid by issuing Common Stock
of the company as follows: Based on the lowest bid price of the Common Stock as
reported on the OTC Bulletin Board for the 3 consecutive trading days
immediately preceding the date of the monthly interest payment due ("Market
Price"), the Company shall issue to the Holder shares of Common Stock in an
amount equal to the total monthly interest accrued and due divided by 75% of the
Market Price ("Interest Shares"). The dollar amount of interest payable pursuant
to this paragraph 4(b) shall be calculated based upon the total amount of
payments actually made by the Holder in connection with the purchase of the
Debenture at the time any interest payment is due. If such payment is made by
check, interest shall accrue beginning 10 days from the date the check is
received by the Company. If such payment is made by wire transfer directly into
the Company's account, interest shall accrue beginning on the date the wire
transfer is received by the Company. Common Stock issued pursuant hereto shall
be issued pursuant to Rule 504 of Regulation D in accordance with the terms of
the Subscription Agreement and shall be free trading and without restrictive
legend of any kind whatsoever.
16. No provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place, and rate, and in the form,
herein prescribed.
17. The Company hereby expressly waives demand and presentment for payment,
notice of non-payment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereto.
18. The Company agrees to pay all costs and expenses, including reasonable
attorneys' fees, which may be incurred by the Holder in collecting any amount
due under this Debenture.
19. If one or more of the following described "Events of Default" shall occur
and continue for 30 days, unless a different time frame is noted below:
(a) The Company shall default in the payment of principal or interest on
this Debenture; or
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(b) Any of the representations or warranties made by the Company herein,
in the Subscription Agreement, or in any certificate or financial or
other written statements heretofore or hereafter furnished by or on
behalf of the company in connection with the execution and delivery of
this Debenture or the Subscription Agreement shall be false or
misleading in any material respect at the time made or the Company
shall violate any covenants in the Subscription Agreement including
but not limited to Section 5(b) or 10; or
(c) The Company shall fail to perform or observe, in any material respect,
any other covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture, the Subscription
Agreement or the Escrow Agreement and such failure shall continue
uncured for a period of thirty (30) days after notice from the Holder
of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings for
its dissolution; (4) apply for or consent to the appointment of a
trustee, liquidator or receiver for its or for a substantial part of
its property or business; (5) file a petition for bankruptcy relief,
consent to the filing or such petition or have filed against it an
involuntary petition for bankruptcy relief, all under federal or state
laws as applicable; or
(e) A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its
consent and shall not be discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of
the Company; or
(g) Any money judgment, writ or warrant of attachment, or similar process,
in excess of One Hundred Thousand ($100,000) Dollars in the aggregate
shall be entered or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of fifteen (15) days or in any event later than
five (5) days prior to the date of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation proceedings, or
other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted voluntarily by or
involuntarily against the Company; or
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(i) The Company shall have its Common Stock delisted from the
over-the-counter market or other market or exchange on which the
Common Stock is or becomes listed or trading in the Common Stock shall
be suspended for more than 10 consecutive days; or
(j) The Company shall not deliver to the Buyer the Common Stock pursuant
to paragraph 4 herein without restrictive legend within 5 business
days.
Then, or at any time thereafter, unless cured, and in each and every such case,
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law. In the event of a default under Section
8(i), the Holder shall have no right to claim damages as a result of decrease in
the market price of the Company's stock following de-listing.
20. This Debenture represents a prioritized obligation of the Company. However,
no recourse shall be had for the payment of the principal of, or the interest
on, this Debenture, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, shareholder, officer or director, as such,
past, present or future, of the Company or any successor corporation, whether by
virtue of any constitution, statue or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
21. In case any provision of this Debenture is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable,
such provision shall be adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Debenture will not in any way be affected or
impaired thereby.
22. This Debenture and the agreements referred to in this Debenture constitute
the full and entire understanding and agreement between the Company and the
Holder with respect to the subject hereof. Neither this Debenture nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the Company and the Holder.
23. This Debenture shall be governed by and construed in accordance with the
laws of Texas applicable to contracts made and wholly to be performed within the
State of Texas and shall be binding upon the successors and assigns of each
party hereto. The Holder and the Company hereby mutually waive trial by jury and
consent to exclusive jurisdiction and venue in
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the courts of the State of Texas. At Holders' election, any dispute between the
parties may be arbitrated rather than litigated in the courts, before the
American Arbitration Association in Dallas and pursuant to its rules. Upon
demand made by the Holder to the Company, the Company agrees to submit to and
participate in such arbitration. This Agreement may be executed in counterparts,
and the facsimile transmission of an executed counterpart to this Agreement
shall be effective as an original.
24. The Holder of this Debenture, its officers and members, shall not "short"
the Company's common stock at any time during which this Debenture is
outstanding.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by an officer thereunto duly authorized.
Dated: December , 1999
BROWSESAFE.COM, INC.
By:
----------------------------------
Title: President
-16-
<PAGE>
SERIES A EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $___________ of the
above Debenture No. _________ into Shares of Common Stock of BrowseSafe.com,
Inc. according to the conditions set forth in such Debenture, as of the date
written below.
If Shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer and other taxes and charges
payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
-17-
EXHIBIT 4.3
ESCROW AGREEMENT
ESCROW AGREEMENT ("Escrow Agreement") dated as of December 10, 1999 by
and among BrowseSafe.Com, Inc., a Nevada corporation, with a principal executive
office at 335 West Ninth Street, Indianapolis, Indiana 46202-3003 ("BSC") and
Rim Capital Group, L.L.C. ("Purchaser") and Edward U. Burnbaum, Esq., having a
principal place of business at 300 East 42nd Street, New York, New York 10017
("Escrow Agent")
WHEREAS:
A. The Purchaser and BSC entered into a Securities Subscription Agreement
dated as of December 10,1999 ("Agreement"), in which, inter alia. the Purchaser
agreed to purchase BSCs 8% Series A Senior Subordinated Convertible Debenture
("Debentures");
B. Pursuant to the Agreement, the Debenture is to be delivered to the
Escrow Agent to hold and administer in accordance with the terms and conditions
of this Escrow Agreement.
NOW THEREFORE, in consideration of the respective premises, mutual
covenants and agreements of the parties hereto, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Appointment of Escrow Agent. Escrow Agent is hereby appointed as escrow
agent and the Escrow Agent hereby accepts such appointment. The Escrow Agent
shall act in accordance with the instructions set forth in this Escrow Agreement
and any further instructions given to it by written instrument signed by BSC and
Purchaser.
2. Initial Funding. On the date hereof, the Purchaser shall transfer to BSC
the sum of USD$ 100,000 by wire transfer, less any fees which BSC has agreed to
pay by virtue of a separate agreement.
3. Issuance and Delivery of the Debenture,
Security Stock and Resolution to the Escrow Agent
(a) (i) On the date hereof, BSC shall issue in the name of the Purchaser
and deposit with the Escrow Agent the Debenture in the face amount of $750,000
as provided in the Agreement. If BSC is not paid the full Purchase Price for the
Debenture, as provided in this Escrow Agreement, then the Debenture, or any
portion of the Debenture which is not paid for at the time when payment is due
to be made, may be canceled by BSC, and the Escrow Agent, upon written notice of
such cancellation from BSC, shall promptly return the Debenture and any Security
Stock which the Escrow Agent is holding to BSC. Upon such cancellation and
return of the Debenture and the return of any Security Stock which the Escrow
Agent is holding, the parties shall have no further obligations or liabilities
each to the other under this Escrow Agreement, the Agreement or the Debenture.
(ii) Either BSC or the Purchaser shall have the right to cancel the
Debenture prior to January 19, 2000 by written notice given to the other party.
Notwithstanding such cancellation Purchaser shall have the right to receive
shares of common stock in accordance with all Notices of Conversion given by
Purchaser to BSC prior to January 19, 2000 for that portion of the Debenture
paid for by Purchaser prior to January 19, 2000, and shall retain all rights and
remedies available to Purchaser under this Escrow Agreement, the Agreement and
the Debenture in order to obtain such shares, including but not limited to
exercising his rights available through the Resolution and in the Security
Stock, as described and defined below, in the event BSC fails to honor any
Notices of Conversion. Upon such written notice of cancellation, and return of
the Security Stock and Debenture to BSC by the Escrow Agent; subject to
Purchaser's rights hereunder, neither the Escrow Agent, BSC nor Purchaser shall
have any further obligations or
<PAGE>
liabilities to the other. In the event no written notice of cancellation is
given, then the terms and conditions of this Escrow Agreement, the Agreement and
the Debenture shall remain in full force and effect.
(b) On the date hereof, BSC shall deliver to the Escrow Agent a
resolution in the form annexed hereto as Exhibit A ("Resolution"), instructing
BSC's transfer agent Alexis Stock Transfer, 422450 Bob Hope Drive, Suite 225.
Rancho Mirage, California 92279 ("Transfer Agent") to issue to Purchaser shares
of BSC's common stock registered in the name of the Purchaser, free trading and
without restrictive legend as provided in Section 5(b) of the Agreement, in an
amount up to $750,000, or at some lesser amount as the Escrow Agent, in his sole
discretion may direct the transfer agent, at a price per share which is 75% of
the lowest closing bid price of BSC's common stock as reported on the National
Association of Securities Dealers Electronic Bulletin Board for the 3
consecutive trading days immediately preceding the date of receipt of the
Resolution by transfer agent, and providing that BSC shall not change its
transfer agent from the Transfer Agent, without the express written consent and
directive of the Escrow Agent. The Resolution may be delivered by the Escrow
Agent to the Transfer Agent in the event that, for any reason whatsoever, BSC
fails to honor any Notice of Conversion as provided in the Debentures and this
Escrow Agreement, or BSC commits a material breach at the Agreement, the
Debentures, or this Escrow Agreement, or in the event that BSC changes or
attempts to change its transfer agent from the Transfer Agent without to express
written consent of the Purchaser. Upon written demand from the Purchaser, Escrow
Agent shall deliver the resolution to the Transfer Agent as provided in this
Section 3(b). Delivery of the Resolution to the Transfer Agent and the issuance
of shares by the Transfer Agent in accordance with the Resolution shall not
preclude the Purchaser from exercising any and all other remedies available to
the Purchaser against BSC for a breach of the Agreement, the Debentures, or this
Escrow Agreement. Escrow Agent shall be entitled to honor any such written
demand from the Purchaser and shall ignore any demand or instructions to the
contrary from BSC.
(c) On the date hereof, BSC shall deliver to the Escrow Agent 500,000
shares of its publicly traded common stock, symbol "PGPG", which shall be freely
tradeable and without restrictive legend of any nature, and shall be deposited
in a securities trust account for the benefit of Purchaser or its agent
("Security Stock"). Escrow Agent acknowledges the receipt from BSC of 50,000
shares of BSC' s common stock which shall be included in the definition of
Security Stock. In the event of a Default, or if, for any reason, BSC is unable
to deliver Conversion Shares to the Purchaser as required under the Agreement,
the Debenture and this Escrow Agreement, then upon written notice to the Escrow
Agent, the Security Stock shall be delivered to the Purchaser to enable
Purchaser to continue conversions of the Debenture in accordance with the terms
of the Debenture, or to satisfy any other obligations of BSC to the Purchaser
pursuant to the Agreement, the Debenture or this Escrow Agreement. Upon Maturity
and payment of the Debenture, or upon conversion of the entire Debenture into
Conversion Shares, or upon transfer of Security Stock to the Purchaser in
accordance with this Section 3(c) and performance by BSC of its obligations
asset forth herein, or upon cancellation fo the Debenture pursuant to Section
3(a)(ii) of this Escrow Agreement, any remaining Security Stock and the
Debenture shall be delivered by the Escrow Agent to BSC, and upon such delivery,
none of the parties to this Escrow Agreement shall have any further obligations
to the other. Transfer to the Purchaser of the Security Stock and the Debenture
shall not preclude the Purchaser from exercising any and all other remedies
available to the Purchaser against BSC for a breach of the Agreement, the
Debenture or this Escrow Agreement.
4. Custody and Disposition of the Debenture and Security Stock. The
Escrow Agent shall hold and dispose of the Debenture and Security Stock only in
accordance with the terms of this Escrow Agreement. The Escrow Agent shall not
transfer, assign or dispose of the Debenture without the prior written consent
of BSC. Any permitted transferee or assignee shall take the Debenture to the
terms of this Escrow Agreement. In the event of a conflict between the terms of
this Escrow Agreement, the Agreement and the Debenture, the terms of this Escrow
Agreement shall prevail.
5. Conversion of Debentures.
(a) As provided in paragraph 4 of the Debentures, Purchaser may give Notice of
Conversion of the Debentures to BSC by facsimile to the number set forth in
Section 10 below. Conversion of Debentures may take place at any time until the
Maturity Date of the Debentures, as defined in the Debentures, except that
<PAGE>
Purchaser must convert the entire principal amount of the Debenture funded by
the Purchaser pursuant to this Escrow Agreement and the Agreement on or before
January 19, 2000. As provided in paragraph 4 of the Debentures, within 5
business days of receipt of the Notice of Conversion, BSC shall deliver to the
Purchaser, or to an account designated by Purchaser in the Notice of Conversion,
certificates representing the shares of common stock to which the Purchaser
shall be entitled by reason of the conversion ("Certificate"). Notwithstanding
anything to the contrary contained in paragraph 4 of the Debenture, BSC may
demand, in writing, that the Purchaser pay outstanding principal amounts of the
Debenture ("Demand") even though Purchaser has not converted all or any amount
of the Debenture into shares of common stock. The Demand is a provision for
payment of the Debenture only. Conversions of the Debenture into shares of
common stock shall be done in accordance with paragraph 4 of the Debenture, and
may be in an amount which is no less than $10,000 but not necessarily as much as
the Demand. However, the first Demand in the amount of $50,000 may be wade
within 7 days from the date of this Escrow Agreement. Additional Demands may
only be made beginning on February 1, 2000 in increments of $75,000. After
February 1, 2000 each Demand may be made no less than 30 business days from last
Demand, and provided that the closing bid price of BSC's common stock for the
previous 5 consecutive trading days has not fallen below $.50 per share.
Notwithstanding the foregoing, at BSC's request in writing, Purchaser may, at
its sole option, make discretionary fundings of the Debenture at any time.
(b) If BSC fails to timely deliver Certificates, as provided in Section
5(a) above, then BSC shall pay Purchaser $150 per day for each day late in
delivering Certificates up to and including the 10th late day, and $500 per day
for each day late in delivering the Certificates after the 10th late day
("Liquidated Damages"). Any Liquidated Damages incurred by BSC shall be payable
immediately and in cash upon demand in writing by Purchaser, or its agent, to
BSC. However, such Liquidated Damages may be deducted from any amounts owed to
BSC by Purchaser pursuant to this Section 5. Notwithstanding anything contained
in the Agreement to the contrary, including but not limited to the provisions of
Section 6 regarding the registration of restricted Conversion Shares, BSC shall
be required to pay the Liquidated Damages set forth in this Section 5(c).
6. Bankruptcy. In the event any proceeding under the Bankruptcy Laws of
the United States or any proceedings under any state laws for the protection of
debtors or creditors, arc filed, voluntarily or involuntarily, by or on behalf
of BSC, then the Purchaser shall not be required to make any further payment
under the Debenture or to honor any Demand, and any and all further obligations
of the Purchaser shall be abrogated at the election of Purchaser.
7. Indemnification. Purchaser and BSC agree, jointly and severally to
indemnify, defend and hold harmless the Escrow Agent from and against any and
all costs (including, without limitation, legal fees and expenses), liabilities,
claims and losses arising out of or in connection with this Escrow Agreement or
any action or failure to act by the Escrow Agent under this Escrow Agreement,
except as provided in paragraph 8 below.
8. Concerning the Escrow Agent. To induce the Escrow Agent to act
hereunder, it is further agreed by the undersigned that:
(a) This Escrow Agreement expressly sets forth all the duties of the
Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations on the part of the Escrow Agent shall be read into this
Escrow Agreement The Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Escrow Agreement.
(b) The Escrow Agent shall not be liable for any action or failure to
act in its capacity as Escrow Agent hereunder unless such action or failure to
act shall constitute willful misconduct or gross negligence on the part of the
Escrow Agent, in which case there shall be no indemnification obligations.
(c) The Escrow Agent shall be entitled to rely upon any order; judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine
<PAGE>
the authenticity or the correctness of any fact stated therein or the propriety
or validity of the service thereof . The Escrow Agent may act in reliance upon
any instrument or signature believed by it to be genuine and may assume, unless
he has actual knowledge to the contrary, that any person purporting to give
notice or receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so.
(d) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Escrow Agreement and shall not be liable
for any action taken or omitted in accordance with such advice, except as
provided in paragraph 8(b) above.
(e) The Escrow Agent does nor have any interest in the Debentures or
Conversion Shares or any other property deposited hereunder but is serving as
escrow holder only and having only possession thereof, and is not charged with
any duty or responsibility to determine the validity or enforceability of any
such documents.
(f) The Escrow Agent (and any successor Escrow Agent) may at any time
resign as such by delivering the Debentures to any successor Escrow Agent,
jointly designated by the other parties hereto in writing, or to any court of
competent jurisdiction, whereupon the Escrow Agent shall be discharged of and
from any and all further obligations arising in connection with this Escrow
Agreement thereafter. The resignation of the Escrow Agent will take effect on
the earlier of (a) the appointment of a successor (including a court of
competent jurisdiction) or (b) the day which is 30 days after the date of
delivery of its written notice of resignation to the other parties hereto. If at
that time the Escrow Agent has not received a designation of a successor Escrow
Agent, the Escrow Agent's sole responsibility after that time shall be to
safekeep the Debentures and not make delivery or disposition thereof until
receipt of a designation of successor Escrow Agent or a joint written
disposition instruction by the other parties hereto or a final order of a court
of competent jurisdiction.
(g) In the event of any disagreement among the parties hereto resulting
in adverse claims or demands being made in connection with the Debentures, or in
the event that the Escrow Agent otherwise determines that the Debentures should
be retained, then the Escrow Agent may retain the Debentures until the Escrow
Agent shall have received (i) a final nonappealable order of a court of
competent jurisdiction directing delivery of the Debentures, or (ii) a written
agreement executed by the other parties hereto directing delivery of the
Debentures, in which case the Escrow Agent shall promptly deliver the Debentures
in accordance with such order or agreement. Any court order referred to in (i)
above shall be accompanied by a legal opinion by counsel for the presenting
party reasonably satisfactory to the Escrow Agent to the effect that said court
order is final and nonappealable. The Escrow Agent shall act on such court order
and legal opinion without further question.
(h) This Escrow Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors (including
successors by way of merger) and assigns, heirs, administrators and
representatives and shall not be enforceable by or inure to the benefit of any
third parry except as provided in paragraph (g) with respect to a resignation by
the Escrow Agent
(i) This Escrow Agreement may be modified by a writing signed by all the
parties hereto, and no waiver hereunder shall be effective unless in a writing
signed by the party to be charged.
(j) BSC acknowledges and agrees that in any dispute involving this
Escrow Agreement, the Agreement or the Debentures, that Escrow Agent may also
act as counsel to the Purchaser, and BSC shall not assert in such circumstances
that Escrow Agent's representation of the Purchaser shall constitute a conflict
of interest.
9. Governing Law. This Escrow Agreement shall be governed in all
respects by the internal laws of the State of Texas. The parties agree to submit
to the jurisdiction and venue of any state or federal court in
<PAGE>
Dallas having subject matter jurisdiction over the matter. Service may be made
by certified mail, return receipt requested, to the parties at the addresses set
forth in paragraph 10 below, but the parties shall not be precluded from making
service in any other manner permitted by law.
10. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be delivered by band or sent by U.S.
Express Mail, Fedex or some other reliable overnight courier service for next
day delivery. Each such notice or other communication shall for all purposes of
this Escrow Agreement be treated as effective or having been given when
delivered if delivered personally, or, if sent by overnight express mail
service, 1 day after the same has been deposited with the U.S. Postal Service,
Fedex or the overnight courier. All such notices must also be sent by facsimile
on the same day to the parties as follows:
If to BSC:
BrowseSafe.Com, Inc.
335 West Ninth Street
Indianapolis, Indiana 46202-3003
Att'n: Mark W. Smith
Fax: 317-633-6655
With a. copy to:
Robert J. Milford, Esq.
Lowe Gray Steele & Darko, LLP
111 Monument Circle #4600
Indianapolis, Indiana 46204
Fax: 317-236-6472
If to Purchaser:
Rim Capital Group, L.L.C.
RIM Capital, L.L.C.
314 Highland Mall Boulevard East, #306
Austin, Texas 78752
Fax: 212-986-2907
If to Escrow Agent:
Edward H. Burnbaum, Esq.
Lynch Rowin Novack Burnbaum & Crystal, P.C.
300 East 42nd Street
New York. New York 10017
Fax: 212-986-2907
11. Counterparts. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
12. Escrow Agent Fees. BSC shall pay the fees and expenses of the Escrow
Agent in performing its obligations and in connection with the preparation of
the transaction documents which shall be $22,500. The Escrow Agent Fee of
$22,500 may be deducted from the Debenture purchase proceeds and shall be
payable upon execution of the Agreement and this Escrow Agreement as follows:
$3,000 on the date hereof and $8,250 upon payment of the first Demand and
$11,250 upon the payment of the second Demand, or upon the first and second
discretionary funding, if any and if made earlier than the First Demand and
Second Demand, all pursuant to this Escrow Agreement.
<PAGE>
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be
duly executed and delivered, as of the day and year first above written.
BROWSESAFE.COM, INC.
By: /S/
--------------------------
Mark W. Smith
President
RIM CAPITAL GROUP, L.L.C.
By: /S/
--------------------------
(Illegible)
As to Escrow Only:
ESCROW AGENT
EDWARD H. BURNBAUM, ESQ.
By: /S/
----------------------
EXHIBIT 4.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.
Warrant to Purchase
79,167 shares
Warrant to Purchase Common Stock
of
BROWSESAFE.COM, INC.
THIS CERTIFIES that Michael Mercier or any subsequent holder hereof
pursuant to Section 8 hereof ("Holder"), has the right to purchase from
BROWSESAFE.COM, INC.., a Nevada corporation (the "Company"), up to 79,167 fully
paid and nonassessable shares of the Company's common stock, $.001 par value per
share ("Common Stock"), subject to adjustment as provided herein, at a price
equal to the Exercise Price as defined in Section 3 below, at any time beginning
on the Date of Issuance (defined below) and ending at 5:00 p.m., New York, New
York time the date that is five (5) years after the Date of Issuance (the
"Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company (this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
--------------------------
This Warrant shall be deemed to be issued on February 10, 2000 ("Date of
Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
2. Exercise.
--------
1
<PAGE>
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly completed and
executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, Attention: Mark Smith, President, 335 West 9th Street, Suite 100,
Indianapolis, Indiana 46202-3003, phone (317) 633-6656 x113, fax (317) 633-6655
or at such other office or agency as the Company may designate in writing, by
overnight mail, with an advance copy of the Exercise Form sent to the Company
and its Transfer Agent by facsimile (such surrender and payment of the Exercise
Price hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
---------------------------------
The Exercise Price per share ("Exercise Price") shall initially equal
(the "Initial Exercise Price") $0.50. If the Date of Exercise is more than six
(6) months after the Date of Issuance, the lesser of (i) the Exercise Price then
in effect, or (ii) the "Lowest Reset Price," as that term is defined below. The
Company shall calculate a "Reset Price" on each six-month anniversary date of
the Date of Issuance which shall equal one hundred percent (100%) of the average
Closing Bid Price of the Company's Common Stock for the five (5) trading days
ending on such six-month anniversary date of the Date of Issuance. The "Lowest
Reset Price" shall equal the lowest Reset Price determined on any six-month
anniversary date of the Date of Issuance preceding the Date of Exercise, taking
into account, as appropriate, any adjustments made pursuant to Section 5 hereof.
3
<PAGE>
Payment of the Exercise Price may be made by either of the following, or
a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: The Holder, at its option, may exercise this
Warrant in a cashless exercise transaction under this subsection (ii) if and
only if, on the Date of Exercise, there is not then in effect a current
registration statement that covers the resale of the shares of Common Stock to
be issued upon exercise of this Warrant. In order to effect a Cashless Exercise,
the Holder shall surrender of this Warrant at the principal office of the
Company together with notice of cashless election, in which event the Company
shall issue Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is being
exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Bid Price of the Common Stock for
the five (5) trading days prior to the Date of Exercise of this
Warrant (the "Average Closing Price"), as reported by the O.T.C.
Bulletin Board, National Association of Securities Dealers
Automated Quotation System ("Nasdaq") Small Cap Market, or if the
Common Stock is not traded on the Nasdaq Small Cap Market, the
Average Closing Price in any other over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shall be the Average Closing Price on
such exchange for the five (5) trading days prior to the date of
exercise of the Warrants. If the Common Stock is/was not traded
during the five (5) trading days prior to the Date of Exercise,
then the closing price for the last publicly traded day shall be
deemed to be the closing price for any and all (if applicable)
days during such five (5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the the Nasdaq Small Cap Market, the National Market System
("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, or if no
longer traded on the Nasdaq Small Cap Market, the National Market System
("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, the "Closing
Bid Price" shall equal the closing price on the principal national securities
exchange or the over-the-counter system on which the Common Stock is so traded
and, if not available, the mean of the high and low
3
<PAGE>
prices on the principal national securities exchange on which the Common Stock
is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
4. Transfer and Registration.
-------------------------
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. In addition to any other registration rights
of the Holder, if the Common Stock issuable upon exercise of this Warrant is not
registered for resale at the time the Company proposes to register (including
for this purpose a registration effected by the Company for stockholders other
than the Holders) any of its Common Stock under the Act (other than a
registration relating solely for the sale of securities to participants in a
Company stock plan or a registration on Form S-4 promulgated under the Act or
any successor or similar form registering stock issuable upon a
reclassification, upon a business combination involving an exchange of
securities or upon an exchange offer for securities of the issuer or another
entity)(a "Piggyback Registration Statement"), the Company shall cause to be
included in such Piggyback Registration Statement ("Piggyback Registration") all
of the Common Stock issuable upon the exercise of this Warrant ("Registrable
Securities") to the extent such inclusion does not violate the registration
rights of any other securityholder of the Company granted prior to the date
hereof. Nothing herein shall prevent the Company from withdrawing or abandoning
the Piggyback Registration Statement prior to its effectiveness.
(c) Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, other than a "private equity line,"
if the managing underwriter determines and advises in writing that the inclusion
in the registration statement of all Registrable Securities proposed to be
included would interfere with the successful marketing of the securities
proposed to be registered by the Company, then the number of such Registrable
Securities to be included in the Piggyback Registration Statement, to the extent
such
4
<PAGE>
Registrable Securities may be included in such Piggyback Registration Statement,
shall be allocated among all Holders who had requested Piggyback Registration
pursuant to the terms hereof, in the proportion that the number of Registrable
Securities which each such Holder seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders. If required by the
managing underwriter of such an underwritten public offering, the Holders shall
enter into a reasonable agreement limiting the number of Registrable Securities
to be included in such Piggyback Registration Statement and the terms, if any,
regarding the future sale of such Registrable Securities.
5. Anti-Dilution Adjustments.
-------------------------
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification.
(i) Stock Split. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger number of shares (a "Stock Split"), then upon the
effective date thereof, the number of shares of Common Stock which Holder shall
be entitled to purchase upon Exercise of this Warrant shall be increased in
direct proportion to the increase in the number of shares of Common Stock by
reason of such recapitalization, reclassification or similar transaction, and
the Exercise Price shall be proportionally decreased.
(ii) Reverse Stock Split. If the Company shall at any time effect
a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a smaller number of shares (a "Reverse Stock Split"), then upon
the effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon Exercise of this Warrant shall be
proportionately decreased and the Exercise Price shall be proportionally
increased. The Company shall give Holder the same notice it provides to holders
of Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of
5
<PAGE>
indebtedness or other securities or assets which Holder would have been entitled
to receive with respect to each such share of Common Stock as a result of the
happening of such event had this Warrant been exercised immediately prior to the
record date or other date fixing shareholders to be affected by such event (the
"Determination Date") or, in lieu thereof, if the Board of Directors of the
Company should so determine at the time of such distribution, a reduced Exercise
Price determined by multiplying the Exercise Price on the Determination Date by
a fraction, the numerator of which is the result of such Exercise Price reduced
by the value of such distribution applicable to one share of Common Stock (such
value to be determined by the Board of Directors of the Company in its
discretion) and the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exercisable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
--------------------
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to
6
<PAGE>
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon exercise
shall be the next higher number of shares.
7. Reservation of Shares.
---------------------
The Company shall at all times reserve for issuance such number
of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued, fully
paid, nonassessable and not subject to preemptive rights, rights of first
refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
------------------------
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the Exercise of this
Warrant may not be pledged, transferred, sold or assigned except pursuant to an
effective registration statement or unless the Company has received an opinion
from the Company's counsel to the effect that such registration is not required,
or the Holder has furnished to the Company an opinion of the Holder's counsel,
which counsel shall be reasonably satisfactory to the Company, to the effect
that such registration is not required; the transfer complies with any
applicable state securities laws; and, if no registration covering the resale of
the Warrant Shares is effective at the time the Warrant Shares are issued, the
Holder consents to a legend being placed on certificates for the Warrant Shares
stating that the securities have not been registered under the Securities Act
and referring to such restrictions on transferability and sale.
(b) Assignment. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
------------------------
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy or
claim under this
7
<PAGE>
Warrant and this Warrant shall be for the sole and exclusive benefit of the
Company and Holder.
10. Applicable Law.
--------------
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the State of Nevada,
without giving effect to conflict of law provisions thereof. In any dispute the
prevailing party shall be entitled to attorneys fees and all costs, including
the costs of collection.
8
<PAGE>
11. Loss of Warrant.
---------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
-----------------
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the Attention:
Company, Attention: Mark Smith, President , 335 West 9th Street, Suite 100,
Indianapolis, Indiana 46202-3003, phone (317) 633-6656 x113, fax (317) 633-6655,
Notices or demands pursuant to this Warrant to be given or made by the Company
to or on Holder shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, to
the address of Holder set forth in the Company's records, until another address
is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
February 10, 2000.
BROWSESAFE.COM, INC.
By: /S/
-----------------------------------
Mark Smith, President
9
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: BROWSESAFE.COM, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of
BROWSESAFE.COM, INC. a Nevada corporation (the "Company"), evidenced by the
attached warrant (the "Warrant"), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated: _____________
- ------------------------------------------------------------------------
Signature
- -----------------------------------------------------------------------
Print Name
- ------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- ------------------------------------------------------------------------
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of
BROWSESAFE.COM, INC., evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated: _______________
- ------------------------------
Signature
Fill in for new registration of Warrant:
-----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
- ------------------------------------------------------------------------
EXHIBIT 4.5
STOCKHOLDER LOCK-UP AGREEMENT
February 10, 2000.
BROWSESAFE.COM, INC..
335 West 9th Street, Suite 100
Indianapolis, Indiana 46202-3003
Attention: Mark Smith
Ladies and Gentlemen:
Pursuant to the terms of a Letter of Agreement dated as of February 10, 2000
(the "Agreement") between California Applied Research, Inc. (the "undersigned")
and BROWSESAFE.COM, INC. (the "Company"), the undersigned will receive up to
6,000,000 shares of common stock, $0.001 par value per share, of the Company
(the "Shares") that are subject to a Registration Rights Agreement.
In order to induce the Company to enter into the Letter of Agreement, the
undersigned hereby agrees as follows:
1. After registration, the undersigned will not sell, offer to sell,
contract to sell, sell any option or contract for the sale or purchase of, lend,
enter into any swap or other arrangement that transfers to another any of the
economic consequences of ownership of, or otherwise dispose of (collectively,
"transfer") the Shares except as follows: up to 1/3 of the of the shares may be
sold immediately; an additional 1/3 of the shares may be sold within ninety
(90); and the remaining 1/3 of the shares may be sold within one hundred and
eighty (180) days. Notwithstanding the foregoing, however, if the undersigned is
a corporation, partnership or limited liability company, the undersigned shall
not be restricted from distributing any or all of the Shares to its
shareholders, partners or members and the subsequent Transfers of Shares by such
shareholders, partners or members.
2. The undersigned acknowledges that the Company may impose stock
transfer restrictions on the Shares to enforce the provisions of this Agreement.
3. This restriction shall terminate on February 10, 2001.
Very truly yours,
California Applied Research, Inc. (the "Undersigned ")
By: /S/
-----------------------------------
AGREED TO:
BROWSESAFE.COM, INC. (the "Company")
By: /S/
-----------------------------------
Dated as of February 10, 2000.
EXHIBIT 4.6
STOCKHOLDER LOCK-UP AGREEMENT
February 10, 2000.
BROWSESAFE.COM, INC..
335 West 9th Street, Suite 100
Indianapolis, Indiana 46202-3003
Attention: Mark Smith
Ladies and Gentlemen:
Pursuant to the terms of a Letter of Agreement dated as of February 10, 2000
(the "Agreement") between California Applied Research, Inc. (the "undersigned")
and BROWSESAFE.COM, INC. (the "Company"), the undersigned, upon exercise of
warrants, will receive up to 550,000 shares of common stock, $0.001 par value
per share, of the Company (the "Shares") that are subject to a Registration
Rights Agreement.
In order to induce the Company to enter into the Letter of Agreement, the
undersigned hereby agrees as follows:
1. After registration, the undersigned will not sell, offer to sell,
contract to sell, sell any option or contract for the sale or purchase of, lend,
enter into any swap or other arrangement that transfers to another any of the
economic consequences of ownership of, or otherwise dispose of (collectively,
"transfer") the Shares except as follows: up to 1/3 of the shares may be sold
immediately; an additional 1/3 of the shares may be sold within ninety (90); and
the remaining 1/3 of the shares may be sold within one hundred and eighty (180)
days. Notwithstanding the foregoing, however, if the undersigned is a
corporation, partnership or limited liability company, the undersigned shall not
be restricted from distributing any or all of the Shares to its shareholders,
partners or members and the subsequent Transfers of Shares by such shareholders,
partners or members.
2. The undersigned acknowledges that the Company may impose stock
transfer restrictions on the Shares to enforce the provisions of this Agreement.
3. This restriction shall terminate on February 10, 2001.
Very truly yours,
/S/
- ----------------------------------------
Michael Mercier. (the "Undersigned ")
AGREED TO:
BROWSESAFE.COM, INC. (the "Company")
By: /S/
-----------------------------------
Dated as of February 10, 2000.
EXHIBIT 4.7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of February 10, 2000, by and among, BROWSESAFE.COM, INC., a corporation duly
incorporated and existing under the laws of the State of Nevada (the "Company"),
California Applied Research, Inc., a Nevada corporation (hereinafter referred to
as "Purchaser"), and Michael Mercier (hereinafter referred to as "Finder").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to Six
Million (6,000,000) common shares to purchase common shares of the Company
pursuant to that certain Letter of Agreement dated February 10, 2000 herewith
(the "Letter Agreement") between the Company and the Purchaser, the Company has
agreed to sell and the Purchaser has agreed to purchase, as provided in the
Letter Agreement, shares of the Company's Common Stock for a maximum amount of
6,000,000 common shares;
WHEREAS, pursuant to the terms of the Letter Agreement, the Company has
agreed to issue to the Finder up to 550,000 Warrants to purchase a number of
shares of Common Stock, exercisable for five (5) years from their respective
dates of issuance (collectively, the "Finder Warrants" or the "Warrants"); and
WHEREAS, pursuant to the terms of the Letter Agreement, the Company has
agreed to provide the Purchaser and Finder with certain registration rights with
respect to the Common Stock to be issued in the Offering and the Common Stock
issuable upon exercise of the Finder Warrants as set forth in this Registration
Rights Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the Recitals
above), the following terms, not already defined, shall have the following
meanings (such meanings to be equally applicable to both singular and plural
forms of the terms defined):
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Additional Registration Statement" shall have the meaning set forth in
Section 3(b).
"Amended Registration Statement" shall have the meaning set forth in
Section 3(b).
<PAGE>
"Common Stock" shall mean the common stock, par value $0.001, of the
Company.
"Due Date" shall mean the date that is two hundred twenty five (225) days
from the date of this Agreement.
"Effective Date" shall have the meaning set forth in Section 2.4.
"Filing Date" shall mean the date that is one hundred and eighty (180) days
after the date of the Letter of Agreement.
"Holder" shall mean Purchaser and/or Finder, and any other person or entity
owning or having the right to acquire Registrable Securities or any permitted
assignee thereof;
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement becomes ineffective or
unavailable for use for the sale or resale, as applicable, of any or all of the
Registrable Securities for any reason (or in the event the prospectus under
either of the above is not current and deliverable) during any time period
required under the Registration Rights Agreement.
"Piggyback Registration" and "Piggyback Registration Statement" shall have
the meaning set forth in Section 4.
"Register," "Registered," and "Registration" shall mean and refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and pursuant to Rule 415 under the Act or any successor rule, and the
declaration or ordering of effectiveness of such registration statement or
document.
"Registerable Securities" shall have the meaning set forth in Section 2.1.
"Registration Statement" shall have the meaning set forth in Section 2.2. "Rule
144" shall mean Rule 144, as amended, promulgated under the Act. "Supplemental
Registration Statement" shall have the meaning set forth in Section 3(b).
"Warrant Shares" shall mean shares of Common Stock issuable upon exercise
of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities" shall mean
those shares of the Common Stock of the Company together with any capital stock
issued in replacement of, in exchange for or otherwise in respect of such Common
Stock, that are: (i) issuable or issued to the Purchaser pursuant to the Letter
of Agreement or in this Agreement, and (ii) issuable or issued to the Finder
upon exercise of the Finder Warrants; provided, however, that notwithstanding
the above, the following shall not be considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed
to be Registrable Securities, if and to the extent that those shares of Common
Stock may be resold in a public transaction without volume limitations or other
material restrictions without registration under the Act, including without
limitation, pursuant to Rule 144 under the Act; and
(b) any shares of Common Stock which have been
sold in a private transaction in which the transferor's rights under this
Agreement are not assigned.
<PAGE>
2.2 Filing of Initial Registration Statement. The Company shall,
by the Filing Date, file a registration statement ("Registration Statement") on
Form SB-2 (or other suitable form, at the Company's discretion, but subject to
the reasonable approval of Purchaser), covering the resale of a number of shares
of Common Stock as Registrable Securities equal to at least Six Million Five
Hundred and Fifty Thousand (6,550,000) shares of Common Stock and shall cover,
to the extent allowed by applicable law, such indeterminate number of additional
shares of Common Stock that may be issued or become issuable as Registrable
Securities by the Company pursuant to Rule 416 of the Act.
2.3 [Intentionally Left Blank].
2.4 Registration Effective Date. The Company shall use its best
efforts to have the Registration Statement declared effective by the SEC (the
date of such effectiveness is referred to herein as the "Effective Date") by the
Due Date.
2.5 [Intentionally Left Blank].
2.6 [Intentionally Left Blank].
<PAGE>
2.7 Shelf Registration. The Registration Statement shall be
prepared as a "shelf" registration statement under Rule 415, and shall be
maintained effective until all Registrable Securities are resold pursuant to
such Registration Statement, but in no event later than October 10, 2006.
2.8 Supplemental Registration Statement. Anytime the Registration
Statement does not cover a sufficient number of shares of Common Stock to cover
all outstanding Registrable Securities, the Company shall promptly prepare and
file with the SEC such Supplemental Registration Statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
such Registrable Securities and shall use its best efforts to cause such
Supplemental Registration Statement to be declared effective as soon as
possible.
3. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a Registration Statement with respect to such Registrable Securities and
use its best efforts to cause such Registration Statement to become effective
and to remain effective until all Registrable Securities are resold pursuant to
such Registration Statement.
(b) Prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection with such
Registration Statement ("Amended Registration Statement") or prepare and file
any additional registration statement ("Additional Registration Statement,"
together with the Amended Registration Statement, "Supplemental Registration
Statements") as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such Supplemental
Registration Statements or such prior registration statement and to cover the
resale of all Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or Blue Sky
laws of the jurisdictions in which the Holders are located, of such other
jurisdictions as shall be reasonably requested by the Holders of the Registrable
Securities covered by such Registration Statement and of all other jurisdictions
where legally required, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
<PAGE>
(e) [Intentionally Omitted].
(f) As promptly as practicable after becoming aware of such
event, notify each Holder of Registrable Securities of the happening of any
event of which the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Holder as such Holder may reasonably
request.
(g) Provide Holders with notice of the date that a Registration
Statement or any Supplemental Registration Statement registering the resale of
the Registrable Securities is declared effective by the SEC, and the date or
dates when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity and
a reasonable amount of time, based upon reasonable notice delivered by the
Company, to conduct a reasonable due diligence inquiry of Company's pertinent
financial and other records and make available its officers and directors for
questions regarding such information as it relates to information contained in
the Registration Statement.
(i) Provide Holders and their representatives the opportunity to
review the Registration Statement and all amendments or supplements thereto
prior to their filing with the SEC by giving the Holder at least ten (10)
business days advance written prior to such filing.
(j) Provide each Holder with prompt notice of the issuance by the
SEC or any state securities commission or agency of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceeding for such purpose. The Company shall use its best efforts to prevent
the issuance of any stop order and, if any is issued, to obtain the removal
thereof at the earliest possible date.
(k) Use its best efforts to list the Registrable Securities
covered by the Registration Statement with all securities exchanges or markets
on which the Common Stock is then listed and prepare and file any required
filing with the NASD, American Stock Exchange, NYSE and any other exchange or
market on which the Common Stock is listed.
4. Piggyback Registration. If anytime prior to the date that the
Registration Statement is declared effective or during any Ineffective Period
(as defined in the Letter Agreement) the Company proposes to register (including
for this purpose a registration effected by the Company for shareholders other
than the Holders) any of its Common Stock under the Act in connection with the
public offering of such securities solely for cash (other than a registration
relating solely for the sale of securities to participants in a Company stock
plan or a registration on Form S-4 promulgated under the Act or any successor or
similar form registering stock issuable upon a reclassification, upon a
<PAGE>
business combination involving an exchange of securities or upon an exchange
offer for securities of the issuer or another entity), the Company shall, at
such time, promptly give each Holder written notice of such registration (a
"Piggyback Registration Statement"). Upon the written request of each Holder
given by fax within ten (10) days after mailing of such notice by the Company,
the Company shall cause to be included in such registration statement under the
Act all of the Registrable Securities that each such Holder has requested to be
registered ("Piggyback Registration") to the extent such inclusion does not
violate the registration rights of any other security holder of the company
granted prior to the date hereof; provided, however, that nothing herein shall
prevent the Company from withdrawing or abandoning such registration statement
prior to its effectiveness.
5. Limitation on Obligations to Register under a Piggyback Registration.
In the case of a Piggyback Registration pursuant to an underwritten public
offering by the Company, other than a "private equity line," if the managing
underwriter determines and advises in writing that the inclusion in the
registration statement of all Registrable Securities proposed to be included
would interfere with the successful marketing of the securities proposed to be
registered by the Company, then the number of such Registrable Securities to be
included in the Piggyback Registration Statement, to the extent such Registrable
Securities may be included in such Piggyback Registration Statement, shall be
allocated among all Holders who had requested Piggyback Registration pursuant to
the terms hereof, in the proportion that the number of Registrable Securities
which each such Holder seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders. If required by the
managing underwriter of such an underwritten public offering, the Holders shall
enter into a reasonable agreement limiting the number of Registrable Securities
to be included in such Piggyback Registration Statement and the terms, if any,
regarding the future sale of such Registrable Securities.
6. Dispute as to Registrable Securities. In the event the Company
believes that shares sought to be registered under Section 2 or Section 4 by
Holders do not constitute "Registrable Securities" by virtue of Section 2.1 of
this Agreement, and the status of those shares as Registrable Securities is
disputed, the Company shall provide, at its expense, an Opinion of Counsel,
reasonably acceptable to the Holders of the Securities at issue (and
satisfactory to the Company's transfer agent to permit the sale and transfer),
that those securities may be sold immediately, without volume limitation or
other material restrictions, without registration under the Act, by virtue of
Rule 144 or similar provisions.
7. Furnish Information. At the Company's request, each Holder shall
furnish to the Company such information regarding Holder, the Registrable
Securities held by it, and the intended method of disposition of such securities
to the extent required to effect the registration of its Registrable Securities
or to determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act. The Company shall include all information
provided by such Holder pursuant hereto in the Registration Statement,
substantially in the form supplied, except to the extent such information is not
permitted by law.
8. Expenses. All expenses, other than commissions and fees and expenses
of
<PAGE>
counsel to the selling Holders, incurred in connection with registrations,
filings or qualifications pursuant hereto, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
9. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) (i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors, partners,
legal counsel, and accountants of each Holder, any underwriter (as defined in
the Act, or as deemed by the Securities Exchange Commission, or as indicated in
a registration statement) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of Section 15 of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements or
omissions: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, and the Company will reimburse each such Holder, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person; provided however, that the above shall not relieve the
Company from any other liabilities which it might otherwise have.
(ii) To the extent permitted by law, each Holder will indemnify and hold
harmless the Company, its officers, directors, partners, legal counsel, and
accountants, any underwriter (as defined in the Act, or as deemed by the
Securities Exchange Commission, or as indicated in a registration statement) for
the Company and each person, if any, who controls such Company or underwriter
within the meaning of Section 15 of the Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements or omissions made by such Holder: (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained
<PAGE>
therein or any amendments or supplements thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, and such Holder will
reimburse the Company, its officer or director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 9(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of such Holder (which consent shall not be unreasonably withheld), nor
shall such Holder be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Company, its officer, director, underwriter or controlling person; provided
however, that the above shall not relieve such Holder from any other liabilities
which it might otherwise have.
(b) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume, the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.
(c) In the event that the indemnities provided in paragraph (a)
of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree to
contribute to the aggregate claims, losses, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Holders may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and the Holders in connection with the statements
or omissions which resulted in such Losses. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the Holders. The Company and the
Holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation that does
not take account of the equitable
<PAGE>
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person who controls a
Holder of Registrable Securities within the meaning of either the Securities Act
or the Exchange Act and each director, officer, partner, employee and agent of a
Holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act and each director and officer of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (c).
(d) The obligations of the Company and Holders under this Section
9 shall survive the resale, if any, of the Common Stock, the completion of any
offering of Registrable Securities in a Registration Statement under this
Agreement, and otherwise.
10. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144; and
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act.
11. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the written consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed (i) to the Company at the address given below (or at such other
location as directed by the Company in writing) and (ii) to the Holders at their
respective last address given herein or as shown on the records of the Company.
Any notice, except as otherwise provided in this Agreement, shall be made by fax
and shall be deemed given at the time of transmission of the fax.
13. Termination. This Agreement shall terminate on the earlier of (i)
the date all Registrable Securities cease to exist (as that term is defined in
Section 2.1 hereof); or (ii) October 10, 2006; but without prejudice to (i) the
parties' rights and obligations arising from breaches of this Agreement
occurring prior to such termination (ii) other indemnification obligations under
this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by
operation
<PAGE>
of law or otherwise, of any rights or obligations under this Agreement by the
Company or any Holder, respectively, shall be made without the prior written
consent of the majority in interest of the Holders or the Company, respectively;
provided that the rights of a Holder may be transferred to a subsequent holder
of the Holder's Registrable Securities (provided such transferee shall provide
to the Company, together with or prior to such transferee's request to have such
Registrable Securities included in a Registration, a writing executed by such
transferee agreeing to be bound as a Holder by the terms of this Agreement), and
the Company hereby agrees to file an amended registration statement including
such transferee or a selling security holder thereunder; and provided further
that the Company may transfer its rights and obligations under this Agreement to
a purchaser of all or a substantial portion of its business if the obligations
of the Company under this Agreement are assumed in connection with such
transfer, either by merger or other operation of law (which may include without
limitation a transaction whereby the Registrable Securities are converted into
securities of the successor in interest) or by specific assumption executed by
the transferee. In the event of any transfer hereunder, either party may require
an opinion of counsel as to compliance with applicable securities laws.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada applicable to agreements made in
and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
16. Execution in Counterparts Permitted. This Agreement may be executed in
any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
17. Specific Performance. Each party shall be entitled to the remedy of
specific performance in the event of the other party's breach of this Agreement,
the parties agreeing that a remedy at law would be inadequate.
18. Indemnity. Each party shall indemnify each other party against any and
all claims, damages (including reasonable attorney's fees), and expenses arising
out of the first party's breach of any of the terms of this Agreement.
19. Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Letter Agreement, the Common Stock
certificates, and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of February
10, 2000.
COMPANY: BROWSESAFE.COM, INC.
By: /S/
-------------------------------------------
Mark Smith, President
Address:
335 West 9th Street, Suite 100
Indianapolis, Indiana 46202-3003
Telephone
Facsimile
PURCHASER: CALIFORNIA APPLIED RESEARCH, INC.
By: /S/
-------------------------------------------
Edwin Moossaian, President
Address:
1415 East Colorado Blvd, Suite 201
Glendale, CA 91205
FINDER: MICHAEL MERCIER
/S/
- -----------------------------------------------
Address:
4343 Whitsett Avenue, Suite 303
Studio City, CA 91604
EXHIBIT 4.8
BROWSESAFE.COM, INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT
OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED
DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 14th day of March, 2000, by and between
BrowseSafe.com, Inc., a corporation duly organized and existing under the laws
of the State of Nevada (the "Company"), and the undersigned Investor executing
this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's
<PAGE>
Common Stock, as part of an offering of Common Stock by the Company to Investor,
for a maximum aggregate offering amount of Thirty Million Dollars ($30,000,000)
(the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Act, Section 4(2) of the Act, and/or upon such other exemption from the
registration requirements of the Act as may be available with respect to any or
all of the purchases of Common Stock to be made hereunder.
2
<PAGE>
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the recitals
above), the following terms shall have the following meanings (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (i) the same numeric day of the next calendar month
or (ii) the last day of the next calendar month. Each Calendar Month shall end
on the day immediately preceding the beginning of the next succeeding Calendar
Month.
3
<PAGE>
"Cap Amount" shall have the meaning set forth in Section 2.3.10.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the last closing
bid price during Normal Trading of such security in the over-the-counter market
on the electronic bulletin board for such security, or, if no closing bid price
is reported for such security, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved by an investment banking firm
mutually acceptable to the Company and the Investor in this offering and any
fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1,
the form of which is attached hereto as Exhibit U.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.1.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean BrowseSafe.com, Inc., a corporation duly
organized and existing under the laws of the State of Nevada.
"Company Designated Maximum Put Dollar Amount" shall have the meaning
set forth in Section 2.3.1(a).
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<PAGE>
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this
Investment Agreement, that the Company's Common Stock is not listed for and
actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the
Nasdaq National Market, the American Stock Exchange, or the New York Stock
Exchange or is suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance
Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement (each as
defined in the Registration Rights Agreement) becomes ineffective or unavailable
for use for the sale or resale, as applicable, of any or all of the Registrable
Securities (as defined in the Registration Rights Agreement) for any reason (or
in the event the prospectus under
5
<PAGE>
either of the above is not current and deliverable) during any time period
required under the Registration Rights Agreement.
"Initial Exercise Price" shall have the meaning set forth in Section
2.4.1.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(i) a consolidation, merger or other business combination or
event or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
obligations of the Company under this Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have Substantially Similar
Trading Characteristics as the Company if the average daily dollar Trading
Volume of the common stock of such entity is equal to or in excess of $500,000
for the 90th through the 31st day prior to the public announcement of such
transaction;
6
<PAGE>
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender or
exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean Thirty Million Dollars
($30,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"NASD" shall have the meaning set forth in Section 6.9.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00
PM, New York City Time, on any Business Day, and shall expressly exclude "after
hours" trading.
"NYSE" shall have the meaning set forth in Section 6.9.
"Numeric Day" shall mean the numerical day of the month of the
Investment Date or the last day of the calendar month in question, whichever is
less.
"Offering" shall mean the Company's offering of Common Stock and
Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer
of the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment
Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration
Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened under the terms
of this Agreement, the period beginning on the Business Day immediately
following the Put
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<PAGE>
Date and ending on and including the date which is 20 Business Days after such
Put Date.
"Pricing Period End Date" shall mean the last Business Day of any
Pricing Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2,
the form of which is attached hereto as Exhibit D.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth
in Section 2.3.11(c), the form of which is attached hereto as Exhibit S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.11(a), the form of which is attached hereto as Exhibit Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the respective Put Share Prices with respect to such Put Shares,
subject to the limitations herein.
8
<PAGE>
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's
independent counsel, in the form attached as Exhibit I, or such other form as
agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a), the form of which is attached hereto as Exhibit R.
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date herewith,
in the form attached hereto as Exhibit A, or such other form as agreed upon by
the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall mean Regulation D promulgated under the Act.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
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"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.6.
"Share Authorization Increase Approval" shall have the meaning set forth
in Section 5.25.
"Six Month Anniversary" shall mean the date that is the same Numeric Day
of the sixth (6th) calendar month after the Investment Date, and the date that
is the same Numeric Day of each sixth (6th) calendar month thereafter, provided
that if such date is not a Business Day, the next Business Day thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth
in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all of
the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's
Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as Exhibit T, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.11(d).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.11(b).
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"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or its
nominee (as instructed by Investor) and not containing a restrictive legend or
stop transfer order, including but not limited to the Put Shares for the
applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in
Section 3.2.4, attached hereto as Exhibit L.
"Volume Limitations" shall have the meaning set forth in Section
2.3.1(b).
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean Purchase Warrants and Commitment Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
------------------
Subject to the terms and conditions herein and the satisfaction
of the conditions to closing set forth in Sections 2.2 and 2.3 below, Investor
hereby agrees to purchase such amounts of Common Stock and accompanying Warrants
as the Company may, in its sole and absolute discretion, from time to time elect
to issue and sell to Investor according to one or more Puts pursuant to Section
2.3 below.
2.2 Investment Commitment.
---------------------
2.2.1 Investment Commitment Closing. The closing of
this Agreement (the "Investment Commitment Closing") shall be deemed to occur
when this Agreement and the Registration Rights Agreement have been executed by
both Investor and the Company, the Transfer Agent Instructions have been
executed by both the Company and the Transfer Agent, and the other Conditions to
Investor's Obligations set forth in Section 2.2.2 below have been met or waived
in writing by the Investor.
2.2.2 Conditions to Investor's Obligations. As a
prerequisite to the Investment Commitment Closing and the Investor's obligations
hereunder, all of the following (the "Conditions to Investor's Obligations")
shall have been satisfied prior to or concurrently with the Company's execution
and delivery of this Agreement (except that Item (c) below must be satisfied not
later than the Effective Date):
(a) the following documents shall have been delivered to
the Investor: (i) the Registration Rights Agreement
(executed by the Company and Investor), (ii) the
Investment Commitment Opinion of Counsel (signed by the
Company's counsel), (iii) the Transfer Agent
Instructions (executed by the Company and the Transfer
Agent), and (iv) a Secretary's Certificate as to (A)
the resolutions of the
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Company's board of directors
authorizing this transaction, (B) the Company's
Certificate of Incorporation, and (C) the Company's
Bylaws;
(b) this Investment Agreement, accepted by the Company,
shall have been received by the Investor;
(c) the Company's Common Stock shall be listed for trading
and actually trading on the O.T.C. Bulletin Board, the
Nasdaq Small Cap Market, the Nasdaq National Market,
the American Stock Exchange or the New York Stock
Exchange;
(d) other than continuing losses described in the Risk
Factors set forth in the Disclosure Documents (provided
for in Section 3.2.4), as of the Closing there have
been no material adverse changes in the Company's
business prospects or financial condition since the
date of the last balance sheet included in the
Disclosure Documents, including but not limited to
incurring material liabilities; and
(e) the representations and warranties of the Company in
this Agreement shall be true and correct in all
material respects and the conditions to Investor's
obligations set forth in this Section 2.2.2 shall have
been satisfied as of such Closing; and the Company
shall deliver an Officer's Certificate, signed by an
officer of the Company, to such effect to the Investor.
2.3 Puts of Common Shares to the Investor.
--------------------------------------
2.3.1 Procedure to Exercise a Put. Subject to the
Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if
applicable), and the other conditions and limitations set forth in this
Agreement, at any time beginning on the date on which the Registration Statement
is declared effective by the SEC (the "Effective Date"), the Company may, in its
sole and absolute discretion, elect to exercise one or more Puts according to
the following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than five (5) Business Days following the preceding
Pricing Period End Date:
(a) Delivery of Advance Put Notice. At least ten
(10) Business Days but not more than twenty (20) Business Days prior to any
intended Put Date (unless otherwise agreed in writing by the Investor), the
Company shall deliver advance written notice (the "Advance Put Notice," the form
of which is attached hereto as Exhibit E, the date of such Advance Put Notice
being the "Advance Put Notice Date") to Investor stating the Put Date for which
the Company shall, subject to the limitations and restrictions contained herein,
exercise a Put and stating the number of shares of Common Stock (subject to the
Individual Put Limit and the Maximum Put Dollar Amount) which the Company
intends to sell to the Investor for the Put (the "Intended Put Share Amount").
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The Company may, at its option, also designate in any Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $2,000,000, which it
shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which the
Investor may purchase Shares pursuant to such Put Notice (a "Company Designated
Minimum Put Share Price"). The Company Designated Minimum Put Share Price, if
applicable, shall be no greater than 80% of the Closing Bid Price of the
Company's common stock on the Advance Put Notice Date. The Company may decrease
(but not increase) the Company Designated Minimum Put Share Price for a Put at
any time by giving the Investor written notice of such decrease not later than
12:00 Noon, New York City time, on the Business Day immediately preceding the
Business Day that such decrease is to take effect. A decrease in the Company
Designated Minimum Put Share Price shall have no retroactive effect on the
determination of Trigger Prices and Excluded Days for days preceding the
Business Day that such decrease takes effect.
Notwithstanding the above, if, at the time of delivery of an Advance Put
Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing, such Advance Put Notice shall provide at least twenty (20)
Business Days notice of the intended Put Date, unless waived in writing by the
Investor. In order to effect delivery of the Advance Put Notice, the Company
shall (i) send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on such date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing outside of
the U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Advance Put Notice Confirmation," the form of
which is attached hereto as Exhibit F) of the Advance Put Notice to the Company
specifying that the Advance Put Notice has been received and affirming the
intended Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount" is
the number of shares of Common Stock that the Investor shall be obligated to
purchase in a given Put, and shall equal the lesser of (i) the Intended Put
Share Amount, and (ii) the Individual Put Limit. The "Individual Put Limit"
shall equal the lesser of (i) 15% of the sum of the aggregate daily reported
Trading Volumes in the outstanding Common Stock on the Company's Principal
Market, excluding any block trades equal to or greater than the Maximum Block
Trade Size, for all Evaluation Days (as defined below) in the Pricing Period,
(ii) the number of Put Shares which, when multiplied by their respective Put
Share Prices, equals the Maximum Put Dollar Amount, and (iii) the 9.9%
Limitation, but in no event shall the Individual Put Limit exceed 15% of the sum
of the aggregate daily reported Trading Volumes in the outstanding Common Stock
on the Company's Principal Market, excluding any block trades equal to or
greater than the Maximum Block Trade Size for the twenty (20) Business Days
immediately preceding the Put Date (this limitation, together with the
limitation in (i) immediately above, are collectively referred to herein as the
"Volume Limitations"). Company agrees not to trade Common Stock or arrange for
Common Stock to be traded for the purpose of artificially increasing the Volume
Limitations.
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For purposes of this Agreement:
"Maximum Block Trade Size" shall mean 20,000 shares of Common
Stock, if the Company is not listed and trading on the Nasdaq Small Cap Market
or the Nasdaq National Market at the time of the applicable block trade, and
shall mean 30,000 shares of Common Stock, if the Company is listed and trading
on the Nasdaq Small Cap Market or the Nasdaq National Market at the time of the
applicable block trade.
"Trigger Price" for any Pricing Period shall mean the greater of
(i) the Company Designated Minimum Put Share Price, plus $.05, or (ii) the
Company Designated Minimum Put Share Price divided by .92.
An "Excluded Day" shall mean each Business Day during a Pricing
Period where the lowest intra-day trading price of the Common Stock is less than
the Trigger Price.
An "Evaluation Day" shall mean each Business Day during a Pricing
Period that is not an Excluded Day.
(c) Put Share Price. The purchase price for the
Put Shares (the "Put Share Price") shall equal the lesser of (i) the Market
Price for such Put, minus $.05, or (ii) 92% of the Market Price for such Put,
but shall in no event be less than the Company Designated Minimum Put Share
Price for such Put, if applicable.
(d) Delivery of Put Notice. After delivery
of an Advance Put Notice, on the Put Date specified in the Advance Put Notice
the Company shall deliver written notice (the "Put Notice," the form of which is
attached hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the
Intended Put Share Amount as specified in the Advance Put Notice (such exercise
a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company shall
(i) send the Put Notice by facsimile on the Put Date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on the Put Date to a courier for overnight delivery to the Investor
(or two (2) day delivery in the case of an Investor residing outside of the
U.S.). Upon receipt by the Investor of a facsimile copy of the Put Notice, the
Investor shall, within two (2) Business Days,
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send, via facsimile, a confirmation of receipt (the "Put Notice Confirmation,"
the form of which is attached hereto as Exhibit H) of the Put Notice to Company
specifying that the Put Notice has been received and affirming the Put Date and
the Intended Put Share Amount.
(e) Delivery of Required Put Documents. On or before the Put Date for such
Put, the Company shall deliver the Required Put Documents (as defined in Section
2.3.5 below) to the Investor (or to an agent of Investor, if Investor so
directs). Unless otherwise specified by the Investor, the Put Shares of Common
Stock shall be transmitted electronically pursuant to such electronic delivery
system as the Investor shall request; otherwise delivery shall be by physical
certificates. If the Company has not delivered all of the Required Put Documents
to the Investor on or before the Put Date, the Put shall be automatically
cancelled, unless the Investor agrees to delay the Put Date by up to three (3)
Business Days, in which case the Pricing Period begins on the Business Day
following such new Put Date. If the Company has not delivered all of the
Required Put Documents to the Investor on or before the Put Date (or new Put
Date, if applicable), and the Investor has not agreed in writing to delay the
Put Date, the Put is automatically canceled (an "Impermissible Put
Cancellation") and, unless the Put was otherwise canceled in accordance with the
terms of Section 2.3.11, the Company shall pay the Investor $5,000 for its
reasonable due diligence expenses incurred in preparation for the canceled Put
and the Company may deliver an Advance Put Notice for the subsequent Put no
sooner than ten (10) Business Days after the date that such Put was canceled,
unless otherwise agreed by the Investor.
(f) Limitation on Investor's Obligation to Purchase Shares. Notwithstanding
anything to the contrary in this Agreement, in no event shall the Investor be
required to purchase, and an Intended Put Share Amount may not include, an
amount of Put Shares, which when added to the number of Put Shares acquired by
the Investor pursuant to this Agreement during the 31 days preceding the Put
Date with respect to which this determination of the permitted Intended Put
Share Amount is being made, would exceed 9.99% of the number of shares of Common
Stock outstanding (on a fully diluted basis, to the extent that inclusion of
unissued shares is mandated by Section 13(d) of the Exchange Act) on the Put
Date for such Pricing Period, as determined in accordance with Section 13(d) of
the Exchange Act (the "Section 13(d) Outstanding Share Amount"). Each Put Notice
shall include a representation of the Company as to the Section 13(d)
Outstanding Share Amount on the related Put Date. In the event that the Section
13(d) Outstanding Share Amount is different on any date during a Pricing Period
than on the Put Date associated with such Pricing Period, then the number of
shares of Common Stock outstanding on such date during such Pricing Period shall
govern for purposes of determining whether the Investor, when aggregating all
purchases of Shares made pursuant to this Agreement in the 31 calendar days
preceding such date, would have acquired more than 9.99% of the Section 13(d)
Outstanding Share Amount. The limitation set forth in this Section 2.3.1(f) is
referred to as the "9.9% Limitation."
2.3.2 Termination of Right to Put. The Company's right to require the
Investor to purchase any subsequent Put Shares shall terminate permanently
(each, an "Automatic Termination") upon the occurrence of any of the following:
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(a) the Company shall not exercise a Put or any Put thereafter if, at any
time, either the Company or any director or executive officer of the Company has
engaged in a transaction or conduct related to the Company that has resulted in
(i) a Securities and Exchange Commission enforcement action, or (ii) a civil
judgment or criminal conviction for fraud or misrepresentation, or for any other
offense that, if prosecuted criminally, would constitute a felony under
applicable law;
(b) the Company shall not exercise a Put or any Put thereafter, on any date
after a cumulative time period or series of time periods occurring after the
initial Effective Date, including both Ineffective Periods and Delisting Events,
that lasts for an aggregate of four (4) months; provided, however the Delisting
Event described in Section 2.2.2(c) shall not count towards the aggregate four
month period;
(c) the Company shall not exercise a Put or any Put thereafter if at any
time the Company has filed for and/or is subject to any bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors instituted by or against
the Company or any subsidiary of the Company;
(d) the Company shall not exercise a Put after the sooner of (i) the date
that is three (3) years after the Effective Date, or (ii) the Put Closing Date
on which the aggregate of the Put Dollar Amounts for all Puts equal the Maximum
Offering Amount; and
(e) the Company shall not exercise a Put after the Company has breached any
covenant in Section 2.6, Section 6, or Section 9 hereof.
(f) if no Registration Statement has been declared effective by the date
that is one (1) year after the date of this Agreement, the Automatic Termination
shall occur on the date that is one (1) year after the date of this Agreement.
2.3.3 Put Limitations. The Company's right to exercise a Put shall be
limited as follows:
(a) notwithstanding the amount of any Put, the Investor shall not be
obligated to purchase any additional Put Shares once the aggregate Put Dollar
Amount paid by Investor equals the Maximum Offering Amount;
(b) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has announced a subdivision
or combination, including a reverse split, of its Common Stock or has subdivided
or combined its Common Stock during the Extended Put Period;
(c) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has paid a dividend of its
Common Stock or has made any other distribution of its Common Stock during the
Extended Put Period;
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(d) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has made, during the
Extended Put Period, a distribution of all or any portion of its assets or
evidences of indebtedness to the holders of its Common Stock;
(e) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which a Major Transaction has occurred during
the Extended Put Period.
2.3.4 Conditions Precedent to the Right of the Company to Deliver an
Advance Put Notice or a Put Notice and the Obligation of the Investor to
Purchase Put Shares. The right of the Company to deliver an Advance Put Notice
or a Put Notice and the obligation of the Investor hereunder to acquire and pay
for the Put Shares incident to a Closing is subject to the satisfaction, on (i)
the date of delivery of such Advance Put Notice or Put Notice and (ii) the
applicable Put Closing Date, of each of the following conditions:
(a) the Company's Common Stock shall be listed for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap
Market, the Nasdaq National Market or the New York Stock
Exchange and the Put Shares shall be so listed, and to the
Company's knowledge there is no notice of any suspension or
delisting with respect to the trading of the shares of
Common Stock on such market or exchange;
(b) the Company shall have satisfied any and all obligations
pursuant to the Registration Rights Agreement, including,
but not limited to, the filing of the Registration Statement
with the SEC with respect to the resale of all Registrable
Securities and the requirement that the Registration
Statement shall have been declared effective by the SEC for
the resale of all Registrable Securities and the Company
shall have satisfied and shall be in compliance with any and
all obligations pursuant to this Agreement and the Warrants;
(c) the representations and warranties of the Company are true
and correct in all material respects as if made on such date
and the conditions to Investor's obligations set forth in
this Section 2.3.4 are satisfied as of such Closing, and the
Company shall deliver a certificate, signed by an officer of
the Company, to such effect to the Investor;
(d) the Company shall have reserved for issuance a sufficient
number of Common Shares for the purpose of enabling the
Company to satisfy any obligation to issue Common Shares
pursuant to any Put and to effect exercise of the Warrants;
(e) the Registration Statement is not subject to an Ineffective
Period as defined in the Registration Rights Agreement, the
prospectus included therein is current and deliverable, and
to the Company's
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knowledge there is no notice of any investigation or inquiry
concerning any stop order with respect to the Registration
Statement; and
(f) if the Aggregate Issued Shares after the Closing of the Put
would exceed the Cap Amount, the Company shall have obtained
the Stockholder 20% Approval as specified in Section 6.11,
if the Company's Common Stock is listed on the NASDAQ Small
Cap Market or NMS, and such approval is required by the
rules of the NASDAQ.
2.3.5 Documents Required to be Delivered on the Put Date as Conditions to
Closing of any Put. The Closing of any Put and Investor's obligations hereunder
shall additionally be conditioned upon the delivery to the Investor of each of
the following (the "Required Put Documents") on or before the applicable Put
Date:
(a) a number of Unlegended Share Certificates (or freely tradeable
electronically delivered shares, as appropriate) equal to the Intended Put Share
Amount, in denominations of not more than 50,000 shares per certificate;
(b) the following documents: Put Opinion of Counsel, Officer's Certificate,
Put Notice, Registration Opinion, and any report or disclosure required under
Section 2.3.6 or Section 2.5;
(c) all documents, instruments and other writings required to be delivered
on or before the Put Date pursuant to any provision of this Agreement in order
to implement and effect the transactions contemplated herein.
2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the Investor, (i)
whenever required by Section 2.3.6(b) or by Section 2.5.3, and (ii) on the date
that is three (3) Business Days prior to each Put Date (the "Registration
Opinion Deadline"), an opinion of the Company's independent counsel, in
substantially the form of Exhibit R (the "Registration Opinion"), addressed to
the Investor stating, inter alia, that no facts ("Material Facts") have come to
such counsel's attention that have caused it to believe that the Registration
Statement is subject to an Ineffective Period or to believe that the
Registration Statement, any Supplemental Registration Statement (as each may be
amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration Statements,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to
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Investor but before the related Pricing Period End Date, the Company acquires
knowledge of such Material Facts or any Ineffective Period occurs, the Company
shall promptly notify the Investor and shall deliver a Put Cancellation Notice
to the Investor pursuant to Section 2.3.11 by facsimile and overnight courier by
the end of that Business Day.
(b) (i) the Company shall engage its independent auditors to perform the
procedures in accordance with the provisions of Statement on Auditing Standards
No. 71, as amended, as agreed to by the parties hereto, and reports thereon (the
"Bring Down Cold Comfort Letters") as shall have been reasonably requested by
the Investor with respect to certain financial information contained in the
Registration Statement and shall have delivered to the Investor such a report
addressed to the Investor, on the date that is three (3) Business Days prior to
each Put Date.
(ii) in the event that the Investor shall have requested delivery of an
Agreed Upon Procedures Report pursuant to Section 2.5.3, the Company shall
engage its independent auditors to perform certain agreed upon procedures and
report thereon as shall have been reasonably requested by the Investor with
respect to certain financial information of the Company and the Company shall
deliver to the Investor a copy of such report addressed to the Investor. In the
event that the report required by this Section 2.3.6(b) cannot be delivered by
the Company's independent auditors, the Company shall, if necessary, promptly
revise the Registration Statement and the Company shall not deliver a Put Notice
until such report is delivered.
2.3.7 Investor's Obligation and Right to Purchase Shares. Subject to the
conditions set forth in this Agreement, following the Investor's receipt of a
validly delivered Put Notice, the Investor shall be required to purchase (each a
"Purchase") from the Company a number of Put Shares equal to the Put Share
Amount, in the manner described below.
2.3.8 Mechanics of Put Closing. Each of the Company and the Investor shall
deliver all documents, instruments and writings required to be delivered by
either of them pursuant to this Agreement at or prior to each Closing. Subject
to such delivery and the satisfaction of the conditions set forth in Sections
2.3.4 and 2.3.5, the closing of the purchase by the Investor of Shares shall
occur by 5:00 PM, New York City Time, on the date which is five (5) Business
Days following the applicable Pricing Period End Date (or such other time or
later date as is mutually agreed to by the Company and the Investor) (the
"Payment Due Date") at the offices of Investor. On each or before each Payment
Due Date, the Investor shall deliver to the Company, in the manner specified in
Section 8 below, the Put Dollar Amount to be paid for such Put Shares,
determined as aforesaid. The closing (each a "Put Closing") for each Put shall
occur on the date that both (i) the Company has delivered to the Investor all
Required Put Documents, and (ii) the Investor has delivered to the Company such
Put Dollar Amount and any Late Payment Amount, if applicable (each a "Put
Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for
such Put Closing on or before the Payment Due Date, then the Investor shall pay
to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar
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Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.9 Limitation on Short Sales. The Investor and its Affiliates shall not
engage in short sales of the Company's Common Stock; provided, however, that the
Investor may enter into any short exempt sale or any short sale or other hedging
or similar arrangement it deems appropriate with respect to Put Shares after it
receives a Put Notice with respect to such Put Shares so long as such sales or
arrangements do not involve more than the number of such Put Shares specified in
the Put Notice.
2.3.10 Cap Amount. If the Company becomes listed on the Nasdaq Small Cap
Market or the Nasdaq National Market, then, unless the Company has obtained
Stockholder 20% Approval as set forth in Section 6.11 or unless otherwise
permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the
maximum number of shares of Common Stock (the "Cap Amount") that the Company
can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
2.3.11 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time during a
Pricing Period the Company discovers the existence of Material Facts or any
Ineffective Period or Delisting Event occurs, the Company shall cancel the Put
(a "Put Cancellation"), by delivering written notice to the Investor (the "Put
Cancellation Notice"), attached as Exhibit Q, by facsimile and overnight
courier. The "Put Cancellation Date" shall be the date that the Put Cancellation
Notice is first received by the Investor, if such notice is received by the
Investor by 6:00 p.m., New York, NY time, and shall be the following date, if
such notice is received by the Investor after 6:00 p.m., New York, NY time.
(b) Effect of Put Cancellation. Anytime a Put Cancellation
Notice is delivered to Investor after the Put Date, the Put, shall remain
effective with respect to a number of Put Shares (the "Truncated Put Share
Amount") equal to the Individual Put Limit for the Truncated Pricing Period.
(c) Put Cancellation Notice Confirmation. Upon receipt by
the Investor of a facsimile copy of the Put Cancellation Notice, the Investor
shall promptly send, via facsimile, a confirmation of receipt (the "Put
Cancellation Notice Confirmation," a form of which is attached as Exhibit S) of
the Put Cancellation Notice to the Company specifying that the Put Cancellation
Notice has been received and affirming the Put Cancellation Date.
(d) Truncated Pricing Period. If a Put Cancellation Notice has been
delivered to the Investor after the Put Date, the Pricing Period for such Put
shall end at on the close of trading on the last full trading day on the
Principal Market that ends
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prior to the moment of initial delivery of the Put Cancellation Notice (a
"Truncated Pricing Period") to the Investor.
2.3.12 Investment Agreement Cancellation. The Company may terminate (a
"Company Termination") its right to initiate future Puts by providing written
notice ("Termination Notice") to the Investor, by facsimile and overnight
courier, at any time other than during an Extended Put Period, provided that
such termination shall have no effect on the parties' other rights and
obligations under this Agreement, the Registration Rights Agreement or the
Warrants. Notwithstanding the above, any cancellation occurring during an
Extended Put Period is governed by Section 2.3.11.
2.3.13 Return of Excess Common Shares. In the event that the number of
Shares purchased by the Investor pursuant to its obligations hereunder is less
than the Intended Put Share Amount, the Investor shall promptly return to the
Company any shares of Common Stock in the Investor's possession that are not
being purchased by the Investor.
2.4 Warrants.
2.4.1 Commitment Warrants. In partial consideration hereof, following the
execution of the Letter of Agreement dated on or about January 26, 2000 by and
between the Company and the Investor, the Company issued and delivered to
Investor or its designated assignees, warrants (the "Commitment Warrants") in
the form attached hereto as Exhibit U, or such other form as agreed upon by the
parties, to purchase 570,000 shares of Common Stock. The Commitment Warrants
shall be exerciseable at a price (the "Commitment Warrant Exercise Price") which
shall initially equal the lowest Closing Bid Price for the five (5) Business
Days immediately preceding January 26, 2000 ("Initial Exercise Price"), or, if
lower, the lowest Closing Bid Price for the five (5) Business Days immediately
preceding the date of execution by the Company of this Investment Agreement, and
shall have reset provisions. Each Commitment Warrant shall be exercisable at the
times set forth in the Commitment Warrant, at a price equal to the Commitment
Warrant Exercise Price, as may be reset from time to time, and shall have a term
beginning on the date of issuance and ending on date that is five (5) years
thereafter. The Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement. Concurrently with the issuance and delivery of
the Commitment Opinion to the Investor, or on the date that is six (6) months
after the date of this Agreement, whichever is sooner, the Company shall deliver
to the Investor an opinion of counsel, in substantially the form of the
Commitment Opinion of Counsel (signed by the Company's independent counsel),
covering the issuance of the Commitment Warrant and the issuance of the common
stock upon exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this Agreement,
the Investor shall retain full ownership of the Commitment Warrant as partial
consideration for its commitment hereunder.
2.4.2 Purchase Warrants. Within five (5) Business Days of the end of each
Pricing Period, the Company shall issue and deliver to the Investor a warrant
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("Purchase Warrant"), in the form attached hereto as Exhibit D, or such other
form as agreed upon by the parties, to purchase a number of shares of Common
Stock equal to 10% of the Put Share Amount for that Put. Each Purchase Warrant
shall be exerciseable at a price (the "Purchase Warrant Exercise Price") which
shall initially equal 110% of the Market Price for the applicable Put, and shall
have semi-annual reset provisions. Each Purchase Warrant shall be immediately
exercisable at the Purchase Warrant Exercise Price, and shall have a term
beginning on the date of issuance and ending on the date that is five (5) years
thereafter. The Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement.
2.5 Due Diligence Review. The Company shall make available for inspection
and review by the Investor (the "Due Diligence Review"), advisors to and
representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The Company shall not disclose
nonpublic information to the Investor or to its advisors or representatives
unless prior to disclosure of such information the Company identifies such
information as being nonpublic information and provides the Investor and such
advisors and representatives with the opportunity to accept or refuse to accept
such nonpublic information for review. The Company may, as a condition to
disclosing any nonpublic information hereunder, require the Investor and its
advisors and representatives to enter into a confidentiality agreement
(including an agreement with such advisors and representatives prohibiting them
from trading in Common Stock during such period of time as they are in
possession of nonpublic information) in form reasonably satisfactory to the
Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate nonpublic information to any investors who purchase
stock in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
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nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and such persons or entities),
which, if not disclosed in the Prospectus included in the Registration
Statement, would cause such Prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 2.5 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.5.2 Disclosure of Misstatements and Omissions. The Investor's advisors or
representatives shall make complete disclosure to the Investor's counsel of all
events or circumstances constituting nonpublic information discovered by such
advisors or representatives in the course of their due diligence upon which such
advisors or representatives form the opinion that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in the light of the circumstances in which they
were made, not misleading. Upon receipt of such disclosure, the Investor's
counsel shall consult with the Company's independent counsel in order to address
the concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto; provided, however,
that such consultation shall not constitute the advice of the Company's
independent counsel to the Investor as to the accuracy of the Registration
Statement and related Prospectus.
2.5.3 Procedure if Material Facts are Reasonably Believed to be Untrue or
are Omitted. In the event after such consultation the Investor or the Investor's
counsel reasonably believes that the Registration Statement contains an untrue
statement or a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(a) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such material misstatement
or omission, (i) the Company's independent counsel shall provide the Investor's
counsel with a Registration Opinion and (ii) in the event the dispute relates to
the adequacy of financial disclosure and the Investor shall reasonably request,
the Company's independent auditors shall provide to the Company a letter
("Agreed Upon Procedures Report") outlining the performance of such "agreed upon
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procedures" as shall be reasonably requested by the Investor and the Company
shall provide the Investor with a copy of such letter.
2.6 Commitment Payments.
On the last Business Day of each six (6) Calendar Month period following
the Effective Date (each such period a "Commitment Evaluation Period"), if the
Company has not Put at least $500,000 in aggregate Put Dollar Amount during that
Commitment Evaluation Period, the Company, in consideration of Investor's
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Semi-Annual Non-Usage Fee ") equal to the
difference of (i) $50,000, minus (ii) 10% of the aggregate Put Dollar Amount of
the Put Shares put to Investor during that Commitment Evaluation Period. In the
event that the Company delivers a Termination Notice to the Investor or an
Automatic Termination occurs, the Company shall pay to the Investor (the
"Termination Fee") the greater of (i) the Semi-Annual Non-Usage Fee for the
applicable Commitment Evaluation Period, or (ii) the difference of (x) $100,000,
minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares put to
Investor during all Puts to date, and the Company shall not be required to pay
the Semi-Annual Non-Usage Fee thereafter.
Each Semi Annual Non-Usage Fee or Termination Fee is payable, in cash,
within five (5) business days of the date it accrued. The Company shall not be
required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor hereby
represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor ("Accredited
Investor"), as defined in Rule 501 of Regulation D, and has checked the
applicable box set forth in Section 10 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Investor or Investor's professional advisor
has been granted the opportunity to ask questions of and receive answers from
representatives of the Company, its officers, directors, employees and agents
concerning the terms and conditions of this Offering, the Company and its
business and prospects, and to obtain any additional information which Investor
or Investor's professional advisor deems necessary to verify the accuracy and
completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied completely on the
advice of, or has consulted with, Investor's own personal tax, investment, legal
or other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any of the foregoing, within the meaning
of Section 15 of the Act for
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any tax or legal advice (other than reliance on information in the Disclosure
Documents as defined in Section 3.2.4 below and on the Opinion of Counsel). The
foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and experience in
financial and business matters so as to enable such Investor to utilize the
information made available to it in connection with the Offering in order to
evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's investment
decision to subscribe for the Investment Agreement hereunder, represents that
(a) Investor has received and had an opportunity to review (i) the Company's
Form 10-SB as filed on November 24, 1999, as amended, (ii) the Risk Factors,
attached as Exhibit J, (the "Risk Factors") (iii) the Capitalization Schedule,
attached as Exhibit K, (the "Capitalization Schedule") and (iv) the Use of
Proceeds Schedule, attached as Exhibit L, (the "Use of Proceeds Schedule"); (b)
Investor has read, reviewed, and relied solely on the documents described in (a)
above, the Company's representations and warranties and other information in
this Agreement, including the exhibits, documents prepared by the Company which
have been specifically provided to Investor in connection with this Offering
(the documents described in this Section 3.2.4 (a) and (b) are collectively
referred to as the "Disclosure Documents"), and an independent investigation
made by Investor and Investor's representatives, if any; (c) Investor has, prior
to the date of this Agreement, been given an opportunity to review material
contracts and documents of the Company which have been filed as exhibits to the
Company's filings under the Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and has had an opportunity to ask questions of and
receive answers from the Company's officers and directors; and (d) is not
relying on any oral representation of the Company or any other person, nor any
written representation or assurance from the Company other than those contained
in the Disclosure Documents or incorporated herein or therein. The foregoing,
however, does not limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in Sections 5 and 6 of this
Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has substantial
experience in investing in securities and it has made investments in securities
other than those of the Company. Investor acknowledges that Investor is able to
fend for Investor's self in the transaction contemplated by this Agreement, that
Investor has the ability to bear the economic risk of Investor's investment
pursuant to this Agreement and that Investor is an "Accredited Investor" by
virtue of the fact that Investor meets the investor qualification standards set
forth in Section 3.1 above. Investor has not been organized for the purpose of
investing in securities of the Company, although such investment is consistent
with Investor's purposes.
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3.3 Exempt Offering Under Regulation D.
3.3.1 No General Solicitation. The Investment Agreement was not offered to
Investor through, and Investor is not aware of, any form of general solicitation
or general advertising, including, without limitation, (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, and (ii) any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising.
3.3.2 Restricted Securities. Investor understands that the Investment
Agreement is, the Common Stock and Warrants issued at each Put Closing will be,
and the Warrant Shares will be, characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction exempt from the registration requirements of the federal
securities laws and that under such laws and applicable regulations such
securities may not be transferred or resold without registration under the Act
or pursuant to an exemption therefrom. In this connection, Investor represents
that Investor is familiar with Rule 144 under the Act, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
3.3.3 Disposition. Without in any way limiting the representations set
forth above, Investor agrees that until the Securities are sold pursuant to an
effective Registration Statement or an exemption from registration, they will
remain in the name of Investor and will not be transferred to or assigned to any
broker, dealer or depositary. Investor further agrees not to sell, transfer,
assign, or pledge the Securities (except for any bona fide pledge arrangement to
the extent that such pledge does not require registration under the Act or
unless an exemption from such registration is available and provided further
that if such pledge is realized upon, any transfer to the pledgee shall comply
with the requirements set forth herein), or to otherwise dispose of all or any
portion of the Securities unless and until:
(a) There is then in effect a registration statement under the Act and any
applicable state securities laws covering such proposed disposition and such
disposition is made in accordance with such registration statement and in
compliance with applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition to the extent relevant for
determination of the availability of an exemption from registration, and (ii) if
reasonably requested by the Company, Investor shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of the Securities under the Act or
state securities laws. It is agreed that the Company will not require the
Investor to provide opinions of counsel for transactions made pursuant to Rule
144 provided that Investor and Investor's broker, if necessary, provide the
Company with the necessary representations for counsel to the Company to issue
an opinion with respect to such transaction.
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The Investor is entering into this Agreement for its own account
and the Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity; provided,
however, that by making the representations herein, the Investor does not agree
to hold the Common Stock for any minimum or other specific term and reserves the
right to dispose of the Common Stock at any time in accordance with federal and
state securities laws applicable to such disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this Investment Agreement, if
executing this Agreement in a representative or fiduciary capacity, has full
power and authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which Investor is executing this Agreement. Investor
has reached the age of majority (if an individual) according to the laws of the
state in which he or she resides.
3.4.2 Due Authorization. Investor is duly and validly organized, validly
existing and in good standing as a limited liability company under the laws of
Georgia with full power and authority to purchase the Securities to be purchased
by Investor and to execute and deliver this Agreement.
3.4.3 Partnerships. If Investor is a partnership, the representations,
warranties, agreements and understandings set forth above are true with respect
to all partners of Investor (and if any such partner is itself a partnership,
all persons holding an interest in such partnership, directly or indirectly,
including through one or more partnerships), and the person executing this
Agreement has made due inquiry to determine the truthfulness of the
representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a representative or
fiduciary capacity, the representations and warranties shall be deemed to have
been made on behalf of the person or persons for whom Investor is so purchasing.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in the
Company involves substantial risks, including the potential loss of Investor's
entire investment herein. Investor recognizes that the Disclosure Documents,
this Agreement and the exhibits hereto do not purport to contain all the
information, which would be contained in a registration statement under the Act;
4.2 No Government Approval. No federal or state agency has passed upon the
Securities, recommended or endorsed the Offering, or made any finding or
determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of this
Agreement, the Securities and any component thereof have not been registered
under the
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Act or any applicable state securities laws by reason of exemptions
from the registration requirements of the Act and such laws, and may not be
sold, pledged (except for any limited pledge in connection with a margin account
of Investor to the extent that such pledge does not require registration under
the Act or unless an exemption from such registration is available and provided
further that if such pledge is realized upon, any transfer to the pledgee shall
comply with the requirements set forth herein), assigned or otherwise disposed
of in the absence of an effective registration of the Securities and any
component thereof under the Act or unless an exemption from such registration is
available;
4.4 Restrictions on Transfer. Investor may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that
any registration statement will become effective at the scheduled time, or ever,
or remain effective when required, and Investor acknowledges that it may be
required to bear the economic risk of Investor's investment for an indefinite
period of time;
4.6 Exempt Transaction. Investor understands that the Securities
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the representations,
warranties, agreements, acknowledgments and understandings set forth herein are
being relied upon by the Company in determining the applicability of such
exemptions and the suitability of Investor to acquire such Securities.
4.7 Legends. The certificates representing the Put Shares shall
not bear a Restrictive Legend. The certificates representing the Warrant Shares
shall not bear a Restrictive Legend unless they are issued at a time when the
Registration Statement is not effective for resale. It is understood that the
certificates evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to legend removal
under the terms of Section 6.8 below, shall bear the following legend (the
"Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other jurisdiction. They may not be sold
or transferred in the absence of an effective registration statement
under those securities laws or pursuant to an exemption therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as Exhibit C:
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5.1 Organization, Good Standing, and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative or
legal proceeding (a "Proceeding") by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the Securities and Exchange
Commission, The National Association of Securities Dealer, Inc., The Nasdaq
Stock Market, Inc. or any state securities commission, or any other governmental
entity, which have not been disclosed in the Disclosure Documents. None of the
disclosed Proceedings, if any, will have a material adverse effect upon the
Company or the market for the Common Stock. The Company has the following
subsidiaries:
5.2 Corporate Condition. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except for
changes in the ordinary course of business and normal year-end adjustments that
are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the Company's
business, financial condition, or prospects since the dates of such Disclosure
Documents. The financial statements as contained in the Form 10-SB have been
prepared in accordance with generally accepted accounting principles,
consistently applied (except as otherwise permitted by Regulation S-B of the
Exchange Act), subject, in the case of unaudited interim financial statements,
to customary year end adjustments and the absence of certain footnotes, and
fairly present the financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended. Without limiting the foregoing, there
are no material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes that are due, except for taxes that it reasonably disputes. Except as
described on Exhibit C, there is no material claim, litigation, or
administrative proceeding pending or, to the best of the Company's knowledge,
threatened against the Company, except as disclosed in the Disclosure Documents.
This Agreement and the Disclosure Documents do not contain any untrue statement
of a material fact and do not omit to state any material fact required to be
stated therein or herein necessary to make the statements contained therein or
herein not misleading in the light of the circumstances under which they were
made. No event or circumstance exists relating to the Company which, under
applicable law, requires public disclosure but which has not been so publicly
announced or disclosed.
5.3 Authorization. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder
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and the issuance (and/or the reservation for issuance) of the Warrants and the
Warrant Shares have been taken, and this Agreement and the Registration Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, except insofar as the enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting creditors' rights generally or by principles governing
the availability of equitable remedies. Except as described on Exhibit C , the
Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. Subject to the Company
increasing its authorized Common Stock as described in Section 5.25A, the Common
Stock and the Warrants, when issued, sold and delivered in accordance with the
terms hereof, for the consideration expressed herein, will be validly issued,
fully paid and nonassessable and, based in part upon the representations of
Investor in this Agreement, will be issued in compliance with all applicable
U.S. federal and state securities laws. Subject to the Company increasing its
authorized Common Stock as described in Section 5.25A, the Warrant Shares, when
issued in accordance with the terms of the Warrants, shall be duly and validly
issued and outstanding, fully paid and nonassessable, and based in part on the
representations and warranties of Investor, will be issued in compliance with
all applicable U.S. federal and state securities laws. The Put Shares, the
Warrants and the Warrant Shares will be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Articles of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery and
performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement, the Registration Rights Agreement, (b) violate the Company's
Articles of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested
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by Investor prior to consummation of this Offering and thereafter, to make such
reports available, for the full term of this Agreement, including any extensions
thereof, and for as long as Investor holds the Securities. The Company has
advised the Investor that the Company's Common Stock was delisted from O.T.C.
Bulletin Board as of January 20, 2000 due to the inability of the Company to
clear comments from the Securities and Exchange Commission on its Form 10-SB
prior to its compliance date of January 20, 2000 as provided in NASD Eligibility
Rule 6430. The Company's Form 10-SB, which was filed on November 24, 2000,
became effective by operation of law on January 22, 2000; however, the Company
is as of the date of this Agreement still clearing comments from the Securities
and Exchange Commission relating to its financial statements as included in its
Form 10-SB. Upon clearing said comments, the Company has advised the Investor
that it intends through one or more of its market makers to reapply to have its
Common Stock quoted on the O.T.C. Bulletin Board. Until such time as the Common
Stock is quoted on the O.T.C. Bulletin Board, the Common Stock will be quoted on
the National Quotation Bureau Pink Sheets. The Company has filed all reports
required under the Exchange Act. The Company has not furnished to the Investor
any material nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of March
4, 2000, is, the capitalization as of the Closing, subject to exercise of any
outstanding warrants and/or exercise of any outstanding stock options, after
taking into account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this Offering, will
be, as set forth in the Capitalization Schedule as set forth in Exhibit K. The
Company has advised Investor that the it does not have sufficient shares of the
Common Stock authorized under its Articles of Incorporation to issue all of the
shares relating to outstanding warrants and stock options, including Commitment
Warrants and Purchase Warrants, or to issue the Common Stock contemplated by
this Agreement. The Company shall, prior to the Registration Statement becoming
effective, use its best efforts to obtain approval of its shareholders to
increase in the number of authorized shares of Common Stock of the Company as
described in Section 5.25A. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities. Except as disclosed in the Capitalization Schedule, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Act (except the Registration
Rights Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted
and exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid,
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unrestricted and exclusive patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business as set forth in Exhibit M. The Company
has been granted licenses, know-how, technology and/or other intellectual
property necessary to the conduct of its business as set forth in Exhibit M. To
the best of the Company's knowledge after due inquiry, the Company is not
infringing on the intellectual property rights of any third party, nor is any
third party infringing on the Company's intellectual property rights. There are
no restrictions in any agreements, licenses, franchises, or other instruments
that preclude the Company from engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects
to use the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule set
forth as Exhibit L hereto. These purposes and amounts are estimates and are
subject to change without notice to any Investor.
5.10 No Rights of Participation. No person or entity, including,
but not limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that
Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Investor has made
no representations or warranties, either written or oral, as to how long the
Securities will be held by Investor or regarding Investor's trading history or
investment strategies.
5.12 No Advance Regulatory Approval. The Company acknowledges
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC, or
any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 Underwriter's Fees and Rights of First Refusal. The Company
is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Investor in connection with this Offering.
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5.14 Availability of Suitable Form for Registration. The Company
is currently eligible and agrees to maintain its eligibility to register the
resale of its Common Stock on a registration statement on a suitable form under
the Act.
5.15 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of Nasdaq. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.16 Foreign Corrupt Practices. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
5.17 Key Employees. Each "Key Employee" (as defined in Exhibit N)
is currently serving the Company in the capacity disclosed in Exhibit N. No Key
Employee, to the best knowledge of the Company and its subsidiaries, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company and
its subsidiaries, any intention to terminate his employment with, or services
to, the Company or any of its subsidiaries.
5.18 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.19 Tax Status. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any
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material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.
5.20 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Nevada law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement; provided, however that in connection with the Company's intended
re-domestication in the state of Delaware, it may adopt certain reasonable
changes to its certificate of incorporation and bylaws relating to anti-takeover
provisions.
5.22 Other Agreements. The Company has not, directly or
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.23 Major Transactions. There are no other Major
Transactions currently pending or contemplated by the Company.
5.24 Financings. Except for the financing with California Applied
Research, there are no other financings currently pending or contemplated by the
Company.
5.25 Shareholder Authorization of 20% Approval. At such time as
the Company becomes listed on either the Nasdaq Small Cap Market or the Nasdaq
National Market, the Company shall, at its next annual shareholder meeting
following its listing on either such markets, or at a special meeting to be held
as soon as practicable thereafter, use its best efforts to obtain approval of
its shareholders to authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's
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ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "20% Approval"). In connection with such shareholder
vote, the Company shall use its best efforts to cause all officers and directors
of the Company to promptly enter into irrevocable agreements to vote all of
their shares in favor of eliminating such prohibitions.
5.25A Shareholder Authorization to Increase Shares. The Company
has advised Investor that the it does not have sufficient shares of the Common
Stock authorized under its articles of incorporation to issue all of the shares
relating to outstanding warrants and stock options, including Commitment
Warrant, or to issue the Common Stock contemplated by this Agreement. The
Company shall, prior to the Registration Statement becoming effective at either
its next annual shareholder meeting or at a special meeting to be held for such
purpose, use its best efforts to obtain approval of its shareholders to increase
in the number of authorized shares of Common Stock of the Company (the "Share
Authorization Increase Approval") to a number which is sufficient to cover all
of said warrants and stock options, including but not limited to the Commitment
Warrant, as well as at least 12,000,000 shares to be reserved for this Offering,
which shares the Company shall reserve prior to reserving any of the other newly
authorized shares. As soon as practicable after the Share Authorization Increase
Approval, the Company agrees to use its best efforts to reserve not less than
12,000,000 shares of Common Stock for issuance under this Agreement.
5.26 Acknowledgment of Limitations on Put Amounts. The Company
understands and acknowledges that the amounts available under this Investment
Agreement are limited, among other things, based upon the liquidity of the
Company's Common Stock traded on its Principal Market.
6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at
least the Termination Date, maintain its corporate existence in good standing
and, once it becomes a "Reporting Issuer" (defined as a Company which files
periodic reports under the Exchange Act), remain a Reporting Issuer (provided,
however, that the foregoing covenant shall not prevent the Company from entering
into any merger or corporate reorganization as long as the surviving entity in
such transaction, if not the Company, assumes the Company's obligations with
respect to the Common Stock and has Common Stock listed for trading on a stock
exchange or on Nasdaq and is a Reporting Issuer) and shall pay all its taxes
when due except for taxes which the Company disputes.
6.3 Registration Rights. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as Exhibit A.
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6.4 Asset Transfers. The Company shall not (i) transfer, sell, convey or
otherwise dispose of any of its material assets to any Subsidiary except for a
cash or cash equivalent consideration and for a proper business purpose or (ii)
transfer, sell, convey or otherwise dispose of any of its material assets to any
Affiliate, as defined below, during the Term of this Agreement. For purposes
hereof, "Affiliate" shall mean any officer of the Company, director of the
Company or owner of twenty percent (20%) or more of the Common Stock or other
securities of the Company.
6.5 Rights of First Refusal.
6.5.1 Capital Raising Limitations. During the period from the date of this
Agreement until the date that is one year after the Termination Date, the
Company shall not issue or sell, or agree to issue or sell Equity Securities (as
defined below), for cash in private capital raising transactions without
obtaining the prior written approval of the Investor of the Offering (the
limitations referred to in this subsection 6.6.1 are collectively referred to as
the "Capital Raising Limitations"). For purposes hereof, the following shall be
collectively referred to herein as, the "Equity Securities": (i) Common Stock or
any other equity securities, (ii) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock or other equity securities, or (iii) any
securities of the Company pursuant to an equity line structure or format similar
in nature to this Offering.
6.5.2 Investor's Right of First Refusal. For any private capital raising
transactions of Equity Securities which close after the date hereof and on or
prior to the date that is one (1) year after the Termination Date of this
Agreement, not including any warrants issued in conjunction with this Investment
Agreement, the Company agrees to deliver to Investor, at least ten (10) days
prior to the closing of such transaction, written notice describing the proposed
transaction, including the terms and conditions thereof, and providing the
Investor and its affiliates an option during the ten (10) day period following
delivery of such notice to purchase the securities being offered in such
transaction on the same terms as contemplated by such transaction.
6.5.3 Exceptions to Rights of First Refusal. Notwithstanding the above, the
Rights of First Refusal shall not apply to any transaction involving issuances
of securities in connection with a merger, consolidation, acquisition or sale of
assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company
or exercise of options by employees, consultants or directors.
6.6 Financial 10-KSB Statements, Etc. and Current Reports on Form 8-K. The
Company shall deliver to the Investor copies of its annual reports on Form
10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the Investor
current reports on Form 8-K within two (2) days of filing for the Term of this
Agreement.
6.7 Opinion of Counsel. Investor shall, concurrent with the Investment
Commitment Closing, receive an opinion letter from the Company's legal counsel,
in the form attached as Exhibit B, or in such form as agreed upon by the
parties, and shall,
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concurrent with each Put Date, receive an opinion letter
from the Company's legal counsel, in the form attached as Exhibit I or in such
form as agreed upon by the parties.
6.8 Removal of Legend. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the effect that a
public sale or transfer of such Security may be made without registration under
the Act, or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 Listing. Subject to the remainder of this Section 6.9, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the O.T.C.
Bulletin Board. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the O.T.C. Bulletin
Board or to become eligible for and listed and available for trading on the
Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable. Notwithstanding
the foregoing, the Company has advised the Investor that the Company's Common
Stock was delisted from O.T.C. Bulletin Board as of January 20, 2000 due to the
inability of the Company to clear comments from the Securities and Exchange
Commission on its Form 10-SB prior to its compliance date of January 20, 2000 as
provided in NASD Eligibility Rule 6430. The Company's Form 10-SB, which was
filed on November 24, 2000, became effective by operation of law on January 22,
2000; however, the Company is as of the date of this Agreement still clearing
comments from the Securities and Exchange Commission relating to its financial
statements as included in its Form 10-SB. Upon clearing said comments, the
Company has advised the Investor that it intends through one or more of its
market makers to reapply to have its Common Stock quoted on the O.T.C. Bulletin
Board. Until such time as the Common Stock is quoted on the O.T.C. Bulletin
Board, the Common Stock will be quoted on the National Quotation Bureau Pink
Sheets.
6.10 The Company's Instructions to Transfer Agent. The Company
will instruct the Transfer Agent of the Common Stock, by delivering instructions
in the form of Exhibit T hereto, to issue certificates, registered in the name
of each Investor or its nominee, for the Put Shares and Warrant Shares in such
amounts as specified from time to time by the Company upon any exercise by the
Company of a Put and/or exercise of the Warrants by the holder thereof. Such
certificates shall not bear a Legend unless issuance with a Legend is permitted
by the terms of this Agreement and Legend removal
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is not permitted by Section 6.8 hereof and the Company shall cause the Transfer
Agent to issue such certificates without a Legend. Nothing in this Section shall
affect in any way Investor's obligations and agreement set forth in Sections
3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. If (a) an Investor provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) an Investor transfers
Securities, pursuant to Rule 144, to a transferee which is an accredited
investor, the Company shall permit the transfer, and, in the case of Put Shares
and Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Investor. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.10 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.10, that an
Investor shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6.11 Stockholder 20% Approval. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is listed on
NASDAQ, the Company shall obtain approval of its stockholders to authorize the
issuance of the full number of shares of Common Stock which would be issuable
pursuant to this Agreement but for the Cap Amount and eliminate any prohibitions
under applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "Stockholder 20% Approval").
6.11A Shareholder Authorization to Increase Shares. The Company
shall prior to the Registration Statement becoming effective at either its next
annual shareholder meeting or at a special meeting to be held for such purpose
use its best efforts to obtain approval of its shareholders to increase in the
number of authorized shares of Common Stock of the Company (the "Share
Authorization Increase Approval") to a number which is sufficient to cover all
of said warrants and stock options, including but not limited to the Commitment
Warrant, as well as at least 12,000,000 shares to be reserved for this Offering.
6.12 Press Release. The Company agrees that the Investor shall
have the right to review and comment upon any press release issued by the
Company in connection with the Offering which approval shall not be unreasonably
withheld by Investor.
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6.13 Change in Law or Policy. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no further Commitment Fees shall be due.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing;
Severability. Investor's and the Company's representations and warranties shall
survive the Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Investor, this Agreement shall terminate.
7.2 Successors and Assigns. This Agreement shall not be
assignable without the Company's written consent. If assigned, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Investor may assign Investor's rights
hereunder, in connection with any private sale of the Common Stock of such
Investor, so long as, as a condition precedent to such transfer, the transferee
executes an acknowledgment agreeing to be bound by the applicable provisions of
this Agreement in a form acceptable to the Company and provides an original copy
of such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
7.5 Written Notices, Etc. Any notice, demand or request required
or permitted to be given by the Company or Investor pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other
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in writing; provided, however, that in order for any notice to be effective as
to the Investor such notice shall be delivered and sent, as specified herein, to
all the addresses and facsimile telephone numbers of the Investor set forth at
the end of this Agreement or such other address and/or facsimile telephone
number as Investor may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This
Agreement, including the Exhibits attached hereto, the Common Stock
certificates, the Warrants, the Registration Rights Agreement, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants, whether oral, written, or
otherwise except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The parties
acknowledge that any and all actions, whether at law or at equity, and whether
or not said actions are based upon this Agreement between the parties hereto,
shall be filed in any state or federal court sitting in Atlanta, Georgia.
Georgia law shall govern both the proceeding as well as the interpretation and
construction of the Transaction Documents and the transaction as a whole. In any
litigation between the parties hereto, the prevailing party, as found by the
court, shall be entitled to an award of all attorney's fees and costs of court.
Should the court refuse to find a prevailing party, each party shall bear its
own legal fees and costs.
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription
(a) Wire transfer of Subscription Funds. Investor shall deliver
Put Dollar Amounts (as payment towards any Put Share Price)
by wire transfer, to the Company pursuant to a wire
instruction letter to be provided by the Company, and signed
by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges and
agrees, subject to the provisions of any applicable laws
providing for the refund of subscription amounts submitted
by Investor, that this Agreement is irrevocable and that
Investor is not entitled to cancel, terminate or revoke this
Agreement or any other agreements executed by such Investor
and delivered pursuant
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hereto, and that this Agreement and
such other agreements shall survive the death or disability
of such Investor and shall be binding upon and inure to the
benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and
assigns. If the Securities subscribed for are to be owned by
more than one person, the obligations of all such owners
under this Agreement shall be joint and several, and the
agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be
binding upon each such person and his heirs, executors,
administrators, successors, legal representatives and
assigns.
8.2 Acceptance of Subscription. Ownership of the number of
securities purchased hereby will pass to Investor upon the Warrant Closing or
any Put Closing.
9. Indemnification.
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in addition
to all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless Investor and all of
its stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim, derivative or otherwise, by any
stockholder of the Company based on a breach or alleged breach by the Company or
any of its officers or directors of their fiduciary or other obligations to the
stockholders of the Company, or (d) claims made by third parties against any of
the Indemnitees based on a violation of Section 5 of the Securities Act caused
by the integration of the private sale of common stock to the Investor and the
public offering pursuant to the Registration Statement; provided, however that
the Company will not be liable to a particular Indemnitee in any such case to
the extent that any such action, cause of action, suit, claim, loss, cost,
penalty, fee, liability and damages, or expense arises out of or is based upon
an untrue statement or omission or alleged omission made in the Registration
Statement, or any preliminary or final prospectus, or any amendment or
supplement
41
<PAGE>
thereto, in reliance upon and in conformity with written information
furnished to the Company by that Indemnitee or by Investor specifically for use
in the preparation thereof.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Investor shall defend, protect, indemnify and hold harmless the Company
and its officers and directors, and any of the foregoing person's agents,
members, partners or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorney's fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to an untrue statement or omission or alleged
omission made in the Registration Statement, or any preliminary or final
prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by Investor
specifically for use in the preparation thereof.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
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[INTENTIONALLY LEFT BLANK]
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<PAGE>
10. Accredited Investor. Investor is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3)
of the Internal Revenue Code, or a corporation, limited
duration company, limited liability company, business
trust, or partnership not formed for the specific purpose
of acquiring the securities offered, with total assets in
excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person who has such knowledge and experience
in financial and business matters that he is capable of
evaluating the merits and risks of the prospective
investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of
the issuer of the securities being offered or sold or a
director, executive officer or general partner of a
general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase
exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the
same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who could
check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify]
-------------------------------------------------------.
<PAGE>
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 14TH day of March, 2000.
/s/ Swartz Private Equity, LLC
- -------------------------------------- ----------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
Eric S. Swartz SECURITY DELIVERY INSTRUCTIONS:
- -------------------------------------- ----------------------------------
Name: Please Print Please type or print address where
your security is to be delivered
Manager ATTN: Eric S. Swartz
- -------------------------------------- ----------------------------------
Title/Representative Capacity
(if applicable)
200 Roswell Summit, Suite 285
Swartz Private Equity, LLC 1080 Holcomb Bridge Road
- -------------------------------------- ----------------------------------
Name of Company You Represent Street Address
(if applicable)
Roswell, Georgia, USA Roswell, Georgia, 30076, USA
- -------------------------------------- ----------------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
- ----------------------------- -------------------------
Please print address where any Notice Please print address where Copy
is to be delivered is to be delivered
ATTN: _______________________________ ATTN: ___________________________
- -------------------------------------- ----------------------------------
Street Address Street Address
- -------------------------------------- ----------------------------------
City, State or Province, Country, City, State or Country,
Offshore Postal Code Offshore Postal Code
Telephone: ___________________________ Telephone:________________________
Facsimile: ___________________________ Facsimile: _______________________
Facsimile: ___________________________ Facsimile: _______________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 14th DAY OF March, 2000.
BROWSESAFE.COM, INC.
By: /S/
------------------------------
Mark W. Smith, President & CEO
Address:
Attention: Greg Urbanski or
Mark W. Smith
BrowseSafe.com, Inc.
7202 East 87th Street, Suite 109
Indianapolis, Indiana 46256
Telephone: 317-915-9301
Facsimile: 317-915-9309
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<PAGE>
ACKNOWLEDGEMENT
With respect to the Investment Agreement entered into as of March 14th,
2000, by and among BrowseSafe.com, Inc., a corporation duly incorporated and
existing under the laws of the State of Nevada (the "Company") and Swartz
Private Equity, LLC (hereinafter referred to as "Swartz"), the Company hereby
agrees and acknowledges the following:
The Company acknowledges that the Investor may sell the Put Shares any
time, and from time to time, after the Put Date for such shares, and
that such sales may occur during a Pricing Period or Pricing Periods and
may have the effect of reducing the Purchase Price.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 14th day of March, 2000.
BROWSESAFE.COM, INC.
By:/s/
-------------------------------------
Mark W. Smith, President and CEO
Address: BrowseSafe.com, Inc.
335 W. 9th Street
Indianapolis, IN 46202
Telephone (317) 633-6656
Facsimile (317) 633-6655
SWARTZ PRIVATE EQUITY, LLC
By:/s/
-------------------------------------
Eric S. Swartz, Manager
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
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<PAGE>
Exhibit A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of March 14, 2000, by and among BrowseSafe.com, Inc., a corporation duly
incorporated and existing under the laws of the State of Nevada (the "Company")
and the subscriber as named on the signature page hereto (hereinafter referred
to as "Subscriber").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to Thirty
Million Dollars ($30,000,000), excluding any funds paid upon exercise of the
Warrants, of Common Stock of the Company pursuant to that certain Investment
Agreement of even date herewith (the "Investment Agreement") between the Company
and the Subscriber, the Company has agreed to sell and the Subscriber has agreed
to purchase, from time to time as provided in the Investment Agreement, shares
of the Company's Common Stock for a maximum aggregate offering amount of Thirty
Million Dollars ($30,000,000);
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed to issue to the Subscriber, from time to time, Commitment Warrants
and Purchase Warrants, each as defined in the Investment Agreement, to purchase
a number of shares of Common Stock, exercisable for five (5) years from their
respective dates of issuance (collectively, the "Subscriber Warrants" or the
"Warrants"); and
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed to provide the Subscriber with certain registration rights with
respect to the Common Stock to be issued in the Offering and the Common Stock
issuable upon exercise of the Subscriber Warrants as set forth in this
Registration Rights Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the Recitals
above), the following terms shall have the following meanings (such meanings to
be equally applicable to both singular and plural forms of the terms defined):
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Additional Registration Statement" shall have the meaning set
forth in Section 3(b).
"Amended Registration Statement" shall have the meaning set forth
in Section 3(b).
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<PAGE>
"Business Day" shall have the meaning set forth in the Investment
Agreement.
"Closing Bid Price" shall have the meaning set forth in the
Investment Agreement.
"Common Stock" shall mean the common stock, par value $0.01, of
the Company.
"Due Date" shall mean the date that is one hundred twenty (120)
days after the date of this Agreement.
"Effective Date" shall have the meaning set forth in Section 2.4.
"Filing Deadline" shall mean the date that is forty five (45)
days after the date of next shareholder meeting of the Company held after the
date of this Agreement.
"Holder" shall mean Subscriber, and any other person or entity
owning or having the right to acquire Registrable Securities or any permitted
assignee thereof;
"Piggyback Registration" and "Piggyback Registration Statement"
shall have the meaning set forth in Section 4.
"Put" shall have the meaning as set forth in the Investment
Agreement.
"Register," "Registered," and "Registration" shall mean and refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and pursuant to Rule 415 under the Act or any successor rule, and the
declaration or ordering of effectiveness of such registration statement or
document.
"Registrable Securities" shall have the meaning set forth in
Section 2.1.
"Registration Statement" shall have the meaning set forth in
Section 2.2.
"Rule 144" shall mean Rule 144, as amended, promulgated under the
Act.
"Subscriber" shall have the meaning set forth in the preamble to
this Agreement.
"Subscriber Warrants" shall have the meaning set forth in the
above Recitals.
"Investment Agreement" shall have the meaning set forth in the
Recitals hereto.
"Supplemental Registration Statement" shall have the meaning set
forth in Section 3(b).
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<PAGE>
"Warrants" shall have the meaning set forth in the above
Recitals.
"Warrant Shares" shall mean shares of Common Stock issuable upon
exercise of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities" shall mean
those shares of the Common Stock of the Company together with any capital stock
issued in replacement of, in exchange for or otherwise in respect of such Common
Stock, that are: (i) issuable or issued to the Subscriber pursuant to the
Investment Agreement or in this Agreement, and (ii) issuable or issued upon
exercise of the Subscriber Warrants; provided, however, that notwithstanding the
above, the following shall not be considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed to
be Registrable Securities, if and to the extent that those shares of Common
Stock may be resold in a public transaction without volume limitations or other
material restrictions without registration under the Act, including without
limitation, pursuant to Rule 144 under the Act; and
(b) any shares of Common Stock which have been sold in a
private transaction in which the transferor's rights under this Agreement are
not assigned.
2.2 Filing of Initial Registration Statement. The Company shall,
by the Filing Deadline, file a registration statement ("Registration Statement")
on Form SB-2 (or other suitable form, at the Company's discretion, but subject
to the reasonable approval of Subscriber), covering the resale of a number of
shares of Common Stock as Registrable Securities equal to at least Twelve
Million (12,000,000) shares of Common Stock and shall cover, to the extent
allowed by applicable law, such indeterminate number of additional shares of
Common Stock that may be issued or become issuable as Registrable Securities by
the Company pursuant to Rule 416 of the Act. In the event that the Company has
not filed the Registration Statement by the Filing Deadline, then the Company
shall pay to Subscriber an amount equal to $500, in cash, for each Business Day
after the Filing Deadline until such Registration Statement is filed, payable
within ten (10) Business Days following the end of each calendar month in which
such payments accrue.
2.3 [Intentionally Left Blank].
2.4 Registration Effective Date. The Company shall use its best
efforts to have the Registration Statement declared effective by the SEC (the
date of such effectiveness is referred to herein as the "Effective Date") by the
Due Date.
2.5 [Intentionally Left Blank].
2.6 [Intentionally Left Blank].
49
<PAGE>
2.7 Shelf Registration. The Registration Statement shall be
prepared as a "shelf" registration statement under Rule 415, and shall be
maintained effective until all Registrable Securities are resold pursuant to
such Registration Statement.
2.8 Supplemental Registration Statement. Anytime the Registration
Statement does not cover a sufficient number of shares of Common Stock to cover
all outstanding Registrable Securities, the Company shall promptly prepare and
file with the SEC such Supplemental Registration Statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
such Registrable Securities and shall use its best efforts to cause such
Supplemental Registration Statement to be declared effective as soon as
possible.
3. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a Registration Statement with respect to such Registrable Securities and
use its best efforts to cause such Registration Statement to become effective
and to remain effective until all Registrable Securities are resold pursuant to
such Registration Statement, notwithstanding any Termination or Automatic
Termination (as each is defined in the Investment Agreement) of the Investment
Agreement.
(b) Prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection with such
Registration Statement ("Amended Registration Statement") or prepare and file
any additional registration statement ("Additional Registration Statement,"
together with the Amended Registration Statement, "Supplemental Registration
Statements") as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such Supplemental
Registration Statements or such prior registration statement and to cover the
resale of all Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or Blue Sky
laws of the jurisdictions in which the Holders are located, of such other
jurisdictions as shall be reasonably requested by the Holders of the Registrable
Securities covered by such Registration Statement and of all other jurisdictions
where legally required, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) [Intentionally Omitted].
50
<PAGE>
(f) As promptly as practicable after becoming aware of such
event, notify each Holder of Registrable Securities of the happening of any
event of which the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Holder as such Holder may reasonably
request.
(g) Provide Holders with notice of the date that a Registration
Statement or any Supplemental Registration Statement registering the resale of
the Registrable Securities is declared effective by the SEC, and the date or
dates when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity and
a reasonable amount of time, based upon reasonable notice delivered by the
Company, to conduct a reasonable due diligence inquiry of Company's pertinent
financial and other records and make available its officers and directors for
questions regarding such information as it relates to information contained in
the Registration Statement.
(i) Provide Holders and their representatives the opportunity to
review the Registration Statement and all amendments or supplements thereto
prior to their filing with the SEC by giving the Holder at least ten (10)
business days advance written prior to such filing.
(j) Provide each Holder with prompt notice of the issuance by the
SEC or any state securities commission or agency of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceeding for such purpose. The Company shall use its best efforts to prevent
the issuance of any stop order and, if any is issued, to obtain the removal
thereof at the earliest possible date.
(k) Use its best efforts to list the Registrable Securities
covered by the Registration Statement with all securities exchanges or markets
on which the Common Stock is then listed and prepare and file any required
filing with the NASD, American Stock Exchange, NYSE and any other exchange or
market on which the Common Stock is listed.
4. Piggyback Registration. If anytime prior to the date that the
Registration Statement is declared effective or during any Ineffective Period
(as defined in the Investment Agreement) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its Common Stock under the Act in
connection with the public offering of such securities solely for cash (other
than a registration relating solely for the sale of securities to participants
in a Company stock plan or a registration on Form S-4 promulgated under the Act
or any successor or similar form registering stock issuable upon a
reclassification, upon a business combination involving an exchange of
securities or upon an exchange offer for securities of the issuer or another
entity), the Company shall, at such time, promptly give each Holder written
notice of such registration (a "Piggyback Registration Statement"). Upon the
written request of each Holder given by fax within ten (10) days
51
<PAGE>
after mailing
of such notice by the Company, the Company shall cause to be included in such
registration statement under the Act all of the Registrable Securities that each
such Holder has requested to be registered ("Piggyback Registration") to the
extent such inclusion does not violate the registration rights of any other
security holder of the company granted prior to the date hereof; provided,
however, that nothing herein shall prevent the Company from withdrawing or
abandoning such registration statement prior to its effectiveness.
5. [Intentionally Left Blank].
6. Dispute as to Registrable Securities. In the event the Company
believes that shares sought to be registered under Section 2 or Section 4 by
Holders do not constitute "Registrable Securities" by virtue of Section 2.1 of
this Agreement, and the status of those shares as Registrable Securities is
disputed, the Company shall provide, at its expense, an Opinion of Counsel,
reasonably acceptable to the Holders of the Securities at issue (and
satisfactory to the Company's transfer agent to permit the sale and transfer),
that those securities may be sold immediately, without volume limitation or
other material restrictions, without registration under the Act, by virtue of
Rule 144 or similar provisions.
7. Furnish Information. At the Company's request, each Holder shall
furnish to the Company such information regarding Holder, the Registrable
Securities held by it, and the intended method of disposition of such securities
to the extent required to effect the registration of its Registrable Securities
or to determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act. The Company shall include all information
provided by such Holder pursuant hereto in the Registration Statement,
substantially in the form supplied, except to the extent such information is not
permitted by law.
8. Expenses. All expenses, other than commissions and fees and expenses
of counsel to the selling Holders, incurred in connection with registrations,
filings or qualifications pursuant hereto, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
9. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) (i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors, partners,
legal counsel, and accountants of each Holder, any underwriter (as defined in
the Act, or as deemed by the Securities Exchange Commission, or as indicated in
a registration statement) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of Section 15 of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements or
omissions: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or
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<PAGE>
any amendments or supplements thereto, or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, and the Company will reimburse each
such Holder, officer or director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
9(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
officer, director, underwriter or controlling person; provided however, that the
above shall not relieve the Company from any other liabilities which it might
otherwise have.
(ii) To the extent permitted by law, each Holder will
indemnify and hold harmless the Company, its officers, directors, partners,
legal counsel, and accountants, any underwriter (as defined in the Act, or as
deemed by the Securities Exchange Commission, or as indicated in a registration
statement) for the Company and each person, if any, who controls such Company or
underwriter within the meaning of Section 15 of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements or omissions made by
such Holder: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, and such Holder will reimburse the Company, its officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld), nor shall such Holder be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Company, its officer, director, underwriter or
controlling person; provided however, that the above shall not relieve such
Holder from any other liabilities which it might otherwise have.
(b) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to
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<PAGE>
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume, the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the reasonably incurred fees and expenses of one such counsel to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential conflicting interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.
(c) In the event that the indemnity provided in paragraph (a) of
this Section 9 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and each Holder agree to contribute to the
aggregate claims, losses, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Holders may
be subject in such proportion as is appropriate to reflect the relative fault of
the Company and the Holders in connection with the statements or omissions which
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or by the Holders. The Company and the Holders agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person who controls a
Holder of Registrable Securities within the meaning of either the Securities Act
or the Exchange Act and each director, officer, partner, employee and agent of a
Holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act and each director and officer of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (c).
(d) The obligations of the Company and Holders under this Section
9 shall survive the resale, if any, of the Common Stock, the completion of any
offering of Registrable Securities in a Registration Statement under this
Agreement, and otherwise.
10. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144; and
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(b) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the Act and the
1934 Act.
11. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the written consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement shall
be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Attention: Greg Urbanski or Mark W. Smith;
BrowseSafe.com, Inc., 335 W. 9th St., Indianapolis, IN 46202; Telephone: (317)
633-6656, Facsimile: (317) 633-6655 (or at such other location as directed by
the Company in writing) and (ii) the Holders at their respective last address as
the party as shown on the records of the Company. Any notice, except as
otherwise provided in this Agreement, shall be made by fax and shall be deemed
given at the time of transmission of the fax.
13. Termination. This Agreement shall terminate on the date all Registrable
Securities cease to exist (as that term is defined in Section 2.1 hereof); but
without prejudice to (i) the parties' rights and obligations arising from
breaches of this Agreement occurring prior to such termination (ii) other
indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by operation
of law or otherwise, of any rights or obligations under this Agreement by the
Company or any Holder, respectively, shall be made without the prior written
consent of the majority in interest of the Holders or the Company, respectively;
provided that the rights of a Holder may be transferred to a subsequent holder
of the Holder's Registrable Securities (provided such transferee shall provide
to the Company, together with or prior to such transferee's request to have such
Registrable Securities included in a Registration, a writing executed by such
transferee agreeing to be bound as a Holder by the terms of this Agreement), and
the Company hereby agrees to file an amended registration statement including
such transferee or a selling security holder thereunder; and provided further
that the Company may transfer its rights and obligations under this Agreement to
a purchaser of all or a substantial portion of its business if the obligations
of the Company under this Agreement are assumed in connection with such
transfer, either by merger or other operation of law (which may include without
limitation a transaction whereby the Registrable Securities are converted into
securities of the successor in interest) or by specific assumption executed by
the transferee.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
16. Execution in Counterparts Permitted. This Agreement may be executed
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in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
17. Specific Performance. The Holder shall be entitled to the remedy of
specific performance in the event of the Company's breach of this Agreement, the
parties agreeing that a remedy at law would be inadequate.
18. Indemnity. Each party shall indemnify each other party against any and
all claims, damages (including reasonable attorney's fees), and expenses arising
out of the first party's breach of any of the terms of this Agreement.
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19. Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Investment Agreement, the Common
Stock certificates, and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 14thday of March, 2000.
BROWSESAFE.COM, INC.
By: /S/
---------------------------------
Mark W. Smith, President & CEO
Address:
Attention: Greg Urbanski or Mark W. Smith
BrowseSafe.com, Inc.
335 W. 9th St.
Indianapolis, IN 46202
Telephone: (317) 633-6656
Facsimile: (317) 633-6655
SUBSCRIBER:
SWARTZ PRIVATE EQUITY, LLC.
By: /S/
---------------------------------
Eric S. Swartz, Manager
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
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EXHIBIT B
March 14, 2000
Swartz Private Equity, LLC
1080 Holcomb Bridge Road
200 Rosewell Summit, Suite 285
Rosewell, GA 30076
Re: BrowseSafe.com, Inc.
Private Equity Line Commitment Opinion
Ladies and Gentlemen:
This firm has acted as special counsel to BrowseSafe.com, Inc., a Nevada
corporation (the "Company"), in connection with the Regulation D Common Stock
Private Equity Line Investment Agreement (the "Investment Agreement"), dated as
of March 14, 2000, by and between the Company and Swartz Private Equity, LLC
(the "Investor"), and the issuance and sale of shares of the Company's Common
Stock, $.001 par value ("Common Stock"), provided for thereunder. This opinion
is being delivered to the Investor pursuant to Section 6.7 of the Investment
Agreement. Capitalized terms used herein without definition have the respective
meanings assigned to them in the Investment Agreement and Registration Rights
Agreement.
In connection with and as the basis for these opinions, we have examined
originals or copies, certified or otherwise identified to us, of certain
documents, corporate records and other instruments, including the following (i)
the Articles of Incorporation of the Company, as amended, certified by the
Secretary of the Company; (ii) the By-laws of the Company as in effect on the
date hereof, as certified by an officer of the Company, (iii) a certificate
dated December 9, 1999 by the Secretary of State of the State of Nevada
regarding the existence and good standing of the Company as a corporation under
the laws of the State of Nevada and a review of the Nevada Secretary of State's
internet website as to the Company's continued good standing; (iv) the minute
books of the Company, including copies, certified to our satisfaction, of
resolutions adopted by the Board of Directors of the Company as of March 3,
2000, (v) the Investment Agreement; (vi) the Registration Rights Agreement;
(vii) Irrevocable Instructions to Transfer Agent; (viii) certain Warrants (the
"Warrants") to purchase the Company's Common Stock to be issued to each such
Investor (the "Warrant Holder") in accordance with the Investment Agreement and
(ix) the Warrant Side Agreement. The items described in (v), (vi), (vii) (viii)
and (ix) are sometimes referred to in this Opinion as the "Transaction
Documents."
We have also examined such other documents, records, certificates and
questions of law as we have considered necessary or appropriate for the purpose
of this opinion.
We have also examined, relied upon, and assumed the accuracy, where
appropriate, of the representations and warranties of the Company and the other
parties thereto contained in the Transaction Documents as to the matters of fact
therein
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represented. As to certain questions of fact material to the opinions
contained herein, we have, when appropriate, relied upon the representations of
each party made in the Investment Agreement and other Transaction Documents and
certificates or statements of public officials and officers and agents of the
Company, and we have assumed that any certificates or statements of public
officials dated earlier date hereof are accurate on the date hereof as if made
on and as of such date.
In our examination of Transaction Documents described above, we have
assumed the genuineness of all signatures of parties other than the Company, the
authenticity of all documents submitted to us as originals and the conformity to
authentic originals of all documents submitted to us as copies.
With respect to our opinions that the Common Stock, when issued, upon
exercise of the Put Shares and the Warrants and fulfillment of the terms of the
Transaction Documents, respectively, will be validly issued, we have assumed
that (i) such Common Stock will be evidenced by appropriate certificates, duly
executed and delivered and (ii) the Company will maintain a sufficient number of
authorized and unissued shares of Common Stock, at all times while the
Investment Agreement and Warrants are outstanding, to permit the issuance of the
Put Shares and the exercise of the Warrants in accordance with their terms.
In addition, we have assumed that the representations and warranties as
to factual matters and acknowledgments made by each Subscriber in Sections 3 and
4 of the Investment Agreement are true. We have also assumed that the Investor
has received all of the documents that the Investor was required to receive
under the Investment Agreement.
Based upon and subject to the foregoing and the qualifications,
limitations and assumptions set forth herein, it is our opinion that, as of the
date hereof:
1. The Company is a corporation duly incorporated and validly existing
under the laws the state of Nevada. The Company has the corporate power and
authority to carry on its business as currently conducted. The Company is duly
qualified as a foreign corporation in every jurisdiction that such qualification
is necessary, except where the failure to so qualify would not have a material
adverse effect.
2. The execution, delivery and performance of the Transaction Documents,
the issuance of the Common Stock, the issuance of the Warrants and the issuance
of the Common Stock upon exercise of the Warrants have been duly approved by all
required corporate action on the part of the Company, and except for approval by
the Company's stockholders to increase the number of authorized shares of Common
Stock of the Company, no further consents of the Company or its Board of
Directors or stockholders are required.
3. In the course of the preparation of the Transaction Documents, which
involved, among other things, discussions and inquiries concerning the various
legal matters and the review of certain corporate records, documents and
proceedings, certain attorneys from our firm participated in conferences with
certain officers and other
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representatives of the Company during which the contents of the Transaction
Documents and related matters were discussed, and we advised the Company as to
the requirements of the Securities Act (including Regulation D thereunder) and
the applicable rules and regulations thereunder. During the course of our
representation nothing has come to our attention to cause us to have reason to
believe that the Transaction Documents contained any untrue statement of a
material fact or omit a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4. The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock ($.001 par value). To the best of our knowledge, the
outstanding issued capital stock of the Company is set forth in the
Capitalization Schedule included as Schedule K to the Investment Agreement. The
outstanding shares of Common Stock of the Company are validly authorized and
issued, fully paid and non-assessable, without any personal liability attaching
to the ownership thereof, and such shares of capital stock have not been issued,
and are not owned or held in violation of any preemptive or similar rights of
stockholders known to us.
5. When the Put Shares are issued in accordance with the Investment
Agreement, or when shares of Common Stock are issued upon exercise of the
Warrants in accordance with the terms of the Warrants or the Warrant Side
Agreement, such shares of Common Stock will be duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock of the Company, free of all
statutory or, to our knowledge, preemptive or similar rights.
6. The Investment Agreement, the Registration Rights Agreement, the
irrevocable Instructions to Transfer Agent and the Warrant Side Agreement have
been duly executed and delivered and are valid and binding obligations of the
Company, enforceable in accordance with their respective terms.
7. It will not be necessary, in connection with the execution of the
Investment Agreement and the issuance and sale of the Put Shares to register
such securities under the Securities Act of 1933, as Amended (the Securities
Act) and applicable state securities laws, and such execution, issuance and sale
are exempt from such registration under Section 4(2) and/or Regulation D Rule
506 of the Securities Act.
8. It will not be necessary to register the issuance and sale of the
Warrants (including those Warrants which may be issued under the Warrant Side
Agreement) or the Common Stock upon exercise of the Warrants under the
Securities Act and applicable state securities laws, and such issuance and sale
are exempt from such registration under the Securities Act.
9. The execution, delivery and performance of the Transaction Documents
by the Company and the consummation by the Company of the transactions
contemplated thereby will not, (i) violate the Articles of Incorporation or
Bylaws of the Company, or result in a violation of any federal or Nevada law,
rule or regulation (or order, judgment or decree known to me) of a type
generally recognized as being directly applicable to the Company and the
transactions contemplated by the Transaction Documents, (ii) to our
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knowledge, conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreements, indenture or instrument of which we are aware and to which the
Company is a party or by which its property is bound or any material agreement,
indenture or instrument entered into subsequent thereto of which we are aware.
Assuming and relying upon the accuracy of the relevant representations and
agreements of the Investor to the Investment Agreement, the Company is not
required to obtain any consent, approval or action of, or make any filings with,
or give any notice to, any corporation, person or firm or any public,
governmental or judicial authority, except as may have been duly obtained or
made, as the case may be, and are in full force and effect (other than any SEC,
NASD or state securities filings set forth in the Investment Agreement which may
be required to be made by the Company, any registration statement under the Act
which may be filed pursuant to the Transaction Documents and authorization by
the Company's stockholders to increase the authorized Common Stock of the
Company) in order for it to execute, deliver or perform any of its obligations
under the Transaction Documents or issue and sell the securities in accordance
with the terms of the Transaction Documents.
10. To our knowledge, there is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending
or threatened, with respect to the Company or any of its operations, businesses,
properties, or assets, except as may be properly described in the Company's
reports filed under the Exchange Act, or such as individually or in the
aggregate do not now have, and will not in the future have, a material adverse
effect upon the operations, business, properties or assets of the Company.
Notwithstanding the foregoing, attached as Exhibit A is a discussion of certain
recent developments relating to the Funding Group which supplements the
discussion appearing in the Form 10-SB, as amended, as filed by the Company with
the Securities and Exchange Commission on November 24, 1999.
The opinions set forth herein are subject to the following
qualifications, limitations and assumptions:
(a) Our opinion in paragraph 6 above as to the enforceability of the
Transaction Documents is subject to (i) bankruptcy, insolvency, reorganization,
moratorium and other laws and legal principles of general application now or
hereafter in effect relating to or limiting the rights of creditors, and (ii)
such opinion does not mean that
(x) any particular remedy is available upon a material default or
(y) that a court will enforce every provision of a contract exactly as
it is written.
In addition, certain provisions of the Transaction Documents (including, without
limitation, indemnification provisions and provisions in the nature of
liquidated damages or penalties) may not be enforceable in whole or in part
under the laws or public policies of the United States or the State of Nevada.
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(b) We have assumed (i) that the Transaction Documents constitute the
legal, valid and binding obligations of the parties thereto other than the
Company, enforceable in accordance with the respective terms, (ii) that the
parties to the Transaction Documents, other than the Company, have the requisite
corporate power and authority to enter into such agreements and to perform their
respective obligations thereunder and (iii) that each of the parties to the
Transaction Documents, other than the Company, have duly authorized, executed
and delivered the Transaction Documents. We have also assumed the legal capacity
of all natural persons whose acts are relevant to the opinions rendered herein.
(c) We express no opinion and assume no responsibility as to the effect
of, or consequences resulting from, any legislative act or other change in law
occurring after the date of this letter.
(d) We express no opinion on the enforceability, under certain
circumstances, of provisions to the effect that failure to exercise or delay in
exercising any right or remedy will not operate as a waiver of that right or
remedy.
(e) We express no opinion on the enforceability, in certain
circumstances, of provisions waiving broadly or vaguely stated rights, statutory
or other rights representing public policy, or unknown future rights and of
provisions that rights or remedies are not exclusive.
(f) We express no opinion on limitations on the exercise of certain
contractual rights and remedies if the defaults are not material or the
penalties bear no reasonable relation to the damage suffered by the aggrieved
party as a result of the delinquencies or defaults.
(g) We express no opinion with respect to any application of the usury
laws of any jurisdiction.
(h) As to the conclusion expressed in paragraph 10, we have made no
independent investigation or inquiry and have relied on the statements of
officers of the Company and our examination of the Company's reports filed under
the Exchange Act. No inference as to our knowledge of any matters bearing on the
accuracy of any such statements should be drawn from the fact of our
representation of the Company.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred.
We are members of the Bar of the State of Indiana. We call your
attention to the fact that the Transaction Documents are stated therein to be
governed by the State of Georgia and that no attorneys with our firm are members
of the Bar of the State of Georgia. We express no opinion as to the
enforceability of the choice of law provisions of such documents under Georgia
law. The enforceability opinions contained herein are given on the assumption
that the internal laws (as opposed to conflict of law provisions) of the State
of Georgia are identical to those of the State of Indiana. This opinion is
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based solely upon the foregoing state laws and the laws of the United States as
currently in effect.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Transaction Documents and
may not be relied upon by, or delivered to, any other person or entity or for
any other purpose without our prior written consent.
Very truly yours,
LOWE GRAY STEELE & DARKO, LLP
/S/
cc: BrowseSafe.com, Inc.
EXHIBIT A
The following is an update of the information provided in the Form 10-SB
relating to certain transactions involving the Funding Group. The Company
received two letters dated March 1, 2000, from Michael J. Morrison, an attorney
in Reno, Nevada, one of which states that he represents the Funding Group aka
Hemisphere Group of Companies and the other stating that he represents the
Funding Group aka Next Millennium Management, Ltd. Copies of these letters are
attached. The Company disputes the Funding Group's claim to the 2,738,000 shares
and Mr. Morrison's contention that the Form 10-SB contains false and misleading
disclosures relating to the Funding Group. The Company is currently evaluating
what actions to take with respect to this matter.
Keith Balderson, one of the Company's directors, is a principal of Next
Millennium Group, Ltd. In light of Mr. Morrison's letter stating that he
represented the Funding Group aka Next Millenium Group, Ltd., the Company
suggested to Mr. Balderson that he resign as a director. Mr. Balderson submitted
his resignation effective March 2, 2000, a copy of which is attached.
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EXHIBIT C
SCHEDULE OF EXCEPTIONS
The following is an exception to Section 5.2:
The following is an update of the information provided in the Form 10-SB
relating to certain transactions involving the Funding Group. The Company
received two letters dated March 1, 2000, from Michael J. Morrison, an attorney
in Reno, Nevada, one of which states that he represents the Funding Group aka
Hemisphere Group of Companies and the other stating that he represents the
Funding Group aka Next Millennium Management, Ltd. Copies of these letters have
been attached to the commitment opinion of Lowe Gray Steele & Darko, LLP. The
Company disputes the Funding Group's claim to the 2,738,000 shares and Mr.
Morrison's contention that the Form 10-SB contains false and misleading
disclosures relating to the Funding Group. The Company is currently evaluating
what actions to take with respect to this matter.
Keith Balderson, one of the Company's directors, is a principal of Next
Millennium Group, Ltd. In light of Mr. Morrison's letter stating that he
represented the Funding Group aka Next Millenium Group, Ltd., the Company
suggested to Mr. Balderson that he resign as a director. Mr. Balderson submitted
his resignation effective March 2, 2000, a copy of which is attached to the
commitment opinion of Lowe Gray Steele & Darko, LLP.
The following is an exception to Section 5.3:
The Company currently does not have sufficient authorized common stock to
complete all of the transactions contemplated by this Agreement. It intends to
increase its authorized common stock at either an annual meeting or a special
meeting of the shareholders prior to the date the Registration Statement becomes
effective.
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THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN INVESTMENT AGREEMENT
BY AND BETWEEN THE COMPANY AND HOLDER REFERENCED THEREIN AS EXHIBIT J.
Warrant to Purchase "N" shares Warrant Number ____
----
Warrant to Purchase Common Stock
of
BROWSESAFE.COM, INC.
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof ("Holder"), has the right to purchase from BrowseSafe.com, Inc., a Nevada
corporation (the "Company"), up to "N" fully paid and nonassessable shares,
wherein "N" is defined below, of the Company's common stock, $0.001 par value
per share ("Common Stock"), subject to adjustment as provided herein, at a price
equal to the Exercise Price as defined in Section 3 below, at any time beginning
on the Date of Issuance (defined below) and ending at 5:00 p.m., New York, New
York time the date that is five (5) years after the Date of Issuance (the
"Exercise Period"); provided, that, with respect to each "Put," as that term is
defined in that certain Investment Agreement (the "Investment Agreement") by and
between the initial Holder and Company, dated on or about March 14, 2000, "N"
shall equal ten percent (10%) of the number of shares of Common Stock purchased
by the Holder in that Put.
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company (this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on _____________, ______ ("Date
of Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby
Exhibit D
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(the "Warrant Shares") upon surrender of this Warrant, with the Exercise Form
attached hereto as Exhibit A (the "Exercise Form") duly completed and executed,
together with the full Exercise Price (as defined below) for each share of
Common Stock as to which this Warrant is exercised, at the office of the
Company, Attention: Greg Urbanski or Mark W. Smith; BrowseSafe.com, Inc., 7202
East 87th Street, Suite 109, Indianapolis, Indiana 46256; Telephone:
317-915-9301, Facsimile: 317-915-9309, or at such other office or agency as the
Company may designate in writing, by overnight mail, with an advance copy of the
Exercise Form sent to the Company and its Transfer Agent by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise of
this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile. The Company shall not be required to deliver the shares of Common
Stock to the Holder until the requirements of Section 2(a) above are satisfied.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
---------------------------------
The Exercise Price ("Exercise Price"), shall initially equal $Y per
share ("Initial Exercise Price"), where "Y" shall equal 110% of the Market Price
for the applicable Put (as both are defined in the Investment Agreement) or, if
the Date of Exercise is more than six (6) months after the Date of Issuance, the
lesser of (i) the Initial Exercise Price or (ii) the "Lowest Reset Price," as
that term is defined below. The Company shall calculate a "Reset Price" on each
six-month anniversary date of the Date of Issuance which shall equal one hundred
and ten percent (110%) of the lowest closing bid price of the Common Stock for
the five (5) trading days ending on such six-month anniversary date of the Date
of Issuance. The "Lowest Reset Price" shall equal the lowest Reset Price
determined on any six-month anniversary date of the Date of Issuance preceding
the Date of Exercise, taking into account, as appropriate, any adjustments made
pursuant to Section 5 hereof.
Payment of the Exercise Price may be made by either of the following, or
a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
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(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is being
exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Price of the Common Stock for the
five (5) trading days prior to the Date of Exercise of this
Warrant (the "Average Closing Price"), as reported by the O.T.C.
Bulletin Board, National Association of Securities Dealers
Automated Quotation System ("Nasdaq") Small Cap Market, or if the
Common Stock is not traded on the Nasdaq Small Cap Market, the
Average Closing Price in any other over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shall be the Average Closing Price on
such exchange for the five (5) trading days prior to the date of
exercise of the Warrants. If the Common Stock is/was not traded
during the five (5) trading days prior to the Date of Exercise,
then the closing price for the last publicly traded day shall be
deemed to be the closing price for any and all (if applicable)
days during such five (5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the O.T.C. Bulletin Board, the National Market System ("NMS"), the
New York Stock Exchange, the Nasdaq Small Cap Market, or if no longer traded on
the O.T.C. Bulletin Board, the NMS, the New York Stock Exchange, the Nasdaq
Small Cap Market, the "Closing Bid Price" shall equal the closing price on the
principal national securities exchange or the over-the-counter system on which
the Common Stock is so traded and, if not available, the mean of the high and
low prices on the principal national securities exchange on which the Common
Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant
may not be exercised in a cashless exercise transaction if, on the Date of
Exercise, the shares of Common Stock to be issued upon exercise of this Warrant
would upon such issuance be then registered pursuant to an effective
registration statement filed pursuant to that certain Registration Rights
Agreement dated on or about March 14, 2000, by and among the Company and certain
investors, or otherwise be registered under the Securities Act of 1933, as
amended.
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4. Transfer and Registration.
-------------------------
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about March 14, 2000 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
-------------------------
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
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(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price in relation to the split adjusted and distribution
adjusted price of the Common Stock. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in the Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
--------------------
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
---------------------
The Company shall at all times reserve for issuance such number
of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued, fully
paid, nonassessable and not subject to preemptive rights, rights of first
refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
------------------------
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(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the Exercise of this
Warrant may not be pledged, transferred, sold or assigned except pursuant to an
effective registration statement or an exemption to the registration
requirements of the Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
------------------------
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Company and Holder.
10. Applicable Law.
--------------
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Georgia,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
---------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
-----------------
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the Attention: Greg
Urbanski or Mark W. Smith; BrowseSafe.com, Inc., 7202 East 87th Street, Suite
109, Indianapolis, Indiana 46256; Telephone: 317-915-9301, Facsimile:
317-915-9309. Notices or demands pursuant to this Warrant to be given or made by
the Company to or on Holder shall be sufficiently
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given or made if sent by certified or registered mail, return receipt requested,
postage prepaid, and addressed, to the address of Holder set forth in the
Company's records, until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of ________________, _______.
BROWSESAFE.COM, INC.
By: ________________________________
Mark W. Smith, President & CEO
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: BROWSESFE.COM, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of
BrowseSafe.com, Inc., a Nevada corporation (the "Company"), evidenced by the
attached warrant (the "Warrant"), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
- ------------------------------------------------------------------------
Signature
- -----------------------------------------------------------------------
Print Name
- ------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------
NOTICE
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The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- ------------------------------------------------------------------------
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EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of
_____________________, evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
-----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
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ADVANCE PUT NOTICE
BROWSESAFE.COM, INC. (the "Company") hereby intends, subject to the Individual
Put Limit (as defined in the Investment Agreement), to elect to exercise a Put
to sell the number of shares of Common Stock of the Company specified below, to
_____________________________, the Investor, as of the Intended Put Date written
below, all pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Swartz Private Equity, LLC dated on
or about March 14, 2000.
Date of Advance Put Notice: _________________
Intended Put Date :__________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount
(Optional):
---------------------------------------------.
Company Designation Minimum Put Share Price (Optional):
---------------------------------------------.
BROWSESAFE.COM, INC.
By:____________________________________
Mark W. Smith, President & CEO
Address:
Attention: Greg Urbanski or Mark W. Smith
BrowseSafe.com, Inc.
7202 East 87th Street, Suite 109
Indianapolis, Indiana 46256
Telephone: 317-915-9301
Facsimile: 317-915-9309
EXHIBIT E
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CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
BROWSESAFE.COM, INC.'s (the "Company") Advance Put Notice on the Advance Put
Date written below, and its intention to elect to exercise a Put to sell shares
of common stock ("Intended Put Share Amount") of the Company to the Investor, as
of the intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Swartz
Private Equity, LLC dated on or about March 14, 2000.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
INVESTOR(S)
-----------------------------------
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT F
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PUT NOTICE
BROWSESAFE.COM, INC. (the "Company") hereby elects to exercise a Put to sell
shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC dated on or about March 14, 2000.
Put Date :_________________
Intended Put Share Amount (from Advance Put
Notice):_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
BROWSESAFE.COM, INC.
By:____________________________________
Mark W. Smith, President & CEO
Address:
Attention: Greg Urbanski or Mark W. Smith
BrowseSafe.com, Inc.
7202 East 87th Street, Suite 109
Indianapolis, Indiana 46256
Telephone: 317-915-9301
Facsimile: 317-915-9309
EXHIBIT G
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CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
BrowseSafe.com, Inc. (the "Company") Put Notice and election to exercise a Put
to sell ___________________________ shares of common stock ("Common Stock") of
the Company to Investor, as of the Put Date, all pursuant to that certain
Investment Agreement (the "Investment Agreement") by and between the Company and
Swartz Private Equity, LLC dated on or about March 14, 2000.
Date of this Confirmation: ________________
Put Date :_________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
-----------------------------------
Investor's Name
By: _________________________________
(Signature)
Address: ____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
EXHIBIT H
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March __, 2000
Swartz Private Equity, LLC
1080 Holcomb Bridge Road
200 Rosewell Summit, Suite 285
Rosewell, GA 30076
Re: BrowseSafe.com, Inc.
Put Opinion
Ladies and Gentlemen:
This firm has acted as special counsel to BrowseSafe.com, Inc., a Nevada
corporation (the "Company"), in connection with the Regulation D Common Stock
Private Equity Line Investment Agreement (the "Investment Agreement"), dated as
of March __, 2000, by and between the Company and Swartz Private Equity, LLC
(the "Investor"), and the issuance and sale of shares of the Company's Common
Stock, $.001 par value ("Common Stock"), provided for thereunder. This opinion
is being delivered to the Investor pursuant to Section 2.3.5(b) of the
Investment Agreement in connection with the Put Notice and Closing provided for
therein. Capitalized terms used herein without definition have the respective
meanings assigned to them in the Investment Agreement and Registration Rights
Agreement.
In connection with and as the basis for these opinions, we have examined
originals or copies, certified or otherwise identified to us, of certain
documents, corporate records and other instruments, including the following (i)
the Articles of Incorporation of the Company, as amended, certified by the
Secretary of the Company; (ii) the By-laws of the Company as in effect on the
date hereof, as certified by an officer of the Company, (iii) a certificate
dated December 9, 1999 by the Secretary of State of the State of Nevada
regarding the existence and good standing of the Company as a corporation under
the laws of the State of Nevada and a review of the Nevada Secretary of State's
internet website as to the Company's continued good standing; (iv) the minute
books of the Company, including copies, certified to our satisfaction, of
resolutions adopted by the Board of Directors of the Company as of March 3,
2000, (v) the Investment Agreement; (vi) the Registration Rights Agreement;
(vii) Irrevocable Instructions to Transfer Agent; and (viii) certain Warrants
(the "Warrants") to purchase the Company's Common Stock to be issued to each
such Investor (the "Warrant Holder") in accordance with the Investment
Agreement. The items described in (v), (vi), (vii) and (viii) are sometimes
referred to in this Opinion as the "Transaction Documents."
We have also examined such other documents, records, certificates and
questions of law as we have considered necessary or appropriate for the purpose
of this opinion.
We have also examined, relied upon, and assumed the accuracy, where
appropriate, of the representations and warranties of the Company and the other
parties thereto contained in the Transaction Documents as to the matters of fact
therein represented. As to certain questions of fact material to the opinions
contained herein, we have, when appropriate, relied upon the representations of
each party made in the Investment Agreement and other Transaction Documents and
certificates or statements of public officials and officers and agents of the
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<PAGE>
Company, and we have assumed that any certificates or statements of public
officials dated earlier date hereof are accurate on the date hereof as if made
on and as of such date.
In our examination of Transaction Documents described above, we have
assumed the genuineness of all signatures of parties other than the Company, the
authenticity of all documents submitted to us as originals and the conformity to
authentic originals of all documents submitted to us as copies.
With respect to our opinions that the Common Stock, when issued, upon
exercise of the Put Shares and the Warrants and fulfillment of the terms of the
Transaction Documents, respectively, will be validly issued, we have assumed
that (i) such Common Stock will be evidenced by appropriate certificates, duly
executed and delivered and (ii) the Company will maintain a sufficient number of
authorized and unissued shares of Common Stock, at all times while the
Investment Agreement and Warrants are outstanding, to permit the issuance of the
Put Shares and the exercise of the Warrants in accordance with their terms.
In addition, we have assumed that the representations and warranties as
to factual matters and acknowledgments made by each Subscriber in Sections 3 and
4 of the Investment Agreement are true. We have also assumed that the Investor
has received all of the documents that the Investor was required to receive
under the Investment Agreement.
Based upon and subject to the foregoing and the qualifications,
limitations and assumptions set forth herein, it is our opinion that, as of the
date hereof:
1. The Company is a corporation duly incorporated and validly existing under the
laws the state of Nevada. The Company has the corporate power and authority to
carry on its business as currently conducted. The Company is duly qualified as a
foreign corporation in every jurisdiction that such qualification is necessary,
except where the failure to so qualify would not have a material adverse effect.
2. When the Put Shares are issued in accordance with the Investment
Agreement, or when shares of Common Stock are issued upon exercise of the
Warrants in accordance with the terms of the Warrants, such shares of Common
Stock will be duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock of the Company, free of all statutory or, to my
knowledge, preemptive or similar rights.
3. The Investment Agreement, the Registration Rights Agreement and the
irrevocable Instructions to Transfer Agent have been duly executed and delivered
and are valid and binding obligations of the Company, enforceable in accordance
with their respective terms.
4. It will not be necessary in connection with the issuance and sale of
the Put Shares, to register such securities under the Securities Act of 1933, as
amended ("Securities Act") and applicable state securities laws, and such
issuance and sale are exempt from such registration under Section 4(2) and/or
Regulation D Rule 506 of the Securities Act.
5. It will not be necessary to register the issuance and sale of the
Warrants, or the issuance of the Common Stock upon exercise of the Warrants
under the Securities Act and
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<PAGE>
applicable state securities laws, and such issuance and sale are exempt from
such registration under the Securities Act.
6. The execution, delivery and performance of the Transaction Documents,
the issuance of the Common Stock, the issuance of the Warrants and the issuance
of the Common Stock upon exercise of the Warrants have been duly approved by all
required corporate action on the part of the Company, and except for approval by
the Company's stockholders to increase the number of authorized shares of Common
Stock of the Company, no further consents of the Company or its Board of
Directors or stockholders are required.
7. In the course of the preparation of the Transaction Documents, which
involved, among other things, discussions and inquiries concerning the various
legal matters and the review of certain corporate records, documents and
proceedings, certain attorneys from our firm participated in conferences with
certain officers and other representatives of the Company during which the
contents of the Transaction Documents and related matters were discussed, and we
advised the Company as to the requirements of the Securities Act (including
Regulation D thereunder) and the applicable rules and regulations thereunder.
During the course of our representation nothing has come to our attention to
cause us to have reason to believe that the Transaction Documents contained any
untrue statement of a material fact or omit a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
8. To our knowledge, there is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending
or threatened, with respect to the Company or any of its operations, businesses,
properties, or assets, except as may be properly described in the Company's
reports filed under the Exchange Act, or such as individually or in the
aggregate do not now have, and will not in the future have, a material adverse
effect upon the operations, business, properties or assets of the Company.
Notwithstanding the foregoing, attached as Exhibit A is a discussion of certain
recent developments relating to the Funding Group which supplements the
discussion appearing in the Form 10-SB, as amended, as filed by the Company with
the Securities and Exchange Commission on November 24, 1999.
The opinions set forth herein are subject to the following
qualifications, limitations and assumptions:
(a) Our opinion in paragraph 3 above as to the enforceability of the
Transaction Documents is subject to (i) bankruptcy, insolvency, reorganization,
moratorium and other laws and legal principles of general application now or
hereafter in effect relating to or limiting the rights of creditors, and (ii)
such opinion does not mean that
(x) any particular remedy is available upon a material default or
(y) that a court will enforce every provision of a contract exactly as
it is written.
In addition, certain provisions of the Transaction Documents (including, without
limitation, indemnification provisions and provisions in the nature of
liquidated damages or penalties) may
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<PAGE>
not be enforceable in whole or in part under the laws or public policies of the
United States or the State of Nevada.
(b) We have assumed (i) that the Transaction Documents constitute the
legal, valid and binding obligations of the parties thereto other than the
Company, enforceable in accordance with the respective terms, (ii) that the
parties to the Transaction Documents, other than the Company, have the requisite
corporate power and authority to enter into such agreements and to perform their
respective obligations thereunder and (iii) that each of the parties to the
Transaction Documents, other than the Company, have duly authorized, executed
and delivered the Transaction Documents. We have also assumed the legal capacity
of all natural persons whose acts are relevant to the opinions rendered herein.
(c) We express no opinion and assume no responsibility as to the effect
of, or consequences resulting from, any legislative act or other change in law
occurring after the date of this letter.
(d) We express no opinion on the enforceability, under certain
circumstances, of provisions to the effect that failure to exercise or delay in
exercising any right or remedy will not operate as a waiver of that right or
remedy.
(e) We express no opinion on the enforceability, in certain
circumstances, of provisions waiving broadly or vaguely stated rights, statutory
or other rights representing public policy, or unknown future rights and of
provisions that rights or remedies are not exclusive.
(f) We express no opinion on limitations on the exercise of certain
contractual rights and remedies if the defaults are not material or the
penalties bear no reasonable relation to the damage suffered by the aggrieved
party as a result of the delinquencies or defaults.
(g) We express no opinion with respect to any application of the
usury laws of any jurisdiction.
(h) As to the conclusion expressed in paragraph 10, we have made no
independent investigation or inquiry and have relied on the statements of
officers of the Company and our examination of the Company's reports filed under
the Exchange Act. No inference as to our knowledge of any matters bearing on the
accuracy of any such statements should be drawn from the fact of our
representation of the Company.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred.
We are members of the Bar of the State of Indiana. We call your
attention to the fact that the Transaction Documents are stated therein to be
governed by the State of Georgia and that no attorneys with our firm are members
of the Bar of the State of Georgia. We express no opinion as to the
enforceability of the choice of law provisions of such documents under Georgia
law. The enforceability opinions contained herein are given on the assumption
that the internal laws (as opposed to conflict of law provisions) of the State
of Georgia are identical to those of the State of Indiana. This opinion is based
solely upon the foregoing state laws and the laws of the United States as
currently in effect.
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The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Transaction Documents and
may not be relied upon by, or delivered to, any other person or entity or for
any other purpose without our prior written consent.
Very truly yours,
LOWE GRAY STEELE & DARKO, LLP
cc: BrowseSafe.com, Inc.
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EXHIBIT A
The following is an update of the information provided in the Form 10-SB
relating to certain transactions involving the Funding Group. The Company
received two letters dated March 1, 2000, from Michael J. Morrison, an attorney
in Reno, Nevada, one of which states that he represents the Funding Group aka
Hemisphere Group of Companies and the other stating that he represents the
Funding Group aka Next Millennium Management, Ltd. Copies of these letters are
attached. The Company disputes the Funding Group's claim to the 2,738,000 shares
and Mr. Morrison's contention that the Form 10-SB contains false and misleading
disclosures relating to the Funding Group. The Company is currently evaluating
what actions to take with respect to this matter.
Keith Balderson, one of the Company's directors, is a principal of Next
Millennium Group, Ltd. In light of Mr. Morrison's letter stating that he
represented the Funding Group aka Next Millenium Group, Ltd., the Company
suggested to Mr. Balderson that he resign as a director. Mr. Balderson submitted
his resignation effective March 2, 2000, a copy of which is attached.
<PAGE>
Exhibit J
RISK FACTORS
An investment in our common stock involves a high degree of risk, and you should
purchase our common stock only if you can afford a complete loss. You should
consider carefully information about these risks, and all information contained
in this prospectus, before you buy our common stock.
Markets for our products are subject to change.
The markets for our products are characterized by rapid technological advances,
product obsolescence, changes in customer requirements and evolving regulatory
requirements and industry standards. Our future prospects will depend in part on
our ability to enhance our products in a timely manner and to identify, develop
and achieve market acceptance of new products that address new technologies and
standards and meet customer needs in the market. Any failure by us to anticipate
or to respond adequately to technological developments in our industry, changes
in customer requirements, or changes in regulatory requirements or industry
standards, or any significant delays in the development, introduction or
shipment of products, could have a material adverse effect on our business and
operating results.
The success of our products is dependent upon our ability to review Internet
sites.
A key element in our products is the personal review of Internet sites by our
trained staff. Our inability to review sites accurately and on a timely basis
due to the explosive growth of the Internet would have a material adverse effect
on our business and operating results.
We have incurred significant losses and expect to continue to do so.
To date, we have incurred significant losses. At December 31, 1999, our
accumulated deficit was approximately $1,615,000 and our working capital deficit
was $945,000 based upon our unaudited financial statements. For the year ended
December 31, 1999, we incurred a net loss of $1,075,000. For the year ended
December 31, 1998, we incurred a net loss of $541,420 based on our audited
financial statements. These losses have resulted primarily from a lack of
revenue due to the continued development of the product which is not market
ready and the associated costs of operating the Company during that period of
time.
We expect to continue to incur operating losses in the future. There is no
assurance that sales of our products and services will ever generate sufficient
revenues to fund our continuing operations, that we will generate positive cash
flow or that we will attain or sustain profitability.
We are a development stage business and have no significant revenues.
We are a development stage company and have yet to generate any material
revenues. We have had limited financial results upon which prospective investors
may base an
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<PAGE>
assessment of our potential. There is no assurance that we will
become profitable. We have experienced in the past and may experience in the
future many of the problems, delays and expenses encountered by any development
stage company, many of which are beyond our control. These include substantial
delays and expenses related to testing and development of new products,
production and marketing problems encountered in connection with new and
existing products and technologies, unexpectedly high costs, competition from
larger and more established companies, lack of market acceptance of new products
and technologies, and other unforeseen difficulties.
We have a limited operating history.
Although BrowseSafe was incorporated in 1990, it had no significant business
operations until July, 1999. Mark W. Smith, our President and Chief Executive
Officer, Gregory P. Urbanski, our Chief Financial Officer and Ted P. O'Brien our
Vice President of Sales and Marketing have been with us only since July, 1999.
Because of our limited operating history, you have limited information on which
to assess our ability to realize operating revenues or profits in the future.
We may require additional financing.
Lack of sufficient funding could force us to curtail substantially or cease our
operations, which would have a material adverse effect on our business. Based on
our potential rate of cash operating expenditures and our current plans, we
anticipate our cash requirements for the next 12 months may need to come
primarily from the proceeds of the Investment Agreement. However, our ability to
raise funds under the Investment Agreement is subject to certain conditions.
These conditions include the continuing effectiveness of a registration
statement covering the resale of the shares sold under the Investment Agreement
and a limitation on the number of shares we may issue based on the volume of
trading in the common stock. We anticipate that our future cash requirements may
be fulfilled by improved sales of products and services, the sale of additional
equity securities, debt financing and/or the sale or licensing of certain of our
technologies. However, there can be no assurance that any future funds required
in excess of the proceeds of the Investment Agreement will be generated from
operations or from the aforementioned or other potential sources. There can also
be no assurance that the required funds, if available, will be available on
attractive terms or that the terms under which they are raised will not
significantly dilute the interests of our existing shareholders.
Future growth is likely to strain our resources.
Any future growth is likely to place substantial strain on our administrative,
operational and financial resources. To manage this growth, we must establish
efficient systems and train and manage our employees. We have limited management
depth and we will have to employ experienced executives and key employees
capable of providing the necessary support. We cannot assure you that our
management will be able to manage our growth effectively or successfully. Our
failure to meet these challenges could have a material adverse effect on our
business and future profitability.
We rely upon key strategic relationships.
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We have established a number of strategic relationships with leading software
companies, such as Microsoft and Netscape, some of which can be terminated upon
the occurrence of certain circumstances. While we do not believe it is likely
that these agreements will be terminated, the loss of any one of these strategic
relationships would have a material adverse effect on our business, financial
condition and results of operations.
Intense competition from existing and new entities may adversely affect our
revenues and profitability.
The Internet industry is rapidly evolving and intensely competitive. There are
many internet browser software corporations. It is relatively easy for a new
company to enter our industry. We expect competition to continue and intensify
in the future. Many of our competitors have significantly greater financial,
technical, marketing and other resources than we do. For this reason, we may
lack the financial resources needed to increase our market share.
Some of our competitors also offer a wider range of services than we offer and
have greater name recognition and a larger customer base. These competitors may
be able to respond more quickly to new or changing opportunities, technologies
and customer requirements and may be able to undertake more extensive
promotional activities, offer more attractive terms to customers, and adopt more
aggressive pricing policies. This competition may lead to price and other forms
of competition that could adversely affect our business. We cannot assure you
that we will be able to compete effectively with current or future competitors
or that the competitive pressures faced by us will not harm our business.
We believe that our ability to compete successfully depends on a number of
factors both within and outside of our control, including: applications
innovation; product quality and performance; price; experienced sales, marketing
and service organizations; rapid development of new products and features; and
product and policy decisions announced by our competitors.
Management has discretion of spending of proceeds.
Our management will have broad discretion to spend the proceeds of this offering
without having to seek the approval of our stockholders. This means you are
relying on our management to use our funds properly and effectively. Changes in
our business plans, new needs or opportunities and industry trends may cause our
management to spend our funds for uses that we cannot predict at this time.
Protection of our intellectual property is limited and there is a risk of claims
for infringement.
We regard our trademarks, trade secrets (including our methodologies, practices
and tools) and copyrights as important to our success. If others infringe or
misappropriate our trademarks, copyrights or similar proprietary rights, our
business could be hurt. In addition, although we do not believe that we are
infringing the intellectual property rights
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of others, other parties might assert infringement claims against us. Such
claims, even if not true, could result in significant legal and other costs and
be a distraction to management. Protection of intellectual property rights in
many foreign countries is weaker and less reliable than in the United States, so
if our business expands into foreign countries, risks associated with
intellectual property will increase.
We depend on Mark W. Smith, Gregory P. Urbanski and Ted P. O'Brien and the loss
of their services could harm our business.
We place substantial reliance upon the efforts and abilities of our three key
executive officers -Mark W. Smith, our President and Chief Executive Officer,
Gregory P. Urbanski, our Chief Financial Officer and Ted O'Brien, our Vice
President of Sales and Marketing. The loss of the services of any of them could
have a material adverse effect on our business, operations, revenues or
prospects. We presently do not have employment agreements with any of them. We
have no assurance that they will remain in our employ. We do not maintain and we
do not intend to obtain key man insurance on the lives of Messrs. Smith,
Urbanski and O'Brien.
We may be subject to government regulation in the future that could adversely
affect our business.
Our Internet-related business, and the Internet industry generally, is presently
not subject to extensive government regulation. However, because the Internet is
still evolving, new laws or regulations may be implemented that specifically
impact our business. New laws or regulations may address issues such as user
privacy, freedom of expression, pricing of products and services, taxation,
advertising, intellectual property rights, information security and the
convergence of traditional communications services with Internet communications.
There can be no assurance that in the future, as the Internet market develops,
regulation of certain activities on the Internet will not be implemented and
that such regulation will not adversely impact our business and operations.
Our stock price is volatile.
The market price of our common stock has been and is likely to continue to be
volatile and could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new products by us or our competitors, changes in financial estimates by
securities analysts, overall equity market conditions or other events or
factors. We anticipate that these fluctuations may continue. Because our stock
is more volatile than the market as a whole, our stock is likely to be
disproportionately harmed by factors that significantly harm the market, such as
economic turmoil and military or political conflict, even if those factors do
not relate to our business. In the past, securities class action litigation has
often been brought against companies following periods of volatility in the
market price of their securities. If securities class action litigation is
brought against us it could result in substantial costs and a diversion of
management's attention and resources, which would hurt our business.
Trading of our common stock on the Pink Sheets may be limited.
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Our common stock was traded on the OTC Bulletin Board until January 20, 2000 at
which time it was de-listed due to our inability to clear comments from the
Securities and Exchange Commission on our Form 10-SB prior to our compliance
date of January 20, 2000 as provided in NASD Eligibility Rule 6430. The National
Association of Securities Dealers, which operates the OTC Bulletin Board,
adopted Eligibility Rule 6530 on January 4, 1999, which provides that companies
which are not filing reports under Sections 13 and 15(d) of the Securities
Exchange Act of 1934 are ineligible for listing on the NASDAQ Over-the-Counter
Bulletin Board ("OTCBB"). We filed our Form 10-SB on November 24, 2000, and it
became effective by operation of law on January 22, 2000. However, we are still
clearing comments from the Securities and Exchange Commission relating to our
financial statements which were included in our Form 10-SB. When we clear these
comments, we intend through one or more of our market makers to reapply to have
our common stock quoted on the OTC Bulletin Board. Until such time our common
stock is quoted on the OTC Bulletin Board, it will be quoted on the National
Quotation Bureau Pink Sheets. We cannot assure you that our stock will again be
quoted on the OTC Bulletin Board.
The effects of the de-listing could include the limited release of the market
prices of our common stock and limited news coverage of us. De-listing may
restrict investors' interest in our common stock and materially adversely affect
the trading market and prices for such securities and our ability to issue
additional securities or to secure additional financing.
Trading in our common stock on the OTC Bulletin Board may be limited.
Even if our stock is quoted on the OTC Bulletin Board, the OTC Bulletin Board is
not an exchange and, because trading of securities on the OTC Bulletin Board is
often more sporadic than the trading of securities listed on an exchange or
Nasdaq, you may have difficulty reselling any of the shares that you purchase.
Our common stock is subject to penny stock regulation.
Our common stock is subject to regulations of the Securities and Exchange
Commission relating to the market for penny stocks. These regulations generally
require that a disclosure schedule explaining the penny stock market and the
risks associated therewith be delivered to purchasers of penny stocks and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors. The
regulations applicable to penny stocks may severely affect the market liquidity
for our securities and could limit your ability to sell your securities in the
secondary market.
A significant percentage of our common stock is held by our directors and
executive officers.
Our directors and executive officers currently own approximately 61.9% of our
outstanding common stock. Accordingly, management is in a position to
significantly influence the election of our directors and all other matters that
are put to a vote of our shareholders.
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The exercise of options and warrants may adversely affect our stock price and
your percentage of ownership.
We have issued various warrants and options to purchase shares of our common
stock. In the future, we may grant more warrants or options under stock option
plans or otherwise. The exercise or conversion of stock options, warrants or
other convertible securities that are presently outstanding or that may be
granted in the future will dilute the percentage ownership of our other
shareholders.
The sale of restricted securities could cause the market price of our stock to
drop.
A substantial amount of our total outstanding shares are restricted from
immediate resale. We have commitments to issue additional shares, many of which
will also be restricted. However, restricted securities may be sold publicly
subject to certain limitations after a holding period of at least one year. The
one year holding period on many of these restricted shares will end at the end
of June, 2000. As restrictions on resale end, the market price could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
We may be involved in a lawsuit with a group claiming rights to stock.
We have certain disputes with a group of entities (the "Funding Group") which
were parties to an Asset & Liability Contribution Agreement and a Share Exchange
Agreement under which the Funding Group agreed to provide or cause third parties
to provide certain funding to the Company in 1999 in exchange for the issuance
shares of the Company's common stock. We did issue 2,738,000 shares but have not
delivered them to the Funding Group due to their failure to provide all of the
funding required by these agreements. In November, 1999, we advised all members
of the Funding Group in writing that they were in breach of the Share Exchange
Agreement and the Asset & Liability Contribution Agreement and provided them an
opportunity to remedy the breach. We received two letters dated March 1, 2000,
from an attorney in Reno, Nevada, one of which stated that he represents the
Funding Group aka Hemisphere Group of Companies and the other stating that he
represents the Funding Group aka Next Millennium Management, Ltd. The letter
demanded delivery of the 2,738,000 shares and contends that we have made false
and misleading disclosures about the Funding Group in our Form 10-SB which we
filed with the Securities and Exchange Commission in November, 1999.
In addition, Keith Balderson, who was one of our directors, is a principal of
Next Millennium Group, Ltd. In light of the letter from the attorney stating
that he represented the Funding Group aka Next Millenium Group, Ltd., we
suggested to Mr. Balderson that he resign as a director. Mr. Balderson submitted
his resignation effective March 2, 2000 without protest.
We strongly disagree that the Funding Group is entitled to the shares, believe
that the disclosures set out in our Form 10-SB are accurate and believe that we
will prevail if this matter results in a lawsuit. We are currently evaluating
what actions to take with respect to the claims of the Funding Group. If there
is a lawsuit and we do not prevail on it, it could have a significant negative
impact on us.
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We plan to re-domesticate in Delaware and adopt certain anti-takeover and
indemnification provisions and limitations on liability.
Our company is currently organized under Nevada law; however, we plan to
re-domesticate in Delaware. As a part of this re-domestication, we plan to adopt
certain provisions which could make the possible takeover of our company or the
removal of our management more difficult. These actions could discourage hostile
bids for control of our company that would allow stockholders to receive
premiums for their shares of common stock or otherwise dilute the rights of
holders of common stock.
We also intend to provide in our Certificate of Incorporation for the
indemnification of our officers, directors, employees and agents. Under certain
circumstances, they will be indemnified against attorney's fees and other
expenses incurred by them and judgments rendered against them in any litigation
to which they become a party arising from their association with or activities
on our behalf. We may also bear the expenses of such litigation for any of our
officers, directors, employees or agents, upon their promise to repay such sums
if it is ultimately determined that they are not entitled to indemnification.
This indemnification policy could result in substantial expenditures by us that
we may be unable to recoup even if we are entitled to do so.
We also intend to adopt provisions in our Certificate of Incorporation to
exclude personal liability on the part of our directors to us for monetary
damages for breach of fiduciary duty, except in certain specified circumstances.
Accordingly, we would have a much more limited right of action against our
directors than otherwise would be the case. This exclusionary provision does not
affect the liability of any director under federal or applicable state
securities laws.
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Exhibit K
Capitalization Schedule
The Company's total authorized common stock is 25,000,000 shares, $.001 par
value(1)
As of March 3, 2000, the total issued and outstanding shares of Common Stock are
18,075,346(2).
The Company has commitments to issue additional shares of Common Stock as
follows:
Pursuant to the agreement with California Applied Research, Inc. ("CAR") based
upon its funding to date, 3,000,000 restricted shares will be issued. An
additional 3,000,000 shares will be issued upon the funding of the third traunch
which is anticipated to occur as of March 31, 2000. These shares have piggy-back
registration rights.
Also, in connection with the CAR transaction, there will be issued five year
warrants to purchase 550,000 shares of Common Stock in accordance with the
following schedule: 475,000 warrants issued prorata as funds are received by the
Company and 75,000 warrants to be issued as a bonus when and if all funds have
been tendered to the company on or before March 31, 2000. Based upon the funding
to date, 237,500 shares will be issued with the remaining 312,500 shares to be
issued upon the funding of the third traunch by March 31, 2000. The shares
issued pursuant to the warrants will have piggy-back registration rights.
The Company will be issuing 550,000 shares to Ronald Ardt of Business Investor
Services, Inc. upon the filing of a Form S-8 in connection with consulting
services.
The Company will be issuing 50,000 shares to Len Shorkey upon the filing of a
Form S-8 in connection with consulting services.
The Company will be issuing 450,000 shares of restricted stock to Palladin
Management Company, Ltd. for market awareness and other services. These shares
have piggy-back registration rights.
- --------
1 The Company has advised Investor that the it does not have sufficient shares
of the Common Stock authorized under its articles of incorporation to issue all
of the shares relating to outstanding warrants and options or to issue the
Common Stock contemplated by this Agreement. The Company shall prior to the
Registration Statement becoming effective at either its next annual shareholder
meeting or at a special meeting to be held for such purpose use its best efforts
to obtain approval of its shareholders to increase in the number of authorized
shares of Common Stock of the Company to a number which is sufficient to cover
all of said warrants and stock options as well as at least 12,000,000 shares to
be reserved for this Offering.
2 The records of the Company's transfer agent actually shows 19,075,346 shares
outstanding; however, 1,000,000 of those shares were held in escrow in
connection with certain bridge financing previously entered into with RIM
Capital Group, LLC. The certificates relating to this 1,000,000 shares have been
returned to the Company but have not yet been entered by the transfer agent as
cancelled.
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The Company will be issuing 424,000 shares of restricted stock to Victoria Lee
of Blake Davis & Co., Inc. in connection with certain services relating to
establishing the relationship between the Company and CAR and Swartz Private
Equity, LLC. These shares have piggy-back registration rights.
The Company is obligated to issue 190,571 shares of restricted stock to various
individuals who were early investors in the Company. These shares have
piggy-back registration rights.
The Company has adopted a non-qualified incentive stock option plan to purchase
up to 3,000,000 shares of Common Stock under the plan. The Company has issued
stock options to purchase an aggregate of 1,250,000 shares of common stock to
its executive officers and directors.
As soon as practicable after the Share Authorization Increase Approval, the
Company will use its best efforts to reserve not less than 12,000,000 shares of
Common Stock for issuance under this Agreement.
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Exhibit L
Uses of Investment Proceeds
We expect to sell to the Investor not less than $10,000,000 and not more
than $30,000,000 of Common Stock under the Agreement. Additional amounts may be
received if the warrants to purchase common stock are exercised. We intend to
use the net proceeds from this offering as follows:
o Production 130,617
o Server Infrastructure and Bandwidth 821,012
o Marketing / Public Relations 4,814,617
o Internal Operations 2,468,495
o Research & Development 335,000
o Programming 406,400
o Creditor Payments 730,923
o Working Capital 292,936
-------
TOTAL $10,000,000
o Production 326,542
o Server Infrastructure and Bandwidth 4,028,084
o Marketing / Public Relations 13,444,851
o Internal Operations 8,740,683
o Research & Development 885,000
o Programming 975,000
o Creditor Payments 730,923
o Working Capital 868,917
-------
TOTAL $30,000,000
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EXHIBIT M
For purposes of this Exhibit M, the term the "Company" means BrowseSafe.com,
Inc. or its wholly owned subsidiary, BrowseSafe Technology, Inc.
Patents
The Company has no patents or patent applications.
Trademarks and Trademark Registrations
A. The Company owns the following trademarks for which a registration has
issued or an application for registration is pending on the Principal
Register of the U.S. Patent and Trademark Office:
1. Mark: PLANETGOOD (typed form)
Serial No.: 75-481,989
Filing Date: May 8, 1998
Goods: software for personal computer security while
accessing a global computer network
Int'l Class: 09
Status: Registered (Reg. No. 2,288,288, issued October
19, 1999)
2. Mark: BrowseSafe (stylized form)
Serial No.: 75-509,479
Filing Date: June 26, 1998
Goods: software for personal computer security while
accessing a global computer network
Int'l Class: 09
Status: Registration application pending (Statement of Use
filed; non-final Office Action mailed on November
2, 1999)
3. Mark: PLANETHOME (typed form)
Serial No.: 75-583,955
Filing Date: November 6, 1998
Services: computer services, namely, providing quality
assurance services and usability reviews in the
field of web sites
Int'l Class: 42
Status: Registration application pending (Statement of Use
filed; assigned to examiner on February 4, 2000)
4. Mark: PLANETWOW (typed form)
Serial No.: 75-584,324
Filing Date: November 6, 1998
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Services: computer services, namely, providing quality
assurance services and usability reviews in the
field of web sites
Int'l Class: 42
Status: Registration application pending (Statement of Use
filed; assigned to examiner on February 4, 2000)
5. Mark: PLANETCOOL (typed form)
Serial No.: 75-584,378
Filing Date: November 6, 1998
Services: computer services, namely, providing quality
assurance services and usability reviews in the
field of web sites
Int'l Class: 42
Status: Registration application pending (Notice of
Allowance mailed on January 25, 2000)
All registrations and applications are presently of record in the name of the
Company's predecessor-in-interest, BrowseSafe, LLC (an Indiana limited liability
company). BrowseSafe, LLC contributed all of its assets and liabilities,
including its intellectual property, to BrowseSafe Technology, Inc., a wholly
owned subsidiary of the Company pursuant to an Asset & Liability Contribution
Agreement in May, 1999. The Company intends to make the necessary filings with
U.S. Patent and Trademark Office to reflect this transfer.
B. The Company uses various designs, logos and composite marks on its product
packaging, promotional materials and website (found at
(www.browsesafe.com)) which are trademarks of the Company, but for which
no applications for registration have been filed to-date with the U.S.
Patent and Trademark Office or any other registration authority. These
include:
1. A logo depicting the planet Earth, sometimes used with the trade name
"BrowseSafe.com" and a shadow grounding effect directly below (see
website at: (www.browsesafe.com/aboutbrowsesafe/main)).
2. A logo consisting of a square block design with the letters "PG"
depicted in large, bold letters against a gold color background in a
center panel of the block, with narrower panels of blue and red across
the top and bottom, respectively. This design is sometimes depicted
with the trademark "PlanetGood" in the top panel and the phrase
"Family Safe Internet Browsing" directly below the "PG" in the center
and bottom panels. (see website at:
(www.browsesafe.com/aboutplanetgood/main) and at:
(www.browsesafe.com/newsandpress/order)).
3. The mark "PlanetBiz", which has been adopted by the Company and
introduced on its website for a forthcoming Internet utilization
control product intended for use by businesses.
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Trade Names
The Company uses the trade names "BrowseSafe" and "BrowseSafe.com".
Copyrights
The Company holds copyrights in various computer programs, including existing
versions of "PlanetGood" browser software and programs used in-house by the
Company. The Company also holds copyrights in the technical manuals and
instructional materials for its software products as well as promotional
materials associated with its products and services. No applications for
registration of a copyright in any of the Company's computer programs or other
copyrightable works have been filed to-date.
Licenses and Assignments by the Company
Use of the Company's software products by consumers and others is subject to the
terms and conditions of an end-user license agreement which accompanies the
software. The Company authorizes various Internet Service Providers (ISP's) to
promote and distribute the Company's products and services online to consumers
and other end-users.
Except for such licenses and authorizations, the Company has neither assigned
nor otherwise transferred any of its intellectual property necessary to the
conduct of its business.
Licenses Granted to the Company
The Company has not been granted any licenses, know-how, technology and/or other
intellectual property that is necessary to the conduct of its business, other
than standard end-user licenses for the use of various commercially available
software products used by the Company for office administration, management and
operations.
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Exhibit N
Key Employees
The Company's Key Employees are as follows:
Mark W. Smith, President, Chief Executive Officer and Director
Ted P. O'Brien, Secretary, Vice President of Sales & Marketing and
Director
Gregory P. Urbanski, Treasurer, Chief Financial Officer and Director
Erik A. Hannemann, Director of Information Technology
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PUT CANCELLATION NOTICE
BROWSESAFE.COM, INC. (the "Company") hereby cancels the Put specified below,
pursuant to that certain Investment Agreement (the "Investment Agreement") by
and between the Company and Swartz Private Equity, LLC dated on or about March
14, 2000, as of the close of trading on the date specified below (the
"Cancellation Date," which date must be on or after the date that this notice is
delivered to the Investor), provided that such cancellation shall not apply to
the number of shares of Common Stock equal to the Truncated Put Share Amount (as
defined in the Investment Agreement).
Cancellation Date: ________________________
Put Date of Put Being Canceled: ___________
Number of Shares Put on Put Date: _________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective
Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
BROWSESAFE.COM, INC.
By:____________________________________
Mark W. Smith, President & CEO
Address:
Attention: Greg Urbanski or Mark W. Smith
BrowseSafe.com, Inc.
7202 East 87th Street, Suite 109
Indianapolis, Indiana 46256
Telephone: 317-915-9301
Facsimile: 317-915-9309
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EXHIBIT Q
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_______________, 2000
Swartz Private Equity, LLC
1080 Holcomb Bridge Road
200 Rosewell Summit, Suite 285
Rosewell, GA 30076
Re: BrowseSafe.com, Inc.
Registration Opinion
Ladies and Gentlemen:
Supplementing the Put Opinion of Counsel issued pursuant to the
Regulation D Common Stock Private Equity Line Investment Agreement, dated as of
March __, 2000, by and between the Company and the Investor named therein
("Investment Agreement"), the following supplemental opinions are provided
pursuant to Section 2.3.6(a) of the Investment Agreement:
(a) The Registration Statement has become effective under the Securities
Act, and to the best of our 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 are threatened by
the Securities and Exchange Commission.
(b) We have participated in the preparation of the Registration
Statement and related Prospectus and after due inquiry nothing has come to our
attention to cause us to have reason to believe that the Registration Statement,
the related Prospectus, or any Amendment or Supplement thereto, at the time it
became effective or as of the date hereof, contained any untrue statement of a
material fact required to be stated therein or omitted to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus or any Supplement thereto contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make statements therein, in light of the circumstances
under which they were made, not misleading.
All of the qualifications, limitations and assumptions contained in the
related Put Opinion are hereby incorporated by reference.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred.
We are members of the Bar of the State of Indiana. We call your
attention to the fact that the Transaction Documents are stated therein to be
governed by the State of Georgia and that no attorneys with our firm are members
of the Bar of the State of Georgia. We express no opinion as to the
enforceability of the choice of law provisions of such documents under Georgia
law. The enforceability opinions contained herein are given on the assumption
that the internal laws (as opposed to conflict of law provisions)
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of the State of Georgia are identical to those of the State of Indiana. This
opinion is based solely upon the foregoing state laws and the laws of the United
States as currently in effect.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Transaction Documents and
may not be relied upon by, or delivered to, any other person or entity or for
any other purpose without my prior written consent.
Very truly yours,
LOWE GRAY STEELE & DARKO, LLP
cc: BrowseSafe.com, Inc.
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PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the BrowseSafe.com, Inc.'s, and Swartz Private
Equity, LLC dated on or about March 14, 2000, hereby confirms receipt of
BrowseSafe.com, Inc.'s (the "Company") Put Cancellation Notice, and confirms the
following:
Date of this Confirmation: ________________
Put Cancellation Date : ___________________
INVESTOR(S)
-----------------------------------
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
EXHIBIT S
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March 14, 2000
Attn: Gina Zapara
Alexis Stock Transfer
43725 Monterey Ave., Suite A
Palm Desert, CA 92260
Telephone: (760) 773-9227
Fax: (760) 773-5881
Dear Ms. Zapara:
Reference is made to that certain Investment Agreement (the "Investment
Agreement"), dated on or about March 14, 2000, by and among BrowseSafe.com,
Inc., a Nevada corporation (the "Company"), and the other signatories thereto
(the "Holders") pursuant to which the Company, at times and amounts chosen by
the Company, as further described in the Investment Agreement, may issue to the
Holder up to Thirty Million Dollars ($30,000,000) in aggregate principal amount
of Common Stock of the Company (the "Put Shares"), and warrants (the "Warrants")
to purchase Common Stock (the "Warrant Shares") of the Company's.
A. Issuance of Put Shares. This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent of
the Company at such time) to issue unlegended Put Shares in the name of the
Holder (or in the name of its nominee, at the Holder's request) from time to
time upon surrender to you of (i) a letter from the Company, instructing you to
issue a specified number of Put Shares to the Holder, (ii) a properly completed
and duly executed Put Notice, in the form attached hereto as Exhibit 1, which
has been properly agreed and acknowledged by the Company as indicated by the
signature of a duly authorized officer of the Company thereon, (iii)
Registration Confirmation (as defined below) and (iv) an opinion of counsel
("Put Opinion of Counsel") in substantially the form of the applicable opinion
in Composite Exhibit 2.
B. Issuance of Warrant Shares. This letter shall serve as our
irrevocable authorization and direction to you (provided that you are the
transfer agent of the
Exhibit T
103
<PAGE>
Company at such time) to issue unlegended Warrant Shares in the name of the
Holder (or in the name of its nominee, at the Holder's request) from time to
time upon surrender to you of (i) a letter from the Company, instructing you to
issue a specified number of Warrant Shares to the Holder, (ii) a properly
completed and duly executed Warrant Exercise Form, in the form attached hereto
as Exhibit 3, which has been properly agreed and acknowledged by the Company as
indicated by the signature of a duly authorized officer of the Company thereon,
(iii) Registration Confirmation (as defined below) and (iv) an opinion of
counsel ("Warrant Opinion of Counsel") in substantially the form of Exhibit 4.
C. Legend Free Certificates. So long as you have previously received:
(i) written confirmation from counsel to the Company (which counsel may be
in-house legal counsel) that a registration statement covering resales of the
Put Shares and Warrant Shares has been declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and (ii) a
copy of such registration statement, ((i) and (ii) above are collectively
referred to as "Registration Confirmation"), certificates representing the Put
Shares and Warrant Shares shall not bear any legend restricting transfer of the
Put Shares or Warrant Shares and should not be subject to any stop-transfer
restriction.
If you have not previously received Registration Confirmation, then the
Put Shares shall not be issued, and the certificates representing the Warrant
Shares shall be issued, but shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES, THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS."
provided, however, that the Company may from time to time notify you to place
stop-transfer restriction on the certificates for outstanding Put Shares and
Warrant Shares in the event a registration statement covering resales of the Put
Shares and the Warrant Shares is subject to amendment for events then current.
Please be advised that the Holders are relying upon this letter as an inducement
to enter into the Investment Agreement.
Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact me at 317-915-9301 .
104
<PAGE>
Very truly yours,
BROWSESAFE.COM, INC.
By:________________________________
Mark W. Smith, President & CEO
Agreed and Acknowledged:
TRANSFER AGENT HOLDER
ALEXIS STOCK TRANSFER SWARTZ PRIVATE EQUITY, LLC
By:
---------------------------
By:
---------------------------
Name: Eric S. Swartz, Manager
-------------------------
Title:
Date: March 14,1999 Date March 14,1999
--- ---
Enclosures
105
<PAGE>
ATTACHED EXHIBITS 1 - 4
106
<PAGE>
WARRANT SIDE AGREEMENT
THIS WARRANT SIDE AGREEMENT (the "Agreement") is entered into as of
March 14, 2000, by and among BROWSESAFE.COM, INC., a corporation duly organized
and existing under the laws of the State of Nevada (the "Company") and Swartz
Private Equity, LLC (hereinafter referred to as "Swartz").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Equity Line") of up to
Thirty Million Dollars ($30,000,000), excluding any funds paid upon exercise of
the Warrants, of Common Stock of the Company pursuant to that certain Investment
Agreement (the "Investment Agreement") between the Company and Swartz dated on
or about March 14, 2000, the Company has agreed to sell and Swartz has agreed to
purchase, from time to time as provided in the Investment Agreement, shares of
the Company's Common Stock for a maximum aggregate offering amount of Thirty
Million Dollars ($30,000,000); and
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed, among other things, to issue to the Subscriber Commitment Warrants,
as defined in the Investment Agreement, to purchase a number of shares of Common
Stock, exercisable for five (5) years from their respective dates of issuance.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Issuance of Commitment Warrants. As compensation for entering into the Equity
Line, Swartz received a warrant convertible into 570,000shares of the Company's
Common Stock, in the form attached hereto as Exhibit A (the "Commitment
Warrants").
2. Issuance of Additional Warrants. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a smaller number of shares (a "Reverse Stock Split"), then on
the date of such Reverse Stock Split, and on each one year anniversary (each, an
"Anniversary Date") of the Reverse Stock Split thereafter throughout the term of
the Commitment Warrants, the Company shall issue to Swartz additional warrants
(the "Additional Warrants"), in the form of Exhibit A, to purchase a number of
shares of Common Stock, if necessary, such that the sum of the number of
Warrants and the number of Additional Warrants issued to Swartz shall equal 3.0%
of the number of shares of Common Stock of the Company that are outstanding
immediately following the Reverse Stock Split or Anniversary Date, as
applicable. The Additional Warrants shall be exerciseable at the same price as
the Commitment Warrants, shall have the same reset provisions as the Commitment
Warrants, shall have piggyback registration rights and shall have a 5 year term.
107
<PAGE>
3. Opinion of Counsel. Concurrently with the issuance and delivery of the
Commitment Opinion (as defined in the Investment Agreement) to the Investor, or
on the date that is six (6) months after the date of this Agreement, whichever
is sooner, the Company shall deliver to the Investor an Opinion of Counsel
(signed by the Company's independent counsel) covering the issuance of the
Commitment Warrants and the Additional Warrants, and the issuance and resale of
the Common Stock issuable upon exercise of the Warrants and the Additional
Warrants.
4. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 14th day of March, 2000.
BROWSESAFE.COM, INC., SUBSCRIBER:
SWARTZ PRIVATE EQUITY, LLC.
By: ________________________________ By: ________________________________
Mark W. Smith, President & CEO Eric S. Swartz, Manager
7202 East 87th Street, Suite 109 1080 Holcomb Bridge Road
Indianapolis, Indiana 46256 Bldg. 200, Suite 285
Telephone: 317-915-9301 Roswell, GA 30076
Facsimile: 317-915-9309 Telephone: (770) 640-8130
Facsimile: (770) 640-7150
108
EXHIBIT 4.9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of March 14, 2000, by and among BrowseSafe.com, Inc., a corporation duly
incorporated and existing under the laws of the State of Nevada (the "Company")
and the subscriber as named on the signature page hereto (hereinafter referred
to as "Subscriber").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to Thirty
Million Dollars ($30,000,000), excluding any funds paid upon exercise of the
Warrants, of Common Stock of the Company pursuant to that certain Investment
Agreement of even date herewith (the "Investment Agreement") between the Company
and the Subscriber, the Company has agreed to sell and the Subscriber has agreed
to purchase, from time to time as provided in the Investment Agreement, shares
of the Company's Common Stock for a maximum aggregate offering amount of Thirty
Million Dollars ($30,000,000);
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed to issue to the Subscriber, from time to time, Commitment Warrants
and Purchase Warrants, each as defined in the Investment Agreement, to purchase
a number of shares of Common Stock, exercisable for five (5) years from their
respective dates of issuance (collectively, the "Subscriber Warrants" or the
"Warrants"); and
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed to provide the Subscriber with certain registration rights with
respect to the Common Stock to be issued in the Offering and the Common Stock
issuable upon exercise of the Subscriber Warrants as set forth in this
Registration Rights Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the Recitals
above), the following terms shall have the following meanings (such meanings to
be equally applicable to both singular and plural forms of the terms defined):
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Additional Registration Statement" shall have the meaning set
forth in Section 3(b).
<PAGE>
"Amended Registration Statement" shall have the meaning set forth
in Section 3(b).
"Business Day" shall have the meaning set forth in the Investment
Agreement.
"Closing Bid Price" shall have the meaning set forth in the
Investment Agreement.
"Common Stock" shall mean the common stock, par value $0.01, of
the Company.
"Due Date" shall mean the date that is one hundred twenty (120)
days after the date of this Agreement.
"Effective Date" shall have the meaning set forth in Section 2.4.
"Filing Deadline" shall mean the date that is forty five (45)
days after the date of next shareholder meeting of the Company held after the
date of this Agreement.
"Holder" shall mean Subscriber, and any other person or entity
owning or having the right to acquire Registrable Securities or any permitted
assignee thereof;
"Piggyback Registration" and "Piggyback Registration Statement"
shall have the meaning set forth in Section 4.
"Put" shall have the meaning as set forth in the Investment
Agreement.
"Register," "Registered," and "Registration" shall mean and refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and pursuant to Rule 415 under the Act or any successor rule, and the
declaration or ordering of effectiveness of such registration statement or
document.
"Registrable Securities" shall have the meaning set forth in
Section 2.1.
"Registration Statement" shall have the meaning set forth in
Section 2.2.
"Rule 144" shall mean Rule 144, as amended, promulgated under the
Act.
"Subscriber" shall have the meaning set forth in the preamble to
this Agreement.
"Subscriber Warrants" shall have the meaning set forth in the
above Recitals.
"Investment Agreement" shall have the meaning set forth in the
Recitals hereto.
<PAGE>
"Supplemental Registration Statement" shall have the meaning set
forth in Section 3(b).
"Warrants" shall have the meaning set forth in the above
Recitals.
"Warrant Shares" shall mean shares of Common Stock issuable upon
exercise of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities" shall mean
those shares of the Common Stock of the Company together with any capital stock
issued in replacement of, in exchange for or otherwise in respect of such Common
Stock, that are: (i) issuable or issued to the Subscriber pursuant to the
Investment Agreement or in this Agreement, and (ii) issuable or issued upon
exercise of the Subscriber Warrants; provided, however, that notwithstanding the
above, the following shall not be considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed to
be Registrable Securities, if and to the extent that those shares of Common
Stock may be resold in a public transaction without volume limitations or other
material restrictions without registration under the Act, including without
limitation, pursuant to Rule 144 under the Act; and
(b) any shares of Common Stock which have been
sold in a private transaction in which the transferor's rights under this
Agreement are not assigned.
2.2 Filing of Initial Registration Statement. The Company shall,
by the Filing Deadline, file a registration statement ("Registration Statement")
on Form SB-2 (or other suitable form, at the Company's discretion, but subject
to the reasonable approval of Subscriber), covering the resale of a number of
shares of Common Stock as Registrable Securities equal to at least Twelve
Million (12,000,000) shares of Common Stock and shall cover, to the extent
allowed by applicable law, such indeterminate number of additional shares of
Common Stock that may be issued or become issuable as Registrable Securities by
the Company pursuant to Rule 416 of the Act. In the event that the Company has
not filed the Registration Statement by the Filing Deadline, then the Company
shall pay to Subscriber an amount equal to $500, in cash, for each Business Day
after the Filing Deadline until such Registration Statement is filed, payable
within ten (10) Business Days following the end of each calendar month in which
such payments accrue.
2.3 [Intentionally Left Blank].
2.4 Registration Effective Date. The Company shall use its best
efforts to have the Registration Statement declared effective by the SEC (the
date of such
<PAGE>
effectiveness is referred to herein as the "Effective Date") by the Due Date.
2.5 [Intentionally Left Blank].
2.6 [Intentionally Left Blank].
2.7 Shelf Registration. The Registration Statement shall be
prepared as a "shelf" registration statement under Rule 415, and shall be
maintained effective until all Registrable Securities are resold pursuant to
such Registration Statement.
2.8 Supplemental Registration Statement. Anytime the Registration
Statement does not cover a sufficient number of shares of Common Stock to cover
all outstanding Registrable Securities, the Company shall promptly prepare and
file with the SEC such Supplemental Registration Statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
such Registrable Securities and shall use its best efforts to cause such
Supplemental Registration Statement to be declared effective as soon as
possible.
3. Obligations of the Company. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a Registration Statement with respect to such Registrable Securities and
use its best efforts to cause such Registration Statement to become effective
and to remain effective until all Registrable Securities are resold pursuant to
such Registration Statement, notwithstanding any Termination or Automatic
Termination (as each is defined in the Investment Agreement) of the Investment
Agreement.
(b) Prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection with such
Registration Statement ("Amended Registration Statement") or prepare and file
any additional registration statement ("Additional Registration Statement,"
together with the Amended Registration Statement, "Supplemental Registration
Statements") as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such Supplemental
Registration Statements or such prior registration statement and to cover the
resale of all Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or Blue Sky
laws of the jurisdictions in which the Holders are located, of such other
jurisdictions as shall be reasonably requested by the Holders of the Registrable
Securities covered by such
<PAGE>
Registration Statement and of all other jurisdictions where legally required,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) [Intentionally Omitted].
(f) As promptly as practicable after becoming aware of such
event, notify each Holder of Registrable Securities of the happening of any
event of which the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Holder as such Holder may reasonably
request.
(g) Provide Holders with notice of the date that a Registration
Statement or any Supplemental Registration Statement registering the resale of
the Registrable Securities is declared effective by the SEC, and the date or
dates when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity and
a reasonable amount of time, based upon reasonable notice delivered by the
Company, to conduct a reasonable due diligence inquiry of Company's pertinent
financial and other records and make available its officers and directors for
questions regarding such information as it relates to information contained in
the Registration Statement.
(i) Provide Holders and their representatives the opportunity to
review the Registration Statement and all amendments or supplements thereto
prior to their filing with the SEC by giving the Holder at least ten (10)
business days advance written prior to such filing.
(j) Provide each Holder with prompt notice of the issuance by the
SEC or any state securities commission or agency of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceeding for such purpose. The Company shall use its best efforts to prevent
the issuance of any stop order and, if any is issued, to obtain the removal
thereof at the earliest possible date.
(k) Use its best efforts to list the Registrable Securities
covered by the Registration Statement with all securities exchanges or markets
on which the Common Stock is then listed and prepare and file any required
filing with the NASD, American Stock Exchange, NYSE and any other exchange or
market on which the Common Stock is listed.
4. Piggyback Registration. If anytime prior to the date that the
Registration Statement is declared effective or during any Ineffective Period
(as defined in the Investment Agreement) the Company proposes to register
(including for this purpose a
<PAGE>
registration effected by the Company for shareholders other than the Holders)
any of its Common Stock under the Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely for
the sale of securities to participants in a Company stock plan or a registration
on Form S-4 promulgated under the Act or any successor or similar form
registering stock issuable upon a reclassification, upon a business combination
involving an exchange of securities or upon an exchange offer for securities of
the issuer or another entity), the Company shall, at such time, promptly give
each Holder written notice of such registration (a "Piggyback Registration
Statement"). Upon the written request of each Holder given by fax within ten
(10) days after mailing of such notice by the Company, the Company shall cause
to be included in such registration statement under the Act all of the
Registrable Securities that each such Holder has requested to be registered
("Piggyback Registration") to the extent such inclusion does not violate the
registration rights of any other security holder of the company granted prior to
the date hereof; provided, however, that nothing herein shall prevent the
Company from withdrawing or abandoning such registration statement prior to its
effectiveness.
5. [Intentionally Left Blank].
6. Dispute as to Registrable Securities. In the event the Company
believes that shares sought to be registered under Section 2 or Section 4 by
Holders do not constitute "Registrable Securities" by virtue of Section 2.1 of
this Agreement, and the status of those shares as Registrable Securities is
disputed, the Company shall provide, at its expense, an Opinion of Counsel,
reasonably acceptable to the Holders of the Securities at issue (and
satisfactory to the Company's transfer agent to permit the sale and transfer),
that those securities may be sold immediately, without volume limitation or
other material restrictions, without registration under the Act, by virtue of
Rule 144 or similar provisions.
7. Furnish Information. At the Company's request, each Holder shall
furnish to the Company such information regarding Holder, the Registrable
Securities held by it, and the intended method of disposition of such securities
to the extent required to effect the registration of its Registrable Securities
or to determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act. The Company shall include all information
provided by such Holder pursuant hereto in the Registration Statement,
substantially in the form supplied, except to the extent such information is not
permitted by law.
8. Expenses. All expenses, other than commissions and fees and expenses
of counsel to the selling Holders, incurred in connection with registrations,
filings or qualifications pursuant hereto, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
9. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) (i) To the extent permitted by law, the Company will
indemnify
<PAGE>
and hold harmless each Holder, the officers, directors, partners, legal counsel,
and accountants of each Holder, any underwriter (as defined in the Act, or as
deemed by the Securities Exchange Commission, or as indicated in a registration
statement) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of Section 15 of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements or omissions: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or (ii)
the omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, and
the Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 9(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person; provided however, that the above shall not relieve the Company from any
other liabilities which it might otherwise have.
(ii) To the extent permitted by law, each Holder will
indemnify and hold harmless the Company, its officers, directors, partners,
legal counsel, and accountants, any underwriter (as defined in the Act, or as
deemed by the Securities Exchange Commission, or as indicated in a registration
statement) for the Company and each person, if any, who controls such Company or
underwriter within the meaning of Section 15 of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements or omissions made by
such Holder: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, and such Holder will reimburse the Company, its officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without
<PAGE>
the consent of such Holder (which consent shall not be unreasonably withheld),
nor shall such Holder be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Company, its officer, director, underwriter or controlling person; provided
however, that the above shall not relieve such Holder from any other liabilities
which it might otherwise have.
(b) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume, the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.
(c) In the event that the indemnity provided in paragraph (a) of this
Section 9 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and each Holder agree to contribute to the
aggregate claims, losses, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Holders may
be subject in such proportion as is appropriate to reflect the relative fault of
the Company and the Holders in connection with the statements or omissions which
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or by the Holders. The Company and the Holders agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person who controls a
Holder of Registrable Securities within the meaning of either the Securities Act
or the Exchange Act and each director, officer, partner, employee and agent of a
Holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act and each director
<PAGE>
and officer of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (c).
(d) The obligations of the Company and Holders under this Section
9 shall survive the resale, if any, of the Common Stock, the completion of any
offering of Registrable Securities in a Registration Statement under this
Agreement, and otherwise.
10. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144; and
(b) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the Act and the
1934 Act.
11. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the written consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Attention: Greg Urbanski or Mark W. Smith;
BrowseSafe.com, Inc., 335 W. 9th St., Indianapolis, IN 46202; Telephone: (317)
633-6656, Facsimile: (317) 633-6655 (or at such other location as directed by
the Company in writing) and (ii) the Holders at their respective last address as
the party as shown on the records of the Company. Any notice, except as
otherwise provided in this Agreement, shall be made by fax and shall be deemed
given at the time of transmission of the fax.
13. Termination. This Agreement shall terminate on the date all
Registrable Securities cease to exist (as that term is defined in Section 2.1
hereof); but without prejudice to (i) the parties' rights and obligations
arising from breaches of this Agreement occurring prior to such termination (ii)
other indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a
Registration, a
<PAGE>
writing executed by such transferee agreeing to be bound as a Holder by the
terms of this Agreement), and the Company hereby agrees to file an amended
registration statement including such transferee or a selling security holder
thereunder; and provided further that the Company may transfer its rights and
obligations under this Agreement to a purchaser of all or a substantial portion
of its business if the obligations of the Company under this Agreement are
assumed in connection with such transfer, either by merger or other operation of
law (which may include without limitation a transaction whereby the Registrable
Securities are converted into securities of the successor in interest) or by
specific assumption executed by the transferee.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
16. Execution in Counterparts Permitted. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
17. Specific Performance. The Holder shall be entitled to the remedy of
specific performance in the event of the Company's breach of this Agreement, the
parties agreeing that a remedy at law would be inadequate.
18. Indemnity. Each party shall indemnify each other party against any and
all claims, damages (including reasonable attorney's fees), and expenses arising
out of the first party's breach of any of the terms of this Agreement.
<PAGE>
19. Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Investment Agreement, the Common
Stock certificates, and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 14thday of March, 2000.
BROWSESAFE.COM, INC.
By: /S/
-----------------------------------
Mark W. Smith, President & CEO
Address:
Attention: Greg Urbanski or Mark W. Smith
BrowseSafe.com, Inc.
335 W. 9th St.
Indianapolis, IN 46202
Telephone: (317) 633-6656
Facsimile: (317) 633-6655
SUBSCRIBER:
SWARTZ PRIVATE EQUITY, LLC.
By: /S/
-----------------------------------
Eric S. Swartz, Manager
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
EXHIBIT 4.10
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN INVESTMENT AGREEMENT
BY AND BETWEEN THE COMPANY AND HOLDER REFERENCED THEREIN AS EXHIBIT J.
Warrant to Purchase "N" shares Warrant Number ____
----
Warrant to Purchase Common Stock
of
BROWSESAFE.COM, INC.
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof ("Holder"), has the right to purchase from BrowseSafe.com, Inc., a Nevada
corporation (the "Company"), up to "N" fully paid and nonassessable shares,
wherein "N" is defined below, of the Company's common stock, $0.001 par value
per share ("Common Stock"), subject to adjustment as provided herein, at a price
equal to the Exercise Price as defined in Section 3 below, at any time beginning
on the Date of Issuance (defined below) and ending at 5:00 p.m., New York, New
York time the date that is five (5) years after the Date of Issuance (the
"Exercise Period"); provided, that, with respect to each "Put," as that term is
defined in that certain Investment Agreement (the "Investment Agreement") by and
between the initial Holder and Company, dated on or about March 14, 2000, "N"
shall equal ten percent (10%) of the number of shares of Common Stock purchased
by the Holder in that Put.
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company (this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on _____________, ______ ("Date
of Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
2. Exercise. (a) Manner of Exercise. During the Exercise Period, this
Warrant may be exercised as to all or any lesser number of full shares of Common
Stock covered hereby
1
<PAGE>
(the "Warrant Shares") upon surrender of this Warrant, with the Exercise Form
attached hereto as Exhibit A (the "Exercise Form") duly completed and executed,
together with the full Exercise Price (as defined below) for each share of
Common Stock as to which this Warrant is exercised, at the office of the
Company, Attention: Greg Urbanski or Mark W. Smith; BrowseSafe.com, Inc., 7202
East 87th Street, Suite 109, Indianapolis, Indiana 46256; Telephone:
317-915-9301, Facsimile: 317-915-9309, or at such other office or agency as the
Company may designate in writing, by overnight mail, with an advance copy of the
Exercise Form sent to the Company and its Transfer Agent by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise of
this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile. The Company shall not be required to deliver the shares of Common
Stock to the Holder until the requirements of Section 2(a) above are satisfied.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
---------------------------------
The Exercise Price ("Exercise Price"), shall initially equal $Y per
share ("Initial Exercise Price"), where "Y" shall equal 110% of the Market Price
for the applicable Put (as both are defined in the Investment Agreement) or, if
the Date of Exercise is more than six (6) months after the Date of Issuance, the
lesser of (i) the Initial Exercise Price or (ii) the "Lowest Reset Price," as
that term is defined below. The Company shall calculate a "Reset Price" on each
six-month anniversary date of the Date of Issuance which shall equal one hundred
and ten percent (110%) of the lowest closing bid price of the Common Stock for
the five (5) trading days ending on such six-month anniversary date of the Date
of Issuance. The "Lowest Reset Price" shall equal the lowest Reset Price
determined on any six-month anniversary date of the Date of Issuance preceding
the Date of Exercise, taking into account, as appropriate, any adjustments made
pursuant to Section 5 hereof.
Payment of the Exercise Price may be made by either of the following, or
a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
2
<PAGE>
(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is being
exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Price of the Common Stock for the
five (5) trading days prior to the Date of Exercise of this
Warrant (the "Average Closing Price"), as reported by the O.T.C.
Bulletin Board, National Association of Securities Dealers
Automated Quotation System ("Nasdaq") Small Cap Market, or if the
Common Stock is not traded on the Nasdaq Small Cap Market, the
Average Closing Price in any other over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shall be the Average Closing Price on
such exchange for the five (5) trading days prior to the date of
exercise of the Warrants. If the Common Stock is/was not traded
during the five (5) trading days prior to the Date of Exercise,
then the closing price for the last publicly traded day shall be
deemed to be the closing price for any and all (if applicable)
days during such five (5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the O.T.C. Bulletin Board, the National Market System ("NMS"), the
New York Stock Exchange, the Nasdaq Small Cap Market, or if no longer traded on
the O.T.C. Bulletin Board, the NMS, the New York Stock Exchange, the Nasdaq
Small Cap Market, the "Closing Bid Price" shall equal the closing price on the
principal national securities exchange or the over-the-counter system on which
the Common Stock is so traded and, if not available, the mean of the high and
low prices on the principal national securities exchange on which the Common
Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant
may not be exercised in a cashless exercise transaction if, on the Date of
Exercise, the shares of Common Stock to be issued upon exercise of this Warrant
would upon such issuance be then registered pursuant to an effective
registration statement filed pursuant to that certain Registration Rights
Agreement dated on or about March 14, 2000, by and among the Company and certain
investors, or otherwise be registered under the Securities Act of 1933, as
amended.
3
<PAGE>
4. Transfer and Registration.
-------------------------
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about March 14, 2000 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
-------------------------
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
4
<PAGE>
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the net effect of
increasing the Exercise Price in relation to the split adjusted and distribution
adjusted price of the Common Stock. The number of shares of Common Stock subject
hereto shall increase proportionately with each decrease in the Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
--------------------
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
---------------------
The Company shall at all times reserve for issuance such number
of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued, fully
paid, nonassessable and not subject to preemptive rights, rights of first
refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
------------------------
5
<PAGE>
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the Exercise of this
Warrant may not be pledged, transferred, sold or assigned except pursuant to an
effective registration statement or an exemption to the registration
requirements of the Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
------------------------
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Company and Holder.
10. Applicable Law.
--------------
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Georgia,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
---------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
-----------------
Notices or demands pursuant to this Warrant to be given or made
by Holder to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company, to the
Attention: Greg Urbanski or Mark W. Smith; BrowseSafe.com, Inc., 7202 East 87th
Street, Suite 109, Indianapolis, Indiana 46256; Telephone: 317-915-9301,
Facsimile: 317-915-9309. Notices or demands pursuant to this Warrant to be given
or made by the Company to or on Holder shall be sufficiently
6
<PAGE>
given or made if sent by certified or registered mail, return receipt requested,
postage prepaid, and addressed, to the address of Holder set forth in the
Company's records, until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of ________________,________.
BROWSESAFE.COM, INC.
By: /S/
-----------------------------------
Mark W. Smith, President & CEO
7
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: BROWSESFE.COM, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of
BrowseSafe.com, Inc., a Nevada corporation (the "Company"), evidenced by the
attached warrant (the "Warrant"), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
- ------------------------------------------------------------------------
Signature
- -----------------------------------------------------------------------
Print Name
- ------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- ------------------------------------------------------------------------
8
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of
_____________________, evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
- -----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
9
EXHIBIT 4.11
WARRANT SIDE AGREEMENT
THIS WARRANT SIDE AGREEMENT (the "Agreement") is entered into as of
March 14, 2000, by and among BROWSESAFE.COM, INC., a corporation duly organized
and existing under the laws of the State of Nevada (the "Company") and Swartz
Private Equity, LLC (hereinafter referred to as "Swartz").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Equity Line") of up to
Thirty Million Dollars ($30,000,000), excluding any funds paid upon exercise of
the Warrants, of Common Stock of the Company pursuant to that certain Investment
Agreement (the "Investment Agreement") between the Company and Swartz dated on
or about March 14, 2000, the Company has agreed to sell and Swartz has agreed to
purchase, from time to time as provided in the Investment Agreement, shares of
the Company's Common Stock for a maximum aggregate offering amount of Thirty
Million Dollars ($30,000,000); and
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed, among other things, to issue to the Subscriber Commitment Warrants,
as defined in the Investment Agreement, to purchase a number of shares of Common
Stock, exercisable for five (5) years from their respective dates of issuance.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Issuance of Commitment Warrants. As compensation for entering into the Equity
Line, Swartz received a warrant convertible into 570,000shares of the Company's
Common Stock, in the form attached hereto as Exhibit A (the "Commitment
Warrants").
2. Issuance of Additional Warrants. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a smaller number of shares (a "Reverse Stock Split"), then on
the date of such Reverse Stock Split, and on each one year anniversary (each, an
"Anniversary Date") of the Reverse Stock Split thereafter throughout the term of
the Commitment Warrants, the Company shall issue to Swartz additional warrants
(the "Additional Warrants"), in the form of Exhibit A, to purchase a number of
shares of Common Stock, if necessary, such that the sum of the number of
Warrants and the number of Additional Warrants issued to Swartz shall equal 3.0%
of the number of shares of Common Stock of the Company that are outstanding
immediately following the Reverse Stock Split or Anniversary Date, as
applicable. The Additional Warrants shall be exerciseable at the same price as
the Commitment Warrants,
<PAGE>
shall have the same reset provisions as the Commitment Warrants, shall have
piggyback registration rights and shall have a 5 year term.
3. Opinion of Counsel. Concurrently with the issuance and delivery of the
Commitment Opinion (as defined in the Investment Agreement) to the Investor, or
on the date that is six (6) months after the date of this Agreement, whichever
is sooner, the Company shall deliver to the Investor an Opinion of Counsel
(signed by the Company's independent counsel) covering the issuance of the
Commitment Warrants and the Additional Warrants, and the issuance and resale of
the Common Stock issuable upon exercise of the Warrants and the Additional
Warrants.
4. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 14th day of March, 2000.
- ------------------------------------------------------------------------------
BROWSESAFE.COM, INC., SUBSCRIBER:
SWARTZ PRIVATE EQUITY, LLC.
By: /S/ By: /S/
------------------------------------ ---------------------------------
Mark W. Smith, President & CEO Eric S. Swartz, Manager
7202 East 87th Street, Suite 109 1080 Holcomb Bridge Road
Indianapolis, Indiana 46256 Bldg. 200, Suite 285
Telephone: 317-915-9301 Roswell, GA 30076
Facsimile: 317-915-9309 Telephone: (770) 640-8130
Facsimile: (770) 640-7150
- ------------------------------------------------------------------------------
EXHIBIT 10.13
BLAKE DAVIS & CO., INC.
22224 Collington Drive__________________________________Telephone (561) 483-5060
Boca Raton, Florida 33428 Fax (561) 483-9084
February 8, 2000
Mark Smith/CEO
Greg Urbanski/CFO
Ted O'Brien/VP Marketing & Sales
BrowseSafe.com
335 West 9th Street
Suite 100
Indianapolis, IN 46202
Re: Accomplishments
In my short relationship with Browsesafe.com, I have brought to you: a $30
million dollar line of credit from Swartz Private Equity, a $3 million dollar
private from Cary Greene and Michael Mercia, Priceline.com with 4 million
customers, Henry Rubins ISP's, and many other companies that I have acknowledged
to you in writing that is currently in process. What an accomplishment in thirty
days.
I wish to go over in writing with signed acknowledgments from all of you, how
this is to be paid according to my contracts with you. Please note that if
anymore funding comes from theses sources or any others that I have introduced
to you during this time frame I will be paid according to my current contract
with you as well as any sales for your company that come from any of these
sources or any that I have introduced to you will be paid according to my sales
contract with you. Swartz for instance will be bringing companies to the table
for BrowseSafe and I will therefore reap from that.
Swartz funding commitment of a $30 million dollar line of credit: I will receive
all of my stock for this transaction immediately upon the final letter of
commitment from Swartz, which should be in about 10 days. Under my contract I am
to receive 3% in common shares based on a $2.50 per share value which equals
360,000 shares for the $30 million line of credit available to you to draw from
at your leisure. I also will receive 1% in cash payment from you every time you
draw from that line, for the life of the line including any increases in the
line that you may receive.
On the $3 million dollar funding that is in process now, I will receive
according to my contract with you, 1% in cast to be paid to me as soon as you
receive any of the funding as it occurs. In this instance, you will receive
$500k this week of which I will receive $5000.00 for and the balance to you will
be shortly after and at that time I
<PAGE>
will receive another $25 thousand dollars in cash. I will also receive 3% in
stock to be paid immediately upon closing based on my contract with you with a
value of $2.50 per share of 36,000 shares.
All of the stock I receive on all transactions will be free trading shares.
On Priceline.com, I will receive 8% of the net to BrowseSafe on a monthly basis
for the first year and 4% per month for as long as their customers stay with
BrowseSafe. I will also receive the same for Henry Rubins ISP's. I have already
given you a list of whom I am working with on the sales side and will receive
the same compensation as they come in based on my contract. Anything that comes
in from people that I have brought in, I will split my compensation and put that
in writing at that time. I have already done that with Henry Rubin with you. My
contract states that if I sell it I will receive 8% the first year of my
contract and 4% thereafter for the life of the customer. After the first year of
my contract I receive 4% for per month for the life of the customer. If I simply
refer a customer to you and do not do any of the work to sell it, I receive 2%
per month for the life of the customer.
Should I bring you any merger or acquisition candidate, this will be described
in a separate agreement.
ACKNOWLEDGED AND AGREED BY:
/S/ /S/ /S/
- ---------------------- ---------------------- ----------------------
Mark Smith/CEO Greg Urbanski/CFO Ted O'Brien/VP Sales
/S/
- ----------------------
Victoria L. Lee
cc: William Norton, esq.
<PAGE>
BLAKE DAVIS & CO., INC.
22224 Collington Drive__________________________________Telephone (561) 483-5060
Boca Raton, Florida 33428 Fax (561) 483-9084
February 8, 2000
Mark Smith/CEO
Greg Urbanski/CFO
Ted O'Brien/VP Marketing & Sales
BrowseSafe.com
335 West 9th Street
Suite 100
Indianapolis, IN 46202
Re: Introductions
Please acknowledge the following introductions:
Strategica Capital Group (Jack Burstein)
Bermuda International Capital (Norman Hoskin)
These companies have an interest in funding you $3 Million dollars. Should they
actually come to the table in your time frame, my compensation for the $3
million dollars will change to 5% to be paid in cash, which would be $150,000.00
and 3% in stock at $.50 per share. Example: the average price is .50 and
therefore the stock amount would be 180,000 shares.
Please acknowledge the following introductions on the sales side:
eCom eCom.com, Inc. (interested in ISP and PlanetGood)
City Source (interested in PlanetGood)
ACKNOWLEDGED AND AGREED BY:
/S/ /S/ /S/
- ---------------------- ---------------------- ----------------------
Mark Smith/CEO Greg Urbanski/CFO Ted O'Brien/VP Sales
/S/
- ----------------------
Victoria L. Lee
<PAGE>
BLAKE DAVIS & CO., INC.
22224 Collington Drive__________________________________Telephone (561) 483-5060
Boca Raton, Florida 33428 Fax (561) 483-9084
CONSULTING AGREEMENT
This Agreement is made this 5th day of January, 2000, by and between Victoria L.
Lee, whose address is 22224 Collington Drive, Boca Raton, Florida 33428,
hereinafter referred to as "Consultant" and Browsesafe.com, Inc., whose address
is 335 West 9th Street, Suite 100, Indianapolis, Indiana 46202, hereinafter
referred to as "Client."
Whereas, Consultant specializes in assisting companies with introductions to
sources of capital and finding merger and acquisition candidates,
Whereas, the Client, its subsidiaries, affiliates, directors and
representatives, collectively referred to as the Client, desires to have
Consultant identify and arrange meeting(s) with sources that may be interested
in furthering the business of the Client by joint venturing, acquiring, merging
or some other means which proves beneficial to the Client,
Whereas, the Client desires to engage Consultant on a non-exclusive basis, for
the purpose of consulting and reaching strategic introductions and
Whereas, Consultant is willing to accept this engagement,
NOW THEREFORE, in consideration of the mutual covenant herein contained, it is
agreed:
Client hereby engages Consultant to perform consulting services described above,
and agrees to engage Consultant for thirty days. Should Consultant be successful
with introductions that end in completion of any mergers or acquisitions, and or
capital, that Client shall pay a finders fee of 4% to Consultant upon closing,
payable in cash of 1% of the value of the transaction, and 3% in options of the
Clients common stock exercisable for five years with a cashless exercise
provision at $2.50 per share (example: if a $10 million transaction took place,
then the finders fee would be 1% in cash and 3% in options ($300k divided by
$2.50 per share would be 120,000 shares). The same finders fee shall apply for
up to 24 months for sources introduced to Client by Consultant that end up
successful for Client.
Consultant agrees that any confidential matters will not be revealed or
disclosed to any person or entity or used by consultant, except in the
performance of this Agreement and upon written request of the Client, all
materials, original documentation provided by the Client will be returned.
Client agrees not to circumvent or interfere with or attempt to circumvent or
interfere with the business relationships existing between Consultant and any
sources introduced to the Client by the Consultant.
Client agrees to pay for any travel expenses previously approved by Client for
Consultant if needed for meetings, etc.
<PAGE>
Client and Consultant may continue on a month to month basis under the same
conditions as above, should both agree in writing after the term of this
Agreement for a $3000.00 per month retainer.
IN WITNESS WHEREOF, the parties have noted their approval and acceptance hereof
by executing this Agreement and shall become effective immediately upon
signature.
CONFIRMED AND AGREED ON THE 5th DAY OF JANUARY, 2000.
BLAKE DAVIS & CO., INC. BROWSESAFE.COM, INC.
/s/ /s/
- ----------------------------- ---------------------------
Victoria L. Lee Mark Smith
President President/CEO/Director
EXHIBIT 10.14
LEASE AGREEMENT
THIS LEASE, made this 1st day of March, 2000, by and between New Boston
Citimark Limited Partnership, a Delaware limited partnership ("Landlord"), and
Browsesafe.Com, Inc.,
a Nevada corporation ("Tenant"),
ARTICLE 1 - LEASE OF PREMISES
Section 1.01 Lease of Premises. Upon and subject to the terms and
conditions provided herein, Landlord leases to Tenant and Tenant leases from
Landlord a portion of the building known as Northeast Three ("Building") located
in Northeast Business Center (the "Park"), Marion County, Indiana, which portion
is identified in Item A of the Basic Lease Provisions and is outlined in red on
Exhibit A attached hereto (the "Premises"), together with the nonexclusive right
to use the parking areas and ingress, egress, access roads and other common
facilities which Landlord may from time to time provide for the tenants in the
building ("Common Areas"). Tenant's use of the Common Areas shall be subject to
the provisions contained herein.
Section 1.02 Basic Lease Provisions.
A. Building Address: 7202 East 87th Street, Suite 109
Indianapolis, Indiana 46256;
B. Size of Premises: 4,139 square feet.
C. Tenant's Share: 11%.
D. Monthly Rent: Months one (1) through twenty-four
(24), the Monthly Rent shall be Three
Thousand Seven Hundred Ninety-Four
Dollars ($3,794.00). Months twenty-five
(25) through thirty-six (36), the Monthly
Rent shall be Three Thousand Nine
Hundred Sixty-Seven Dollars ($3,967.00).
Months thirty-seven (37) through sixty
(60), the Monthly Rent shall be Four
Thousand One Hundred Twenty-Two Dollars
($4,122.00).
E. Term: Commences on the Commencement Date (as
defined in Section 2.01) and continues for
sixty (60) months from (i) the
Commencement Date if such date is the first
day of a calendar month, or (ii) the first
day of the calendar month immediately
following the Commencement Date if such date
is not the first day of a calendar month.
F. Estimated Commencement
Date: March 6, 2000.
G. Security Deposit: Seven Thousand Five Hundred Eighty-Eight
Dollars ($7,588.00).
H. Broker: Citimark Management Co., Inc.and Meridian
Real Estate Services, Inc.
I. Permitted Use: Office.
J. Space Plan Approval
Date: February 29, 2000.
K. Address for notices as follows:
Landlord: New Boston Citimark Limited Partnership
One Longfellow Place, Suite 3612
Boston, MA 02114
Attn: Jerome L. Rappaport, Jr.
With notice also to:
Rappaport & Rakov
One Longfellow Place, Suite 3611
Boston, MA 02114
Attn: Janet F. Aserkoff
<PAGE>
With notice also to:
Citimark Management Co, Inc.
7301 E. 90th Street, Suite 112
Indianapolis, Indiana 46256
Attn: William N. Carlstedt, Jr.
Tenant: Browsesafe.Com, Inc.
7202 E. 87th Street, Suite 109
Indianapolis, Indiana 46256
Attn: Greg Urbanski
L. Address for payments as follows:
New Boston Citimark Limited Partnership
7301 E. 90th Street, Suite 112
Indianapolis, Indiana 46256
Attn: Accounting
ARTICLE 2 - TERM AND POSSESSION
Section 2.01 Term. The term of this Lease shall be the period of time
specified in Item E of the Basic Lease Provisions and shall commence upon the
earlier of (i) the date on which the Premises are first used and occupied by
Tenant's personnel for carrying on the normal functions of its business, or (ii)
the date five (5) days after Landlord gives written notice to Tenant that the
improvements to be constructed by Landlord as provided in Article 5 are
substantially completed. The date of commencement determined as provided above
is herein called the "Commencement Date." The Commencement Date shall in no
event be postponed by reason of any delay caused by Tenant (for example,
Tenant's failure to timely approve or furnish plans or specifications, make
material or color selections or decisions necessary for substantial completion
of such work, or complete Tenant's work). As used in this Lease, "Term" shall
include the original term and any extension thereof effected in accordance with
an extension option, if any, expressly set forth herein.
Section 2.02 Possession Prior to Commencement Date. Landlord shall have
no responsibility or liability whatsoever for any loss or damage to any of
Tenant's leasehold improvements, fixtures, equipment or merchandise installed or
left in the Premises prior to the Commencement Date; and Tenant's entry upon and
occupancy of the Premises prior to the Commencement Date shall otherwise be
governed by and subject to the provisions, covenants and conditions of this
Lease, except Tenant shall not be obligated to pay rent for any period prior to
the Commencement Date.
Section 2.03 Acceptance of Premises. On or before the Commencement Date,
Tenant shall execute and deliver to Landlord an agreement in the form attached
as Exhibit B ("Acceptance Agreement") to acknowledge and confirm the
Commencement Date and that Tenant has accepted the Premises for occupancy,
except for only those defects specified by Tenant in the Acceptance Agreement.
Landlord shall promptly thereafter correct such defects, subject to delays
beyond Landlord's reasonable control. If Tenant takes possession of and occupies
the Premises but fails to timely execute and deliver the Acceptance Agreement,
Tenant shall be deemed to have accepted the Premises for occupancy and the
condition thereof as satisfactory in all respects.
Section 2.04 Surrender of the Premises. Upon the expiration or earlier
termination of this Lease, Tenant shall quit and surrender to Landlord the
Premises, together with all property affixed to the Premises, broom clean, and
in good order and condition, ordinary wear and tear excepted. Tenant, however,
shall remove any or all of its property which Landlord directs Tenant to remove;
and upon Tenant's failure to do so, Landlord may cause all or any item of such
property to be removed, disposed of or stored at Tenant's expense. Tenant hereby
agrees to pay all costs and expenses of any removal and storage and of the
repair of any damage to the Premises caused by such removal. Tenant's obligation
to observe and perform these covenants shall survive the expiration or earlier
termination of this Lease. Notwithstanding the foregoing covenants, Tenant's
removal of its leasehold improvements, alterations and additions, and trade
fixtures and equipment shall be governed by Sections 8.01 and 8.04.
Section 2.05 Holding Over. No holding over by Tenant after expiration or
earlier termination of the Term shall operate to extend the Lease. In the event
of any unauthorized holding over, Tenant shall pay Monthly Rent equal to one
hundred fifty percent (150%) of the Monthly Rent payable for the month
immediately preceding such holding over plus additional rent (including, but not
limited to, the estimated Annual Operating Expense Adjustment) applicable to the
period of such holding over; and Tenant shall indemnify Landlord against all
claims, damages, costs and expenses (including, but not limited to, reasonable
attorneys' fees) in connection with such holding over, including, without
limitation, all claims by any other person or entity to which Landlord may have
leased all or part of the Premises effective upon or after expiration or
termination of the Term. Tenant's default or an authorization of Tenant's
holding over shall not constitute a renewal of the term of this lease nor
prevent Landlord from exercising any of its other rights and remedies. Any
holding over with the consent of Landlord in writing shall thereafter constitute
a lease from month-to-month.
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<PAGE>
ARTICLE 3 - RENT
Section 3.01 Monthly Rent. Tenant shall pay, in advance on the first day
of each calendar month during the Term, Monthly Rent as specified in Item D of
the Basic Lease Provisions as the basic rent per month for the Premises. The
initial installment of Monthly Rent shall be due and payable upon execution of
this Lease. In the case of a partial calendar month at or prior to the beginning
of the Term, the Monthly Rent for the partial month shall be prorated on a daily
basis and shall be paid with the first month's rent. Tenant also agrees to pay
Landlord any excise, sales or privilege tax, if any, imposed by any governmental
authority on account of this Lease or the rent paid hereunder as a part of
Additional Rent under Section 3.02.
Section 3.02 Additional Rent.
(a) Obligation to Pay Additional Rent. In addition to the Monthly
Rent, Tenant agrees to pay as additional rent (i) the Annual Tax
Adjustment, (ii) the Annual Insurance Adjustment (iii) the Annual
Common Area Adjustment, and (iv) the Annual Utility Adjustment,
all as defined in Subsection (b) below.
(b) Definitions. As used herein, the following terms shall have the
meanings indicated:
(1) "Real Estate Taxes and Assessments" shall mean (i) all
real property taxes and assessments levied or assessed by
any lawful authority against the Building, including land
and improvements together with the costs and expenses of
contesting the validity or amount of such taxes or
assessments, (ii) any tax or capital levy hereafter
enacted by any governmental authority in replacement or in
lieu of real property taxes (or increases therein), in
whole or part, including, but not limited to, a state or
local option tax designed for property tax relief purposes
or a license or franchise fee measured by rents received
by Landlord, or other wise measured by or based upon the
rents from or Landlord's interest in the Building, land or
related improvements, and (iii) all assessments made upon
the Building, land or related improvements or imposed upon
Landlord as the owner thereof under any recorded
instrument to which the Building is now or hereafter
subject (including without limitation the Declaration of
Development Standards, Covenants and Restrictions for
Northeast Business Center) or pursuant to an owner's
association for the purpose of maintaining, repairing and
replacing improvements for the benefit of, or providing
services to, the Building and its occupants.
(2) "Annual Tax Adjustment" shall mean that for each calendar
year falling wholly or partly within the Term, Tenant's
Share of the amount by which the Real Estate Taxes and
Assessments payable in such year exceed the product of One
Dollar and Seven Cents ($1.07) times the gross area of the
Building.
(3) "Annual Insurance Expense" shall mean for a given calendar
year the sum of the premiums allocable to such year for
the insurance prescribed to be maintained by Landlord
under Section 11.04.
(4) "Annual Insurance Adjustment" shall mean for each calendar
year falling wholly or partly within the Term, Tenant's
Share of the amount by which the Annual Insurance Expense
for such year exceeds the product of Four Cents ($.04)
times the leasable area of the building.
(5) "Common Area Expenses" shall mean the sum of all costs and
expenses incurred by Landlord in operating and maintaining
the Common Areas and shall include, but not be limited to,
(i) costs and expenses paid or incurred for operating,
repairing, maintaining, and replacing improvements in the
Common Areas such as paving, curbs, walkways, landscaping,
storm and sanitary sewers, lighting facilities, heating
systems, the building communication system and fire
protection sprinkler system; (ii) costs and expenses paid
or incurred for Common Area security, cleaning and trash
collection, snow and ice removal, heating, painting,
premiums for liability insurance as to persons and
property, wages, worker's compensation, employment and
social security taxes; and (iii) a reasonable replacement
reserve.
(6) "Annual Common Area Adjustment" shall mean for each
calendar year falling wholly or partly within the Lease
Term, Tenant's Proportionate Share of the amount by which
Landlord Maintenance Costs for such year exceed the
product of One Dollar and One Cent ($1.01) per square foot
times the gross area of the building.
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<PAGE>
(7) "Annual Utility Expense" shall mean for a given calendar
year the costs paid by Landlord during such year for
utilities used by but not separately metered to tenants of
the Building. Utilities not separately metered to tenants
of the Building include, but are not necessarily limited
to, electricity, sprinkler monitoring fees, water, and
sanitary sewer service. The Annual Utility Expense shall
not include the cost of any utility service that is
separately metered to any individual tenant in the
Building.
(8) "Annual Utility Adjustment" shall mean for each calendar
year falling wholly or partly within the Term, Tenant's
Share of Annual Utility Expense for such year. Provided,
however, that if Tenant consumes a disproportionately
large portion of utilities not separately metered to
tenants of the Building, Landlord shall be entitled to
base the Annual Utility Adjustment for Tenant on
Landlord's reasonable estimate of Tenant's use of such
utilities relative to the use thereof by the other tenants
of the Building.
(9) "Annual Adjustments" shall mean any one or more of the
Annual Tax Adjustment, the Annual Maintenance Adjustment,
the Annual Insurance Adjustment, and the Annual Utility
Adjustment, and "Annual Adjustment" shall mean any one of
these.
Section 3.03 Payment of Additional Rent. Each Annual Adjustment shall be
separately estimated annually by Landlord, and written notice thereof shall be
given to Tenant within fifteen (15) days after the Commencement Date and
thereafter at least thirty (30) days prior to the beginning of each calendar
year. Tenant shall then pay to Landlord each month, at the same time the
installment of Monthly Rent is due, an amount equal to one-twelfth (1/12) of
each estimated Annual Adjustment. Landlord shall have the right to revise each
Annual Adjustment for a given calendar year upon not less than fifteen (15) days
prior written notice to Tenant, provided the actual amount of the corresponding
Annual Adjustment for such calendar year will, in the Landlord's reasonable
judgment, exceed Landlord's prior estimate for such calendar year. In addition,
at the time Landlord revises an estimated Annual Adjustment for a given calendar
year, Landlord shall be entitled to collect from Tenant, within twenty (20) days
after submitting a statement thereof, a lump sum payment which when added to the
monthly installments of such estimated Annual Adjustment previously made by
Tenant in such calendar year and the revised monthly installments to be made
during the balance of such calendar year, will equal such Annual Adjustment as
then revised by Landlord. Within ninety (90) days after the end of each calendar
year (or as soon thereafter as is reasonably practicable), Landlord shall
prepare and deliver to Tenant a statement showing the actual Annual Adjustments
for such calendar year, and within fifteen (15) days of such date, Tenant shall
pay Landlord any deficiency, or Landlord shall credit tenant's account for any
overpayment of the Annual Adjustments for such calendar year. Landlord's failure
to timely deliver the statement of any estimated Annual Adjustment or any
statement of an actual Annual Adjustment shall not relieve Tenant of its
obligation to pay, when such statement is provided, such estimated Annual
Adjustment or such actual Annual Adjustment. In the case of a calendar year
falling only partly within the lease term, each Annual Adjustment payable by
Tenant with respect to such year shall be prorated accordingly.
Section 3.04 Late Charges. Tenant acknowledges that the late payment by
Tenant to Landlord of Monthly Rent, additional rent or any other amount required
to be paid Landlord under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which is extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed upon Landlord by
virtue of its debt obligations. Accordingly, if Tenant fails to make any payment
required hereunder when such payment is due, Tenant shall pay a late charge
equal to the lesser of ten percent (10%) of such payment, but in no event shall
such late charge be less than Five Hundred Dollars ($500.00). Further, in the
event Landlord is required to transmit a demand letter to Tenant, Tenant shall
pay an amount of Five Hundred Dollars ($500.00) to Landlord.
Section 3.05 Manner of Payment. The Monthly Rent, additional rent and
all other sums of money and charges payable by Tenant hereunder shall be paid
promptly when due, without relief from valuation and appraisement laws, notice
or demand therefor, or set off for any reason whatsoever. All payments required
to be paid by Tenant to Landlord under the provisions of this Lease shall be
paid by Tenant in lawful money of the United States at the address provided
herein for notices to Landlord or at such other place or to such other person as
Landlord may from time to time designate by notice to Tenant.
ARTICLE 4 - OCCUPANCY AND USE
Section 4.01 Occupancy. Tenant shall use and occupy the Premises solely
for the purposes described in Item I of the Basic Lease Provisions and shall not
use the Premises for any other purpose without the prior written consent of
Landlord.
Section 4.02 Use of Premises. The portions of the Premises finished as
offices shall be used only for office purposes, and the portion of the Premises
finished as warehouse space shall be used only for the storage of Tenant's
merchandise and equipment and as provided in Section 4.01. Tenant shall not use
the Premises for any unlawful purpose or act, commit or permit waste or damage
to the Premises, or do or permit anything to be done in or about the Premises
which will in any way obstruct or interfere with the rights of other tenants or
occupants of the Building or injure or annoy them. Tenant shall use and maintain
the Premises and conduct its business thereon in a careful, safe, reputable and
lawful manner, in compliance with all laws, codes, ordinances, rules,
regulations and orders (collectively "Laws") of any governmental authority or
agency, including without limitation those governing zoning, health, safety
(including fire safety) and occupational hazards, pollution and environmental
control and handicapped accessibility (including but not limited to any such
laws imposing upon Landlord or Tenant any duty respecting or triggered by any
change in use or occupancy or any alterations or improvements of, in or to the
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<PAGE>
Premises), all requirements of Landlord's insurance carrier, and all reasonable
rules and regulations of Landlord, including but not limited to the Building
Rules and Regulations set forth on the attached Exhibit C as may be modified
from time to time by Landlord on notice to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance by any other tenant or occupant of
the Building of any of the Rules and Regulations of Landlord.
Section 4.03 Hazardous Waste Provisions. Tenant shall not in any manner
use, maintain or allow the use or maintenance of the Premises in violation of
any federal, state or municipal laws, statutes, codes or regulations including
without limitation those governing hazardous, toxic or infectious waste,
materials and substances. Tenant shall not use or allow the use of the Premises
or any part thereof to treat, store, dispose of, transfer, release, convey or
recover hazardous, toxic, medical or infectious waste, materials or substances
nor shall Tenant otherwise, in any manner, possess or allow the possession of
any hazardous, toxic, medical or infectious waste, materials or substances on or
about the Premises. Hazardous, toxic or infectious waste, materials or
substances shall mean any solid, liquid or gaseous waste or emission or any
combination thereof which because of its quantity, concentration or physical,
chemical, or infectious characteristics may (i) cause or significantly
contribute to an increase in mortality or in serious or incapacitating,
irreversible illness, or (ii) pose the risk of a substantial present or
potential hazard to human health, to the environment or otherwise to animal or
plant life when used, treated, stored, transported, disposed of or otherwise
managed or handled. Tenant shall indemnify and hold harmless Landlord from any
and all claims, loss, liability, costs, expenses or damage, including attorneys'
fees, incurred by Landlord in connection with any breach by Tenant of its
obligations under this section. The provisions of this section shall survive the
termination of this Lease.
ARTICLE 5 - INITIAL LEASEHOLD IMPROVEMENTS
Section 5.01 Landlord Improvements. Landlord shall cause to be
constructed the leasehold improvements on the Premises in accordance with
Tenant's space plan as shown on the attached Exhibit D and with plans and
specifications approved by both Landlord and Tenant. The costs of such
improvements shall be borne by Landlord except as otherwise specified in Exhibit
D. Any changes or modifications to such plans and specifications shall be made
and accepted by written change order signed by Landlord and Tenant. However, if
any changes or modifications to the approved plans and specifications are
requested by Tenant and installed by Landlord without a fully executed change
order, they shall be deemed to have been installed on a "time and material"
basis, and Tenant shall promptly pay Landlord the costs thereof.
Section 5.02 Tenant Improvements. Landlord shall notify Tenant when the
improvements to be constructed by Landlord as provided in Section 5.01 are ready
for commencement of Tenant's work. At any time after receipt of notice from
Landlord and after obtaining Landlord's written approval of Tenant's plans and
specifications, and after completing all other requirements of Article 8, Tenant
shall be entitled, at its sole cost and expense, to cause the construction of
the Tenant's improvements and installation of trade fixtures and equipment in
accordance with Tenant's plans and specifications. Such construction and
installation by Tenant shall not, however, unreasonably interfere with or impede
completion of Landlord's improvements. Within sixty (60) days after the
Commencement Date, Tenant, at its sole cost and expense, shall install in all
peripheral windows horizontal mini-blinds in brushed aluminum finish.
ARTICLE 6 - COMMON AREAS
Section 6.01. Definition. The Common Areas shall include parking areas,
loading dock facilities, service corridors, restrooms, driveways, all utility
lines outside the Building, walkways and sidewalks, drainage system, landscaped
areas, exterior walls and apparatus thereto (except the interior face thereof
and the exterior and interior of all windows, doors, and plate glass), roof and
structural frame of the Building, and other related facilities.
Section 6.02 Control and Maintenance. Landlord shall operate, manage,
repair, maintain and replace the Common Areas for their intended purposes, and
the Common Areas shall at all times be subject to Landlord's exclusive
management and control. Landlord may at any time temporarily close all or any
part of the Common Areas to make repairs, alterations or changes and to
otherwise improve the benefit thereof to Tenant and other occupants of the
Building and Park. Landlord shall use its best efforts to arrange any temporary
closing of the Common Areas at such times and in such manner as to minimize
interference with or disruption of Tenant's business in the Premises. Tenant
shall cooperate with Landlord and all other tenants so that the Common Areas may
be kept in an orderly and clean condition free of any obstructions. Tenant shall
required all trucks servicing Tenant to promptly load or unload in the loading
areas designated for the Premises. Landlord shall not be responsible to Tenant
for any failure, shortage or interruption in any service provided in the Common
Areas or by or through any improvements in the Common Areas.
ARTICLE 7 - SIGNS
Section 7.01 Exterior Sign. Landlord will furnish and install suitable
signage and establish suite numbers to facilitate locating and identifying the
Premises. In order to effect uniformity, to control the graphics, and to
maintain an architecturally pleasing and harmonious Building exterior, Landlord
will also furnish and install at Tenant's entrance door to the Premises a
uniform suite number plate and a name plate.
Section 7.02 Other Advertising Matter. Tenant shall not, without
Landlord's prior written consent, place or permit to be placed any other sign or
any awning, canopy or other advertising matter on, or in any location visible
from, the exterior of the Premises, including but not limited to, any exterior
doors, walls, roof or windows; and Tenant shall not place or permit to be placed
any decoration, lettering or advertising matter on the glass or any window or
door of the Premises.
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<PAGE>
ARTICLE 8 - TENANT'S IMPROVEMENTS & ALTERATIONS
Section 8.01 General Requirements. Tenant shall make no leasehold
improvements, alterations or additions on or about the Premises or any part
thereof without Landlord's prior written consent. All leasehold improvements,
alterations and additions made by Tenant shall, except as otherwise provided in
Exhibit D, remain for the benefit of the Landlord. However, Landlord may elect
by written notice to Tenant to require that Tenant, at its expense, remove on or
before fifteen (15) days after expiration or earlier termination of the Term all
or any portion of the leasehold improvements, alterations or additions made by
Tenant and repair any damage caused by such removal.
Section 8.02 Construction Requirements. All leasehold improvements,
alterations and additions made by Tenant shall be done in accordance with each
of the following requirements unless specifically waived by Landlord in writing:
(a) Such work shall be constructed and timely completed in a good and
workmanlike manner at Tenant's sole expense and at Tenant's risk,
and shall be done in such a manner as not to cause or create a
dangerous or hazardous condition or interfere with the use and
enjoyment of other space in the Building by other tenants, and so
as not to interfere with the work then being done by Landlord or
other tenants of the Building.
(b) Such work shall not adversely affect the structure or strength of
the Building or the mechanical, electrical, plumbing or safety
facilities or other operations of the Premises or Building.
(c) Such work will be performed substantially in accordance with the
plans and specifications submitted to Landlord by Tenant and
approved by Landlord within fifteen (15) business days prior to
commencement of such work.
(d) All contractors and subcontractors performing all or any portion
of such work shall be subject to Landlord's prior written
approval.
(e) Tenant shall pay all bills for labor and materials which might be
the foundation for assertion of any claim or any mechanics' or
materialmen's lien or other encumbrance upon any interest of the
Landlord in the Building or related land and improvements.
(f) Tenant shall ensure all improvements, alterations and additions
which are made or necessitated thereby shall be made and
performed in accordance with all applicable laws, ordinances,
codes, covenants, rules, regulations and orders and Landlord's
insurance requirements, and prior to commencement of such work,
shall deliver to Landlord copies of all governmental permits,
authorizations and approvals required in connection therewith,
including, but not limited to, all required building permits.
Without limiting the foregoing, Tenant shall comply with all
provisions of applicable law respecting worker's compensation and
will carry and maintain, or cause to be carried and maintained by
its contractors, builder's risk insurance, appropriate worker's
compensation insurance and public liability and property damage
insurance in form and amounts, issued by companies and with
deductibles approved by Landlord. Certified copies of all such
policies (or certificates thereof) and other evidence of
financial responsibility shall be delivered to Landlord at lease
five (5) business days prior to commencement of such work. Such
policies shall name Landlord as an additional insured and provide
that each such policy shall not be canceled or materially
modified without thirty (30) days' prior written notice to
Landlord.
(g) Tenant shall defend, indemnify and hold Landlord harmless from
and against any and all liability, loss, damage and expense
(including reasonable attorneys' fees) arising out of, as a
result of or incurred by Landlord in connection with such work.
Section 8.03 Mechanic's Liens. Tenant shall not suffer or give cause for
the filing of any mechanic's lien against the Premises or any part of the
Building or related land and improvements. In the event any mechanic's lien is
filed against the Premises or any other part of the Building or related land and
improvements for work claimed to have been done for, or materials claimed to
have been furnished to, Tenant, Tenant shall cause such mechanic's lien to be
discharged of record within ten (10) days after filing by bonding or as provided
or required by law or in any other lawful manner. Tenant shall indemnify
Landlord from and against all liability, loss, cost and expense, including
reasonable attorneys' fees, in connection with any such mechanic's lien.
Section 8.04 Removal of Trade Fixtures and Equipment. All Tenant's trade
fixtures and equipment installed in the Premises may be removed by Tenant upon
expiration or earlier termination of this Lease, provided (i) Tenant at its sole
expense shall repair any damage to the Premises or the Building caused by such
removal and (ii) Tenant is not then in default under this Lease. After
expiration or earlier termination of the Term, Landlord shall have the right to
remove, dispose of or store Tenant's trade fixtures and equipment and to have
any damage from such disposal or removal repaired, all at Tenant's sole expense.
ARTICLE 9 - UTILITIES
Section 9.01 Utility Lines. Landlord shall provide the mains, conduits
and other utility lines to the Premises.
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Section 9.02 Tenant's Obligations. Tenant shall pay for all utility
services rendered or furnished to the Premises, including, but not limited to,
heat, water, air conditioning, gas, electricity, telephone, sewers and waste
removal services. If any equipment installed by Tenant requires additional
utility facilities, the costs of installing such additional facilities shall be
borne by Tenant. Such facilities may not be removed by Tenant at the expiration
or other termination of the Lease without Landlord's prior written consent. In
no event shall Landlord be responsible for the quality, quantity, failure or
interruption of any utility service to the Premises. Landlord shall, however,
use its best efforts to correct, or cause to be corrected, any deficiency in
quality or quantity, or failure or interruption, of any utility service to the
Premises. The costs of each utility service metered separately to the Premises
shall be paid by Tenant directly to the utility company providing the service,
and the costs of each utility service not separately metered to the Premises
shall be paid by Tenant as provided in Sections 3.02 and 3.03.
ARTICLE 10 - MAINTENANCE AND REPAIRS
Section 10.01 Limitation. Except as herein specifically provided to the
contrary, Landlord shall not be responsible for maintaining or making any
repairs of any kind in or upon the Premises, Building or Common Areas.
Section 10.02 Maintenance by Landlord.
(a) Common Areas. Landlord shall repair, maintain, operate and
replace improvements in the Common Areas such as water and sewage
lines located outside the Building, paving, curbs, walkways,
lighting facilities and drainage systems; provide exterior
lighting of the Common Areas; remove snow and ice from the paved
areas to the extent practicable; maintain and replace
landscaping; and re-stripe parking areas.
(b) Building. Landlord shall maintain the foundation, exterior walls
(except the interior face thereof), down spouts, gutters, roof
and structural frame of the Building. Landlord shall also make
repairs to the fire protection sprinkler system in the Building
to the extent the need for such repairs is known to Landlord.
(c) Repairs Occasioned By Tenant. Landlord shall in no event be
responsible for making or paying the cost of any repairs to the
Premises, Common Areas or the Building occasioned by any act or
negligence of Tenant, its employees, contractors, agents,
servicemen, sublessees, assignees, licensees or concessionaires;
and Tenant shall promptly make any such repairs at its sole
expense.
Section 10.03 Maintenance by Tenant. Tenant shall keep and maintain the
Premises and every part thereof (including, but not limited to, the exterior and
interior portions of all doors and other entrances; signage; door checks and
closers; security gates; windows; glass; heating, ventilating, air conditioning,
plumbing, sewage and other mechanical and utility equipment and systems;
fixtures; and interior walls, floors and floor coverings, and ceiling) in good
order, condition and repair, and shall conduct routine janitorial services at
regular intervals. Without limiting the generality of the foregoing, Tenant
shall conduct a program of preventive maintenance and repair of all electrical,
heating, ventilating, air conditioning, plumbing, sewage and other mechanical
and utility equipment and systems serving the Premises and shall be responsible
for any and all maintenance, replacement, or repairs to such equipment and
systems. Landlord shall give Tenant the benefit of any warranty held by Landlord
on the Premises or any part thereof but only to the extent the warranty applies
to any repair, maintenance or replacement which Tenant is obligated hereunder to
make or perform. In addition, Tenant shall provide Landlord, in April and
October, with a seasonal inspection report prepared by a certified air
conditioning specialist acceptable to Landlord. In the event Tenant shall fail,
in Landlord's opinion, to provide the necessary preventive maintenance required
herein, Landlord may accomplish such maintenance and all costs incurred thereby
shall be paid by Tenant upon demand by Landlord. Tenant shall replace any glass,
windows and doors (including any frames, retaining members and appurtenances
thereto) in the Premises which may be broken or damaged. Notwithstanding any
provision herein to the contrary, Tenant shall not be responsible for making any
repairs occasioned by any act or negligence of Landlord or its agents, which
repairs shall be promptly made by Landlord at its sole cost and expense.
Section 10.04 Notice. Tenant shall give Landlord prompt written notice
of the need for any maintenance, replacement or repairs which Landlord is
obligated to make hereunder and of any material damage to the Premises or any
part thereof.
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ARTICLE 11 - INSURANCE AND INDEMNIFICATION
Section 11.01 Public Liability Insurance-Tenant. Tenant shall maintain
in full force and effect through out the Term a policy of comprehensive general
public liability insurance (including blanket, contractual liability, broad form
property damage, personal injury, completed operations, products liability, and
fire damage) issued by a company or companies satisfactory to Landlord, naming
the Landlord, Northeast Business Center Owners Association, Citimark Management
Co., Inc. and Tenant as insureds, and covering any and all claims for injuries
to or death of persons and damage to property occurring in or upon the Premises
in an amount not less than One Million Dollars ($1,000,000.00) combined single
limit for both bodily injury and property damage.
Section 11.02 Insurance on Tenant's Property. Tenant shall also maintain
in full force and effect throughout the Term fire and extended coverage
insurance on its fixtures, equipment, merchandise and other personal property in
or upon the Premises for its full insurable value on a replacement cost basis,
if obtainable, and if not obtainable, for the full amount of its actual cash
value.
Section 11.03 Certificates of Insurance. For each type of insurance
which Tenant is required to maintain under this Lease, Tenant shall furnish
Landlord a certificate or certificates of insurance showing that each such type
of insurance is in full force and effect and not cancelable without thirty (30)
days prior written notice to Landlord.
Section 11.04 Landlord's Insurance. Landlord shall maintain broad form
fire and extended coverage insurance on the Building for its full insurable
value on a replacement cost basis, if obtainable, and if not obtainable, for the
full amount of its actual cash value. Landlord shall also maintain public
liability insurance in such amounts as Landlord shall reasonably deem necessary.
Section 11.05 Increase in Insurance Rates. Tenant represents and
warrants to Landlord that the insurance questionnaire which Tenant delivered to
Landlord prior to execution of this Lease accurately reflects Tenant's intended
use of the Premises. The insurance questionnaire is made a part of this Lease by
reference as though fully set forth herein. Tenant shall immediately notify
Landlord if any answer or information contained in the insurance questionnaire
becomes untrue or misleading in any way. Tenant shall not use the Premises for
any purpose or in any manner which would, in Landlord's opinion, invalidate any
policy of insurance now or hereafter carried on the Building or increase the
rate of premiums payable thereunder or expose the Premises, Building or
surrounding land and improvements to the risk of contamination by hazardous or
toxic materials. If Tenant fails to comply with this covenant, Landlord may
require Tenant to stop engaging in such activity, and in all events Tenant shall
reimburse Landlord as additional rent for the increase in premiums for the
insurance carried by Landlord which is attributable to Tenant's use of the
Premises.
Section 11.06 Waiver of Subrogation. Landlord and Tenant hereby release
each other and each other's employees, agents, customers and invitees from any
and all liability for any loss of or damage or injury to person or property
occurring in, on, about or to the Premises, the Building or the Common Areas or
any personal property on or within the Building, by reason of fire or other
casualty which is insured against under the policies required to be maintained
hereunder by Landlord and Tenant (or would be so insured absent the failure of
Landlord or Tenant to maintain such insurance), regardless of cause, including
negligence of Landlord or Tenant and their respective employees, agents,
customers and invitees. Because the provisions of this Section are intended to
preclude the assignment of any claim mentioned herein by way of subrogation or
otherwise to any insurer or any other person to the extent of the foregoing
mutual releases, each party to this Lease shall give to each insurance company
which has issued to it one or more policies of fire and extended coverage
insurance notice of the provisions of this Section and have such insurance
policies properly endorsed, if necessary, to prevent the invalidation of such
insurance by reason of the provisions hereof.
Section 11.07 Indemnification. Tenant assumes all risks and
responsibilities for accidents, injuries or damages to person or property and
agrees to indemnify and hold Landlord, Northeast Business Center Owners
Association and Citimark Management Co., Inc. harmless from any and all claims
and expenses (including attorneys' fees) arising from or in connection with the
condition, use or control of the Premises and any improvements thereon during
the term of this Lease. Tenant shall be liable to Landlord for any damages to
the Premises and any act done by Tenant or any person coming on the Premises by
the license or invitation of Tenant, express or implied (except Landlord, its
agents or employees). This Section shall not, however, impose upon Tenant any
liability from which Tenant is released under Section 11.06.
Section 11.08 Tenant's Property. Landlord shall not be liable for, and
Tenant waives all claims against Landlord for, any damages (including, but not
limited to, consequential damages) or losses of or to property or otherwise,
sustained by Tenant, however caused. All property of Tenant kept or stored in
upon or about the Premises shall be so kept or stored at the sole risk of
Tenant; and Tenant shall hold Landlord harmless from any claims, costs or
expenses, including attorneys' fees, arising out of damage thereto.
ARTICLE 12 - ASSIGNMENT AND SUBLETTING
Section 12.01 Requirement of Landlord's Consent. Tenant shall not assign
this Lease or sublet the whole or any part of the Premises without Landlord's
prior written consent, which shall not be unreasonably withheld as hereinafter
provided. Such consent shall not be implied from references in this Lease to
assignees, sublessees, concessionaires, or licensees. Landlord's consent to any
assignment or subletting shall not constitute a waiver of the requirement for
such consent to any subsequent assignment or subletting. Any such assignment or
subletting, even with Landlord's consent, shall not relieve Tenant from
liability for payment of rent or other sums herein provided or from the
performance of any other obligations under this Lease, and each assignee shall
be required to assume and agree to perform and observe all obligations,
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covenants, terms and provisions of this Lease required hereunder to be performed
or observed by Tenant. The acceptance of rent from any other person shall not be
deemed a waiver of any of the provisions of this Lease or a consent to the
assignment of this Lease or the subletting of the Premises. Tenant agrees to
reimburse Landlord for reasonable accounting and attorneys' fees incurred in
conjunction with the processing and documentation of any such requested
transfer, assignment, subletting, licensing or concession agreement, change of
ownership or hypothecation of this Lease or Tenant's interest in and to the
Premises.
Without limiting Landlord's general right to withhold its consent to an
assignment or subletting, Landlord shall be entitled to withhold its consent to
an assignment or subletting if in Landlord's sole determination, its interest in
the Lease or the Premises would be adversely affected by (i) the financial
condition, credit worthiness or business reputation of the proposed assignee or
subtenant, (ii) the prevailing market or quoted rental rates for space in the
Building or other comparable buildings or (iii) the proposed use of the Premises
by, or business of, the proposed assignee or subtenant. If Landlord refuses to
give its consent to any proposed assignment of subletting, Landlord may, at its
option, within thirty (30) days after receiving notice of the proposal,
terminate this Lease or that part of the Lease which pertains to the space which
Tenant has proposed to assign or sublet, by giving Tenant thirty (30) days prior
written notice of such termination, whereupon each party shall be released from
all further obligations and liability hereunder with respect thereto.
Section 12.02 Assignment by Operation of Law. Any transfer of this Lease
by operation of law (including, but not limited to, a transfer as a result of a
merger, consolidation of liquidation of tenant if Tenant is a corporation) shall
constitute an assignment for purposes of this Lease.
Section 12.03 Licensees or Concessionaires. Tenant shall not permit any
business to be operated in, on or from the Premises by any sublessee, licensee
or concessionaire without Landlord's prior written consent.
ARTICLE 13 - ACCESS TO PREMISES
Tenant shall permit Landlord and its agents to enter upon the Premises
at all reasonable times to inspect and examine the Premises, to show the
Premises to insurance inspectors, prospective purchasers, mortgagees or tenants,
or to make such repairs or alterations (including the bringing of materials that
may be required therefor into or upon the Premises) as Landlord may deem
necessary or which Tenant has agreed herein but failed to make without any such
act constituting an eviction of Tenant in whole or in part, without rent in any
manner abating while such repairs or alterations are being made by reason of
loss or interruption of Tenant's business in the Premises, and without
responsibility for any loss or damage to Tenant's property or business. If
Tenant is not present to open and permit an entry by Landlord into the Premises
at any time when entry therein is necessary because of an emergency, Landlord or
its agents may forcibly enter the Premises without rendering Landlord or its
agents liable therefor and without in any manner affecting the obligations and
covenants under this Lease, provided that Landlord shall repair any damage
occasioned thereby. Landlord's foregoing right of entry shall not be construed
to impose upon Landlord any obligation or liability whatsoever for the
maintenance or repair of the Leased Premises except as expressly provided in
this Lease.
ARTICLE 14 - FIRE AND OTHER CASUALTY
In the event of the total or partial destruction of the Premises by fire
or other casualty, the insurance proceeds, if any, which as a result of such
destruction are payable under the fire and extended coverage insurance to be
maintained by Landlord shall be payable to, and be the sole property of,
Landlord. Landlord and Tenant shall rebuild, repair and restore the Premises in
accordance with the original construction obligations set forth in Article 5
(except that Landlord shall rebuild, repair and restore those parts of Tenant's
original construction obligations, alterations, improvements, additions and
leasehold improvements covered by the policy of fire and extended coverage
insurance to be maintained by Landlord); provided, however, that in the event
(a) the Premises are so destroyed that the Premises cannot be restored within
one hundred eighty (180) days after the date of the damage or destruction, (b)
the damage or destruction is not covered by the policy of broad form fire and
extended coverage insurance to be maintained by Landlord and Landlord does not
undertake to restore the Premises within ninety (90) days after the date of such
damage or destruction, or (c) the insurance proceeds (reduced by any application
thereof by Landlord's mortgagee to its mortgage) are insufficient for
restoration of the Premises and Landlord does not undertake such restoration
within ninety (90) days after the date of such damage or destruction, then
Landlord shall not be obligated to restore the Premises, and either Landlord or
Tenant may then terminate and cancel this Lease upon thirty (30) days written
notice to the other, and all obligations hereunder except those then due or
mature shall thereupon cease and terminate. Monthly Rent shall proportionately
abate during the time that the Premises or any part thereof is unusable by
reason of any such damage thereto.
ARTICLE 15 - EMINENT DOMAIN
In the event that all or a substantial part of the Premises is taken or
condemned for public or quasi-public use under any statute or by the right of
eminent domain, or that in lieu thereof all or a substantial part of the
Premises is sold to a public or quasi-public body under threat of condemnation,
and such taking, condemnation or sale renders the Premises unsuitable for
operation of the Tenant's business therein, this Lease shall terminate on the
date possession of all or such part of the Premises is transferred to the
condemning authority. All rent shall be paid up to the date of termination; and
all compensation awarded or paid for the taking or sale in lieu thereof shall
belong to and be the sole property of Landlord; and Tenant shall have no claim
against Landlord for the value of any unexpired portion of the lease term.
However, Tenant shall have the right to recover from such authority, but not
from Landlord, such compensation as may be separately awarded to Tenant on
account of moving and relocation expenses and depreciation to and removal of
Tenant's property.
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ARTICLE 16 - DEFAULTS AND REMEDIES
Section 16.01 Default. Each of the following events shall be deemed a
default by enant and a material breach of this Lease:
(a) Tenant's failure to pay when due any rent or other charges payable
hereunder; or
(b) The appointment of a receiver, liquidator or trustee for Tenant or for
all or any part of its property (which in the case of an involuntary
appointment is not set aside within sixty (60) days); or
(c) Any assignment by Tenant for the benefit of creditors; or
(d) The commencement of any federal or state bankruptcy, reorganization or
receivership proceeding (which in the case of an involuntary
proceeding is not dismissed within sixty (60) days); or
(e) If Tenant is a corporation, the dissolution or liquidation of Tenant
or the institution of any proceeding for dissolution or liquidation of
Tenant (which in the case of an involuntary proceeding is not
dismissed within sixty (60) days); or
(f) Tenant's admission in writing of an inability to pay its debts when
due; or
(g) Tenant's vacation or abandonment of all or any portion of the Premises
for any period; or
(h) Tenant's failure to perform or observe, whether by action or inaction,
any covenant, term, provision or condition of this Lease, other than
payment of rent or other charges payable hereunder, within a period of
fifteen (15) days after written notice of default has been given by
Landlord to Tenant; provided that in the case of a default which by
its nature cannot be cured within fifteen (15) days, Tenant shall have
an additional reasonable period of time ("Additional Period") to cure
the default if, and only if, Tenant promptly and within such fifteen
(15) day period commences to cure the default and in good faith and
with due diligence pursues the curing of the default throughout the
Additional Period until cured.
Section 16.02 Remedies. Upon the occurrence of any event of default set
forth in Section 16.01 above, Landlord shall have the following rights and
remedies, in addition to those allowed by other provisions of this Lease, at law
or in equity, any one or more of which may be exercised by Landlord in its sole
discretion and without notice to or demand upon Tenant:
(a) Landlord may apply the security deposit and/or re-enter the Premises
and cure any default of Tenant, in which event Tenant shall reimburse
Landlord as Additional Rent for any costs and expenses which Landlord
may incur to cure such default; and Landlord shall not be liable to
Tenant for any loss or damage which Tenant may sustain by reason of
Landlord's action, regardless of whether caused by Landlord's
negligence or otherwise.
(b) Landlord may continue this Lease in full force and effect and enforce
all Landlord's rights and remedies hereunder, including injunctive
relief and the recovery of all rent and other charges due and to
become due hereunder, and all damages, losses and expenses (including
attorneys' fees) incurred by Landlord as a result of or in connection
with Tenant's default in the performance of its obligations under this
Lease.
(c) Landlord may, without terminating this Lease, re-enter the Premises
and re-let all or any part of the Premises for a term different from
that which would otherwise have constituted the balance of the Term
and for rent and on terms and conditions different from those
contained herein, whereupon Tenant shall be obligated to pay Landlord
as liquidated damages the difference between the rent provided for
herein and that provided for in any lease covering a subsequent
re-letting of the Premises, for the period which would otherwise have
constituted the balance of the Term of this Lease, together with all
of Landlord's reasonable costs and expenses for preparing the
Premises, for re-letting, including all repairs, tenant finish
improvements, brokers' and attorneys' fees, and all loss or damage
which Landlord may sustain by reason of such re-entry and re-letting.
(d) Landlord may terminate this Lease upon written notice thereof from
Landlord to Tenant (but absent such written notice, Landlord shall in
no event be deemed to have terminated this Lease). Immediately upon
such notice or at any time thereafter, Landlord may lawfully enter
into or upon the Premises or any part thereof, take possession of all
or any part thereof, remove all persons and property therefrom, and
collect and retain all rents and profits arising from the Premises,
and Landlord in taking such action shall not be liable for any damage
or trespass. Following such termination, Landlord shall be entitled to
recover from Tenant all damages, losses and expenses incurred by
Landlord as a result of or in connection with Tenant's default and
Landlord's re-entry, including (a) the costs of recovering the
Premises, (b) attorneys' fees and (c) the excess, if any, of the value
of the rent and other charges reserved in this Lease for the remainder
of the Term over the then fair rental value of the Premises for the
remainder of the Term (taking into account the time and expenses
necessary to obtain a replacement tenant or tenants, including, but
not limited to, expenses of preparing the Premises for re- letting,
brokers' fees and advertisement). All such amounts shall be due and
payable by Tenant upon
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Landlord's demand.
(e) Landlord shall be entitled from time to time, without waiting until
expiration of the Term, to institute one or more legal proceedings to
protect or enforce its rights and remedies hereunder or otherwise
available at law or in equity.
(f) At any time and with ten (10) days prior written notice to Tenant,
Landlord shall be entitled, but not obligated, to cure any default of
Tenant under this Lease. Whenever Landlord so elects, Tenant shall
immediately upon demand pay to Landlord, as additional rent, all
reasonable costs and expenses thereby incurred by Landlord. Landlord's
election to cure any such default shall not operate as a waiver
thereof or of any other right or remedy of Landlord under the terms of
this Lease.
(g) The remedies of Landlord under this Lease shall be cumulative, and no
one of them shall be construed as exclusive of any other or of any
remedy provided at law or in equity. The exercise of any one such
right or remedy by Landlord shall not impair its standing to exercise
any other right or remedy.
(h) The failure or delay by Landlord to exercise or enforce at any time
any of the rights or remedies or other provisions of this Lease shall
not be construed to be a waiver thereof nor affect the validity of any
part of this Lease or the right of Landlord thereafter to exercise or
enforce each and every such right or remedy or other provision. No
waiver of any default or breach by Tenant under this Lease shall be
effective unless in writing nor be deemed a waiver of any other or
further default or breach. The receipt by Landlord of less than the
full rent due shall only be construed as a payment on account of rent
then due, and no statement on Tenant's check or any letter
accompanying Tenant's check shall be deemed an accord and
satisfaction. Landlord may accept any such payment without prejudice
to Landlord's right to recover the balance of the rent due or to
pursue any other remedies provided in this Lease. No act or omission
by Landlord or its employees or agents shall be deemed an acceptance
of a surrender of the Premises, and no agreement to accept such a
surrender shall be valid unless in writing and signed by Landlord.
ARTICLE 17 - ESTOPPEL CERTIFICATES AND SUBORDINATION
Section 17.01 Estoppel Certificates. Within ten (10) days after
Landlord's written request therefor, Tenant shall deliver to Landlord or to any
prospective purchaser or mortgagee of the Premises a written statement in the
form attached hereto as Exhibit F or in such other form as Landlord may
reasonably request, certifying (if such is the case) that this Lease is in full
force and effect and has not been assigned, modified, supplemented or amended;
that all covenants, conditions and agreements on the part of Landlord hereunder
have been performed; and that there are no defenses or offsets to the
enforcement of this Lease by Landlord.
Section 17.02 Subordination. This Lease shall be and remain subject and
subordinate to any mortgage presently existing or hereafter placed upon the
Building by so declaring in such mortgage; and the recording of any such
mortgage shall make it prior and superior to this Lease regardless of the date
of execution or recording of either document. Tenant shall, at Landlord's
request, execute and deliver to Landlord, without cost, an Estoppel Certificate
and any instrument which Landlord may deem necessary or desirable to confirm the
subordination of this Lease; and, if Tenant fails or refuses to do so, Landlord
may execute such instrument in the name and as the act of Tenant.
Notwithstanding the foregoing, no default by Landlord under any such mortgage
shall affect Tenant's rights hereunder so long as the Tenant is not in default
under this Lease. Tenant shall, in the event any proceedings are brought for the
foreclosure of any such mortgage, attorn to the purchaser upon any such
foreclosure and recognize such purchaser as the landlord under this Lease.
ARTICLE 18 - NOTICES
Any notice required or permitted to be given under this Lease or by law
shall be deemed to have been given if it is written and delivered in person, by
overnight courier, or mailed by certified or registered mail, return receipt
requested, postage prepaid, to the party who is to receive such notice at the
address specified in Item K of the Basic Lease Provisions. When so mailed, the
notice shall be deemed to have been given as of the date it was mailed. The
address specified in Item K of the Basic Lease Provisions may be changed by
giving written notice thereof to the other party.
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ARTICLE 19 - LIMITATION OF LANDLORD'S LIABILITY
Tenant agrees that Tenant shall look solely to Landlord's interest in
and to the Building, subject to prior rights of any mortgagee of the Building,
for collection of any judgment (or other judicial process) requiring payment of
money by Landlord in the event of default or breach by Landlord of any of the
covenants, terms or conditions of this Lease to be observed or performed by
Landlord (including, without limitation, any indemnity obligation of Landlord
hereunder), and that no other assets of Landlord shall be subject to levy,
execution or other process for satisfaction of Tenant's remedies. The term
"Landlord", as used in this Lease in relation to covenants, agreements and
conditions to be observed and performed by Landlord, shall mean and include only
the owner or owners from time to time of the Landlord's interest in this Lease.
In the event of any transfer or transfers of such interest (except a transfer
for security), the Landlord named herein (or the transferor in the case of a
subsequent transfer) shall, after the date of such transfer, be released from
all liability for performance of any covenant, agreement and condition on the
part of the Landlord which are thereafter to be performed hereunder. The
transferee shall be deemed to have assumed (subject to the limitations of this
paragraph) all of the covenants, agreements and conditions herein to be observed
by Landlord with the result that such covenants, agreements and conditions shall
bind the Landlord, its successors and assigns, only during and in respect of
their respective successive periods of ownership.
ARTICLE 20 - FORCE MAJEURE
Landlord shall be excused for the period of any delay in the performance
of any obligation hereunder when such delay is occasioned by causes beyond its
reasonable control, including, but not limited to: invasion or hostility; work
stoppages, boycotts, slow-downs or strikes; shortages of materials, equipment,
labor or energy; man-made or natural casualties; weather conditions; acts or
omissions of governmental or political bodies; or civil disturbances or riots.
ARTICLE 21 - QUIET ENJOYMENT
Landlord agrees that if Tenant performs all the covenants and agreements
herein provided to be performed by Tenant, Tenant shall, at all times during the
Term, have the peaceable and quiet enjoyment of possession of the Premises
without any manner of hindrance from Landlord or any persons claiming under
Landlord.
ARTICLE 22 - MISCELLANEOUS PROVISIONS
Section 22.01 Severability. The invalidity or unenforceability of any
particular provision of this Lease shall not affect the other provisions, and
this Lease shall be construed in all respects as if such invalid or
unenforceable provision had not been contained herein.
Section 22.02 Benefit of Persons Affected. This Lease and all of the
terms and provisions hereof shall inure to the benefit of and be binding upon
the respective heirs, executors, administrators, successors and assigns of
Landlord and Tenant except as otherwise expressly provided herein.
Section 22.03 Construction. Whenever in this Lease a singular word is
used, it shall also include the plural wherever required by the context and vice
versa. All references in this Lease to the masculine gender shall be deemed to
include the feminine or neuter gender where appropriate. All references in this
Lease to articles or sections are to articles or sections contained in this
Lease unless a different document is expressly specified.
Section 22.04 Entire Agreement; Amendments. All representations,
promises and prior or contemporaneous undertakings between such parties are
merged into and expressed in this instrument, and any and all prior agreements
between such parties are hereby canceled. The agreements contained in this
instrument shall not be amended, modified, or supplemented except by a written
instrument signed by the party against whom the amendment, modification or
supplement is sought to be enforced.
Section 22.05 Governing Law. This Lease shall be governed in accordance
with the laws of the State of Indiana.
Section 22.06 Captions. The captions of this Lease are for convenience only
and do not in any way limit or amplify the terms and provisions hereof.
Section 22.07 No Option. The submission of this Lease for examination by
Tenant shall not constitute a reservation of or option for the Premises. This
Lease shall become effective as a Lease only upon execution and delivery thereof
by Landlord and Tenant.
Section 22.08 Memorandum of Lease. The parties hereto shall not record
this Lease, but each party shall execute upon request of the other a "Memorandum
of Lease" suitable for recording.
Section 22.09 Exhibits. The exhibits hereto and the insurance
questionnaire are incorporated herein by reference and made a part hereof with
the same effect as if set out in full herein.
Section 22.10 Counterparts. This Lease may be executed in separate
counterparts, each of which when so executed shall be an original; but all of
such counterparts shall together constitute but one and the same instrument.
12
<PAGE>
Section 22.11 Broker Commission. In the event Tenant and Landlord agree to
renew and/or extend the term of this Lease, in connection with any option
contained herein or otherwise, Landlord shall not be responsible for the payment
of any fee or commission to any broker or other third party, including any
broker identified in the Basic Lease Provisions in Section 1.02 (H), above, who
is retained by the Tenant in connection with such renewal and/or extension.
ARTICLE 23 - SECURITY DEPOSIT
Tenant hereby deposits with the Landlord the sum of Seven Thousand Five
Hundred Eighty-Eight Dollars ($7,588.00) as stated in Section 1.02 G. to be held
by Landlord without interest as security for Tenant's full and faithful
performance of all of the terms, conditions and covenants contained herein.
Landlord may apply all or any part of such security deposit to cure all or any
part of any default; and Tenant agrees, upon demand, to promptly deposit such
additional sums with Landlord as may be required to maintain the full amount of
the security deposit. The Landlord's application of all or any part of the
security deposit shall not constitute a waiver of any right or remedy hereunder
or otherwise available at law or in equity. All sums held by Landlord pursuant
to this section shall be returned to Tenant at the end of the Term, provided
there is then no uncured default. However, Landlord may transfer the security
deposit or the remaining portion thereof to any purchaser of Landlord's interest
in the Premises, and thereupon, Landlord shall be released from any obligation
to Tenant to return the security deposit provided that such purchaser assumes
the obligation to return to Tenant the unused portion of the security deposit.
ARTICLE 24 - FIRST RIGHT OF REFUSAL TO RENEW
Tenant shall have the right of first refusal to renew its lease for the
Premises. Landlord agrees that prior to leasing all or any part of the Premises,
it will first offer to lease all of the said Premises to Tenant at the then
current market rate for office space of similar size and quality in the
buildings as reasonably determined by Landlord (hereinafter referred to as
"Market Rent"), but not less than the rate being charged for each square foot of
the existing Premises for a five (5) year term. Tenant's right of first refusal
to renew shall be exercised by the occurrence of each of the following events:
(i) Tenant's giving written notice to Landlord of its intention to renew the
Term no later than six (6) months prior to the expiration of the original Term;
and (ii) Tenant's giving written notice to Landlord of its acceptance of the
Market Rent within ten (10) days following receipt of Landlord's written
notification of the Monthly Rent for the period. In the event Landlord intends
to lease all of the Premises, Landlord will give Tenant written notice of such
intent specifying such Monthly Rent; and Tenant shall have three (3) business
days after receipt of such notice to notify Landlord in writing of its agreement
to lease the Premises.
ARTICLE 25 - RIGHT OF FIRST REFUSAL
Landlord agrees that prior to leasing all or any part of the space in
the Building which is outlined in blue on the attached Exhibit F (the "Refusal
Space"), it will first offer to lease all of the Refusal Space to Tenant for the
balance of the term of the Lease at the current market rate for office space of
similar size and quality in the Building as reasonably determined by Landlord,
but not less than the rate being charged for each square foot of the existing
Premises for a five (5) year term. The Refusal Space shall consist of at least
Four Thousand Five Hundred (4,500) square feet and the Tenant's remaining Term
must be at least five (5) years. In the event Landlord intends to lease all or
any part of the Refusal Space, Landlord will give Tenant written notice of such
intent specifying such market rate; and Tenant shall have three (3) business
days after receipt of such notice to notify Landlord in writing of its agreement
to lease the Refusal Space.
ARTICLE 26 - RIGHT TO RELOCATE
Landlord and Tenant acknowledge that, on the thirty-sixth (36th) month
of the Term, Tenant may need space, in addition to the Premises, to accommodate
expansion of Tenant's business. In this regard, If Tenant requires additional
space, it shall give written notice to Landlord of its requirements nine (9)
months prior to the thirty-sixth (36th) month for that additional space. In the
event Landlord is able to satisfy Tenant's requirements for additional space
with space located in the Building or in Northeast Eight (the "Additional
Space"), then this lease shall be appropriately amended to add the space in the
Building to satisfy Tenant's requirements.
In the event Tenant leases Additional Space from the Landlord, the rent
for such Additional Space shall be the then current market rate for space of
similar size and quality in Northeast Business Center as reasonably determined
by Landlord. Landlord shall notify Tenant of the Monthly Rent for the Additional
Space within ninety (90) days after receipt of Tenant's notice requesting
Additional Space. If Tenant leases Additional Space from Landlord, the term of
this Lease shall be extended for a period of sixty (60) months following the
date Tenant assumes occupancy of the Additional Space and this Lease will be
amended to reflect the increase in Monthly Rent and increase in Tenant's share,
to delete the provisions of this Section and to make such other changes as are
reasonably necessary to reflect Tenant's leasing of the Additional Space.
13
<PAGE>
Landlord and Tenant acknowledge that Tenant may require Additional Space
on the thirty-sixth (36th) month following the Term Commencement Date (the
"Termination Date") Provided Tenant is not in default hereunder, if Landlord is
unable, on the Termination Date, to provide Tenant with Additional Space in the
Building or Northeast Eight within one hundred eighty (180) days following
Tenant's written notice, then Tenant shall have the right and option to
terminate this Lease by written notice to Landlord. In such a case, the Lease
shall terminate provided (i) notice shall be given within ten (10) days
following the end of such one hundred eighty (180) day period and, (ii) Tenant
pays to Landlord the unamortized tenant improvements and lease commission and
four (4) months Rent. The termination shall be effective as of a date ninety
(90) days following Landlord's receipt of such termination notice. Tenant shall
have no such right to terminate unless its request for more space is for at
least Four Thousand (4,000) square feet more than the original square footage of
the Premises.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD:
NEW BOSTON CITIMARK LIMITED PARTNERSHIP
By: New Boston Fund, Inc.,
Its General Partner
By: /s/
---------------------------------------
Jerome L. Rappaport, Jr.
Its President
TENANT:
BROWSESAFE.COM, INC.
By: /s/
---------------------------------------
Name: Greg Urbanski
---------------------------------------
Title: CFO
---------------------------------------
14
<PAGE>
ACCEPTANCE OF PREMISES FOR LEASE AGREEMENT
Tenant:
Landlord: New Boston Citimark Limited Partnership
Address of Premises: 7202 E. 87th Street, Suite ____
Indianapolis, Indiana 46256
Total S.F. of Premises:
Base Lease Signed:
Date of Landlord's Notice
or Date of Occupancy:
Base Lease
Commencement Date:
Base Lease
Expiration Date:
Next Rental Pmt. Due:
Amount Due on Next
Rental Payment:
Tenant confirms the accuracy of the above information with respect to the Lease
Agreement. Tenant hereby acknowledges that (i) is has accepted the Premises and
(ii) the condition of the Premises is satisfactory and in conformity with the
provisions of the Lease Agreement in all respects, except as noted below:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TENANT:
By:____________________________________
Its____________________________________
Date:__________________________________
Exhibit B
page 1 of 1
15
<PAGE>
RULES & REGULATIONS
1. Landlord agrees to furnish Tenant two (2) keys without charge. Additional
keys will be furnished at a nominal charge. No additional locks or bolts of
any kind shall be placed upon any of the exterior or interior doors by
Tenant, nor shall any changes be made to the existing locks or the
mechanisms thereof without Landlord's prior written consent.
2. Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any service on or to the Premises for
Tenant, to Landlord for Landlord's approval and supervision before
performance of any contractual service. This provision shall apply to all
work performed on or about the Premises or Building, including installation
of telephones, telegraph equipment, electrical devices and attachments and
installations of any nature affecting floors, walls, woodwork, trim,
windows, ceilings and equipment or any other physical portion of the
Premises or Building other than routine maintenance and repair.
3. Tenant shall not conduct any auction, fire sale or bankruptcy sale in the
Premises without Landlord's prior written consent.
4. Tenant shall at all times maintain an adequate number of suitable fire
extinguishers on the Premises for use in case of local fires, including
electrical and chemical fires.
5. Tenant shall not place, install or operate on the Premises or in any part
of the Building, any engine, stove or machinery, or conduct mechanical
operations or, cook thereon or therein, or place or use in about the
Premises or Building any explosive, flammable, or hazardous material
without written consent of Landlord. Notwithstanding the foregoing, Tenant
may have a microwave oven for the use of its employees.
6. Tenant shall keep the Premises and operate its business in and about the
Premises in a careful, safe, clean and proper manner and condition in
accordance with all directions, rules and regulations of the health, fire,
building and other offices and governmental agencies having jurisdiction
and in accordance with all insurance requirements.
7. Tenant shall not display merchandise outside the Premises nor in any manner
obstruct the sidewalks or other areas adjacent to the Premises nor burn or
place outside the Premises garbage, trash, merchandise containers or other
incidentals to Tenant's business.
8. Tenant shall not use, or permit the use of, loud speakers, radios or other
devices in a manner so as to be heard or seen outside the Premises without
Landlord's prior written consent.
9. Tenant shall load and unload all merchandise, supplies, fixtures, equipment
and furniture and cause the collection of trash only through the rear
service door or other doors of the Premises designated by Landlord.
10. Tenant shall not use the plumbing facilities for any purpose other than for
which such facilities were constructed, and no foreign substance of any
kind shall be placed therein, and the expense of any breakage, stoppage, or
damage resulting from a violation of this provision shall be borne by
Tenant.
11. Tenant shall not unreasonably interfere with the use of the Common Areas by
Landlord or others entitled to the use thereof.
12. Tenant shall not walk upon the roof of the Building nor make any
installations upon or through the roof or walls of the Building without
Landlord's prior written consent.
13. Tenant shall comply and shall use its best efforts to cause its agents,
employees, customers, invitees, licensees and concessionaires to comply
with all other reasonable rules and regulations established by Landlord
from time to time for the benefit of the tenants of the Building or Park.
Exhibit C
page 1 of 1
16
<PAGE>
LANDLORD IMPROVEMENTS
Landlord shall complete the following improvements to the Premises. Tenant shall
pay Landlord Four Thousand Five Hundred Ninety-One Dollars and Fifty-Cents
($4,591.50) for its portion of the improvements prior to occupancy of the
Premises.
Open Office/Corridors
Flooring: New 28 oz carpet
Base: New 4" vinyl cove
Walls: Two (2) coats MAB Rich Lux paint
Ceiling: 2 x 4 acoustical lay-in (existing)
Lighting: 2 x 4 fluorescent (existing)
Offices
Flooring: New 28 oz carpet
Base: New 4" vinyl cove
Walls: Two (2) coats MAB Rich Lux paint
Ceiling: 2 x 4 acoustical lay-in (existing)
Lighting: 2 x 4 fluorescent (existing)
Conference Room
Flooring: New 28 oz carpet
Base: New 4" vinyl cove
Walls: Two (2) coats MAB Rich Lux paint
Ceiling: 2 x 4 acoustical lay-in (existing)
Lighting: 2 x 4 fluorescent (existing)
Storage Room
Flooring: New 28 oz carpet
Base: New 4" vinyl cove
Walls: Two (2) coats MAB Rich Lux paint
Ceiling: 2 x 4 acoustical lay-in (existing)
Lighting: 2 x 4 fluorescent (existing)
Restrooms
Flooring: 12" x 12" vinyl composite tile (existing)
Base: 4" vinyl cove (existing)
Walls: Two (2) coats MAB Rich Lux paint
Ceiling: 2 x 4 acoustical lay-in (existing)
Lighting: 2 x 4 fluorescent (existing)
Miscellaneous
Install new rear exit into service corridor.
Exhibit D
Page 1 of 2
17
<PAGE>
ESTOPPEL CERTIFICATE
TENANT:
LANDLORD: New Boston Citimark Limited Partnership
PREMISES: 7202 E. 87th Street, Suite ___
Indianapolis, Indiana 46256
LEASE
EXPIRES:
The undersigned, the tenant under the above lease, ("Lease") certifies to
Principal Mutual Life Insurance Company, an Iowa Corporation, ("Lender") that:
1. The Lease is presently in full force and effect and is unmodified except as
indicated at the end of this certificate.
2. The Lease represents the entire agreement between the parties as to this
leasing.
3. The term of the Lease has commenced, and full rental is now accruing
thereunder.
4. The undersigned has accepted possession of the Premises, and any
improvements required by the terms of the Lease to be made by Landlord have
been completed to the satisfaction of the undersigned.
5. No rent under the Lease has been paid more than thirty (30) days in advance
of its due date.
6. The undersigned, as of this date, has no charge, lien or claim of offset
under the Lease or otherwise against rents or other charges due or to
become due thereunder.
7. Lender shall have the right to enter upon the premises at all reasonable
times to visit or inspect the premises.
8. As of this date, to the best of Tenants knowledge, Landlord has performed
all of its obligations under the terms and conditions of the Lease and is
not in default hereunder, nor has any event or omission occurred which, but
for the passage of time or the giving of notice or both, would be a default
by Landlord, except:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
9. Amendments:____________________________________________________________
-----------------------------------------------------------------------
Dated ________________________.
TENANT:
By:______________________________
Printed:_________________________
Its:_____________________________
"Title"
Exhibit E
page 1 of 1
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,475
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 238,769
<PP&E> 104,676
<DEPRECIATION> 11,395
<TOTAL-ASSETS> 485,464
<CURRENT-LIABILITIES> 1,329,311
<BONDS> 0
0
0
<COMMON> 882,568
<OTHER-SE> (1,755,725)
<TOTAL-LIABILITY-AND-EQUITY> 485,464
<SALES> 672
<TOTAL-REVENUES> 672
<CGS> 0
<TOTAL-COSTS> 1,214,977
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,378
<INCOME-PRETAX> (1,214,305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,214,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,214,305)
<EPS-BASIC> (0.87)
<EPS-DILUTED> (0.87)
</TABLE>
EXHIBIT 99.3
Keith Balderson
522-625 Howe St.
Vancouver, BC V6C 2T6
Canada
Browsesafe.com, Inc.
Suite 100 - 335 West 9th Street
Indianapolis, Indiana 46202-3003
Attention: Board of Directors
Dear Sirs,
Please accept this letter as my resignation from the Board of Directors of
Browsesafe.com, Inc. Effective immediately March 2, 2000.
Very Truly,
/s/ Keith Balderson
Keith Balderson
