UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF
SECURITIES Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
SHOPPING SHERLOCK, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant in its charter)
Florida 91-1962104
- ------------------------------------- ----------------------------------------
(State or other jurisdiction or (I.R.S. Employer Identification No.)
of incorporation or organization)
11201 S.E. 8th Street, Suite 152
Bellevue, Washington 98004
- -------------------------------------- ----------------------------------------
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (425) 372-3060
Securities to be registered under Section
12(b) of the Act:
None
- ----------------------------------- -------------------------------------------
Title of each class to be so Name of each exchange on which each class
registered is to be registered
Securities to be registered under Section
12(g) of the Act:
Common Stock, $.001 par value
- -------------------------------------------------------------------------------
(Title of Class)
Not Applicable
- -------------------------------------------------------------------------------
(Title of Class)
<PAGE>
TABLE OF CONTENTS
Page
NOTE REGARDING FORWARD LOOKING STATEMENTS......................................1
ITEM 1 BUSINESS.........................................................3
ITEM 2 FINANCIAL INFORMATION...........................................30
ITEM 3 PROPERTIES......................................................35
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..35
ITEM 5 DIRECTORS AND EXECUTIVE OFFICERS................................35
ITEM 6 EXECUTIVE COMPENSATION..........................................37
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................38
ITEM 8 LEGAL PROCEEDINGS...............................................39
ITEM 9 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.................................39
ITEM 10 RECENT SALES OF UNREGISTERED SECURITIES.........................39
ITEM 11 DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.........40
ITEM 12 INDEMNIFICATION OF OFFICERS AND DIRECTORS.......................40
ITEM 13 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................30
ITEM 14 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................47
ITEM 15 FINANCIAL STATEMENTS AND EXHIBITS...............................47
-i-
<PAGE>
NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information contained
herein constitutes "forward-looking statements," including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, as well as all projections of future results. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results or achievements of the Company
to be materially different from any future results or achievements of the
Company expressed or implied by such forward-looking statements. Such factors
include, but are not limited to the following: the Company's limited operating
history, competition, risks of technological change, the Company's dependence on
key personnel, marketing relationships and third party suppliers, the Company's
ability to protect its intellectual property rights and the other risks and
uncertainties described under "Business -- Risk Factors" in this Form 10.
Certain of the forward looking statements contained in this registration
statement are identified with cross references to this section and/or to
specific risks identified under "Business -- Risk Factors."
ITEM 1 BUSINESS
Shopping Sherlock, Inc. (the "Company") is a development stage company
dedicated to becoming a leading on-line retailer of consumer goods, provider of
Web site and e-business services and distributor and marketer of rebate shopping
benefits. The Company was incorporated in Florida on August 17, 1984 under the
name Aida Industries, Inc. as a development stage company with no operations. On
March 24, 1999, the Company changed its name from Aida Industries, Inc. to
Shopping Sherlock, Inc. On May 26, 1999, the Company acquired all the issued and
outstanding capital stock of Shopping Sherlock, Inc., a Delaware corporation
("SSI") pursuant to an Agreement and Plan of Reorganization among the Company,
SSI and Shopping Acquisition Corp. ("Acquisition Sub"), a wholly-owned
subsidiary of the Company. Under the terms of the Agreement and Plan of
Reorganization, Acquisition Sub merged with and into SSI, and the stockholders
of SSI, in exchange for all the shares of SSI common stock held by them,
received an aggregate of 2,000,000 shares of the Company's common stock. Unless
otherwise noted herein, references to "the Company" shall mean the Company and
its wholly-owned subsidiary SSI.
The Company plans to leverage its relationships with suppliers, affinity
groups and the Premier Lifestyles International Corporation rebate shopping
network to create an online forum for the sale of over 60,000 household, office,
computer, beauty and health and other consumer products. See "Note Regarding
Forward-Looking Statements."
Industry Background
The Internet and commercial online services are emerging as significant
global communications media, enabling millions of people to share information
and conduct business electronically. A number of factors have contributed to the
growth in the use of the Internet and commercial online services, including the
large and growing installed base of advanced personal computers in the home and
workplace, improvements in network infrastructure, easier, faster and cheaper
access to the Internet and commercial online services, the introduction of
alternative Internet access devices, increased consumer desire for more complete
and up-to-date information, the increase in available information and products
and increased awareness of the Internet and commercial online services among
consumer and business users. In its "IDC Predictions '99" report, International
Data Corporation ("IDC") estimates that the number of Web users will grow to
approximately 147 million by the end of 1999.
The functionality and accessibility of the Internet and commercial online
services have made them an increasingly attractive commercial medium by
providing features that historically have been unavailable through traditional
channels. For example, the Internet and commercial online services provide users
with convenient access to large volumes of dynamic data to support their
investment, purchase and other decisions. Online retailers are able to
communicate effectively with customers by providing frequent updates of featured
selections, content, pricing and visual presentations and to provide tailored
products and services by capturing valuable data on customer tastes,
preferences, shopping and buying patterns.
-1-
<PAGE>
Unlike most traditional distribution channels, online retailers do not have
the burden of building, managing and maintaining numerous local facilities to
provide their services or products on a global scale. In contrast, online
retailers benefit from the relatively low cost of reaching and electronically
serving customers worldwide from a central location. Because of these
advantages, an increasingly broad base of products and services are being sold
online, including books, brokerage services, computers and travel products and
services. Jupiter Communications, LLC ("Jupiter Communications") estimates that
the total value of services and products sold over the Web by retailers,
catalogers and online merchants grew from $707 million in 1996 to approximately
$2.7 billion in 1997, and will increase to approximately $26.5 billion by 2000.
As the number of online content, commerce and service providers has expanded,
strong brand recognition and strategic alliances have become critical to the
success of such companies. Brand development is especially important for online
retailers due to the need to establish trust and loyalty among consumers in the
absence of face-to-face interaction. Some online retailers have begun to
establish long-term strategic partnerships and alliances with content, commerce
and service providers to rapidly build brand recognition and trust, enhance
their service offerings, stimulate traffic, build repeat business, take
advantage of cross-marketing opportunities and create barriers to entry.
Trends In Online Retailing
The Company believes that four key trends are currently shaping the online
retailing industry:
o rapid growth of the Internet as an acceptable medium of effecting
retail transactions;
o fewer consumer concerns over privacy and security;
o diminishing amounts of consumer free time; and
o favorably changing demographics of Internet users.
Rapid Growth in Use of Internet for Retail Transactions. Aggregate online
retail sales are expected to grow from $2.7 billion in 1997 to $26.5 billion in
2000. The Company believes that online retailing will continue to achieve high
growth rates. A recent study by Jupiter Communications suggests that PC hardware
and software sales, the current leading online retail segment in terms of dollar
volume, is likely to fall from its number one position, being replaced by
household and other consumer items by 2002. The Company believes that this trend
signifies a broadening of the online retail market away from computer-related
purchases and toward general consumer-oriented items (e.g., plane tickets,
books, music and so forth). The new high growth areas complement the Company's
marketing strategy that emphasizes selling "lower tech" goods and consumer items
instead of competing for computer hardware and software sales.
Fewer Privacy and Security Concerns. Over the past year the online retail
community has made significant strides toward increasing security and privacy in
retail transactions through self-regulation and the implementation of secure
transaction technologies. "Safe shopping policies," which include assurances of
individual privacy and credit card security, are now being adopted by online
retailers who have become members of Web "self-regulatory associations" like
Trust-e and the Better Business Bureau Online. As a member of the online retail
community, the Company intends to implement its own safe shopping policy to
mitigate against consumers' perception of risk relating to online shopping. See
"Note Regarding Forward-Looking Statements."
Diminishing Amounts of Consumer Free Time. The growing number of
professional, dual-income families require new means of completing common
shopping tasks in a more time efficient manner. The Company intends to create a
retail experience for the consumer that reduces transaction cycle time by:
o recommending reliable products and suppliers that provide the best
price, thereby eliminating the need for the consumer to comparison
shop;
o offering easy access to impartial, unbiased and independent product
reviews, buying tips and advice to help shoppers make more intelligent
and informed purchases;
2
<PAGE>
o featuring direct connection to thousands of brand-name products from
manufacturers to help shoppers quickly find the products they want
without having to spend time sifting through hundreds of Web sites;
o providing an efficient online purchase experience;
o implementing a help desk to provide customer service and support for
the highest level of customer satisfaction; and
o developing fulfillment processes that deliver orders quickly to buyers
and that maintain records of purchases and rebate points. See "Note
Regarding Forward-Looking Statements."
Favorably Changing Demographics of Internet Users. Today, the demographics
of the Internet are moving to match the diversity of the U.S. population. For
instance, the number of women using the Internet increased from 37% to 46% over
the past three years while cybersurfers over 50 have doubled to 20%. Forrester
Research Incorporated estimates that 32% of black households in the U.S., 43% of
Hispanic, and 67% of Asian-American households will be online by year-end. The
Company believes that these changing demographics will broaden the demand for
consumer products on the Web. See "Note Regarding Forward-Looking Statements."
Shopping Sherlock's Business Plan
The Company intends to operate in three related business segments:
1. online product sales;
2. Web site and e-business services; and
3. sales of rebate shopping network benefits.
Online Product Sales. The Company anticipates its primary business will be
the sale of consumer products over the Internet. Through its planned Web site at
www.shoppingsherlock.com, the Company intends to offer over 5,000 high-quality
consumer and household products. In addition, the Company intends to offer its
customers access to a larger database of over 55,000 products through its
planned www.usrebatewarehouse.com online warehouse store. Because of its
strategic marketing relationship with Premier Lifestyles International
Corporation ("PLIC"), an affiliate of the Company, the Company believes that it
will be able to offer products to a large, established base of consumers at
competitive prices and, in many cases, in conjunction with attractive rebates.
See "Note Regarding Forward-Looking Statements."
PLIC is a retail and marketing services company that offers a variety of
services to individuals and businesses including rebate shopping network
memberships, point of sale systems management, debit card processing, Web site
development and hosting, Internet access and product fulfillment. As part of its
operations, PLIC routinely contracts with organizations and companies to offer
participation in its reciprocal rebate shopping network. Members or employees of
participating organizations are eligible to receive rebates on products
purchased from participating merchants. On each purchase, a portion of the price
paid by the rebate network member is remitted to the member's sponsoring
organization and to the organization that recruited the participating merchant.
A transaction processing fee is also paid to PLIC on each sale. See "-- Sale of
Rebate Shopping Network Benefits."
In February 1999, the Company entered into a Strategic Alliance Agreement
with PLIC. Under the terms of the agreement, PLIC granted the Company the right
to directly market the Company's online stores to members of PLIC's rebate
shopping network, to place links to the Company's Web sites on Web sites
sponsored by PLIC and to distribute memberships in PLIC's rebate shopping
network. In addition, PLIC agreed to provide transaction processing and product
fulfillment services to the Company and to give the Company access to its list
of participating merchants and product inventory on an ongoing basis. In
exchange, the Company agreed, on an exclusive basis, to sell, market and honor
PLIC product rebate network memberships and, subject to certain exceptions, to
use PLIC's transaction processing and product fulfillment services. The parties
have also agreed to design jointly a Web site which would feature links to both
the Company's Web sites and other Web sites operated by PLIC. The Strategic
Alliance Agreement is for a perpetual duration, but may be terminated by either
party for cause, as defined in the agreement.
3
<PAGE>
Currently, PLIC's rebate shopping network has over 12 million members
belonging to 23 different organizations. PLIC has also contracted with 21
independent sales organizations, including the Company, to offer rebate shopping
network memberships to additional organizations and businesses. In 1998, members
of PLIC's rebate shopping network purchased approximately $100 million in
products from participating merchants. Because PLIC rebate shopping network
members typically pay an annual fee to participate in the rebate program, the
Company believes that these customers can be characterized as consumers who are
likely to desire the competitive prices and cost-saving programs that the
Company plans to make available on its Web sites. By leveraging PLIC's
established base of rebate shopping network members and its existing
infrastructure, the Company believes that it will be able to facilitate its
entry into the online retail industry and to more quickly establish a base of
loyal customers. See "Note Regarding Forward-Looking Statements."
The Company plans to develop and expand its product categories and the
presence of recognized name brand products within its online stores. Because
PLIC enjoys preferred distributor status from over 80 manufacturers and
suppliers, the Company, through its strategic alliance with PLIC, has access to
a significant number of name brand products at wholesale prices. The Company
believes that relationships with manufacturers of name brand products are
essential to the Company's ability to continue to build its reputation as an
online destination retailer, and that the high-quality reputation of leading
brands is essential to building consumer demand. See "Note Regarding
Forward-Looking Statements."
In addition to offering high-quality, brand-name products at competitive
prices, the Company also intends to link value-added services with the sale of
products by offering the following services to its online customers. These
services include:
o Comparison Shopping: Online customers will be able to compare
similar products and prices through features built into the
Company's Web sites.
o Purchase Suggestions: Based on each customer's sponsoring
organization, general demographic characteristics and purchasing
profile, the Company will offer suggestions of products
compatible with the customer's lifestyle and anticipated buying
interests.
o Free Consumer Intelligence Reports: The Company plans to offer
access to independent product reviews, buying tips and advice to
help shoppers make more intelligent and informed purchases.
o Rebate Club Memberships: Through its relationship with PLIC, the
Company plans to offer inexpensive rebate shopping club
memberships and additional benefits to visitors to its Web sites.
o Product Rebates: Through its participation in the PLIC rebate
shopping network, the Company intends to offer rebates on
selected items to customers who are rebate shopping network
members. These rebates will accumulate for the customer and can
be used on future purchases.
o Help Desk: The Company intends to provide fast and efficient
customer support to individuals as well as product brokerage to
help its organizations receive the best products and prices for
their members. See "Note Regarding Forward-Looking Statements."
Web Site and e-Business Services. The Company currently offers services to
network marketing businesses that need e-commerce sites and Web-based business
tools for their sales associates. The Company offers a complete e-business
services package to its clients, designing a custom solution based upon their
individual business requirements. These services include:
o needs assessment;
o process analysis;
o e-business strategies;
o information architecture;
4
<PAGE>
o Web site design;
o content production;
o Web site production;
o systems integration;
o production of on-line ordering and transaction processing
systems; and
o Web site hosting and Web-based e-mail services.
In addition, the Company's "Direct Marketing Organization (DMO) Platform,"
enables each sales associate of a participating organization to:
o host a customized online storefront;
o display products;
o set up a merchant account;
o place and receive orders online;
o authorize credit cards;
o recruit and sign-up new associates online;
o track sales;
o download sales brochures; and
o communicate by e-mail.
In June 1999, the Company completed development and began operation of its
first e-commerce-enabled site, www.eyicom.com, which includes Web-based business
tools for the sales associates of Essentially Yours Industries Corp., a network
marketing company ("EYI"). The site was built and hosted by the Company with the
content provided and owned by the EYI. As part of its agreement with EYI, the
Company has the right to place its rebate shopping link on every EYI sales
associate's Web page.
The Company currently receives a monthly hosting and e-mail fee for each
sales associate with an online site. The Company also receives transaction fees
on every purchase made on the site. The fee structure for future clients will
likely vary, but will always include a development fee and revenue-sharing
component. In addition, the Company intends to pursue the right to include its
rebate shopping button on the Web pages of all its clients' sales associates.
See "Note Regarding Forward-Looking Statements."
Sales of Rebate Shopping Network Benefits. As a participant in PLIC's
rebate shopping network, the Company has the right to sell rebate shopping
network memberships under its own brand names: Shopping Sherlock and U.S. Rebate
Warehouse. For example, if a visitor to the Company's www.shoppingsherlock.com
Web site desires to take advantage of the rebate offers posted on the site, he
or she will be given an option to join the rebate shopping network by purchasing
a Shopping Sherlock-branded rebate card. After providing certain demographic
information and paying a modest initiation fee, the customer will be provided
with a rebate shopping network member number which he or she may use to begin
purchasing products from the Web site or from other participating merchants.
5
<PAGE>
When the customer purchases a product from a participating merchant such as
the Company, a portion of the total rebate on the product is divided among the
rebate shopping network participants as follows:
1. 25% of the rebate is credited to the customer;
2. 30% of the rebate is remitted to PLIC as a transaction processing fee;
3. 30% of the rebate is remitted to the organization that issued the
rebate shopping network membership to the customer (e.g., the Company,
PLIC or other organization to which the customer belongs)
4. 10% is remitted to the organization that recruited the merchant
selling the product; and
5. 5% is remitted to the Web site operator, (PLIC for
www.source4shopping.com or the Company for www.shoppingsherlock.com
and www.usrebatewarehouse.com)
When the customer is a non-rebate card holder and makes a purchase from a
participating merchant such as www.shoppingsherlock.com or
www.usrebatewarehouse.com, the total rebate on the product is divided among the
rebate shopping network participants as follows:
1. 25% to the merchant; and
2. 75% to PLIC.
The Company believes that its participation in PLIC's rebate shopping
network through selling, marketing and honoring PLIC's rebate shopping network
memberships will assist the Company in increasing its customer base while
generating additional revenues from the product sales made over its Web sites.
See "Note Regarding Forward-Looking Statements."
Advertising and Marketing
The Company's advertising and marketing strategy consists of several basic
components. First, through its partnership with PLIC, the Company has the right
to use all of PLIC's customer profile information to create a database to
strategically segment customer groups and use them for marketing purposes. The
database will include profile information such as addresses, age, income,
occupation and other relevant characteristics. The Company plans to use the
database to custom design marketing and manufacturing strategies. This will
enable the Company to target products to appropriate consumer groups. In
addition, the Company intends to continue to gather new data to further refine
its marketing strategies and product mix. See "Note Regarding Forward-Looking
Statements."
Second, special "first time" incentives to PLIC benefits and
rebate-shopping club members, as well as the general population of Internet
users will be used to drive traffic to the Company's Web site. See "Note
Regarding Forward-Looking Statements."
Third, the Company intends to work closely with PLIC to communicate with
benefits members and members of the online rebate shopping network. This will be
accomplished primarily through the affinity groups that are participating in
PLIC's rebate shopping network. See "Note Regarding Forward-Looking Statements."
Fourth, the Company intends to emphasize consumer-oriented products rather
than computer hardware and software. Although hardware and software have been
the leading retail segment for Internet sales, heavy competition in this area
has led to declining gross margins. The Company believes the new high growth
areas will be "lower tech" items and consumer products such as home furnishings,
office supplies, beauty aids, groceries, cosmetics, cleaning supplies and
industrial goods. See "Note Regarding Forward-Looking Statements."
Advertising. The Company intends to focus most of its advertising efforts
towards members of PLIC's rebate shopping network. For example, PLIC has agreed
to place links to the Company's Web sites on its various Web sites.
In addition, pursuant to the terms of its Strategic Alliance Agreement with
PLIC, all PLIC-affiliated Web sites will link to a rebate shopping page
featuring two logos: the Company's and PLIC's. No other
6
<PAGE>
logos will be added to these pages. PLIC will also continue to jointly market
the Company's site with any new partners it obtains. The Company and PLIC intend
to create joint promotion programs, which may include:
o e-mail announcements;
o direct mail; and
o catalogue inserts.
In addition, the Company intends to place links and banner advertisements
on PLIC's retail site and on high profile traffic portals, such as Yahoo! and
Excite. Print advertising will be added to the program as profitability
increases. Currently, there are no plans for television or radio advertising,
but those media may be used as the business grows. See "Note Regarding
Forward-Looking Statements."
Branding. The Company believes that its bloodhound mascot will represent a
unique, value-added feature. The bloodhound mascot serves as a symbol for value
as it "sniffs" out the best prices for its owner. The Company intends to promote
this mascot as a tool to increase brand awareness and identity.
Other Marketing. PLIC has agreed to place the Company's URL in its
marketing materials and fax-based information/promotional service to selected
PLIC rebate customers. The Shopping Sherlock name and URL will be prominently
displayed on all faxes received by this customer group. PLIC has also agreed to
list the Company's name on all search engines and directories wherever PLIC
lists its own site.
Consumer Market Segments
The Company anticipates its primary market will be the 12 million PLIC
rebate shopping network members to which PLIC has access. This specialized
target customer group consists of a large and growing community of current and
new rebate shopping club members. The Company believes that a special feature of
this group is their "purchase-ready" disposition, evidenced by their willingness
to pay for rebate shopping privileges. The Company estimates that its target
market represents over $40.8 million in gross sales for its first full year of
operations. The second customer group is the general population of Internet
users and on-line shoppers. This group now numbers well over 72 million in the
U.S. alone. The Company estimates that this secondary market in the U.S.
represents $7.6 million dollars in gross sales for its first full year of
operations. There can be no assurance, however, that such levels of gross sales
will be achieved. See "Note Regarding Forward-Looking Statements".
Web Sites
www.usrebatewarehouse.com, the Company's first planned online retail site,
is planned as a no-frills online rebate shopping site carrying over 55,000
consumer products. The site will be designed to be fast and easy to use,
regardless of the level of computer knowledge the online shopper has. Through
the site, the Company will gather product sales and customer profile
information. The Company intends to use this information to enhance the product
and marketing mix for the www.shoppingsherlock.com site. See "Note Regarding
Forward-Looking Statements."
The www.shoppingsherlock.com and www.usrebatewarehouse.com Web sites are
being designed to ensure that they are enjoyable and easy to use for the
Company's customers, enhancing the Shopping Sherlock brand and encouraging
customers to purchase products. The Company anticipates incorporating the
following features into its Web sites:
7
<PAGE>
o an easy-to-use, highly integrated shopping environment:
o reduced download times through efficient use of HTML and appropriate
graphics;
o well-organized and logically presented product information giving
customers the information necessary to make buying decisions;
o advanced search functionality enabling shoppers to quickly find a
desired product; and
o high quality customer service features that are accessible from every
page which allows users to quickly find answers to questions and to
track the status of orders.
Competition
The Company will primarily compete in its retail segment with a number of
other retailers with similar concepts. The Company will primarily compete in its
e-business services segment with other Web site hosting and e-business service
providers. Within these two segments, the Company's competitors can be broadly
divided into four groups:
o traditional "brick and mortar" stores (e.g. Target, Wal-Mart, K-Mart,
Sam's, etc.);
o on-line megastores (e.g. Valueamerica.com and Worldspy.com);
o on-line specialty stores (e.g. Furniture.com, Jewelry.com,
Electronics.com, etc.); and
o network marketing e-business service providers (e.g. mis-software.com,
2021.com, etc.).
Traditional Stores. The Company will compete with other brick and mortar
megastores that offer the same types and a large selection of low-priced
products. Additionally, many of these stores not only operate "brick and mortar"
outlets but also have on-line shopping capabilities (e.g. Shop.target.com,
Wal-mart.com, etc.). These stores may have some distinct advantages in that they
are able to offer both types of shopping experiences, both on-line and off-line.
Furthermore, many customers have developed a loyalty to these stores based
on historical experience, available financing options and customer service.
These stores also have a significant reputation and presence in many communities
with access to substantial funds for additional marketing and advertising.
Online Megastores. Two key competitors in the on-line megastore/shopping
mall arena are ValueAmerica.com and Worldspy.com. These Web sites, and the
growing number of other Web sites like them, sell a large number of products
from many different categories such as home improvement, electronics, toys and
games, home furnishings, footwear, pharmacy, jewelry, general merchandise,
housewares, gifts, etc.
Many of these Web sites offer similar service offerings to the Company
including comparison-shopping and easily accessible product information/research
(e.g., Consumer Reports). Like the Company, these Web sites also have aesthetic
appeal, content that holds the consumer's attention and causes them to return to
the site and ease of use. They seek to attract consumers based on the appeal of
convenience, low prices, selection and additional services that may not be
available from a "brick and mortar" retailer, such as chat rooms to discuss
product purchasing experiences, free e-mail and electronic announcements
regarding sales or special deals.
While the Company anticipates that it will have a competitive advantage
over other sites in marketing to rebate shopping club members, it may face
competitors who offer coupons and special discounts, which may offset the
savings gained through rebates.
8
<PAGE>
Specialty Stores. There are a number of other on-line retailers who will
compete with the Company in niche product categories. Retailers such as
Furniture.com who specialize in only one type of product will in many cases be
able to offer a greater selection and possibly better prices in a particular
category. Furthermore, many of these specialty retailers are well capitalized,
have significant budgets for marketing and have developed mindshare for their
niche markets.
Network Marketing e-Business Service Providers. The Company directly
competes with Multi-Level Information Systems, Inc. ("MIS"), and 2021
Interactive in the Web site hosting and e-business services segment. MIS offers
the MIS Internet Assistant, which enables companies to provide their sales
associates with the ability to access sales information, sign up new associates
and place orders via the Internet. MIS also offers business software
(distributor, receivables and inventory tracking) to network marketing
companies. 2021 Interactive's e-business service offering is Array, providing
custom e-commerce enabled Web sites for sales associates, online ordering and
access to product information. 2021 Interactive also offers a complete suite of
business software for network marketing companies, including interactive voice
response, forms processing, contact management, distribution and order tracking
software. While the Company anticipates it will have a competitive advantage
because of its fee structure and rebate shopping network, these two companies,
with their established customer base, represent significant competition in the
Web site hosting and e-business services segment.
Operations And Technical Development
The Company is currently located in two facilities: its headquarters in
Bellevue, Washington, and its software development office in Vancouver, British
Columbia. The Company has servers in multiple locations. Main servers are housed
at the Company's software development office and at Exodus Networks in Seattle,
Washington. Duplicate transaction logs are housed at the PLIC offices, in
Newhall, California. Complete system back-ups are held on tape offsite and
servers at the development facility. As capacity increases, servers will be
added. The primary focus of the Company's technical team is its Web site user
interface to ensure system software functions properly and offers a reliable and
appealing environment to search for and select merchandise at competitive
prices. The Company intends to monitor service and quality, as well as
continuously identify areas for improvement, such as product fulfillment,
transaction processing, and customer assistance. Certain of these functions are
presently provided by PLIC. For example, PLIC provides the Company with certain
services essential for smooth operations and customer service, such as:
o help desk for rebate Web sites;
o tracking of product fulfillment; and
o pricing research.
Servers with restricted access databases are anticipated to be housed and
protected by the Company in the Exodus Networks Seattle facility. The Company
will manage, edit and update its own files.
Transaction Processing and Product Fulfillment. It is anticipated that PLIC
will provide the Company with rebate cards and card administration services for
new members signing up for online rebate shopping privileges. Each rebate card
will have a separate number and all transactions associated with it will be
tracked through PLIC's database. PLIC is also responsible for all rebate
payments made to the Company's rebate card customers. The Company and PLIC plan
to maintain an electronic database on the Company's cardholders enabling the
Company to validate rebate cards and subsequent sales from them. Through this
database the Company anticipates it will be able to access all data related to
its rebate card customers for the purposes of marketing, auditing and
accounting.
Product fulfillment involves the ordering and shipping process that is
coordinated between PLIC and jobbers. PLIC has agreed to provide all product
fulfillment operations for the Company. This operation will employ people
dedicated to interacting with brokers and jobbers customers over the telephones
and broker jobbers. PLIC has assured the Company priority ordering and
transaction processing.
9
<PAGE>
The product fulfillment operation also includes general customer service
support as well as the following functions:
o help desk for a person's first web search, product search
and purchase; and
o product fulfillment, including contacting jobbers, expediting orders,
changing orders and tracking orders.
Systems Infrastructure, Technology and Security. The Company's technology
platform consists of the deployment environment, Web servers, applications and
infrastructure for EDI, financial transactions and security, as well as the
Company's proprietary content management and authoring system. All of the
Company's computer equipment is powered by redundant APC filtering,
battery-backed power supplies designed to provide continuous power to the online
store in the event of outages from the local power utility. To ensure reliable
24 hours-a-day, 365-days-a-year operation of its online stores, the Company has
designed its system architecture to be fault tolerant with redundant Web and
database servers as well as redundant paths into the Internet. If a failure
should occur with either Internet connection, traffic will be automatically
routed through the alternate path. It is anticipated that the online stores will
incorporate database technology and dynamic HTML page generation to offer
maximum flexibility while minimizing maintenance overhead of the site. The
Company has developed a proprietary authoring tool to efficiently create and
manage content for publication in the online store. This tool provides a
database-centric approach to Web page creation that dramatically speeds the
development and maintenance of product listings, presentations and pricing
information. The Company utilizes secure credit card transaction processing
software from Cybercash. All transactions are audited from credit authorization
through receipt of funds. The Company addresses theft of information during
transmission over the Internet by utilizing standard SSL encryption technology
available to customers using browsers which are SSL encryption enabled, such as
Netscape Navigator or Microsoft Internet Explorer. The network that will support
the online stores is designed for scalability to accommodate peak transaction
loads and to "scale up" efficiently to handle increasing volumes over time. The
Company uses virtual web servers, which allow new servers to be configured and
brought online transparently as transaction loads dictate. Similarly, the SQL
servers that drive the store content are replicated to allow new servers to be
added if greater capacity is required. Access from external sites to the store
is restricted to the HTTP protocol, and access from the internal network is
restricted to only essential maintenance services. The Company performs
self-diagnostic security checks, including measures for password cracking, port
scanning and operating system vulnerabilities.
Government Regulation
The Company is not currently subject to direct federal, state or local
regulation in the United States other than regulations applicable to businesses
generally or directly applicable to electronic commerce. However, because the
Internet is becoming increasingly popular, it is possible that a number of laws
and regulations may be adopted in the United States with respect to the
Internet. These laws may cover issues such as user privacy, freedom of
expression, pricing, content and quality of products and services, taxation,
advertising, intellectual property rights and information security. Furthermore,
the growth of electronic commerce may prompt calls for more stringent consumer
protection laws. Several states have proposed legislation to limit the use of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has indicated that it
may propose legislation on this issue to Congress in the near future and has
initiated action against at least one online service regarding the manner in
which personal information was collected from users and provided to third
parties. The adoption of such consumer protection laws could create uncertainty
in Internet usage and reduce the demand for all products and services.
The Company is not certain how its business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. The vast majority of those laws were
adopted prior to the advent of the Internet. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes in laws intended to address such issues could create
uncertainty in the Internet marketplace. That uncertainty could reduce demand
for the Company's products or services or increase the cost of doing business as
a result of litigation costs or increased service delivery costs.
10
<PAGE>
In addition, because the Company's products and services are available over
the Internet in multiple states and foreign countries, other jurisdictions may
claim that the Company is required to qualify to do business in each state or
foreign country. The Company is qualified to do business only in Florida and
Washington. The Company's failure to qualify in other jurisdictions when it is
required to do so could subject it to taxes and penalties. It could also hamper
the Company's ability to enforce contracts in those jurisdictions. The
application of laws or regulations from jurisdictions whose laws do not
currently apply to the Company's business could have a material adverse affect
on its business, results of operations and financial condition.
The European Union has adopted a policy directive which went into effect in
1998. Under this directive, business entities domiciled in member states of the
EU are limited in the transactions they may do with business entities domiciled
outside the EU unless they are domiciled in a jurisdiction with privacy laws
comparable to the EU privacy directive. The United States presently does not
have laws which satisfy the EU. Discussions between representatives of the EU
and the United States are ongoing and may lead to certain safe harbor provisions
which, if adhered to, would allow business entities in the EU and the United
States to continue to do business without limitation. If these negotiations are
not successful and the EU begins enforcement of the privacy directive, there
could be an adverse impact on international Internet business. If the Company
does do business directly in the EU in the future the Company will be required
to comply with the privacy directive of the EU.
Intellectual Property Rights
The Company's success is dependent on its ability to protect its
intellectual property rights. The Company relies principally on a combination of
copyright, trademark and trade secret laws, non-disclosure agreements and other
contractual provisions to establish and maintain its proprietary rights.
As part of its confidentiality procedures, the Company generally enters
into nondisclosure and confidentiality agreements with each of its key
employees, consultants and business partners and limits access to and
distribution of its technology, documentation and other proprietary information.
In particular, the Company has entered into non-disclosure agreements with each
of its employees and business partners. The terms of the employee non-disclosure
agreements include provisions requiring assignment to the Company of employee
inventions. Despite the Company's efforts to protect its intellectual property
rights, unauthorized third parties, including competitors, may from time to time
copy or reverse engineer certain portions of the Company's technology and use
such information to create competitive products.
Policing the unauthorized use of the Company's technology is difficult,
and, while the Company is unable to determine the extent to which piracy of the
Company's technology exists, such piracy can be expected to be a persistent
problem. In addition, the laws of certain countries in which the Company's
technology is or may be licensed do not protect its products and intellectual
property rights to the same extent as do the laws of the United States. As a
result, sales of products based on the Company's technology in such countries
may increase the likelihood that the Company's technology might be infringed
upon by unauthorized third parties.
It is possible that the scope, validity and/or enforceability of the
Company's intellectual property rights could be challenged by competitors or
other parties. The Company is currently in the process of recording its
interests in certain of its intellectual property rights with relevant
authorities in applicable jurisdictions. The results of such challenges before
administrative bodies or courts depend on many factors which cannot be
accurately assessed at this time. Unfavorable decisions by such administrative
bodies or courts could have a negative impact on the Company's intellectual
property rights. Any such challenges, whether with or without merit, could be
time consuming, result in costly litigation and diversion of resources, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all. In the event of a claim
of product infringement against the Company and the Company's failure or
inability to license the infringed or similar technology, the Company's
business, operating results and financial condition could be materially
adversely affected.
The Company has not registered any trademarks in Canada, the United States
or elsewhere.
11
<PAGE>
Plan of Operation
Over the next 12 months, in addition to www.eyicom.com, the Company intends
to develop and maintain two online rebate shopping sites:
www.usrebatewarehouse.com and www.shoppingsherlock.com, which it anticipates
will be operational in the third quarter of 1999 and the fourth quarter of 1999,
respectively. Besides systems development, the Company's Vancouver, Canada
software development office will also provide technical support for the
Company's e-business services group, which may require the hiring of one
additional employee. In July 1999, the Company expects to hire up to two
additional employees for managing the product research and merchandising
function at its Bellevue headquarters.
The Company intends to focus on continuing to grow its customer base for
www.eyicom.com and to acquire additional network marketing e-business service
clients by the end of 1999. In addition, the Company is currently planning to
implement an online check processing system in the fourth quarter of 1999.
Currently the Company has enough working capital to support the
www.eyicom.com site and launch its two rebate shopping sites. However, to fully
market and support these three sites, and possibly develop an additional site,
the Company anticipates it will engage in a capital raising transaction prior to
the fourth quarter of 1999.
Employees
As of June 7, 1999, the Company had 14 employees, including six in research
and development, two in marketing and sales, one in customer support and five in
management, finance and administration. The Company's success will depend in
large part on its ability to attract and retain skilled and experienced
employees. None of the Company's employees are covered by a collective
bargaining agreement and the Company believes that its relations with its
employees is good. The Company does not currently have any key man life
insurance on any of its directors or executive officers.
Risk Factors
The Company's business is subject to the following risks. These risks also
could cause actual results to differ materially from results projected in any
forward-looking statement in this report.
Limited Operating History; History of Losses; Increased Expenses
The Company commenced operations in January 1999 and therefore has only a
limited operating history upon which an evaluation of its business and prospects
can be based. Prior to January 1999, the Company had no operations or revenues.
The Company incurred a net loss of $461,167 in the five months ended May 31,
1999. The Company has not had any revenue in recent years, it has never been
profitable and there can be no assurance that, in the future, the Company will
be profitable on a quarterly or annual basis. In addition, the Company plans to
increase its operating expenses to expand its sales and marketing operations,
fund greater levels of research and development, broaden its customer support
capabilities and increase its administration resources. In addition, in view of
the rapidly evolving nature of the Company's business and markets and limited
operating history, the Company believes that period-to-period comparisons of
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
Need for Additional Financing; Uncertainty As a Going Concern
Revenue from the Company's operations is not sufficient to finance the cost
of development and marketing of its technology. Accordingly, the Company must
raise substantial additional funding. The Company expects to be able to meet its
financial obligations for approximately the next three months. There is no
assurance that, after such period, the Company will be able to secure financing
or that such financing will be obtained on terms favorable to the Company.
Failure to obtain adequate financing could result in significant delays in
development of new products and a substantial curtailment of operations. The
Company has been in the development stage since its inception. It has had no
operating revenue to date, has accumulated losses of $464,246, and will require
additional working capital to complete its business development activities and
generate revenue adequate to cover operating
12
<PAGE>
and further development expenses. This raises substantial doubt as to the
Company's ability to continue as a going concern.
Unpredictability of Future Revenue; Potential Fluctuations in Quarterly Results
As a result of the Company's limited operating history and the emerging
nature of the market in which it competes, the Company is unable to forecast its
revenue accurately. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenue and are to a
large extent fixed. Sales and operating results generally depend on the volume
of, timing of and ability to fulfill orders received, which are difficult to
forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenue in relation to the Company's planned expenditures would
have an immediate adverse affect on the Company's business, financial condition
and results of operations. Further, in response to changes in the competitive
environment, the Company may from time to time make certain pricing, service or
marketing decisions that could have a material adverse effect on the Company's
business, financial condition, operating results and cash flows.
Second, the Company will emphasize consumer-oriented products rather than
computer hardware and software. Although hardware and software have been the
leading retail segment for Internet sales, heavy competition in this arena has
led to decreasing gross margins. The Company believes the new high growth areas
will be "lower tech" items and consumer products such as home furnishings,
office supplies, beauty aids, groceries, cosmetics, cleaning supplies and
industrial goods. See "Note Regarding Forward-Looking Statements."
Dependence on Marketing Relationship with PLIC
The Company's products are primarily marketed by the Company's suppliers
and PLIC. The Company's existing agreements with PLIC and suppliers of its
products are nonexclusive and, in some cases, may be terminated without cause.
Such organizations are not within the control of the Company, are not obligated
to market the Company's products and may also represent and sell competing
products. There can be no assurance that the PLIC will continue to provide the
level of services and technical support necessary to provide a complete solution
to the Company's customers or that it will not emphasize its own or third-party
products to the detriment of the Company's products. The loss of PLIC, the
failure of PLIC to perform under agreements with the Company or the inability of
the Company to attract and retain new business with the technical, industry and
application experience required to market the Company's products successfully
could have a material adverse effect on the Company's business, financial
condition, operating results and cash flows.
Dependence on Key Personnel
The Company's performance and future operating results are substantially
dependent on the continued service and performance of its senior management and
key technical and sales personnel. The Company intends to hire a significant
number of additional technical and sales personnel in the next year. See "Note
Regarding Forward-Looking Statements." Competition for such personnel is
intense, and there can be no assurance that the Company can retain its key
technical, sales and managerial employees or that it will be able to attract or
retain highly-qualified technical and managerial personnel in the future. The
loss of the services of any of the Company's senior management or other key
employees or the inability to attract and retain the necessary technical, sales
and managerial personnel could have a material adverse effect upon the Company's
business, financial condition, operating results and cash flows. The Company
does not currently maintain "key man" insurance for any senior management or
other key employees.
Inability to Establish the Shopping Sherlock Brand.
The Company may not be successful in establishing its brand. As competitive
pressures in the online retail industry increase, the Company expects that brand
strength will become increasingly important. The Company intends to devote
substantial resources to establish the Shopping Sherlock brand. The reputation
of the Shopping Sherlock brand will depend on the Company's ability to provide a
high-quality online experience for consumers visiting its Web sites. If
consumers are not satisfied with the quality of their shopping experience with
the Company, they may stop visiting its Web site. In addition, negative
experiences of consumers or producers with the
13
<PAGE>
Company might result in publicity that could damage the Company's reputation.
The Company's expenditure of additional resources to build the Shopping Sherlock
brand may not generate a corresponding increase in revenue, and the Company may
otherwise fail to promote its brand successfully. See "Note Regarding
Forward-Looking Statements."
Liability for Information Displayed on the Company's Web Site.
The Company may be subjected to claims for defamation, negligence,
copyright or trademark infringement and various other claims relating to the
nature and content of materials it publishes on its Web site. These types of
claims have been brought, sometimes successfully, against online services in the
past. The Company could also face claims based on the content that is accessible
from its Web site through links to other Web sites.
Dependence on the Acceptance of Online Retailing.
The demand for online retail products may not develop to a level sufficient
to support the Company's continued operations or may develop more slowly than
expected. The Company expects to derive almost all its revenue from sales to
consumers over its Web site. The Internet has not existed long enough as a
retailing medium to demonstrate its effectiveness relative to traditional
retailing methods. Consumers that have historically purchased goods and services
through traditional retail channels may be reluctant or slow to adopt online
buying. Many consumers have limited or no experience using the Internet as a
purchasing medium. See "Note Regarding Forward-Looking Statements."
Inability to Adapt to Rapid Changes in the Online Retailing Industry.
Online retailing is characterized by rapidly changing technologies,
frequent new product and service introductions, short development cycles and
evolving industry standards. The recent growth of the Internet and intense
competition in this industry exacerbate these market characteristics. The
Company could incur substantial costs to modify its services or infrastructure
to adapt to rapid technological change. The Company's future success will depend
on its ability to adapt to the online retailing industry by maintaining and
improving the performance, features and reliability of its products and
services. The Company may experience technical difficulties that could delay or
prevent the successful development, introduction or marketing of these products
and services.
Dependence on Continued Growth in Use of the Internet.
The success of the Company's business depends on continued growth in the
use of the Internet, and the Company's business would suffer if Internet usage
does not continue to grow. Internet usage may be inhibited for a number of
reasons, such as:
o Inadequate network infrastructure;
o Security concerns;
o Inconsistent quality of service;
o Disruptions resulting from the inability of computer systems to
recognize the year 2000;
o Lack of available cost-effective, high-speed service;
o The adoption of new standards or protocols for the Internet; and
o Changes or increases in government regulation.
Online companies have experienced interruptions in their services as a
result of outages and other delays occurring due to problems with the Internet
network infrastructure, disruptions in Internet access provided by third party
providers or failure of third party providers to handle higher volumes of user
traffic. If Internet usage grows, the Internet infrastructure or third party
service providers may be unable to support the increased demands which
14
<PAGE>
may result in a decline of performance, reliability or ability to access the
Internet. If outages or delays frequently occur in the future, Internet usage,
as well as usage of the Company's Web site, could grow more slowly or decline.
Security and Privacy Issues
The Company could be subject to litigation and liability if third parties
were able to penetrate the Company's network security or otherwise
misappropriate its customers' personal information or credit card information.
This liability could include claims for unauthorized purchases with credit card
information, impersonation or other similar fraud claims. It could also include
claims for other misuses of personal information, such as for unauthorized
marketing purposes. In addition, the Federal Trade Commission and some states
have been investigating various Internet companies regarding their use of
personal information. The Company could incur additional expenses and be
required to change its current practices if new regulations regarding the use of
personal information are adopted or should government agencies choose to
investigate its privacy practices.
The need to transmit confidential information securely has been a
significant barrier to electronic commerce and communications over the Internet.
Any compromise of security could deter people from using the Internet in
general, or, specifically, from using it to conduct transactions that involve
transmitting confidential information, such as purchases of goods or services.
The Company's relationships with consumers may be adversely affected if the
security measures that it uses to protect their personal information, such as
credit card numbers, are ineffective. The Company cannot predict whether events
or developments will result in a compromise or breach of the technology it uses
to protect a customer's personal information.
Furthermore, the Company's computer servers may be vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions. The Company
may need to expend significant additional capital and other resources to protect
against a security breach or to alleviate problems caused by any breaches. There
can be no assurance that the Company can prevent or remedy all security
breaches. If any of these breaches occur, the Company could lose customers and
visitors to its Web site.
Dependence on Certain Manufacturers and Other Vendors
The Company is entirely dependent upon manufacturers and distributors to
provide merchandise for sale through the Company's online stores. The Company
also relies upon its product vendors to fulfil a number of traditional retail
functions, including maintaining inventory, accepting product returns, and
preparing merchandise for shipment to individual customers. There can be no
assurance that vendors of the products that the Company wishes to offer will
agree to perform these tasks on behalf of the Company or will be willing or able
to establish the necessary communication protocols to support the Company's
direct shipment infrastructure. The failure of the Company or its vendors to
arrange for the delivery of products in a timely manner, to accept product
returns, to provide good customer service or to prepare merchandise properly for
shipment to customers could cause customer dissatisfaction and result in the
cancellation of orders, either of which could have a material adverse effect on
the Company's business, financial condition and results of operations. The
failure of the Company to maintain its relationships with existing product
vendors on acceptable commercial terms, to establish similar relationships with
vendors of products not currently offered by the Company but demanded by its
customers, or to obtain satisfactory performance from such vendors could have a
material adverse effect on the Company's business, financial condition,
operating results and cash flows.
Reliance on Other Third Parties
In addition to its product vendors, the Company's operations depend to a
significant degree on a number of other third parties, including
telecommunication service providers. The Company has no effective control over
these third parties and no long-term contractual relationships with any of them.
From time to time, the Company could experience temporary interruptions in its
Web site connection and its telecommunications access. Continuous or prolonged
interruptions in the Company's Web site connection or in its telecommunications
access would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's agreements with its Internet
service providers place certain limits on the Company's ability to obtain
damages from the service providers for failure to maintain the Company's
connection to the Internet.
15
<PAGE>
Competition
The electronic commerce market is new, rapidly evolving and intensely
competitive, and the Company expects competition to increase in the future.
Barriers to entry are minimal, and current and new competitors can establish
Internet stores at relatively low cost. Moreover, all of the products sold by
the Company are widely available through established traditional retail
channels, and accordingly, the Company competes not only with other participants
in the electronic commerce market but also with traditional retailers and
resellers. The Company currently or potentially competes with a variety of other
companies depending on the type of merchandise and sales format offered to
customers. These competitors and potential competitors include: (i)
segment-specific online retailers such as Amazon.com, BuyComp, CDNow, Dell
Computer and Gateway International; (ii) online vendors of a broad selection of
consumer products such as Cendant, CyberShop, iMall, Internet Shopping Network,
iQVC, ONSALE, ValueAmerica, WorldSpy and Wal-Mart Online; (iii) a number of
indirect competitors that derive a substantial portion of their revenues from
electronic commerce, including America Online, Excite, Infoseek, Lycos,
Microsoft Network, Prodigy and Yahoo!; (iv) mail order catalog operators such as
Lands' End, Micro Warehouse, Sharper Image, Spiegel and Williams-Sonoma; (v)
retail and warehouse/discount store operators such as Circuit City, Home Depot,
Office Depot, Price/Costco, Staples and Target; and (vi) other national and
international retail, catalog, distribution and manufacturing companies.
The Company directly competes with Multi-Level Information Systems, Inc.
("MIS"), and 2021 Interactive in the Web site hosting and e-business services
segment. MIS offers the MIS Internet Assistant, which enables companies to
provide their sales associates with the ability to access sales information,
sign up new associates and place orders via the Internet. MIS also offers
business software (distributor, receivables and inventory tracking) to network
marketing companies. 2021 Interactive's e-business service offering is Array,
providing custom e-commerce enabled Web sites for sales associates, online
ordering and access to product information. 2021 Interactive also offers a
complete suite of business software for network marketing companies, including
interactive voice response, forms processing, contact management, distribution
and order tracking software. While the Company anticipates it will have a
competitive advantage because of its fee structure and rebate shopping network,
these two companies, with their established customer base, represent significant
competition in this segment.
Most of the Company's current and potential competitors have substantially
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than the Company.
In addition, competing online retailers may be acquired by, receive investments
from or enter into other commercial relationships with larger, well-established
and well-financed companies as the use of the Internet and other online services
increases. Many of the Company's competitors may be able to secure merchandise
from vendors on more favorable terms, respond more quickly to changes in
customer preferences, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and
devote substantially more resources to Internet site and systems development
than the Company.
Current and potential competitors have established or may establish
cooperative relationships among themselves or directly with vendors to obtain
exclusive or semi-exclusive sources of merchandise. Accordingly, it is possible
that new competitors or alliances among competitors and vendors may emerge and
rapidly acquire market share. Increased competition may result in reduced
operating margins, loss of market share and a diminished brand franchise, any
one of which could materially adversely affect the Company's business, results
of operations and financial condition. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or alliances of such competitors, or that competitive pressures
faced by the Company will not materially adversely affect its business,
financial condition, operating results and cash flows.
Ability to Expand Product Lines
The Company's business model also depends upon the Company's ability to
offer a complete selection of brand name products in a broad variety of product
categories. Many of the Company's product categories do not yet provide a broad
product selection, and there can be no assurance that the Company will be able
to establish vendor relationships that will enable it to achieve the breadth of
product offerings necessary for the Company to succeed. Moreover, there can be
no assurance that customers will be satisfied with the Company's current or
future product
16
<PAGE>
offerings. The failure of the Company or PLIC to offer a satisfactory product
selection could have a material adverse effect on the Company's business,
financial condition, operating results and cash flows.
Limited Customer Service Capabilities
There can be no assurance that the Company will be able to hire the
personnel necessary to build a customer service organization that is able to
respond satisfactorily to the needs of the Company's customers. The failure of
the Company to provide adequate customer service could damage the Company's
reputation and could cause customers to transfer their business to other
Internet retailers or traditional retail stores. Accordingly, there can be no
assurance that the Company will not experience customer service capacity
constraints and the failure to remedy such constraints in a timely manner could
have a material adverse effect on the Company's business, financial condition,
operating results and cash flows.
Product Fulfilment Capabilities
The Company believes that, to the extent that the number of product orders
increases, the Company will need to establish more efficient or automated
systems to, among other things, track shipments of products from vendors to
customers, provide customer assistance and handle product returns. The failure
of the Company to establish and maintain adequate systems and hire sufficient
personnel to provide these vital functions would have a material adverse effect
on the Company's business, financial condition, operating results and cash
flows.
Developing Market; Unproven Acceptance of the Internet as a Medium for Commerce
The Company's long-term viability is substantially dependent upon the
widespread acceptance and use of the Internet as a medium of commerce. The use
of the Internet as a means of effecting retail transactions is in a recent stage
of development, and there can be no assurance that a sufficiently large number
of customers will begin to use the Internet as a medium of commerce. Demand and
market acceptance for recently introduced products and services over the
Internet are subject to a high level of uncertainty and there exist few proven
electronic commerce business models. For the Company to be successful, consumers
and manufacturers that have historically relied upon traditional means of
commerce to purchase and sell merchandise must accept and utilize new ways of
conducting business and exchanging information. The Internet may not prove to be
a viable medium of commerce for certain purposes because of inadequate
development of the necessary infrastructure, such as a reliable network
backbone, or delayed development of enabling technologies, such as high-speed
modems and high-speed communication lines. The Internet has experienced, and is
expected to continue to experience, significant growth in the number of users
and amount of traffic. There can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
this continued growth. In addition, delays in the development or adoption of new
standards and protocols to handle increased levels of Internet activity or
increased governmental regulation could slow or stop the growth of the Internet
as a viable medium for commerce. Moreover, critical issues concerning the
commercial use of the Internet (including security, reliability, accessibility
and quality of service) remain unresolved and may adversely affect the growth of
Internet use or the attractiveness of conducting commerce online. Because the
exchange of information on the Internet is new and evolving, there can be no
assurance that the Internet will prove to be a viable medium of commerce. The
failure to resolve critical issues concerning the commercial use of the
Internet, the failure of the necessary infrastructure to develop in a timely
manner, or the failure of the Internet to continue to develop rapidly as a
viable medium of commerce would have a material adverse effect on the Company's
business, financial condition, operating results and cash flows.
Capacity Constraints; Reliance on Internally Developed Systems; System
Development Risks
A key element of the Company's strategy is to generate a high volume of
traffic through, and purchases from, the Shopping Sherlock online store.
Accordingly, the availability, reliability and satisfactory performance of the
Company's Internet site, transaction processing systems and network
infrastructure are critical to the Company's reputation and its ability to
attract and retain customers and provide adequate customer service. The
Company's revenues depend on the number of visitors who shop at the online
stores and the volume of orders the Company fulfills. Any network interruptions
or system shortcomings that result in the unavailability of the Company's
Internet site or reduced order fulfillment would reduce the volume of goods sold
and the attractiveness of the Company's product and service offerings. System
delays or interruptions could negatively impact a customer's
17
<PAGE>
shopping experience and reduce the likelihood that such customer would return to
the Company's online store in the future. Substantial increases in the volume of
traffic on the Company's Internet site or the number of orders placed by
customers through the Company's online store may require the Company to further
expand and upgrade its technology, transaction processing systems and network
infrastructure. There can be no assurance that the Company will be able to
accurately project the rate or timing of increases, if any, in the use of its
Internet site, or to expand and upgrade its systems and infrastructure to
accommodate such increases in a timely manner. The Company uses an internally
developed system for its Internet site, product presentations, order management
and purchasing.
Risks of Potential Government Regulation and Other Legal Uncertainties Relating
to the Internet.
The Company is not currently subject to direct federal, state or local
regulation in the United States other than regulations applicable to businesses
generally or directly applicable to electronic commerce. However, because the
Internet is becoming increasingly popular, it is possible that a number of laws
and regulations may be adopted in the United States with respect to the
Internet. These laws may cover issues such as user privacy, freedom of
expression, pricing, content and quality of products and services, taxation,
advertising, intellectual property rights and information security. Furthermore,
the growth of electronic commerce may prompt calls for more stringent consumer
protection laws. The adoption of such consumer protection laws could create
uncertainty in Internet usage and reduce the demand for all products and
services.
In addition, the Company is not certain how its business may be affected by
the application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. It is possible that future applications
of these laws to the Company's business could reduce demand for its products and
services or increase the cost of doing business as a result of litigation costs
or increased service delivery costs.
Because the Company's services are available over the Internet in multiple
states and foreign countries, other jurisdictions may claim that we are required
to qualify to do business in each state or foreign country. The Company is
qualified to do business only in Florida and Washington. The Company's failure
to qualify in other jurisdictions when it is required to do so could subject the
Company to taxes and penalties and could restrict the Company's ability to
enforce contracts in those jurisdictions. The application of laws or regulations
from jurisdictions whose laws do not currently apply to our business may have a
material adverse affect on its business, results of operations and financial
condition.
The European Union recently adopted a directive addressing data privacy
that may result in limits on the collection and use of consumer information. See
"Business -- Government Regulation."
Proprietary Technology
The Company's success is dependent on its ability to protect its
intellectual property rights. The Company relies principally upon a combination
of copyright and trade secret laws, non-disclosure agreements and other
contractual provisions to establish and maintain its rights. To date, the
Company has not applied for any patents or trademarks. As part of its
confidentiality procedures, the Company generally enters into nondisclosure and
confidentiality agreements with each of its key employees, consultants,
distributors, customers and corporate partners, to limit access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the Company's efforts to protect its intellectual
property rights will be successful. Despite the Company's efforts to protect its
intellectual property rights, unauthorized third parties, including competitors,
may be able to copy or reverse engineer certain portions of the Company's
software products, and use such copies to create competitive products.
Policing the unauthorized use of the Company's products is difficult, and,
while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to continue. In
addition, the laws of certain countries in which the Company's products are or
may be licensed do not protect its products and intellectual property rights to
the same extent as do the laws of Canada and the United States. As a result,
sales of products by the Company in such countries may increase the likelihood
that the Company's proprietary technology is infringed upon by unauthorized
third parties.
18
<PAGE>
In addition, because third parties may attempt to develop similar
technologies independently, the Company expects that software product developers
will be increasingly subject to infringement claims as the number of products
and competitors in the Company's industry segments grow and the functionality of
products in different industry segments overlaps. Although the Company believes
that its products do not infringe on the intellectual property rights of third
parties, there can be no assurance that third parties will not bring
infringement claims (or claims for indemnification resulting from infringement
claims) against the Company with respect to copyrights, trademarks, patents and
other proprietary rights. Any such claims, whether with or without merit, could
be time consuming, result in costly litigation and diversion of resources, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all. A claim of product
infringement against the Company and failure or inability of the Company to
license the infringed or similar technology could have a material adverse effect
on the Company's business, financial condition, operating results and cash
flows.
Year 2000 Compliance
The Company is aware that many software products assume a century number
(usually "19") when storing data and performing date calculations to save space,
and that this has the effect of making the year 2000 recognized as the year
1900, for instance. This can result in systems failures or other disruptions to
the operations of that computer system or program. As the Company is heavily
dependent on information technology, such a failure could result in material and
adverse effects on the Company.
All of the Company's systems were designed and implemented with operation
in the year 2000 and beyond in mind, and the Company's systems staff have spent
a significant amount of time researching year 2000 issues before implementing
particular software systems. The Companyis continually monitoring the
documentation of its software vendors to ensure that it is aware of and able to
compensate for any issues its software vendors disclose. This is in addition to
the Company's standard verification tests, which it uses to verify its own
software quality. The Company expands the definition of the year 2000 compliance
issues, as well, by testing for proper leap year calculations in all its
products, as it has been noted that a number of software vendors' products have
problems with detecting the year 2000 as a leap year.
The Company's ongoing year 2000 compliance monitoring includes testing all
new software to be deployed on its systems with its procedures for data storage,
and confirming with the vendor that the product is Year 2000 compliant. The
Company is also communicating with its suppliers to ensure that these suppliers
are at an appropriate state of year 2000 readiness and to determine the effect
their state of readiness has on our operations. The Company is also auditing its
communications links with suppliers to ensure that the software, systems, and
networks used are year 2000 compliant. The Company is also evaluating year 2000
compliance of its credit card processors and other financial intermediates
through which transactions are processed. The Company has contingency plans in
place to switch to replacement processors should a processor be unable to be
year 2000 compliant by September 30, 1999.
The Company's Year 2000 Compliance Program is an integral and inseparable
part of information technology (IT) policy, and verifications are done as a part
of normal procedures. As such the costs for year 2000 compliance testing is a
part of the normal IT research, development and implementation budget. The
Company's internal software policies and test procedures will be amended
mid-year 2000 to include testing for unrelated date issues. The Company believes
that the costs of the year 2000 compliance program will not have any material
adverse effect on the results of its operations or financial condition.
Directors' and Officers' Involvement in Other Projects
Many of the officers and directors of the Company serve as directors,
officers and/or employees of companies other than the Company. While the Company
believes that such officers and directors will be devoting adequate time to
effectively manage the Company, there can be no assurance that such other
positions will not negatively impact an officer's or director's duties for the
Company.
19
<PAGE>
ITEM 2 FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified in their entirety by reference to and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated Financial Statements and Notes thereto included
elsewhere in this Registration Statement. The consolidated statement of
operations data for the fiscal years ended December 31, 1996, 1997 and 1998 and
the five-month period ended May 31, 1999 and the consolidated balance sheets
dated at December 31, 1997 and 1998 and at May 31, 1999 are derived from, and
are qualified by reference to, the Company's Audited Consolidated Financial
Statements, which were audited by BDO Seidman LLP, and which appear elsewhere in
this Registration Statement.
<TABLE>
Five Months Ended Years ended
May 31, December 31,
------------------------ -------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
(unaudited) (unaudited) (unaudited)
------------ ----------- ----------- ----------- ------------ ----------- ------------
Consolidated Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ............... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating Expenses .... 461,167 -- 2,079 -- -- -- --
Net income (loss) for
the period ............ (461,167) -- (2,079) -- -- -- --
Earnings (loss) per
common share ......... $ (0.12) $ (0.00) $ (0.01) $(0.00) $ (0.00) $(0.00) $0.00)
Weighted average shares
outstanding .......... 3,976,516 100,000 445,833 100,000 100,000 100,000 100,000
</TABLE>
<TABLE>
As at May
31, As At December 31,
------------- ------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
(unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------ ------------- ------------
Consolidated Balance Sheet
Data:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents. $ 725,120 $ -- $ -- $ -- $ -- $ --
Working capital
(deficiency) ......... 714,329 -- -- -- -- --
Total assets ........... 2,853,745 -- -- -- -- --
Non-current liabilities -- -- -- -- -- --
Stockholders' equity ... $2,788,833 $ -- $ -- $ -- $ -- $ --
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed in these forward-looking statements as a result of various
factors, including those set forth in "risk factors" and elsewhere in this
Registration Statement. The following discussion should be read in conjunction
with the financial statements and notes thereto included elsewhere in this
Registration Statement.
The Company is an e-commerce services provider and online retailer of
consumer products. The Company was inactive from its inception until the first
quarter of 1999 when it initiated its software development program, developed
and launched its beta site and commenced the e-Commerce Direct Marketing
Organization "DMO" program. On May 26, 1999, the Company acquired SSI, a
Delaware corporation, whose sole asset is the strategic alliance agreement with
PLIC. SSI was incorporated on January 20, 1999 and did not conduct any business
from the date of inception to May 31, 1999. During the first five months of
1999, the Company's primary activities related to the:
o development of its primary and secondary server platforms;
o development of software for its online retail sites;
o design and construction of an Electronic Data Interchange ("EDI")
platform;
o development of the Company's Website and e-business services Direct
Marketing Organization Platform ("DMO Platform") for one of its main
affinity groups;
o development of business processes;
o development of operating procedures and systems; and
o development of the Company's first online retail site,
www.usrebatewarehouse.com.
The Company has a limited operating history and is still in the early
stages of development. The Company has not generated any revenues. Management
anticipates revenues, beginning in the third quarter in 1999, from three primary
sources:
1. Product sales from the Company's online store;
2. Fees collected for Website and e-business services, including Web
design, preparation of digital images and monthly fees from "DMO
Platform" agreements; and
3. Rebates from its reciprocal rebate agreement with PLIC, the Company's
strategic partner. See "Note Regarding Forward-Looking Statements."
The Company's product vendors ship products directly to the customer,
typically within two to three weeks after a customer places an order. Revenue
from product sales is recognized upon shipment from the vendor. The Company is
responsible for selling the merchandise, collecting payment from the customer,
ensuring that the shipment reaches the customer and processing returns.
The Company recognizes Web site development costs as incurred and
recognizes the merchant Website and systems development and listing revenues
over the period of the related agreement. Amounts that are billed under the
terms of these agreements, but not yet earned, are reflected as deferred
revenue. Certain of these agreements provide that suppliers pay a renewal fee to
continue product listings beyond the initial listing periods. Revenue from these
renewal fees will be recognized ratably over the renewal term.
21
<PAGE>
To date, payments for products purchased through PLIC's interactive voice
recognition system have been primarily made with credit cards. The Company
expects this means of payment to continue through the Company's online stores.
The Company anticipates receiving payment from a customer's credit card upon
shipping. See "Note Regarding Forward-Looking Statements."
The Company expects that its operating expenses will increase significantly
during the foreseeable future as the result of its plans to:
o increase expenditures on marketing, advertising and promotion;
o hire additional personnel;
o enhance existing hardware and e-commerce capabilities; and
o establish strategic vendor relationships.
The Company has a limited operating history upon which to base an
evaluation of its business. The Company's business and prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets such as electronic commerce.
Results of Operations
The Company was formed on August 17, 1984, but did not commence operations
until January 1999. The Company incurred expenses of $1,000 during the initial
incorporation in 1984 and did not incur any further expenses until 1998 when the
Company incurred further expenses of $2,079 for professional fees in preparing
audited financial statements. Accordingly, discussions of periods prior to
January 1999 have not been included. No proforma statements of prior years are
presented because the subsidiary, SSI, was not incorporated until January 1999
and did not have any operations until June 1, 1999.
All operations of the Company were conducted through the Company from
January 1999 to May 31, 1999. In May 1999, the Company acquired SSI, which had
been inactive from inception to May 31, 1999. On June 1, 1999, the Company has
transferred all of its operations to SSI. The Company has accounted for the
acquisition of SSI using the purchase accounting method which values the assets
of the acquiring Company and any excess of the purchase price over the net
assets acquired is assigned to goodwill. The fair values of the assets and
liabilities of the subsidiary, SSI, are then combined with the parent Company to
prepare the consolidated statements. SSI's only asset was the strategic alliance
agreement with PLIC signed on February 4, 1999. As a result, the Company
recorded the entire purchase price of $2,000,000 as goodwill.
Five Months Ended May 31, 1999 Compared to Five Months Ended May 31, 1998
Revenue. The Company generated no revenue for the five-month period ended
May 31, 1999 and the five-month period ended May 31, 1998.
Cost of Revenue. The Company incurred no cost of revenue for the
five-month period ended May 31, 1999 and five-month period ended May 31, 1998.
Technical and System Development Expenses. Technical and system development
expenses were $243,824 for the five months ended May 31, 1999 compared with no
expenses for the five months ended May 31, 1998. Technical and system
development expenses consist primarily of expenses incurred for the development
and maintenance of the software required to support the Company's online stores,
including employee compensation and the cost of developing and improving store
content, Internet connectivity, operations and reporting. This increase is
primarily attributable to the Company entering into a strategic e-commerce
agreement on February 4, 199 pursuant to which it paid a one-time fee of
$150,000. Other significant costs were payroll and consulting expenses of
$54,400 for the five months ended May 31, 1999 relating to the design of its
information and electronic
22
<PAGE>
data interchange systems. The Company expects that technical and systems
development expenses will continue to increase for the foreseeable future.
Sales and Marketing Expenses. Sales and marketing expenses for the five
months ended May 31, 1999 were $32,548 compared with no expenses for the five
months ended May 31, 1998. Sales and marketing expenses consist of costs
associated with designing and marketing the Company's online stores. The
increase primarily reflected the commencement of the Company's e-commerce
activities in January 1999, an increase in the number of employees and
preliminary development of the Company's promotional materials. Payroll expenses
relating to merchandising, advertising and promotion department employees were
$20,540 for the five months ended May 31, 1999. The Company expects that sales,
advertising and marketing expenses will continue to increase significantly for
the foreseeable future as it continues to expand its operations.
General and Administrative Expenses. General and administrative expenses
consist of management and executive compensation, rent, professional services,
telephone expense, travel, postage and other general corporate expenses. General
and administrative expenses were $180,640 for the five months ended May 31, 1999
compared with no expenses for the five months ended May 31, 1998. This increase
reflected the hiring of additional management, increased facilities charges and
substantially increased activity levels to support the expansion of the
Company's operations, all of which were undertaken in early 1999. Payroll
expenses relating to general and administrative personnel were $74,816 in the
five months ended May 31, 1999. Professional fees were $59,096 in the five
months ended May 31, 1999 reflecting the cost of raising funds and signing of
agreements. Travel and accommodation expenses were $24,079 in the five months
ended May 31, 1999.
Income Taxes. Shopping Sherlock has not generated any taxable income to
date and therefore has not paid any federal income taxes since inception.
Deferred tax assets created primarily from net operating loss carryforwards have
been fully reserved as management is unable to conclude that future realization
is more likely than not.
Liquidity and Capital Resources
As at May 31, 1999, the Company consolidated cash position was $725,120 and
the consolidated working capital was $714,329.
Since inception, the Company has financed its operations solely from
capital contributions from stockholders. During the five-month period ended May
31, 1999 the Company received proceeds of $1,250,000 from the sale of common
stock.
Net cash used in operating activities was $451,221 for the five-month
period ended May 31, 1999, used primarily to fund operations.
The Company incurred capital expenditures of $78,659 in the five-month
period ended May 31, 1999. These expenditures are primarily for computer
equipment and furniture and fixtures associated with the Company's continued new
employee growth, new facilities and continued systems development.
The Company currently has no commitments for any credit facilities such as
revolving credit agreements or lines of credit that could provide additional
working capital. Based on its existing capital resources, the Company believes
that it will be able to fund operations through the third quarter of 1999. The
Company's capital requirements depend on several factors, including the success
and progress of product development programs, the resources devoted to
developing products, the extent to which products achieve market acceptance, and
other factors. The Company anticipates that it will require substantial
additional financing to fund its working capital requirements. There can be no
assurance, however, that additional funding will be available or, if available,
that it will be available on terms acceptable to the Company. If adequate funds
are not available, the Company may have to reduce substantially or eliminate
expenditures for research and development, testing, production and marketing of
its proposed products, or obtain funds through arrangements with strategic
partners that require the Company to relinquish rights to certain of its
technologies or products. There can be no assurance that the Company will be
able to raise additional cash if its cash resources are exhausted. The Company's
ability to arrange such financing in the
23
<PAGE>
future will depend in part upon the prevailing capital market conditions as well
as the Company's business performance.
The Company has been in the development stage since its inception. It has
had no operating revenue to date, has accumulated losses of $464,246, and will
require additional working capital to complete its business development
activities and generate revenue adequate to cover operating and further
development expenses. This raises substantial doubt as to the Company's ability
to continue as a going concern.
Market Risk
Market risk inherent in financial instruments outside the financial
statements is considered immaterial.
Year 2000 Issue
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (i.e. December 31, 1999 would appears as 12/31/99) assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming will default to 01/01/1900 instead of 01/01/2000, and
calculations using or reporting the date will not be correct and errors will
arise. To prevent this from occurring, information systems need to be updated to
ensure they recognize the Year 2000.
The Company has conducted a review of its computer systems to identify the
systems that could be incompatible with dates beyond December 31, 1999, and is
developing an implementation plan to resolve issues that may arise. The Company
believes that the expected cost and availability of resources, to recover
information not properly processed after December 31, 1999, would not result in
a material effect on its results of operations.
The Company began its Year 2000 strategy by compiling a list of all
computerized equipment and making a determination of how, if at all, the
software will be affected by Year 2000. Although the effect is so far
unquantified, all of the Company's software and hardware is recent, and
therefore the Company anticipates that it will have sufficient time to test any
new systems that need to be installed. All of the Company's financial and
business records will be backed up to ensure that no loss of information can
occur. The Company does not anticipate incurring significant costs in this
regard.
The Company has contacted each of its strategic partners (including PLIC),
consultants, contractors and significant suppliers and have obtained assurances
from some of them that their relevant operating software and systems are Year
2000 compliant or would be by December 31, 1999. The Company plans to continue
to make inquiries of those suppliers and service providers who have not yet
provided information regarding their Year 2000 compliance status. The Company is
monitoring the status of all of its significant service providers' and
suppliers' Year 2000 compliance efforts to minimize the risk of any material
adverse effect on its operations resulting from compliance failures. The Company
has also, in some cases, identified alternative sources of supply or service
should its present suppliers or service providers encounter Year 2000 compliance
problems.
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including some types of
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS 133 is effective for fiscal years beginning
after June 15, 2000 and must be applied to instruments issued, acquired, or
substantively modified after December 31, 1997. The Company does not expect the
adoption of the accounting pronouncement to have a material effect on its
financial position or results of operations.
24
<PAGE>
ITEM 3 PROPERTIES
The Company currently leases approximately 1,723 square feet of office
space located at Suite 152, 11201 S.E. 8th Street, Bellevue, Washington, 98004.
The lease is for a twenty-one and one-half month term commencing June 15, 1999
and is at a rate of $41,352 per year.
The Company leases approximately 2,400 square feet of office space in
Vancouver, Canada on a month-to-month basis. The rent payable under the lease is
$5,400 per month. See "Item 7 Certain Relationships and Related Transactions."
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of
shares of Common Stock owned beneficially as of June 28, 1999 by: (i) each
person known to the Company to own more than five percent (5%) of any class of
the Company's voting securities; (ii) each director of the Company; and (iii)
all directors and officers as a group. Unless otherwise indicated, the
shareholders listed possess sole voting and investment power with respect to the
shares shown.
<TABLE>
Amount and Nature of Percent
Title of Class Name and Address of Beneficial Owner Beneficial Owner of Class(1)
- -------------- ------------------------------------ ---------------- -----------
<S> <S> <C> <C>
Common Stock Richard Stewart (2) 1,800,000 20.0%
Common Stock All directors and officers as a group (7 persons) 1,800,000 20.0%
- --------------------
</TABLE>
(1) Based on an aggregate 9,000,000 Shares outstanding as of June 28, 1999.
(2) Represents 600,000 shares held by the Stewart Family Trust of which Mr.
Stewart is a beneficiary and 1,200,000 shares held by PLIC, a corporation
controlled by Mr. Stewart. The address of Mr. Stewart is 24254 San Fernando
Road, Newhall, California, 91321.
The Company is not aware of any arrangement which might result in a change
in control in the future.
ITEM 5 DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers and Directors
The following table sets forth certain information concerning the Company's
executive officers and directors as of June 28, 1999:
Name Age Position with the Company
Phillip Garratt* 48 President, Chief Executive Officer and
Director
Mitchell Eggers* 37 Chief Operating Officer and Director
Patrick McGrath 27 Chief Financial Officer
Jan Walter 27 Chief Technical Officer
Richard Stewart 53 Director
Jasbir Dhaliwal* 41 Director
Raeanne Steele 45 Executive Vice-President of Sales and
Marketing and Director
---------------------
* Audit Committee Member
Philip J. Garratt has served as the Company's President, Chief Executive
Officer and Director since June 1999. From 1994-1998, Mr. Garratt served as
president and chief executive officer of CNH de Venezuela, a provider of high
capacity wireless telephony and data transmission services in Venezuela. In
1993, Mr. Garratt founded Norcom Networks Corporation, a provider of value-added
fixed and mobile communication services within
25
<PAGE>
North America. Prior to starting Norcom, Mr. Garratt was president and CEO of
Cycomm International, Inc., a telecommunications equipment company which
provided secure wireless products for voice and data transmission.
Mitchell Eggers has served as the Company's Chief Operating Officer and
Director since June 1999. From 1997 to 1999, Dr. Eggers was a researcher and
consultant for development stage technology companies. From 1991 to 1995 Dr.
Eggers was a research demographer for the Economic Commission of Europe, United
Nations, Geneva, Switzerland. Prior to that, he was a postdoctoral fellow at the
Population Research Center, University of Chicago. His Ph.D was granted in 1990
by the University of Pennsylvania. Currently Dr. Eggers serves on the Board of
Directors of Instant Documents Inc., a Dallas, Texas based Internet courier
company and Intelispan Inc., a Scottsdale, Arizona virtual private networking
company.
Patrick McGrath has served as the Company's Chief Financial Officer since
April 1999. Prior to that time, Mr. McGrath was an accountant with a management
consulting and accounting services firm. Mr. McGrath received his Bachelor of
Commerce degree from Memorial University of Newfoundland in 1995 and is a
Certified General Accountant.
Jan Walter has served as the Company's Chief Technical Officer since June
1999. From 1994 to 1999, Mr. Walter has been a freelance computer systems and
software consultant and is also the owner of Centurion Services, a systems
consulting and development company. Mr. Walter has authored a book on the C++
programming language for Macmillan Computer Publishing, as well as having
contributed to a book on the Linux Operating System.
Richard Stewart has served as a director of the Company since April 1999.
In 1991, Mr. Stewart co-founded and is currently President and CEO of Premier
Lifestyles International Corporation, a marketing company.
Jasbir Dhaliwal has served on the Company's board of directors since April
1999. Prior to that time, Dr. Dhaliwal was an information systems consultant and
published author in the areas of information systems research and electronic
commerce. Dr. Dhaliwal has consulted with many multi-national corporations
including Unilever Ltd., IBM, EDI Malaysia, Guiness Anchor Ltd., Andersen
Consulting, and Johnson & Johnson Asia Pacific. From 1996 -1998 Dr. Dhaliwal was
the Leader of the Interdisciplinary Advisory Group on Multimedia Applications to
the Deputy Vice-Chancellor, National University of Singapore (NUS), and in 1997,
he was an elected Board Member and Director of Professional Education with the
Chartered Institute of Transport.
Raeanne Steele has served as the Executive Vice-President of Sales and
Marketing since January 1999 and as a director since June 1999. Prior to that
time, she served as a consultant providing contractual services to the private
and public sector in business development, market research, business planning,
and communications. Ms. Steele received a bachelor's degree in education and an
MBA in marketing from the University of Alberta. She also holds a Journalism
Certificate from Langara College, Vancouver. She is currently enrolled in the
E-Commerce Certificate program at the Technical University of British Columbia.
Board of Directors
Each member of the Board of Directors is elected annually and holds office
until the next annual meeting of shareholders or until his successor has been
elected or appointed, unless his office is earlier vacated in accordance with
the Bylaws of the Company. Officers serve at the discretion of the Board and are
appointed annually. The Board currently has one committee, the Audit Committee.
None of the Company's directors or executive officers are parties to any
arrangement or understanding with any other person pursuant to which said
individual was elected as a director or officer of the Company. No director or
executive officer of the Company has any family relationship with any other
officer or director of the Company.
26
<PAGE>
Audit Committee
The Audit Committee recommends independent accountants to the Company to
audit the Company's financial statements, discusses the scope and results of the
audit with the independent accountants, reviews the Company's interim and
year-end operating results with the Company's executive officers and the
Company's independent accountants, considers the adequacy of the internal
accounting controls, considers the audit procedures of the Company and reviews
the non-audit services to be performed by the independent accountants. The
members of the Audit Committee are Jasbir Dhaliwal, Philip Garratt and Mitchell
Eggers.
ITEM 6 EXECUTIVE COMPENSATION
Compensation of Executive Officers
The Company did not pay any compensation to its executive officers for the
fiscal year ended December 31, 1998. Development activity of the company
commenced in January 1999.
Employment and Consulting Agreements
Effective June 24, 1999, Phillip Garratt, Patrick McGrath, Mitchell Eggers,
Jan Walter and Raeanne Steele have entered into employment agreements with the
Company, providing for annual salaries of $120,000, $40,800, $120,000, $60,000
and Cdn.$120,000, respectively. The employment for each of the above officers is
"at will" and may be terminated without cause at any time, subject to certain
notice provisions. The employment agreements are governed by the laws of the
state of Washington.
On February 15, 1999, the Company entered into a Consulting Agreement for
Non-Technical Services (the "Consulting Agreement") with John C. Jones, a former
director of the Company. Pursuant to the terms of the Consulting Agreement, Mr.
Jones provides consulting services to the Company in exchange for a $5,000 per
month fee and reimbursement of certain expenses. The term of the agreement is
six (6) months ending on August 15, 1999, except that the Company may terminate
Consulting Agreement in the event of a material breach of the Consulting
Agreement by Mr. Jones, subject to certain notice requirements.
On April 1, 1999, the Company entered into a Consulting Agreement (the
"TUBC Agreement") with Technical University of British Columbia ("TUBC"). Dr.
Jasbir Dhaliwal, a director of the Company, is an Associate Professor at TUBC
and is providing services to the Company under the TUBC Agreement. Pursuant to
the Terms of the TUBC Agreement, TUBC will provide consulting services to the
Company in exchange for a consulting fee of Cdn.$5,113 per month for a period of
12 months. The initial term of the TUBC Agreement is 12 months and may be
terminated by either party on sixty (60) days' notice.
Compensation of Directors
During the most recently completed fiscal year ended December 31, 1998,
there was no compensation paid by the Company to the directors for their
services as directors except as otherwise disclosed herein. There are no
standard arrangements for any such compensation to be paid other than
reimbursement for expenses incurred in connection with their services as
directors.
1999 Stock Option Plan
In June 1999, the Company's board of directors adopted the 1999 Stock
Option Plan. The Stock Option Plan will terminate on the earlier of June 30,
2009 or such other date as the board of directors may determine. The Stock
Option Plan is administered by the board of directors (or a committee thereof)
and provides that options may be granted to officers, directors, employees and
other persons, including consultants, as determined by the Plan Administrator in
its sole discretion.
27
<PAGE>
The options issued under the Stock Option Plan are exercisable at a price
fixed by the Plan Administrator, in its sole discretion; provided that options
granted in substitution for outstanding options of another corporation in
connection with a merger, consolidation, acquisition of property or stock or
other reorganization involving such corporation and the Company or any of the
Company's subsidiaries may be granted with an exercise price equal to the
exercise price for the substituted option of the other corporation, subject to
adjustment. Subject to exceptions in the Stock Option Plan relating to death,
divorce and estate planning techniques, options granted under the Stock Option
Plan are non-assignable and non-transferable.
The maximum number of the shares reserved for issuance under the Stock
Option Plan including options currently outstanding is 1,000,000 shares. As of
June 28, 1999 no stock options have been granted under the plan.
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as otherwise disclosed herein, no director, senior officer,
principal shareholder, or any associate or affiliate thereof, had any material
interest, direct or indirect, in any transaction since the beginning of the last
financial year of the Company that has materially affected the Company, or any
proposed transaction that would materially affect the Company, except for an
interest arising from the ownership of shares of the Company where the member
will receive no extra or special benefit or advantage not shared on a pro rata
basis by all holders of shares in the capital of the Company.
On May 26, 1999, the Company acquired SSI, an entity controlled by Richard
Stewart, a director of the Company. Under the terms of the acquisition, entities
controlled by Mr. Stewart (including PLIC) received an aggregate of 1,800,000
shares of the Company's common stock at a deemed purchase price of $1,800,000.
From January 1999 to May 31, 1999, the Company reimbursed 5215 Holdings
Inc. ("5215"), a company for which Phillip Garratt serves as a director,
$176,500 for costs associated with the start-up of the Company's product
development office in Vancouver for the period January 1999 to May 31, 1999. The
Company pays 5215 rent of $5,400 a month for the premises in Vancouver and has a
damage deposit on account of $10,800 for the premises. This is an informal
agreement and may be cancelled at any time. The Company continues to reimburse
5215, at cost, for reasonable expenses incurred by 5215 on the Company's behalf.
On February 4, 1999, the Company, through its wholly-owned subsidiary,
entered into a Strategic Alliance Agreement with PLIC, a company controlled by
Mr. Stewart. Under the terms of the agreement, PLIC granted the Company the
right to directly market the Company's online stores to members of PLIC's rebate
shopping network, to place links to its Web sites on Web sites sponsored by PLIC
and to distribute memberships in PLIC's rebate shopping network. In addition,
PLIC agreed to provide transaction processing and product fulfillment services
to the Company and to give the Company access to its list of participating
merchants and product inventory on an ongoing basis. In exchange, the Company
agreed, on an exclusive basis, to sell, market and honor PLIC product rebate
network memberships and, subject to certain exceptions, to use PLIC's
transaction processing and product fulfillment services. The Strategic Alliance
Agreement is for a perpetual duration, but may be terminated by either party for
cause.
The Company paid to PLIC a one time payment of $150,000 on the signing of
the Strategic Alliance Agreement and paid $10,000 for the initial set up costs
of the customer helpdesk. The parties are also jointly responsible for all
capital and startup costs in connection with the helpdesk and will be billed on
a pro-rata basis according to the number of customer orders placed through the
helpdesk. PLIC and the Company have agreed to design jointly a Web site which
would feature links to both the Company's Web sites and other Web sites operated
by PLIC. The parties agree to share equally in the advertising net revenues from
such joint sites.
The Company has agreed to pay PLIC a commission or a finders fee for
introducing the Company to direct marketing organizations that utilize the
Company's e-commerce solutions. It is anticipated that the commissions will take
the form of a percentage of sales or fees collected from individuals using the
online site. Specific amounts are negotiated on a case by case basis.
In June 1999, the Company entered into employment agreements with Philip
Garratt, Mitchell Eggers, Raeanne Steele, Patrick McGrath and Jan Walter. The
Company has also entered into Consulting Agreements with
28
<PAGE>
John C. Jones, a former director, which terminates on August 15, 1999, and also
with Dr. Jasbir Dhaliwal, a current director of the Company. See "Management --
Employment and Consulting Agreements."
ITEM 8 LEGAL PROCEEDINGS
The Company is not a party to, and none of the Company's property is
subject to, any pending or threatened legal proceeding.
ITEM 9 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares have traded on the NASD Over-The-Counter Bulletin
Board Market (the "OTCBB") since March 31, 1999 under the symbol SSLK. The
Company's symbol was changed to SSLKE on June 1, 1999. On July 2, 1999, the
Company ceased trading on the OTCBB. The following is a summary of trading, on a
calendar quarter basis, in the shares on the OTCBB during 1999:
<TABLE>
The NASD OTC Bulletin Board
---------------------------- -------------------------- ------------------------- --------------------------
Quarter Presented High Low Volume
---------------------------- -------------------------- ------------------------- --------------------------
---------------------------- -------------------------- ------------------------- --------------------------
<S> <C> <C> <C>
1st Quarter --1999 $6.25 $5.38 191,000
(on March 31, 1999)
---------------------------- -------------------------- ------------------------- --------------------------
2nd Quarter -- 1999 $9.75 $5.62 717,100
---------------------------- -------------------------- ------------------------- --------------------------
</TABLE>
The price for the Company's shares on the OTCBB on June 28, 1999, was $6.47
(High) and $6.38 (Low), and the close price was $6.47. The prices reflected
represent interdealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Other than described above, the Company's shares are not and have not been
listed or quoted on any other exchange or quotation system.
As of June 28, 1999, the Company had approximately 38 shareholders of
record (including nominees and brokers holding street accounts) of the Company's
shares.
The Company has never paid dividends on its shares. The Company currently
intends to retain earnings for use in its business and does not anticipate
paying any dividends in the foreseeable future.
ITEM 10 RECENT SALES OF UNREGISTERED SECURITIES
On February 17, 1999, the Company issued 5,000,000 shares of common stock
at a price of $0.05 per share for an aggregate purchase price of $250,000. The
shares were issued to the following persons: Brian James, Prostar Ltd., Eric
Silinger, Peter Garratt, Gary James, Robert Parker, David Flower, Kole
Jovanovski, Zorica Kostovska, Kiril Pancevski, Pero Jovanov, Filip Petrovski,
Slavko Trifunovski, Epicenter Venture Finance Ltd., Peter Snape, Savannah
Foundation Ltd., Keith Moriarty, Marjorie Surbey, Jacques Conforti and
Christopher Brown. The shares were issued to holders outside the United States
pursuant to an exemption from registration under Rule 504 of Regulation D under
the Securities Act of 1933, as amended (the "Securities Act").
On April 16, 1999, the Company issued 1,000,000 shares of common stock at a
price of $1.00 per share for an aggregate purchase price of $1,000,000, pursuant
to agreements dated March 25, 1999. The shares were issued to the following
persons: Jim Fitzgerald, Jer O'Callaghan, Jim O'Callaghan, Brian Weldon, Anthony
Forde, Tony Duddy, Thomas O'Gorman, Greenland Investments Inc., Hugh Farrington,
David O'Brien, Gerard Murray, Gerard Walsh, Brian Gillespie, Noel Dineen,
Richard O'Shea, Ernest Holloway and Guernroy Ltd. The shares were issued to
holders outside the United States pursuant to an exemption from registration
under Rule 506 of Regulation D under the Securities Act.
29
<PAGE>
On May 26, 1999, the Company issued 2,000,000 shares of common stock at a
deemed purchase price of $1.00 share in connection with the Company's
acquisition of SSI. The acquisition agreement embodied terms and conditions as
set forth under a previous agreement dated February 17, 1999. The aggregate
deemed purchase price was $2,000,000. The shares were issued to the following
shareholders of SSI, The Becker Family Trust, Stewart Family Partners and PLIC.
The shares were issued pursuant to an exemption from registration under Rule 506
of Regulation D under the Securities Act.
ITEM 11 DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Company's authorized capital consists of 50,000,000 shares of common
stock, $.001 par value. At May 31, 1999, there were 9,000,000 shares issued and
outstanding and an additional 1,000,000 shares have been reserved for issuance
under the Company's 1999 Stock Option Plan.
All shares are of the same class and have the same rights, preferences and
limitations. The holders of the shares are entitled to dividends in cash,
property or shares as and when declared by the Board of Directors out of funds
legally available therefor, to one vote per share at meetings of security
holders of the Company and, upon liquidation, to receive such assets of the
Company as are distributable to the holders of the shares. Upon any liquidation,
dissolution or winding up of the business of the Company, if any, after payment
or provision for payment of all debts, obligations or liabilities of the Company
shall be distributed to the holders of shares. There are no pre-emptive rights
or conversion rights attached to the shares. There are also no redemption or
purchase for cancellation or surrender provisions, sinking or purchase fund
provisions, or any provisions as to modification, amendment or variation of any
such rights or provisions attached to the shares of the Company.
ITEM 12 INDEMNIFICATION OF OFFICERS AND DIRECTORS
Florida law permits the Company indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
proceeding by reason of the fact that he is or was a director or officer of the
Company or any other person designated by the board of directors which may
include any person serving at the request of the Company as a director, officer,
employee, agent, fiduciary or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other entity or enterprise, in each
case, against certain liabilities including damages, judgments, amounts paid in
settlement, fines, penalties and expenses including attorneys' fees and
disbursements, except where such indemnification is expressly prohibited by
applicable law, where such person has engaged in willful misconduct or
recklessness or where such indemnification has been determined to be unlawful.
Such indemnification as to expenses is mandatory to the extent the individual is
successful on the merits of the matter. Florida law also permits the Company to
provide similar indemnification to employees and agents also who are not
directors or officers. The determination of whether an individual meets the
applicable standard of conduct may be made by the disinterested directors,
independent legal counsel or the shareholders. Florida law also permits
indemnification in connection with a proceeding brought by or in the right of
the Company to procure a judgment in its favor. Insofar as indemnification for
liabilities arising under the SEC may be permitted to directors, officers, or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
30
<PAGE>
ITEM 13 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountants
Financial Statements
Consolidated Balance Sheets
Consolidated Statement of Operations
Consolidated Statement of Changes in Stockholders Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
31
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders of
Shopping Sherlock, Inc.
We have audited the accompanying consolidated balance sheets of Shopping
Sherlock, Inc. (a development stage company) and its subsidiary ("the Company")
as of May 31, 1999, December 31, 1998 and December 31, 1997 and the related
consolidated statements of operations, stockholders equity and cash flows for
the five months ended May 31, 1999, each of the years in the three-year period
ended December 31, 1998 and for the period from the date of inception (August
17, 1984) through May 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free from 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 Shopping Sherlock,
Inc. (a development stage company) and its subsidiary at May 31, 1999, December
31, 1998 and 1997, and the results of its operations and its cash flows for the
five months ended May 31, 1999, each of the years in the three-year period ended
December 31, 1998, and the period from the date of inception (August 17, 1984)
through May 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company is in the development stage and
has generated no operating revenue to date and will need to raise additional
working capital for future development costs. While the Company has been
successful in the past in raising funds, this may not be indicative of future
success. Management's plans in regards to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Seattle, Washington
June 30, 1999
32
<PAGE>
SHOPPING SHERLOCK, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
May 31, December 31, December 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C> <C>
Cash $ 725,120 $ - $ -
Prepaid expenses and deposits 54,121 - -
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 779,241 - -
Furniture and Equipment, net 74,504 - -
Goodwill 2,000,000 - -
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,853,745 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable $ 59,912 $ - $ -
Due to related party 5,000 - -
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities 64,912 - -
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders Equity
Common stock, $1.00 par value, 50,000 shares
authorized, 0, 0, and 100 issued and outstanding - - 100
Common stock, $.001 par value; 50,000,000 shares
authorized, 9,000,000, 1,000,000 and 0 issued and
outstanding 9,000 1,000 -
Additional paid in capital 3,244,079 2,079 900
Deficit accumulated during the development stage (464,246) (3,079) (1,000)
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders Equity 2,788,833 - -
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders Equity $ 2,853,745 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
33
<PAGE>
SHOPPING SHERLOCK, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
Cumulative Admounts Five Months Ended Twelve Months Ended
from May 31, December 31,
Date of Inception to ---------------------- --------------------------------
May 31, 1999 1999 1998 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing $ 32,548 $ 32,548 $ -- $ -- $ -- $ --
General and administrative 183,719 180,640 -- 2,079 -- --
Systems and business development 243,824 243,824 -- -- -- --
Depreciation and amortization 4,155 4,155 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 464,246 461,167 -- 2,079 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net loss $ 464,246 $ 461,167 $ -- $ 2,079 $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net loss per share - basic and diluted . $ 0.12 $ 0.12 $ -- $ 0.005 $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares of common
stock outstanding 3,976,516 3,976,516 100,000 445,833 100,000 100,000
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
34
<PAGE>
SHOPPING SHERLOCK, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
<TABLE>
Deficit
Accumulated
Common Stock during
------------------------- Additional Development
Shares Amount Paid-in Capital Stage Total
- -----------------------------------------------------------------------------------------------------------------------
Shopping Sherlock, Inc. Activities
Activities (Formerly known as
AIDA Industries):
Issuance of common stock
for cash
<S> <C> <C> <C> <C> <C>
100 $ 100 $ 900 $ - $ 1,000
- - - (1,000) (1,000)
Net Loss
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1985 100 100 900 (1,000) -
Activity January 1986 through
December 31, 1997 - - - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 100 100 900 (1,000) -
Effect of 1,000:1 Stock split -
July 20, 1998 99,900 - - - -
Issuance of Common stock for
reinstatement fees - July 20,
1998 900,000 900 1,179 - 2,079
Net Loss - - - (2,079) (2,079)
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,000,000 1,000 2,079 (3,079) -
Sale of Common Stock for Cash
($.05/Share) 5,000,000 5,000 245,000 - 250,000
Sale of Common Stock for Cash
($1.00/Share) 1,000,000 1,000 999,000 - 1,000,000
Issuance of Common Stock for
Acquisition of Shopping Sherlock
- Delaware 2,000,000 2,000 1,998,000 - 2,000,000
Net Loss - - - (461,167) (461,167)
- -----------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 9,000,000 $ 9,000 $ 3,244,079 $ (464,246) $ 2,788,833
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
35
<PAGE>
SHOPPING SHERLOCK, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
INCREASE (DECREASE) IN CASH
Cumulative Twelve Months Ended
Amounts from Date Five Months December 31,
of Inception to Ended --------------------------------
May 31. 1999 May 31, 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C> <C> <C> <C> <C>
Net loss .................................................... $ (464,246) $ (461,167) $ (2,079) $ -- $ --
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ...... ................................. 4,155 4,155 --
Change in assets and liabilities:
Prepaid expenses and deposits ..................... (54,121) (54,121)
Accounts payable .................................. 59,912 59,912 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities ........................ (454,300) (451,221) (2,079)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of furniture and equipment ................ (78,659) (78,659) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities......................... (78,659) (78,659) --
----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from issuing common stock for cash ......... 1,253,079 1,250,000 2,079
Increase in due to related party .................... 5,000 5,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities ..................... 1,258,079 1,255,000 2,079 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash .......................................... 725,120 725,120 --
Cash, beginning of period ..................................... -- -- --
Cash, end of period ........................................... $ 725,120 $ 725,120 $ -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
Non-cash investing and financing activities:
Issuance of common stock to acquire subsidiary ......... $ 2,000,000 $ 2,000,000 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
36
<PAGE>
SHOPPING SHERLOCK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 1: Operations - Shopping Sherlock, Inc. ("the Company") was
Description of incorporated in the State of Florida on August 17, 1984,
Business and under the name of AIDA Industries, Inc. ("AIDA"). From
Summary of inception until July 20, 1998 there was no activity within
Significant AIDA. On July 20, 1998, AIDA amended its articles of
Accounting incorporation to provide for a 1000:1 stock split, and to
Policies apply for listing on the OTC Bulletin Board. On March 24,
1999 AIDA changed its name to Shopping Sherlock, Inc.
Shopping Sherlock, Inc. ("SSI"), was organized and
incorporated in the State of Delaware on January 20, 1999,
for the purpose of developing and implementing an Internet
based retail business providing discounts and purchase
rebates to its customers. On February 4, 1999, SSI entered
into a strategic marketing and operations agreement with
Premier Lifestyles International Corporation ("PLIC"), a
direct marketing and sales company, to provide certain
Internet based services to PLIC's existing customer base.
SSI had no operating activity in the five-month period ended
May 31, 1999.
On May 26, 1999 the Company entered into an acquisition
agreement with SSI obtaining all rights and obligations
under the agreement between SSI and PLIC. 2,000,000 shares
of its common stock were issued to the shareholders of SSI
for 100% of its common stock. The shares were valued at $1
per share, which was the price realized by the Company in
the recent private placement of its stock to a group of
foreign investors.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and SSI. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Accounting Estimates - The Company's financial statements
are prepared in conformity with generally accepted
accounting principles which requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ
from the estimates.
Furniture and Equipment - Furniture and equipment are stated
at cost. Depreciation and amortization are computed
utilizing straight-line and accelerated methods over
estimated useful lives ranging from 3 to 5 years.
Goodwill - The acquisition of SSI resulted in $2 million of
goodwill, which is being amortized over a 36-month period.
37
<PAGE>
SHOPPING SHERLOCK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Income Taxes - The Company accounts for income taxes in
Description of accordance with the provisions of Statement of Financial
Business and Accounting Standards No. 109, "Accounting for Summary of
Summary of Significant Income Taxes," ("SFAS 109"). SFAS 109 requires
Significant the recognition of deferred tax assets and liabilities for
Accounting the expected future income tax consequences of events that
Policies have been recognized in a company's financial statements or
(continued) tax return. Under this method, deferred tax assets and
liabilities are determined based on the temporary
differences between the financial statement carrying amounts
and their tax basis using enacted tax rates in effect in the
years in which the temporary differences are expected to
reverse. Valuation allowances are provided when management
determines that the realization of deferred tax assets fails
to meet the more likely than not standard imposed by SFAS
109.
Net Loss Per Share - Basic loss per share is computed by
dividing net loss by the weighted average number of common
shares outstanding. Shares outstanding for all prior periods
have been adjusted to reflect the 1,000:1 stock split
declared on July 20, 1998. As of May 31, 1999, the Company
had no outstanding options or common stock equivalents.
NOTE 2: The Company has been in the development stage since its
Development inception. It has had no operating revenues to date, has
Stage accumulated losses of s $464,246, and will require
Operations additional working capital to complete its business
development activities and generate revenues adequate to
cover operating and further development expenses. This
raises substantial doubt as to the Company's ability to
continue as a going concern.
The Company believes it can raise adequate working capital
through subsequent sales of its common stock in private
placement transactions. To date, the Company has raised
$1.25 million in private placements.
The financial statements do not contain any adjustments that
might be necessary if the Company is unable to continue as a
going concern.
38
<PAGE>
SHOPPING SHERLOCK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE 3: Furniture and equipment consists of the following:
Furniture and
Equipment
December 31,
May 31, ------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture $ 31,616 $ - $ -
Computer hardware 42,454 - -
Computer software 4,589 - -
---------------------------------------------------------------------------------------
78,659 - -
Less accumulated depreciation (4,155) - -
---------------------------------------------------------------------------------------
Furniture and equipment, net $ 74,504 $ - $ -
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
Note 4: At May 31, 1999 the Company has net deferred tax assets of
Income Taxes $157,500 primarily due to net operating loss carry forwards,
which begin to expire in 2018. A 100% valuation allowance
has been recorded against the deferred tax asset as
management has yet to establish that recovery of this asset
is more likely than not.
Note 5: In addition to the informal rent agreement discussed in Note
Operating 6, the Company leases office space under a twenty-one and
Leases one half-month operating lease commencing June 15, 1999.
Future minimum lease payments approximate $22,400 in 1999,
$41,400 in 2000, and $10,400 in 2001.
Note 6: The Company has entered into a strategic marketing agreement
Related Party with PLIC, and has paid $150,000 as a one-time licensing
Transactions fee. The principals of PLIC were the sole shareholders of
SSI, and were issued 2,000,000 shares of common stock in
conjunction with the acquisition of SSI. Additionally, one
of the principals of PLIC will serve as a director of the
Company.
The marketing agreement grants to the Company a
non-exclusive right to utilize PLIC's existing customer and
vendor databases in establishing its own Internet based
commerce site. Sales from the Company's site may be to PLIC
customers or other third parties. The Company and PLIC will
split a portion of the net proceeds of the transaction
(sales less cost of goods sold and credit card processing
fees) as specified in the agreement.
The agreement will be perpetual, however it may be
terminated for cause with 30 days notice, or immediately in
the event of bankruptcy, appointment of a receiver,
assignment for the benefit of creditors, or violation of the
confidentiality provisions of the agreement.
39
<PAGE>
NOTE 6: Certain operating expenses are paid by a related company,
Related Party which in turn is reimbursed by the Company. For the five
Transaction months ended May 31, 1999, the Company reimbursed the ) )
(continued) related company $176,400 which includes $31,200 of prepaid
expenses and deposits. In addition, the Company paid the
related company $21,600 under an informal rental agreement,
which includes $10,800 of prepaid expenses and deposits. The
agreement may be cancelled at any time.
The Company retained all key employees under consulting
agreements during the five-month period ended May 31, 1999.
These agreements may be cancelled at any time. The expense
of these agreements totaled $123,600, which includes $5,000
in related party payables.
The Company has entered into a one year consulting contract
beginning April 1, 1999, with a university in British
Columbia where one of the Company's directors is an
instructor. The Company will pay $3,500 per month, of which
$7,000 is included in expenses for the five months ended May
31, 1999.
The Company purchased $52,000 in fixed assets from a company
owned by one of its key employees in 1999.
NOTE 7: On June 24, 1999, the Company has entered into employment
Subsequent contracts with its officers. The contracts run from month to
Events month and may be terminated upon 30 days notice. The
aggregate obligation under these agreements is $35,200 per
month. In addition, the Company has implemented a stock
option plan as of July 1, 1999. 1,000,000 shares have been
set aside and may be granted to officers and key employees
at a price yet to be determined.
On June 22, 1999, the Company's President resigned. The
residual amount due under his consulting contract is
$12,500, and will be paid over the term of the contract.
40
<PAGE>
ITEM 14 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Barry L. Friedman, P.C., Certified Public Accountant previously served
as the auditor for the Company. Barry L. Friedman, P.C., Certified Public
Accountant resigned as the auditor for the Company due to the Company's listing
on the OTCBB during 1999 and BDO Seidman, LLP was appointed as auditor for the
Company and its subsidiaries. The decision to change auditors was approved by
the Company's board of directors. There have not been disagreements with the
auditors on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
ITEM 15 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements and related schedules are included
in this Item:
Report of Independent Certified Public Accountants:
Consolidated Balance Sheets as of May 31, 1999, December 31,
1998 and December 31, 1997;
Consolidated Statements of Operation, Stockholder's Equity and
Cash Flows for the five months ended May 31, 1999 and each of
the years in the three-year period ended December 31, 1998 and
for the period from the date of inception (August 17, 1984)
through May 31, 1999; and
Notes to Consolidated Financial Statement.
(b) Exhibits
Exhibit Number Description
2.1 Agreement and Plan of Reorganization dated as of
May 17, 1999 by and among the Registrant,
Shopping Sherlock, Inc. (Delaware) ("SSI") and
Shopping Acquisition Corp.
3.1 Articles of Incorporation, as amended, of the
Registrant
3.2 Bylaws of the Registrant
4.1 Form of Common Stock Share Certificate
10.1 1999 Stock Option Plan
10.2 Form of Stock Option Agreement
10.3 Strategic Alliance Agreement: E-commerce,
Marketing and Operations dated February 4, 1999
by and between SSI and Premier Lifestyles
International Corp.
10.4 Form of Independent Contractor Services
Agreement
10.5 Consulting Agreement for Non-Technical Services
dated February 15, 1999 by and between the
Registrant and John C. Jones
41
<PAGE>
10.6 Consultant Agreement effective as of April 1,
1999 by and between the Registrant and Technical
University of British Columbia
10.7 Employment Agreement dated June 24, 1999 by and
between the Registrant and Philip Garratt.
10.8 Employment Agreement dated June 24, 1999 by and
between the Registrant and Mitchell Eggers.
10.9 Employment Agreement dated June 24, 1999 by and
between the Registrant and Raeanne Steele.
10.10 Employment Agreement dated June 24, 1999 by and
between the Registrant and Jan Walter.
10.11 Employment Agreement dated June 24, 1999 by and
between the Registrant and Patrick McGrath.
10.12 Lease Agreement dated May 21, 1999 by and
between the Registrant and Spieker Properties,
L.P.
27.1 Financial Data Schedule.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Company has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHOPPING SHERLOCK, INC.
Date: July 21, 1999 By /s/ Phillip J. Garratt
-----------------------
Phillip J. Garratt
Chief Executive Officer
43
<PAGE>
<TABLE>
Exhibit Sequentially
Number Description Numbered Page
<S> <S> <C>
2.1 Agreement and Plan of Reorganization dated as of May 17, 1999 by and
among the Registrant, Shopping Sherlock, Inc. (Delaware) ("SSI") and
Shopping Acquisition Corp.
3.1 Articles of Incorporation, as amended, of the Registrant
3.2 Bylaws of the Registrant
4.1 Form of Common Stock Share Certificate
10.1 1999 Stock Option Plan
10.2 Form of Stock Option Agreement
10.3 Strategic Alliance Agreement: E-commerce, Marketing and Operations
dated February 4, 1999 by and between SSI and Premier Lifestyles
International Corp. ("PLIC")
10.4 Form of Independent Contractor Services Agreement
10.5 Consulting Agreement for Non-Technical Services dated February 15,
1999 by and between the Registrant and John C. Jones
10.6 Consultant Agreement effective as of April 1, 1999 by and between the
Registrant and Technical University of British Columbia
10.7 Employment Agreement between dated June 24, 1999 by and between the
Registrant and Philip Garratt.
10.8 Employment Agreement between dated June 24, 1999 by and between the
Registrant and Mitchell Eggers.
10.9 Employment Agreement between dated June 24, 1999 by and between the
Registrant and Raeanne Steele.
10.10Employment Agreement between dated June 24, 1999 by and between the
Registrant and Jane Walter.
10.11Employment Agreement between dated June 24, 1999 by and between the
Registrant and Patrick McGrath.
10.12Lease Agreement dated May 21, 1999 by and between the Registrant and
Spieker Properties, L.P.
27.1 Financial Data Schedule
</TABLE>
44
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SHOPPING SHERLOCK, INC., (Florida)
SHOPPING SHERLOCK, INC., (Delaware)
AND
SHOPPING ACQUISITION CORP.
Dated as of May 17, 1999
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is dated for
reference as of May 17, 1999 by and among Shopping Sherlock, Inc., a Delaware
corporation ("DelawareCo"), Shopping Sherlock, Inc., a Florida corporation
("FloridaCo"), and Shopping Acquisition Corp., a Delaware corporation ("Sub").
The parties agree as follows:
1. THE MERGER.
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, Sub shall be
merged into DelawareCo (the "Merger), the separate corporate existence of Sub
shall cease and DelawareCo shall continue as the surviving corporation and as a
wholly-owned subsidiary of FloridaCo. The surviving corporation after the Merger
is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than five (5) business days
following satisfaction or waiver of the conditions set forth in Section 6, at
the offices of 618 - 688 West Hastings Street, Vancouver, British Columbia,
unless another place or time is agreed to in writing by FloridaCo and
DelawareCo. The date upon which the Closing actually occurs is herein referred
to as the "Closing Date." On the Closing Date, the parties hereto shall cause
the Merger to be consummated by filing Articles of Merger (or like instrument)
in the form attached hereto as Exhibit A with the Secretary of State of the
State Delaware (the "Merger Articles"), in accordance with the applicable
provisions of Delaware law (the time of acceptance by the Secretary of State of
the State of Delaware of such filing being referred to herein as the "Effective
Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
Sub and DelawareCo shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Sub and DelawareCo shall become the debts, liabilities
and duties of the Surviving Corporation.
1.4 Articles of Incorporation, Bylaws. As of the Effective Time, the
Certificate of Incorporation and Bylaws of DelawareCo shall be the Certificate
of Incorporation and Bylaws of the Surviving Corporation.
1.5 Directors and Officers. Directors of the Surviving Corporation
immediately after the Effective Time shall be the directors of FloridaCo
immediately prior to the Effective Time, each to hold the office in accordance
with the provisions of applicable laws and the Bylaws of the Surviving
Corporation, until their successors are duly qualified and elected. The officers
of Surviving Corporation immediately after the Effective Time shall be the
officers of FloridaCo immediately prior to the Effective Time, each to hold
office in accordance with the provisions of the Bylaws of the Surviving
Corporation.
1
<PAGE>
1.6 Conversion of DelawareCo Common Stock.
(a) At the Effective Time, each share of DelawareCo Common Stock,
par value $0.01 per share ("DelawareCo Common Stock"), upon the terms and
subject to the conditions set forth below shall be converted automatically into
20,000 shares (the "Exchange Ratio") of FloridaCo Common Stock par value $0.001
per share ("FloridaCo Common Stock"). Each share of FloridaCo Common Stock to be
delivered under this Agreement shall be valued at US$ 1.00 per share.
(b) The Exchange Ratio shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into FloridaCo Common Stock or
DelawareCo Common Stock), reorganization, recapitalization or other like charge
with respect to FloridaCo Common Stock or DelawareCo Common Stock occurring
after the date hereof.
(c) No fractional share of FloridaCo Common Stock shall be issued
in the Merger. In lieu thereof, any fractional share shall be rounded up to the
nearest whole share of FloridaCo Common Stock.
(d) Each share of Common Stock of Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of Common Stock of
the Surviving Corporation. Each stock certificate of Sub evidencing ownership of
any such shares shall continue to evidence ownership of such shares of capital
stock of the Surviving Corporation.
1.7 Surrender of Certificates.
(a) Exchange Agent. The Corporate Secretary of FloridaCo shall
serve as exchange agent (the "Exchange Agent") in the Merger.
(b) FloridaCo to Provide Cash and Common Stock. Promptly after
the Effective Time, FloridaCo shall make available to the Exchange Agent for
exchange in accordance with this Section, the shares of FloridaCo Common Stock
issuable pursuant to Section 1.6(b) in exchange for all of the outstanding
shares of DelawareCo Common Stock.
(c) Exchange Procedures. On or after the Closing Date, the
holders of DelawareCo Common Stock will surrender the certificates representing
their DelawareCo Common Stock (the "DelawareCo Stock Certificate") to FloridaCo
for cancellation together with a letter of transmittal in such form and having
such provisions that FloridaCo reasonably requests. Promptly following the
Effective Time, FloridaCo will issue to the such stockholders certificates for
the number of shares of FloridaCo Common Stock to which such stockholders are
entitled pursuant to Section 1.6.
(d) Transfers of Ownership. If any certificate for shares of
FloridaCo Common Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered or if any cash is to
be delivered to a person other than the person whose name is on the certificate
surrendered, it will be a condition to the issuance and/or delivery thereof that
the certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid to
FloridaCo or any agent designated by it any transfer or other taxes required by
reason or the issuance of a certificate for shares of FloridaCo Common Stock or
the delivery of any cash in any name other than that of the registered holder of
the certificate surrendered, or established to the satisfaction of FloridaCo or
any agent designated by it that such tax has been paid or is not payable.
2
<PAGE>
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of FloridaCo Common Stock or
DelawareCo Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in DelawareCo Common Stock. All shares
of FloridaCo Common Stock issued upon the surrender for exchange of shares of
DelawareCo Common Stock in accordance with the terms hereof, and any cash paid
in respect thereof, shall be deemed to be full satisfaction of all rights
pertaining to such shares of DelawareCo Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of DelawareCo Common Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, DelawareCo Stock Certificates
are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Section 1.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of DelawareCo Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such amount, if any, as may be required pursuant to
Section 1.6; provided, however, that FloridaCo may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificates to deliver a bond or indemnity in such sum as
it may reasonably direct against any claim that may be made against FloridaCo or
the Exchange Agent with respect to the certificates alleged to have been lost,
stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger will constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended. Each party has consulted with its own
tax advisors with respect to the tax consequences of the Merger.
1.11 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of DelawareCo, the officers and directors of DelawareCo
and FloridaCo are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action.
2. REPRESENTATIONS AND WARRANTIES OF FLORIDACO
FloridaCo hereby represents and warrants to DelawareCo, subject to such
exceptions as are specifically disclosed in the FloridaCo Disclosure Schedule
(referencing the appropriate Section and paragraph numbers) supplied by
FloridaCo to DelawareCo (the "FloridaCo Disclosure Schedule") and dated as of
the date hereof, as follows:
3
<PAGE>
2.1 Organization of FloridaCo. Each of FloridaCo and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida and Delaware, respectively. Each has the corporate power
to own its properties and to carry on its business as proposed to be conducted
following the Effective Date. FloridaCo is duly qualified to do business and in
good standing as a foreign corporation in each jurisdiction in which the failure
to be so qualified could have a material adverse effect on the business, assets
(including intangible assets), condition (financial or otherwise), results of
operations or prospects of FloridaCo (hereinafter referred to as a "Material
Adverse Effect"). DelawareCo has delivered a true and correct copy of its
Articles of Incorporation and Bylaws and the Certificate of Incorporation and
Bylaws of Sub, each as amended to date, to DelawareCo. Messrs. John Jones,
Jasbir Dhaliwal, and Richard Stewart are all of the directors of FloridaCo.
FloridaCo has two officers. Mr. John Jones holds the office of President of
FloridaCo. Mr. Patrick McGrath holds the offices of Corporate Secretary and
Chief Financial Officer of FloridaCo. Mr. John Jones is the sole director and
officer of Sub. Neither FloridaCo nor Sub has ever has never conducted any
operations.
FloridaCo Capital Structure.
(a) The authorized capital stock of FloridaCo consists of
50,000,000 shares of authorized Common Stock, par value $0.001 per share, of
which 7,000,000 shares are issued. All outstanding shares of FloridaCo Common
Stock are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, the Articles of Incorporation
or Bylaws of FloridaCo or any agreement to which FloridaCo is a party or by
which it is bound and have been issued in compliance with federal and state
securities laws. FloridaCo has no other capital stock authorized, issued or
outstanding.
(b) There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which FloridaCo or any of its
shareholders is a party or by which FloridaCo or any of its shareholders is
bound obligating FloridaCo or any of its shareholders to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of FloridaCo or obligating FloridaCo
to grant, extend, accelerate the vesting of, change the price of, otherwise
amend or enter into any such option warrant, call, right, commitment or
agreement. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or other similar rights with respect to FloridaCo.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting stock of FloridaCo.
(c) The shares of FloridaCo Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid, non-assessable.
(d) The FloridaCo Common Stock has been duly approved for
quotation on the OTC Bulletin Board maintained by the National Association of
Securities Dealers.
2.2 Subsidiaries. FloridaCo does not have, and has never had, any
subsidiaries or affiliated companies other than Sub and does not otherwise own,
and has not otherwise owned, any shares in the capital of or any interest in, or
control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity. FloridaCo owns all of the
outstanding securities of Sub.
4
<PAGE>
2.3 Authority. FloridaCo, and Sub have all requisite power and
authority to enter into this Agreement and any Related Agreements (as
hereinafter defined) to which they are a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and any Related Agreements to which they are a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of FloridaCo and Sub,
and no further action is required on the part of FloridaCo or Sub to authorize
the Agreement, any Related Agreements to which it they are a party and the
transactions contemplated hereby and thereby. This Agreement and any Related
Agreements to which FloridaCo and Sub are a party have been duly executed and
delivered by FloridaCo or Sub, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of FloridaCo or Sub, as the case may
be, enforceable in accordance with their respective terms, subject to the laws
of general application relating to bankruptcy, insolvency and the relief of
debtors, and to rules of law governing specific performance, injunctive relief
or other equitable remedies. The "Related Agreements" shall mean all such
ancillary agreements required in this Agreement to be executed and delivered in
connection with the transactions contemplated hereby.
2.4 Conflict. The execution and delivery of this Agreement and any
Related Agreements to which they are a party by FloridaCo and Sub do not, and,
the consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Articles
of Incorporation and Bylaws of FloridaCo or Sub, (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise
or license to which FloridaCo or Sub or any of their respective properties or
assets are subject, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to FloridaCo or Sub or their respective
properties or assets.
2.5 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party, including a party to any agreement with FloridaCo or Sub (so as not
to trigger any Conflict), is required by or with respect to FloridaCo or Sub in
connection with the execution and delivery of this Agreement and any Related
Agreements to which FloridaCo or Sub are a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws thereby, and (ii)
the filing of the Merger Articles with the Secretary of State of the Delaware.
2.6 FloridaCo Financial Statements. FloridaCo has provided DelawareCo
with a copy of it's audited balance sheets as of July 22, 1998, December 31,
1997 and December 31, 1996 and the related audited statements of operations,
stockholders' equity and cash flow for the periods then ended (the "Audited
Financials"). The Audited Financials are correct in all material respects and
have been prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated. The Audited Financials present fairly the
financial condition, operating results and cash flows of FloridaCo as of the
dates and during the periods indicated therein.
5
<PAGE>
2.7 No Undisclosed Liabilities. FloridaCo and Sub do not have any
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with GAAP).
2.8 No Changes. Since inception of FloridaCo, there has not been,
occurred or arisen any:
(a) transaction, commitment or obligation by FloridaCo of any
kind other than the stock issuances described in paragraph (b) hereof;
(b) issuance or sale, or contract to issue or sell, by FloridaCo
of any shares of FloridaCo Common Stock, or securities exchangeable, convertible
or exercisable therefor, or any securities, warrants, options or rights to
purchase any of the foregoing, except for the issuance of 7,000,000 shares of
FloridaCo Common Stock;
(c) negotiation or agreement by FloridaCo or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
or (b) (other than negotiations with DelawareCo and its representatives
regarding the transactions contemplated by this Agreement).
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which FloridaCo is a party or otherwise binding upon FloridaCo which has or may
have the effect of prohibiting or impairing any business practice of FloridaCo
or the Surviving Corporation, any acquisition of property (tangible or
intangible) by FloridaCo or the Surviving Corporation or the conduct of business
by FloridaCo or the Surviving Corporation.
2.10 Agreements, Contracts and Commitments. FloridaCo is not a party
to nor is it bound by any contracts, obligations or agreements or any kind.
FloridaCo is in compliance with and has not breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under, any
of the terms or conditions of any agreement, contract, covenant, instrument,
lease, license or commitment to which FloridaCo is a party or by which it is
bound (collectively a "Contract"), nor is FloridaCo aware of any event that
would constitute such a breach, violation or default with the lapse of time,
giving of notice or both. FloridaCo has obtained, or will obtain prior to the
Closing Date, all necessary consents, waivers and approvals as are required in
connection with the Merger.
2.11 Litigation. There is no action, suit or proceeding of any nature
pending, or, to FloridaCo's knowledge, threatened, against FloridaCo, its
properties or any of its officers or directors, nor, to the knowledge of
FloridaCo, is there any reasonable basis therefor. There is no investigation
pending or, to FloridaCo's knowledge threatened, against FloridaCo, its
properties or any of its officers or directors (nor, to the best knowledge of
FloridaCo, is there any reasonable basis therefor) by or before any Governmental
Entity. No Governmental Entity has at any time challenged or questioned the
legal right of FloridaCo or any subsidiary to conduct its operations as
presently or previously conducted.
2.12 Minute Books. The minutes of FloridaCo made available to counsel
for DelawareCo are the only minutes of FloridaCo and contain a reasonably
accurate summary of all meetings of the Board of Directors (or committees
thereof) of FloridaCo and its shareholders or actions by written consent since
the time of incorporation of FloridaCo.
6
<PAGE>
2.13 Brokers' and Finders' Fees: Third Party Expenses. FloridaCo has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreement or any transaction contemplated hereby.
2.14 Compliance with Laws. FloridaCo has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation.
2.15 Complete Copies of Materials. FloridaCo has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by DelawareCo or its counsel.
2.16 Representations Complete. None of the representations or
warranties made by FloridaCo or Sub (as modified by the FloridaCo Disclosure
Schedule), nor any statement made in any Schedule or certificate furnished by
FloridaCo or Sub pursuant to this Agreement or finished in or in connection with
documents mailed or delivered to the shareholders of FloridaCo for use in
soliciting their consent to this Agreement and the Merger contains or will
contain at the Effective Time, any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
3. REPRESENTATIONS AND WARRANTIES OF DELAWARECO.
DelawareCo represents and warrants to FloridaCo as follows:
3.1 Organization Standing and Power. DelawareCo is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. DelawareCo has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the ability of DelawareCo to consummate
the transactions contemplated hereby.
3.2 Authority. DelawareCo has all requisite corporate power and
authority to enter into this Agreement and the Related Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of DelawareCo except that the Merger
must be approved by the stockholders of DelawareCo. This Agreement has been duly
executed and delivered by DelawareCo and constitutes, and the Related
Agreements, when duly executed and delivered by DelawareCo, will constitute the
valid and binding obligations of DelawareCo, enforceable in accordance with
their terms, except as such enforceability may be limited by principles of
public policy and subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.3 Capital Structure.
7
<PAGE>
(a) The authorized stock of DelawareCo consists of 1,000 shares
of Common Stock, $0.01 par value, of which 100 shares are issued and
outstanding. All outstanding shares of DelawareCo Common Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
DelawareCo or any agreement to which DelawareCo is a party or by which it is
bound and have been issued in compliance with federal and state securities laws.
DelawareCo has no other capital stock authorized, issued or outstanding.
(b) There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which DelawareCo or any of its
shareholders is a party or by which FloridaCo or any of its shareholders is
bound obligating DelawareCo or any of its shareholders to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of DelawareCo or obligating DelawareCo
to grant, extend, accelerate the vesting of, change the price of, otherwise
amend or enter into any such option warrant, call, right, commitment or
agreement. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or other similar rights with respect to DelawareCo.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting stock of DelawareCo. .
3.4 Conflict. The execution and delivery of this Agreement and any
Related Agreements to which it is a party by DelawareCo do not, and, the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Articles
of Incorporation and Bylaws of DelawareCo, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or
license to which DelawareCo or any of its properties or assets are subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to DelawareCo or its properties or assets.
3.5 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party, including a party to any agreement with DelawareCo (so as not to
trigger any Conflict), is required by or with respect to DelawareCo in
connection with the execution and delivery of this Agreement and any Related
Agreements to which DelawareCo is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws thereby, and (ii)
the filing of the Merger Articles with the Secretary of State of the Delaware.
3.6 DelawareCo Financial Statements. DelawareCo has furnished
FloridaCo with a true and complete copy of its unaudited balance sheet as of
April 30, 1999, (the "DelawareCo Financials"). The DelawareCo Financials present
fairly the financial condition of DelawareCo as of the date indicated therein,
subject, to year-end adjustments.
3.7 Restrictions on Business Activities. Other than license and other
restrictions included in agreements entered into in the ordinary course of
business, there is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which DelawareCo is a party or otherwise binding
upon DelawareCo which has or may have the effect of prohibiting or impairing any
business practice of DelawareCo or the Surviving Corporation, any acquisition of
property (tangible or intangible) by DelawareCo or the Surviving Corporation or
the conduct of business by DelawareCo or the Surviving Corporation.
8
<PAGE>
3.8 Agreements, Contracts and Commitments. DelawareCo is in compliance
with and has not breached, violated or defaulted under, or received notice that
it has breached, violated or defaulted under, any of the terms or conditions of
any agreement, contract, covenant, instrument, lease, license or commitment to
which DelawareCo is a party or by which it is bound (collectively a "Contract"),
nor is DelawareCo aware of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or both.
DelawareCo has obtained, or will obtain prior to the Closing Date, all necessary
consents, waivers and approvals as are required in connection with the Merger.
3.9 Litigation. There is no action, suit or proceeding of any nature
pending, or, to DelawareCo's knowledge, threatened, against DelawareCo, its
properties or any of its officers or directors, nor, to the knowledge of
DelawareCo, is there any reasonable basis therefor. There is no investigation
pending or, to DelawareCo's knowledge threatened, against DelawareCo, its
properties or any of its officers or directors (nor, to the best knowledge of
DelawareCo, is there any reasonable basis therefor) by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of DelawareCo to conduct its operations as presently
or previously conducted.
3.10 Minute Books. The minutes of DelawareCo made available to counsel
for FloridaCo are the only minutes of DelawareCo and contain a reasonably
accurate summary of all meetings of the Board of Directors (or committees
thereof) of DelawareCo and its shareholders or actions by written consent since
the time of incorporation of DelawareCo.
3.11 Brokers' and Finders' Fees: Third Party Expenses. DelawareCo has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreement or any transaction contemplated hereby.
3.12 Compliance with Laws. DelawareCo has complied with in all
material respects, is not in violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation.
3.13 Complete Copies of Materials. DelawareCo has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by FloridaCo or its counsel.
3.14 Representations Complete. None of the representations or
warranties made by DelawareCo (as modified by the DelawareCo Disclosure
Schedule), nor any statement made in any Schedule or certificate furnished by
DelawareCo pursuant to this Agreement or finished in or in connection with
documents mailed or delivered to the shareholders of DelawareCo for use in
soliciting their consent to this Agreement and the Merger contains or will
contain at the Effective Time, any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
4. CONDUCT PRIOR TO THE EFFECTIVE TIME.
4.1 Conduct of Business of DelawareCo. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, DelawareCo agrees that it shall not:
9
<PAGE>
(a) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities except if in connection therewith, it negotiates a
proportionate adjustment in the Exchange Ratio.
(b) cause or permit any amendments to its Articles of
Incorporation or Bylaws; or
(c) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1 above, or any other action that would prevent
DelawareCo from performing or cause DelawareCo not to perform its covenants
hereunder.
4.2 Conduct of Business of FloridaCo. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, FloridaCo agrees that it shall not:
(a) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities except if in connection therewith, it negotiates a
proportionate adjustment in the Exchange Ratio;
(b) enter into any contract, arrangement or obligation of any
kind;
(c) cause or permit any amendments to its Articles of
Incorporation or Bylaws; or
(d) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.2 above, or any other action that would prevent
FloridaCo from performing or cause FloridaCo not to perform its covenants
hereunder.
5. ADDITIONAL AGREEMENTS.
5.1 Sale of Shares. The parties hereto acknowledge and agree that the
shares of FloridaCo Common Stock issuable to the stockholders of DelawareCo
pursuant to Section 1.6 (the "Merger Shares") shall constitute "restricted
securities" within the meaning of the Securities Act. The certificates for the
Merger Shares shall bear appropriate legends to identify such privately placed
shares as being restricted under the Securities Act, to comply with applicable
state securities laws and, if applicable, to notice the restrictions on transfer
of such shares.
5.2 Stockholder Approval. DelawareCo and FloridaCo shall promptly
submit this Agreement and the transactions contemplated hereby to their
stockholders for approval and adoption as required by law.
10
<PAGE>
5.3 Access to Information. Each party shall afford the other and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of such
party's properties, books, contracts, commitments and records and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of such party as the other may
reasonably request. No information or knowledge obtained in any investigation
pursuant to this Section shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the parties
to consummate the Merger.
5.4 Confidentiality. Each party acknowledges that in the course of the
performance of this Agreement, it may obtain the Confidential Information of the
other party. The Receiving Party shall, at all times, both during the term of
this Agreement and thereafter, keep in confidence and trust all of the
Disclosing Party's Confidential Information received by it. The Receiving Party
shall not use the Confidential Information of the Disclosing Party other than as
expressly permitted under the terms of this Agreement or by a separate written
agreement. The Receiving Party shall take all reasonable steps to prevent
unauthorized disclosure or use of the Disclosing Party's Confidential
Information and to prevent it from falling into the public domain or into the
possession of unauthorized persons. The Receiving Party shall not disclose
Confidential Information of the Disclosing Party to any person or entity other
than its officers or employees (or outside legal, financial or accounting
advisors) who need access to such Confidential Information in order to effect
the intent of this Agreement and who have entered into confidentiality
agreements with such person's employer or who are subject to ethical
restrictions on disclosure which protects the Confidential Information of the
Disclosing Party. The Receiving Party shall immediately give notice to the
Disclosing Party of any unauthorized use or disclosure of Disclosing Party's
Confidential Information. The Receiving Party agrees to assist the Disclosing
Party to remedy such unauthorized use or disclosure of its Confidential
Information. These obligations shall not apply to the extent that Confidential
Information includes information which:
(a) is already known to the Receiving Party at the time of
disclosure, which knowledge the Receiving Party shall have the burden of
proving;
(b) is, or through no act or failure to act of the Receiving
Party becomes, publicly known;
(c) is received by the Receiving Party from a third party without
restriction on disclosure (although this exception shall not apply if such third
party is itself violating a confidentiality obligation by making such
disclosure);
(d) is independently developed by the Receiving Party without
reference to the Confidential Information of the Disclosing Party, which
independent development the Receiving Party will have the burden of proving;
(e) is approved for release by written authorization of the
Disclosing Party; or
(f) is required to be disclosed by a Government Body to further
the objectives of this Agreement or by a proper order of a court of competent
jurisdiction; provided, however that the Receiving Party will use its best
efforts to minimize such disclosure and will consult with and assist the
Disclosing Party in obtaining a protective order prior to such disclosure.
11
<PAGE>
5.5 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
5.6 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by FloridaCo and DelawareCo prior to release, provided that such
approval shall not be unreasonably withheld.
5.7 Consents. Each party shall use its best efforts to obtain the
consents, waivers and approvals as may be required in connection with the Merger
so as to preserve all rights of, and benefits to, such party following the
Merger.
5.8 Reasonable Effort. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to complete and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement.
5.9 Notification of Certain Matters. Each party shall give prompt
notice to the other of (i) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of such party contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of such party to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.10 Additional Documents and Further Assurances. Each party hereto,
at the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
6. CONDITIONS TO THE MERGER.
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
12
<PAGE>
(b) Governmental Approval. Approvals from Governmental Entities
(if any) deemed appropriate or necessary by any party to this Agreement shall
have been timely obtained.
(c) Litigation. There shall be no bona fide action, suit, claim
or proceeding of any nature pending, or overtly threatened, against the
FloridaCo or DelawareCo, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement.
(d) Strategic Alliance Agreement: Ecommerce, Marketing and
Operations. The Strategic Alliance Agreement: Ecommerce, Marketing and
Operations between DelawareCo and PLIC, Inc. dated February 4, 1999, will be in
good standing and will not be canceled or compromised as a result of the
proposed change of control of DelwareCo as a result of this Agreement.
6.2 Additional Conditions to Obligations of DelawareCo. The
obligations of DelawareCo to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by DelawareCo:
(a) Representations, Warranties and Covenants. The
representations and warranties of FloridaCo and Sub in this Agreement shall be
true and correct in all material respects on and as of the Effective Time as
though such representations and warranties were made on and as of such time and
each of FloridaCo and Sub shall have performed and complied in all material
respects with all covenants and obligations of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) of any kind which may adversely affect the
consummation of the transactions contemplated hereby or the business, assets
(including intangible assets), financial condition or results of operations of
FloridaCo or DelawareCo.
(c) Certificate of President. DelawareCo shall have been provided
with a certificate executed on behalf of FloridaCo by its President to the
effect that, as of the Effective Time:
(i) all representations and warranties made by the FloridaCo
and Sub in this Agreement are true and correct in all material respects;
(ii) all covenants and obligations of this Agreement to be
performed by the FloridaCo and Sub on or before such date have been so performed
in all material respects.
(iii) the conditions set forth in Section 6.1 and 6.2 have
been satisfied.
6.3 Additional Conditions to the Obligations of FloridaCo. The
obligations of FloridaCo to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by FloridaCo:
13
<PAGE>
(a) Representations, Warranties and Covenants. The
representations and warranties of DelawareCo in this Agreement shall be true and
correct in all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of the Effective Time and
DelawareCo shall have performed and complied in all material respects with all
covenants and obligations of this Agreement required to be performed and
complied with by it as of the Effective Time.
(b) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a material
adverse effect on DelawareCo.
(c) Third Party Consents. Any and all consents, waivers, and
approvals required by DelawareCo shall have been obtained.
(d) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), results of operations, liabilities (contingent or accrued), financial
condition or prospects of DelawareCo since the date of this Agreement.
(e) Certificate of DelawareCo. FloridaCo shall have been provided
with a certificate executed on behalf of DelawareCo by its President to the
effect that, as of the Effective Time:
(i) all representations and warranties made by DelawareCo in
this Agreement are true and correct in all material respects; and
(ii) all covenants and obligations of this Agreement to be
performed by DelawareCo on or before such date have been so performed in all
material respects.
(iii) the provisions set forth in Section 6.3 have been
satisfied.
(f) Officers and Directors. The officers and directors of
DelawareCo, other than Mr. Richard Stewart, shall have submitted written
resignations effective as of the Closing and the officers and directors of
FloridaCo shall have been appointed as the officers and directors of the
Surviving Corporation effective as of the Closing.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
7.1 Survival of Representations and Warranties. FloridaCo's and Sub's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate on the sixth (6) month anniversary of
the Effective Time; provided, however, that the representations and warranties
relating or pertaining to any Tax or Returns related to such Tax set forth in
Section 2 hereof, shall survive until the expiration of all applicable statutes
of limitations, or extensions thereof, governing each Tax or Returns related to
such Tax.
14
<PAGE>
7.2 Indemnity. FloridaCo agrees to indemnify and hold DelawareCo and
its stockholders prior to the Effective Time (the "DelawareCo Stockholders"),
and the officers, directors and affiliates of DelawareCo harmless against all
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses of investigation and defense
(hereinafter individually a "Loss" and collectively "Losses") incurred by
FloridaCo, DelawareCo, the DelawareCo stockholders or the Surviving Corporation,
or its officers, directors, or affiliates, directly or indirectly as a result of
(i) any inaccuracy or breach of a representation or warranty of FloridaCo or Sub
contained in this Agreement, or (ii) any failure by FloridaCo or Sub to perform
or comply with any covenant contained in this Agreement. The shareholders of
FloridaCo shall not have any right of contribution from FloridaCo with respect
to any Loss claimed after the Effective Time. Nothing herein shall limit the
liability of FloridaCo or Sub for any breach of any representation, warranty or
covenant if the Merger does not close.
7.315 Indemnity Claims. In the event of any Loss, FloridaCo or the
DelawareCo Representative, as hereinafter defined, shall deliver to the
Shareholder Representative a certificate signed by any officer of FloridaCo or
the DelawareCo Representative (an "Officer's Certificate"): (A) stating that
FloridaCo has paid or properly accrued or reasonably anticipates that it will
have to pay or accrue Losses, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to which
such item is related. In the event such claim is not contested by the
Shareholder Representative, FloridaCo shall promptly issue to the DelawareCo
Stockholders, in proportion to the number of shares of DelawareCo Common Stock
held by each immediately prior to the Effective Time, new shares of FloridaCo
Common Stock with an aggregate value equal to such Losses. For the purposes of
determining the number of shares of FloridaCo Common Stock to be delivered as
indemnity pursuant to this Section 7, the shares of FloridaCo Common Stock shall
be valued at US$ 1.00 per share.
7.4 Objections to Claims. For a period of thirty (30) days after
delivery of an Officer's Certificate to the Shareholder Representative,
FloridaCo shall make no delivery to the DelawareCo Stockholders of any new
FloridaCo Common Stock unless FloridaCo shall have received written
authorization from the Shareholder Representative to make such delivery. After
the expiration of such thirty (30) day period, FloridaCo shall make delivery of
shares of FloridaCo Common Stock in accordance with Section 7.3 hereof,
provided, however, that no such delivery may be made if the Shareholder
Representative shall object in a detailed written statement to the claim made in
the Officer's Certificate, and such statement shall have been delivered to
FloridaCo prior to the expiration of such thirty (30) day period.
7.5 Resolution of Conflicts; Arbitration.
(a) In case the Shareholder Representative shall object in
writing to any claim or claims made in any Officer's Certificate within thirty
(30) days after delivery of such Officer's Certificate, the Shareholder
Representative and the DelawareCo Representative shall attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholder Representative and the DelawareCo Representative
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties.
15
<PAGE>
(b) If no such agreement can be reached after good faith
negotiation, either the Shareholder Representative or the DelawareCo
Representative may demand arbitration of the matter unless the amount of the
damage or Loss is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator mutually agreeable to the
DelawareCo Representative and the Shareholder Representative. In the event that
within forty-five (45) days after submission of any dispute to arbitration, the
DelawareCo Representative and the Shareholder Representative cannot mutually
agree on one arbitrator the DelawareCo Representative and the Shareholder
Representative shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The arbitrator or arbitrators, as the
case may be, shall set a limited time period and establish procedures designed
to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator or majority of the
three arbitrators, as the case may be, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator or a
majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the extent as a competent court of law
or equity, should the arbitrators or a majority of the three arbitrators, as the
case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator(s).
(c) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Bellevue, Washington, under the rules then in effect of the American Arbitration
Association. The arbitrator(s) shall determine how all expenses relating to the
arbitration shall be paid, including without limitation, the respective expenses
of each party, the fees of each arbitrator and the administrative fee of the
American Arbitration Association.
7.6 Third-Party Claims. In the event the DelawareCo Representative
becomes aware of a third-party claim which FloridaCo believes may result in a
Claim, the DelawareCo Representative shall notify the Shareholder Representative
of such claim, and the Shareholder Representative shall be entitled, at its
expense, to participate in, but not to determine or conduct, the defense of such
claim. FloridaCo shall have the right in its sole discretion to conduct the
defense of and settle any such claim; provided, however, that except with the
consent of the Shareholder Representative, no settlement of any such claim with
third-party claimants shall be determinative of the number of shares issuable
pursuant to Section 7.3. In the event that the Shareholder Representative has
consented to any such settlement, the shareholders of FloridaCo shall have no
power or authority to object to the amount of any claim by the DelawareCo
Stockholders with respect to such settlement.
16
<PAGE>
7.7 Shareholder Representative.
(a) In the event that the Merger is approved, effective upon such
vote, and without further act of any shareholder of FloridaCo, John Jones shall
be appointed as agent and attorney-in-fact (the "Shareholder Representative")
for each such shareholder, for and on behalf of shareholders, to give and
receive notices and communications, to authorize delivery to the DelawareCo
Stockholders of shares of FloridaCo Common Stock in satisfaction of Claims, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Shareholder Representative for
the accomplishment of the foregoing. Such agency may be changed by the
shareholders of FloridaCo prior to the Effective Time (the "FloridaCo
Shareholders") from time to time upon not less than thirty (30) days prior
written notice to FloridaCo; provided, however, that the Shareholder
Representative may not be removed unless holders of a two-thirds interest of the
FloridaCo Shareholders agree to such removal and to the identity of the
substituted agent. Any vacancy in the position of Shareholder Representative may
be filled by approval of the holders of a majority in interest of the FloridaCo
Shareholders. No bond shall be required of the Shareholder Representative, and
the Shareholder Representative shall not receive compensation for his or her
services. Notices or communications to or from the Shareholder Representative
shall constitute notice to or from each of the FloridaCo Shareholders.
(b) A decision, act, consent or instruction of the Shareholder
Representative shall be final, binding and conclusive upon each of the FloridaCo
Shareholders, and FloridaCo may rely upon any such decision, act, consent or
instruction of the Shareholder Representative.
7.8 DelawareCo Representative.
(a) In the event that the Merger is approved, effective upon such
vote, and without further act of any shareholder of DelawareCo, Gary Becker
shall be designated as the representative of the holders of DelawareCo Common
Stock outstanding prior to the Effective Time (the "DelawareCo Representative").
The DelawareCo Representative shall be appointed as agent and attorney-in-fact
for each such stockholder, for and on behalf of stockholders, to give and
receive notices and communications, to approve any resolution of any matter with
respect to any Losses, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the DelawareCo Representative for
the accomplishment of the foregoing. Such agency may be changed by the
DelawareCo Stockholders from time to time upon not less than thirty (30) days
prior written notice to the Shareholder Representative and FloridaCo; provided,
however, that the DelawareCo Representative may not be removed unless holders of
a two-thirds interest of the DelawareCo Stockholders agree to such removal and
to the identity of the substituted agent. Any vacancy in the position of
Stockholder Representative may be filled by approval of the holders of a
majority in interest of the DelawareCo Stockholders. No bond shall be required
of the DelawareCo Representative, and the DelawareCo Representative shall not
receive compensation for his or her services. Notices or communications to or
from the DelawareCo Representative shall constitute notice to or from each of
the DelawareCo Stockholders.
17
<PAGE>
(b) A decision, act, consent or instruction of the DelawareCo
Representative shall be final, binding and conclusive upon each of the
DelawareCo Stockholders, and FloridaCo and may rely upon any such decision, act,
consent or instruction of the DelawareCo Representative.
(c) Without limiting the authority of the DelawareCo
Representative as granted above, the holders of a majority of the shares held by
the DelawareCo Stockholders shall have the right, on behalf of all of the
DelawareCo Stockholders, to amend or waive any rights of the DelawareCo
Stockholders under this Section 7.
8. TERMINATION, AMENDMENT AND WAIVER.
8.1 Termination. Except as provided in Section 8.2, this Agreement may
be terminated and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual consent of DelawareCo and FloridaCo;
(b) by FloridaCo or DelawareCo if (i) the Effective Time has not
occurred by May 20, 1999; (ii) there shall be a final non-appealable order of a
federal or state court in effect preventing consummation of the Merger; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity that would
make consummation of the Merger illegal;
(c) by either party if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would: (i) prohibit
FloridaCo' ownership or operation of any portion of the business of DelawareCo
or (ii) compel FloridaCo or DelawareCo to dispose of or hold separate all or a
portion of the business or assets of DelawareCo or FloridaCo as a result of the
Merger;
(d) by DelawareCo if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of FloridaCo or Sub and such breach has not been cured within ten (10)
calendar days after written notice to FloridaCo; provided, however, that, no
cure period shall be required for a breach which by its nature cannot be cured;
(e) by FloridaCo if neither it nor Sub is in material breach of
their respective obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of DelawareCo and such breach has not been cured within
ten (10) calendar days after written notice to DelawareCo; provided, however,
that no cure period shall be required for a breach which by its nature cannot be
cured.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
18
<PAGE>
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of FloridaCo or
DelawareCo, or their respective officers, directors or shareholders, provided
that each party shall remain liable for any breaches of this Agreement prior to
its termination; provided further that, the provisions of Sections 5.4, 5.5 and
5.6, Section 9 and this Section 8.2 shall remain in full force and effect and
survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time,
FloridaCo and DelawareCo may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations of the other party hereto, (ii)
waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
9. GENERAL PROVISIONS.
9.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice), provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to FloridaCo to:
Venture Law Corporation
688 West Hastings Street, Suite 618
Vancouver, BC, V6B 1P1
Attention: Alixe B. Cormick
Telephone No.: (604) 659-9188
Facsimile No.: (604) 659-9178
(b) if to DelawareCo or the DelawareCo Representative, to:
Shopping Sherlock, Inc.
(A Delaware Corporation)
5837 Pleasure Point Lane
Bellevue, Washington 98006
Telephone No.:(206) 232-8395
Facsimile No.: (206) 232-3203
19
<PAGE>
with a copy to:
The Law Offices of John Feldsted, Esquire
1875 Century Park East, Suite 800
Los Angeles, California 90067
Attention: John Feldsted, Esq.
Telephone No: (310) 557-2750
Facsimile No.: (310) 557-2758
9.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto
and the documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral among the parties with respect to the
subject matter hereof, (b) are not intended to confer upon any other person any
rights or remedies hereunder; and (c) shall not be assigned by operation of law
or otherwise.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within Santa Clara County, State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction, venue and such process.
20
<PAGE>
9.8 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefor, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
IN WITNESS WHEREOF, the Parties are deemed to have executed this Agreement
as of the Effective Date.
SHOPPING SHERLOCK, INC. SHOPPING SHERLOCK, INC.
(a Delaware corporation) (a Florida corporation)
"Gary Becker" "John Jones"
- -------------------------------- ---------------------------------------
By: Gary Becker By: John Jones
SHOPPING ACQUISITION CORP.
(a Delaware corporation)
"John Jones"
---------------------------------------
By: John Jones
ARTICLES OF INCORPORATION
OF
AIDA INDUSTRIES, INC.
ARTICLE I
CORPORATE NAME
The Name of the Corporation is:
AIDA INDUSTRIES, INC.
ARTICLE II
PURPOSE OF THE BUSINESS
The Corporation may engage in or transact any or all activity permitted
under the laws of the United States and of the State of Florida.
ARTICLE III
CAPITAL STOCK
The Corporation is authorized to issue and have outstanding at any one
time an aggregate number of One Hundred (100) shares of one class of common
stock having a par value of One Dollar ($1.00) per share. The consideration to
be paid for each share of stock shall be fixed by the Board of Directors.
ARTICLE IV
PREEMPTIVE RIGHTS
All shareholders of the Corporation shall be vested with full
preemptive rights.
ARTICLE V
INITIAL REGISTERED AGENT
AND INITIAL REGISTERED OFFICE
The Corporation's Initial Registered Agent and Registered Office in the
State of Florida are:
INITIAL REGISTERED AGENT: Stephen S. Nuell
INITIAL REGISTERED OFFICE: 2319 West Flagler Street
Miami, Florida 33135
<PAGE>
ACKNOWLEDGMENT AND CONSENT
OF REGISTERED AGENT
Having been named Initial Registered Agent to accept Service of process
on the Corporation at the Initial Registered Office designated in these Articles
of Incorporation, I hereby accept such status and consent to act in this
capacity and agree to comply with all the requirements of law pertaining
thereto.
/s/ Stephen S. Nuell
STEPHEN S. NUELL
ARTICLE VI
INITIAL BOARD OF DIRECTORS
The number of Directors constituting the initial Board of Directors of
the Corporation is two (2).
ARTICLE VII
INITIAL DIRECTORS
The names and addresses of the members of the Initial Board of
Directors are:
STEPHEN S. NUELL ROBERT HEDEMAN
2319 West Flagler Street 7840 Camino Real
Miami, Florida 33135 Miami, Florida 33143
ARTICLE VIII
INCORPORATOR
The name and address of the Incorporator executing these Articles of
Incorporation is:
INCORPORATOR:
STEPHEN S. NUELL
2319 West Flagler Street
Miami, Florida 33135
By: /s/ Stephen S. Nuell
STEPHEN S. NUELL
Incorporator
<PAGE>
STATE OF FLORIDA )
) ss.
COUNTY OF DADE )
BEFORE ME, personally appeared STEPHEN S. NUELL, to me well known and
known to me to be the person described in and who executed the foregoing
instrument and acknowledges to and before me that he executed said instrument
for the purpose therein expressed.
WITNESS my hand and official seal this 16th day of August 1984.
/s/ illegible
Notary Public
My Commission Expires:
<PAGE>
ARTICLES OF AMENDMENT
TO
AIDA INDUSTRIES, INC.
THE UNDERSIGNED, being the sole director and president of AIDA
Industries, Inc., does hereby amend its Articles of Incorporation as follows:
ARTICLE I
CORPORATE NAME
The name of the Corporation is AIDA Industries, Inc.
ARTICLE II
PURPOSE
The Corporation shall be organized for any and all purposes authorized
under the laws of the state of Florida.
ARTICLE III
PERIOD OF EXISTENCE
The period during which the Corporation shall continue is perpetual.
ARTICLE IV
SHARES
The capital stock of this corporation shall consist of 50,000,000
shares of common stock, $.001 value.
ARTICLE V
PLACE OF BUSINESS
The address of the principal place of business of this corporation in
the State of Florida shall be 7695 SW 104th Street, Suite 210, Miami, FL 33156.
The Board of Directors may at any time and from time to time move the principal
office of this corporation.
ARTICLE VI
DIRECTORS AND OFFICERS
The business of this corporation shall be managed by its Board of
Directors. The number of such directors shall not be less than one (1) and,
subject to such minimum may be increased or decreased from time to time in the
manner provided in the By-Laws.
<PAGE>
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No shareholder shall have any right to acquire shares or other
securities of the Corporation except to the extent such right may be granted by
an amendment to these Articles of Incorporation or by a resolution of the board
of Directors.
ARTICLE VIII
AMENDMENT OF BYLAWS
Anything in these Articles of Incorporation, the Bylaws, or the Florida
Corporation Act notwithstanding, bylaws shall not be adopted, modified, amended
or repealed by the shareholders of the Corporation except upon the affirmative
vote of a simple majority vote of the holders of all the issued and outstanding
shares of the corporation entitled to vote thereon.
ARTICLE IX
SHAREHOLDERS
9.1. Inspection of Books. The board of directors shall make reasonable
rules to determine at what times and places and under what conditions the books
of the Corporation shall be open to inspection by shareholders or a duly
appointed representative of a shareholder.
9.2. Control Share Acquisition. The provisions relating to any control
share acquisition as contained in Florida Statutes now, or hereinafter amended,
and any successor provision shall not apply to the Corporation.
9.3. Quorum. The holders of shares entitled to one-third of the votes
at a meeting of shareholders shall constitute a quorum.
9.4. Required Vote. Acts of shareholders shall require the approval
of holders of 50.01% of the outstanding votes of shareholders.
ARTICLE X
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the fullest extent permitted by law, no director or officer of the
Corporation shall be personally liable to the Corporation or its shareholders
for damages for breach of any duty owed to the Corporation or its shareholders.
In addition, the Corporation shall have the power, in its By-Laws or in any
resolution of its stockholders or directors, to undertake to indemnify the
officers and directors of this corporation against any contingency or peril as
may be determined to be in the best interests of this Corporation, and in
conjunction therewith, to procure, at this Corporation's expense, policies of
insurance.
<PAGE>
ARTICLE XI
CONTRACTS
No contract or other transaction between this Corporation and any
person, firm or corporation shall be affected by the fact that any officer or
director of this Corporation is such other party or is, or at some time in the
future becomes, an officer, director or partner of such other contracting party,
or has now or hereafter a direct or indirect interest in such contract.
I hereby certify that the following was adopted by a majority vote of
the shareholders and directors of the corporation on July 20, 1998 and that the
number of votes cast was sufficient for approval.
IN WITNESS WHEREOF, I have hereunto subscribed to and executed this
Amendment to Articles of Incorporation this on July 20, 1998.
/s/ Eric P. Littman
Eric P. Littman, Sole Director
The foregoing instrument was acknowledged before me on July 20, 1998,
by Eric P. Littman, who is personally known to me.
/s/ Isabel J. Cantera
Notary Public
My Commission Expires: February 25, 1999
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AIDA INDUSTRIES, INC.
Pursuant to the provisions of Section 607.1006, Florida Statutes, this
Florida profit corporation adopts the following articles of amendment to its
articles of incorporation:
FIRST: Amendment adopted:
Article I is hereby amended to read as follows:
The name of this corporation is Shopping Sherlock, Inc.
SECOND: There is no change to the capital of the corporation.
THIRD: This amendment was adopted on March 12, 1999.
FOURTH: The amendment was approved by the shareholders. The number of votes
cast for the amendment was sufficient for approval.
Signed this 12th day of March, 1999. /s/ John Jones
John Jones, President
Prepared by: Alixe B. Cormick
Barrister & Solicitor
Venture Law Corporation
#618 - 688 W. Hastings Street
Vancouver, BC V6L 3E3
Tel: (604) 659-9188
Fax: (604) 659-9178
NOTARY WITNESS
On March 12, 1999, personally appeared before me, a Solicitor, John
Jones, President of Aida Industries, Inc., who acknowledged that he executed the
above instrument.
/s/ A.R. Jays
Solicitor
Exhibit 3.2
BYLAWS
OF
SHOPPING SHERLOCK, INC.
(A FLORIDA CORPORATION)
<PAGE>
<TABLE>
INDEX
PAGE NUMBER
<S> <C>
ARTICLE ONE - OFFICES
Section 1. Principal Office............................................................................1
Section 2. Other Offices...............................................................................1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS
Section 1. Place ......................................................................................1
Section 2. Time of Annual Meeting......................................................................1
Section 3. Call of Special Meetings....................................................................1
Section 4. Conduct of Meetings.........................................................................1
Section 5. Notice and Waiver of Notice.................................................................1
Section 6. Business and Nominations for Annual and Special Meetings....................................2
Section 7. Quorum......................................................................................2
Section 8. Voting Rights Per Share.....................................................................2
Section 9. Voting of Shares............................................................................2
Section 10. Proxies.....................................................................................3
Section 11. Shareholder List............................................................................3
Section 12. Action Without Meeting......................................................................3
Section 13. Fixing Record Date..........................................................................3
Section 14. Inspectors and Judges.......................................................................4
Section 15. Voting for Directors........................................................................4
ARTICLE THREE - DIRECTORS
Section 1. Number; Term; Election; Qualification.......................................................4
Section 2. Resignation; Vacancies; Removal.............................................................4
Section 3. Powers......................................................................................4
Section 4. Place of Meetings...........................................................................4
Section 5. Annual Meetings.............................................................................4
Section 6. Regular Meetings............................................................................4
Section 7. Special Meetings and Notice.................................................................5
Section 8. Quorum and Required Vote....................................................................5
Section 9. Action Without Meeting......................................................................5
Section 10. Conference Telephone or Similar Communications Equipment Meetings...........................5
Section 11. Committees..................................................................................5
Section 12. Compensation of Directors...................................................................6
ARTICLE FOUR - OFFICERS
Section 1. Positions...................................................................................6
Section 2. Election of Specified Officers by Board.....................................................6
Section 3. Election or Appointment of Other Officers...................................................6
Section 4. Compensation................................................................................6
Section 5. Term; Resignation; Removal; Vacancies.......................................................6
Section 6. Chairman of the Board.......................................................................6
Section 7. Chief Executive Officer.....................................................................6
Section 8. President...................................................................................7
Section 9. Vice Presidents.............................................................................7
Section 10. Secretary...................................................................................7
Section 11. Chief Financial Officer.....................................................................7
Section 12. Treasurer...................................................................................7
Section 13. Other Officers; Employees and Agents........................................................7
ARTICLE FIVE - CERTIFICATES FOR SHARES
Section 1. Issue of Certificates.......................................................................8
Section 2. Legends for Preferences and Restrictions on Transfer........................................8
Section 3. Facsimile Signatures........................................................................8
Section 4. Lost Certificates...........................................................................8
Section 5. Transfer of Shares..........................................................................8
Section 6. Registered Shareholders.....................................................................9
Section 7. Redemption of Control Shares................................................................9
ARTICLE SIX - GENERAL PROVISIONS
Section 1. Dividends...................................................................................9
Section 2. Reserves....................................................................................9
Section 3. Checks......................................................................................9
Section 4. Fiscal Year.................................................................................9
Section 5. Seal........................................................................................9
Section 6. Gender......................................................................................9
ARTICLE SEVEN - AMENDMENT OF BYLAWS...............................................................................9
</TABLE>
<PAGE>
BYLAWS
OF
SHOPPING SHERLOCK, INC.
ARTICLE ONE
OFFICES
Section 1. Principal Office. The principal office of Shopping Sherlock,
Inc., a Florida corporation (the "Corporation"), shall be located at such place
determined by the Board of Directors of the Corporation (the "Board of
Directors") in accordance with applicable law.
Section 2. Other Offices. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1. Place. All annual meetings of shareholders shall be held at such
place, within or without the State of Florida, as may be designated by the Board
of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Time of Annual Meeting. Annual meetings of shareholders shall be
held on such date and at such time fixed, from time to time, by the Board of
Directors, provided, that there shall be an annual meeting held every calendar
year at which the shareholders shall elect a board of directors and transact
such other business as may properly be brought before the meeting.
Section 3. Call of Special Meetings. Special meetings of the shareholders
shall be held if called in accordance with the procedures set forth in the
Corporation's Articles of Incorporation (the "Articles of Incorporation") for
the call of a special meeting of shareholders.
Section 4. Conduct of Meetings. The Chairman of the Board of Directors (or
in his absence, the President, or in his absence, such other designee of the
Chairman of the Board of Directors) shall preside at the annual and special
meetings of shareholders and shall be given full discretion in establishing the
rules and procedures to be followed in conducting the meetings, except as
otherwise provided by law or in these Bylaws.
Section 5. Notice and Waiver of Notice. Except as otherwise provided by
law, written or printed notice stating the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either personally or by first-class
mail or other legally sufficient means, by or at the direction of the Chairman
of the Board, President, or the persons calling the meeting, to each shareholder
of record entitled to vote at such meeting. If the notice is mailed at least
thirty (30) days before the date of the meeting, it may be done by a class of
United States mail other than first class. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at the address appearing on the stock transfer books of the
Corporation, with postage thereon prepaid. If a meeting is adjourned to another
time and/or place, and if an announcement of the adjourned time and/or place is
made at the meeting, it shall not be necessary to give notice of the adjourned
meeting unless the Board of Directors, after adjournment, fixes a new record
date for the adjourned meeting. Whenever any notice is required to be given to
any shareholder, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether signed before, during or after the time of the
meeting stated therein, and delivered to
1
<PAGE>
the Corporation for inclusion in the minutes or filing with the corporate
records, shall constitute an effective waiver of such notice. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the shareholders need be specified in any written waiver of notice.
Attendance of a person at a meeting shall constitute a waiver of (a) lack of or
defective notice of such meeting, unless the person objects at the beginning to
the holding of the meeting or the transacting of any business at the meeting, or
(b) lack of or defective notice of a particular matter at a meeting that is not
within the purpose or purposes described in the meeting notice, unless the
person objects to considering such matter when it is presented.
Section 6. Business and Nominations for Annual and Special Meetings.
Business transacted at any special meeting shall be confined to the purposes
stated in the notice thereof. At any annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting in accordance with the requirements and procedures set forth in the
Articles of Incorporation. Only such persons who are nominated for election as
directors of the Corporation in accordance with the requirements and procedures
set forth in the Articles of Incorporation shall be eligible for election as
directors of the Corporation.
Section 7. Quorum. Shares entitled to vote as a separate voting group may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or applicable law, shares representing one third of the votes
pertaining to outstanding shares which are entitled to be cast on the matter by
the voting group constitute a quorum of that voting group for action on that
matter. If less than a quorum of shares are represented at a meeting, the
holders of a majority of the shares so represented may adjourn the meeting from
time to time. After a quorum has been established at any shareholders' meeting,
the subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Section 8. Voting Rights Per Share. Each outstanding share, regardless of
class, shall be entitled to vote on each matter submitted to a vote at a meeting
of shareholders, except to the extent that the voting rights of the shares of
any class are limited or denied by or pursuant to the Articles of Incorporation
or the Florida Business Corporation Act.
Section 9. Voting of Shares. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an
administrator, executor, guardian, personal representative, or conservator may
be voted by such person, either in person or by proxy, without a transfer of
such shares into his name. Shares standing in the name of a trustee may be voted
by such person, either in person or by proxy, but no trustee shall be entitled
to vote shares held by such person without a transfer of such shares into his
name or the name of his nominee. Shares held by or under the control of a
receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of
creditors may be voted by such person without the transfer thereof into his
name. If shares stand of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety or otherwise, or if two or more persons have the same fiduciary
relationship respecting the same shares, unless the Secretary of the Corporation
is given notice to the contrary and is furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so provided,
then acts with respect to voting shall have the following effect: (a) if only
one votes, in person or by proxy, his act binds all; (b) if more than one vote,
in person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly
2
<PAGE>
split in interest. The principles of this paragraph shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for the
purpose of ascertaining the presence of a quorum.
Section 10. Proxies. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
such person by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation (the "Secretary") or such other officer or agent which is
authorized to tabulate votes, and shall be valid for up to 11 months, unless a
longer period is expressly provided in the appointment form. The death or
incapacity of the shareholder appointing a proxy does not affect the right of
the Corporation to accept the proxy's authority unless notice of the death or
incapacity is received by the Secretary or other officer or agent authorized to
tabulate votes before the proxy authority under the appointment is exercised. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
Section 11. Shareholder List. After fixing a record date for a meeting of
shareholders, the Corporation shall prepare an alphabetical list of the names of
all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or such person's agent or attorney is entitled on written demand to
inspect the shareholders' list (subject to the requirements of law), during
regular business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or agent or attorney of such
shareholder is entitled to inspect the list at any time during the meeting or
any adjournment. The shareholders' list is prima facie evidence of the identity
of shareholders entitled to examine the shareholders' list or to vote at a
meeting of shareholders.
Section 12. Action Without Meeting. Any action required or permitted by law
to be taken at a meeting of shareholders may be taken without a meeting or
notice if a consent, or consents, in writing, setting forth the action so taken,
shall be dated and signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all voting groups and shares entitled to vote
thereon were present and voted with respect to the subject matter thereof, and
such consent shall be delivered to the Corporation, within the period required
by Section 607.0704 of the Florida Business Corporation Act, by delivery to its
principal office in the State of Florida, its principal place of business, the
Secretary or another officer or agent of the Corporation having custody of the
book in which proceedings of meetings of shareholders are recorded. Within ten
(10) days after obtaining such authorization by written consent, notice must be
given to those shareholders who have not consented in writing or who are not
entitled to vote on the action, in accordance with the requirements of Section
607.0704 of the Florida Business Corporation Act.
Section 13. Fixing Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purposes, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days, and, in case of a meeting of shareholders, not less than ten (10)
days, before the meeting or action requiring such determination of shareholders.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders or the determination of
shareholders entitled to receive payment of a dividend, the date before the day
on which the first notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as
3
<PAGE>
provided in this Section, such determination shall apply to any adjournment
thereof, except where the Board of Directors fixes a new record date for the
adjourned meeting.
Section 14. Inspectors and Judges. The Board of Directors in advance of any
meeting may, but need not, appoint one or more inspectors of election or judges
of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If any inspector or inspectors, or judge or judges, are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by the Board of
Directors in advance of the meeting, or at the meeting by the person presiding
thereat. The inspectors or judges, if any, shall determine the number of shares
of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. Voting for Directors. Unless otherwise provided in the Articles
of Incorporation, directors shall be elected by a plurality of the votes cast by
the shares entitled to vote in the election at a meeting at which a quorum is
present.
ARTICLE THREE
DIRECTORS
Section 1. Number; Term; Election; Qualification. The number of directors
of the Corporation shall be fixed from time to time, within the limits specified
by the Articles of Incorporation, by resolution of the Board of Directors.
Directors shall be elected in the manner and hold office for the term as
prescribed in the Articles of Incorporation. Directors must be natural persons
who are 18 years of age or older but need not be residents of the State of
Florida, shareholders of the Corporation or citizens of the United States.
Section 2. Resignation; Vacancies; Removal. A director may resign at any
time by giving written notice to the Board of Directors or the Chairman of the
Board. Such resignation shall take effect at the date of receipt of such notice
or at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
In the event the notice of resignation specifies a later effective date, the
Board of Directors may fill the pending vacancy (subject to the provisions of
the Articles of Incorporation) before the effective date if they provide that
the successor does not take office until the effective date. Director vacancies
shall be filled, and directors may be removed, in the manner prescribed in the
Corporation's Articles of Incorporation.
Section 3. Powers. The business and affairs of the Corporation shall be
managed by the Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised and done by the shareholders.
Section 4. Place of Meetings. Meetings of the Board of Directors, regular
or special, may be held either within or without the State of Florida.
Section 5. Annual Meetings. Unless scheduled for another time by the Board
of Directors, the first meeting of each newly elected Board of Directors shall
be held, without call or notice, immediately following each annual meeting of
shareholders.
Section 6. Regular Meetings. Regular meetings of the Board of Directors may
also be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
4
<PAGE>
Section 7. Special Meetings and Notice. Special meetings of the Board of
Directors may be called by the President or Chairman of the Board and shall be
called by the Secretary on the written request of any two directors. At least
forty-eight (48) hours prior written notice of the date, time and place of
special meetings of the Board of Directors shall be given to each director.
Except as required by law, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Notices to
directors shall be in writing and delivered to the directors at their addresses
appearing on the books of the Corporation by personal delivery, mail or other
legally sufficient means. Subject to the provisions of the preceding sentence,
notice to directors may also be given by telegram, teletype or other form of
electronic communication. Notice by mail shall be deemed to be given at the time
when the same shall be received. Whenever any notice is required to be given to
any director, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before, during or after the meeting, shall
constitute an effective waiver of such notice. Attendance of a director at a
meeting shall constitute a waiver of notice of such meeting and a waiver of any
and all objections to the place of the meeting, the time of the meeting and the
manner in which it has been called or convened, except when a director states,
at the beginning of the meeting or promptly upon arrival at the meeting, any
objection to the transaction of business because the meeting is not lawfully
called or convened. The Chairman may, in his discretion, adjourn a meeting to a
later time or new location.
Section 8. Quorum and Required Vote. One third of the prescribed number of
directors determined as provided in the Articles of Incorporation shall
constitute a quorum for the transaction of business and the act of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless a greater number is required by the
Articles of Incorporation. Whenever, for any reason, a vacancy occurs in the
Board of Directors, a quorum shall consist of one third of the remaining
directors until the vacancy has been filled. If a quorum shall not be present at
any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn the meeting to another time and place, without notice other
than announcement at the time of adjournment. At such adjourned meeting at which
a quorum shall be present, any business may be transacted that might have been
transacted at the meeting as originally notified and called. In the event of a
tied vote, the Chairman shall be entitled to cast a second deciding vote.
Section 9. Action Without Meeting. Any action required or permitted to be
taken at a meeting of the Board of Directors or committee thereof may be taken
without a meeting if a consent in writing, setting forth the action taken, is
signed by all of the members of the Board of Directors or the committee, as the
case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this Section 9 is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. Conference Telephone or Similar Communications Equipment
Meetings. Directors and committee members may participate in and hold a meeting
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person at the
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground the
meeting is not lawfully called or convened.
Section 11. Committees. The Board of Directors, by resolution adopted by a
majority of the whole Board of Directors, may designate from among its members
an executive committee and one or more other committees, each of which, to the
extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by applicable law. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article Three, may designate one or more
directors as alternate members of any committee, who may act in the place and
stead of any absent member or members at any meeting of such committee.
Vacancies in the membership of a committee may be filled only by the Board of
Directors at a regular or special meeting of the Board of Directors. The
executive committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or such member by law.
5
<PAGE>
Section 12. Compensation of Directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Similarly, members of special or standing committees may be allowed
compensation for attendance at committee meetings or a stated salary as a
committee member and payment of expenses for attending committee meetings.
Directors may receive such other compensation as may be approved by the Board of
Directors.
ARTICLE FOUR
OFFICERS
Section 1. Positions. The officers of the Corporation shall consist of a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents (any one or more of whom may be given the additional designation of
rank of Executive Vice President or Senior Vice President), a Secretary, a Chief
Financial Officer, Chief Operating Officer, and a Treasurer. Any two or more
offices may be held by the same person. Officers other than the Chairman of the
Board need not be members of the Board of Directors. The Chairman of the Board
must be a member of the Board of Directors.
Section 2. Election of Specified Officers by Board. The Board of Directors
at its first meeting after each annual meeting of shareholders shall elect a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents (including any Senior or Executive Vice Presidents), a Secretary, a
Chief Financial Officer and a Treasurer.
Section 3. Election or Appointment of Other Officers. Such other officers
and assistant officers and agents as may be deemed necessary may be elected or
appointed by the Board of Directors, or, unless otherwise specified herein,
appointed by the Chairman of the Board. The Board of Directors shall be advised
of appointments by the Chairman of the Board at or before the next scheduled
Board of Directors meeting.
Section 4. Compensation. The salaries, bonuses and other compensation of
the Chairman of the Board and all officers of the Corporation to be elected by
the Board of Directors pursuant to Section 2 of this Article Four shall be fixed
from time to time by the Board of Directors or pursuant to its direction. The
salaries of all other elected or appointed officers of the Corporation shall be
fixed from time to time by the Chairman of the Board or pursuant to his
direction.
Section 5. Term; Resignation; Removal; Vacancies. The officers of the
Corporation shall hold office until their successors are chosen and qualified.
Any officer or agent elected or appointed by the Board of Directors or the
Chairman of the Board may be removed, with or without cause, by the Board of
Directors, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Any officer or agent appointed by the Chairman
of the Board pursuant to Section 3 of this Article Four may also be removed from
such office or position by the Board of Directors or the Chairman of the Board,
with or without cause. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise shall be filled by the Board of
Directors, or, in the case of an officer appointed by the Chairman of the Board,
by the Chairman of the Board or the Board of Directors. Any officer of the
Corporation may resign from his respective office or position by delivering
notice to the Corporation, and such resignation shall be effective without
acceptance. Such resignation shall be effective when delivered unless the notice
specifies a later effective date. If a resignation is made effective at a later
date and the Corporation accepts the future effective date, the Board of
Directors may fill the pending vacancy before the effective date if the Board
provides that the successor does not take office until such effective date.
Section 6. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the shareholders and the Board of Directors. The Chairman of
the Board shall also serve as the chairman of any executive committee.
Section 7. Chief Executive Officer. Subject to the control of the Board of
Directors, the Chief Executive Officer, in conjunction with the President, shall
have general and active management of the business of the Corporation, shall see
that all orders and resolutions of the Board of Directors are carried into
effect and shall have such powers and perform such duties as may be prescribed
by the Board of Directors.
6
<PAGE>
In the absence of the Chairman of the Board or in the event the Board of
Directors shall not have designated a Chairman of the Board, the Chief Executive
Officer shall preside at meetings of the shareholders and the Board of
Directors. The Chief Executive Officer shall also serve as the vice-chairman of
any executive committee.
Section 8. President. Subject to the control of the Board of Directors, the
President, in conjunction with the Chief Executive Officer, shall have general
and active management of the business of the Corporation and shall have such
powers and perform such duties as may be prescribed by the Board of Directors.
In the absence of the Chairman of the Board and the Chief Executive Officer or
in the event the Board of Directors shall not have designated a Chairman of the
Board and a Chief Executive Officer shall not have been elected, the President
shall preside at meetings of the shareholders and the Board of Directors. The
President shall also serve as the vice-chairman of any executive committee.
Section 9. Vice Presidents. The Vice Presidents, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President and the Chief Executive Officer, perform
the duties and exercise the powers of the President. They shall perform such
other duties and have such other powers as the Board of Directors, the Chairman
of the Board or the Chief Executive Officer shall prescribe or as the President
may from time to time delegate. Executive Vice Presidents shall be senior to
Senior Vice Presidents, and Senior Vice Presidents shall be senior to all other
Vice Presidents.
Section 10. Secretary. The Secretary shall attend all meetings of the
shareholders and all meetings of the Board of Directors and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
Board of Directors and shall keep in safe custody the seal of the Corporation
and, when authorized by the Board of Directors, affix the same to any instrument
requiring it. The Secretary shall perform such other duties as may be prescribed
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President.
Section 11. Chief Financial Officer. The Chief Financial Officer shall be
responsible for maintaining the financial integrity of the Corporation, shall
prepare the financial plans for the Corporation and shall monitor the financial
performance of the Corporation and its subsidiaries, as well as performing such
other duties as may be prescribed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President.
Section 12. Treasurer. The Treasurer shall have the custody of corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board and the Board of Directors at its regular meetings or
when the Board of Directors so requires an account of all his transactions as
Treasurer and of the financial condition of the Corporation. The Treasurer shall
perform such other duties as may be prescribed by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
Section 13. Other Officers; Employees and Agents. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to such person by the Board of Directors, the officer so
appointing such person or such officer or officers who may from time to time be
designated by the Board of Directors to exercise such supervisory authority.
7
<PAGE>
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. Issue of Certificates. The shares of the Corporation shall be
represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates (and upon request every holder of uncertificated shares) shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board or a Vice Chairman of the Board, or the Chief
Executive Officer, President or Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, representing the number of shares registered in certificate form.
Section 2. Legends for Preferences and Restrictions on Transfer. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer, and there shall be set forth or fairly summarized
upon the certificate, or the certificate shall indicate that the Corporation
will furnish to any shareholder upon request and without charge, a full
statement of such restrictions. If the Corporation issues any shares that are
not registered under the Securities Act of 1933, as amended, or not registered
or qualified under the applicable state securities laws, the transfer of any
such shares shall be restricted substantially in accordance with the following
legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT
HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED."
Section 3. Facsimile Signatures. Any and all signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Corporation may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 5. Transfer of Shares. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
8
<PAGE>
Section 6. Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive rights of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Florida.
Section 7. Redemption of Control Shares. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may, at the discretion of the Board of Directors, redeem the
control shares at the fair value thereof at any time during the 60-day period
after the last acquisition of such control shares. If a person acquiring control
shares of the Corporation files an acquiring person statement with the
Corporation, the control shares may be redeemed by the Corporation, at the
discretion of the Board of Directors, only if such shares are not accorded full
voting rights by the shareholders as provided by law.
ARTICLE SIX
GENERAL PROVISIONS
Section 1. Dividends. The Board of Directors may from time to time declare,
and the Corporation may pay, dividends on its outstanding shares in cash,
property, stock (including its own shares) or otherwise pursuant to law and
subject to the provisions of the Articles of Incorporation.
Section 2. Reserves. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall end on
December 31 of each year, unless otherwise fixed by resolution of the Board of
Directors.
Section 5. Seal. The corporate seal shall have inscribed thereon the name
and state of incorporation of the Corporation. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
Section 6. Gender. All words used in these Bylaws in the masculine gender
shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENT OF BYLAWS
Except as otherwise set forth herein, these Bylaws may be altered, amended
or repealed or new Bylaws may be adopted at any meeting of the Board of
Directors at which a quorum is present, by the affirmative vote of a majority of
the directors present at such meeting.
SECRETARY'S CERTIFICATE OF ADOPTION OF THE BYLAWS OF SHOPPING
SHERLOCK, INC.
I hereby certify:
That I am the duly elected Secretary of Shopping Sherlock, Inc., a Florida
corporation;
9
<PAGE>
That the foregoing Bylaws comprising nine (9) pages, constitute the Bylaws
of said corporation as duly adopted by the Board of Directors of the Corporation
on April 9, 1999.
IN WITNESS WHEREOF, I have hereunder subscribed my name this 9th day of
April, 1999.
/s/ Patrick McGrath
Patrick McGrath, Secretary
Exhibit 4.1
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
CUSIP NO. 82509N 10 3
- ---------- --------------
NUMBER N/C TO: SHARES
- ---------- SHOPPING SHERLOCK, INC. --------------
AIDA INDUSTRIES, INC.
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
--- Shares of AIDA INDUSTRIES, INC. Common Stock ----
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
AIDA INDUSTRIES, INC.
CORPORATE SEAL
FLORIDA
- ------------------------- --------------------------
Secretary President
COUNTERSIGNED & REGISTERED
-------------------------------------------------
COUNTERSIGNED Transfer Agent-Authorized Signature
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT ............. Custodian .................
(Cust) (Minor)
under Uniform Gifts to Minors
Act .....................................
(State)
Additional abbreviations may be used though not in the above list.
FOR VALUE RECEIVED, ----------------- hereby sell, assign and transfer unto
--------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPRWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated -----------------------
- ---------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
SHOPPING SHERLOCK, INC.
1999 STOCK OPTION PLAN
This 1999 Stock Option Plan (the "Plan") provides for the grant of
options to acquire shares of common stock, no par value (the "Stock"), of
Shopping Sherlock, Inc., a Florida corporation (the "Company"). Stock options
granted under this Plan that qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), are referred to in this Plan as
"Incentive Stock Options." Incentive Stock Options and stock options that do not
qualify under Section 422 of the Code ("Non-Qualified Stock Options") granted
under this Plan are referred to collectively as "Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of valued key
employees and consultants of the Company and such other persons as the Plan
Administrator may select in accordance with Section 3 below, to encourage such
persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
the Company, and to serve as an aid and inducement in the hiring of new
employees and to provide an equity incentive to consultants and other persons
selected by the Plan Administrator.
2. ADMINISTRATION.
This Plan will be administered initially by the Board of Directors of
the Company (the "Board"), except that the Board may, in its discretion,
establish a committee composed of two (2) or more members of the Board or two
(2) or more other persons to administer the Plan, which committee (the
"Committee") may be an executive, compensation or other committee, including a
separate committee especially created for this purpose. The Committee will have
the powers and authority vested in the Board hereunder (including the power and
authority to interpret any provision of the Plan or of any Option). The members
of any such Committee will serve at the pleasure of the Board. A majority of the
members of the Committee will constitute a quorum, and all actions of the
Committee will be taken by a majority of the members present. Any action may be
taken by a written instrument signed by all of the members of the Committee and
any action so taken will be fully effective as if it had been taken at a
meeting. The Board or, if applicable, the Committee is referred to in this Plan
as the "Plan Administrator."
If and when the Company becomes subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Plan Administrator will be either the full Board of Directors or a committee
composed of two (2) or more members of the Board who are "Non-Employee
Directors" as defined under Rule 16b-3 (as amended from time to time)
promulgated under the Exchange Act or any successor rule or regulatory
requirement. In addition, if the Board decides to maintain eligibility for the
benefits of Section 162(m) of the Code, the Plan Administrator will be either
the full Board of Directors if each director is an "Outside Director," as
defined under Section 162(m) of the Code (as amended from time to time) and the
regulations (or any successor regulations) promulgated thereunder ("Section
162(m) of the Code") or by the Committee which will be composed of two (2) or
more members of the Board who are Outside Directors.
Subject to the provisions of this Plan, and with a view to effecting
its purpose, the Plan Administrator has sole authority, in its absolute
discretion, to (i) construe and interpret this Plan; (ii) define the terms used
in the Plan; (iii) prescribe, amend and rescind the rules and regulations
relating to this Plan; (iv) correct any defect, supply any omission or reconcile
any inconsistency in this Plan; (v) grant Options under this Plan; (vi)
determine the individuals to whom Options will be granted under this Plan and
whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option;
(vii) determine the time or times at which Options are granted under this Plan;
(viii) determine the number of shares of Stock subject to each Option, the
exercise price of each Option, the duration of each Option and the times at
which each Option will become exercisable; (ix) determine all other terms
-1-
<PAGE>
and conditions of the Options; and (x) make all other determinations and
interpretations necessary and advisable for the administration of the Plan. All
decisions, determinations and interpretations made by the Plan Administrator
will be binding and conclusive on all participants in the Plan and on their
legal representatives, heirs and beneficiaries.
The Board or, if applicable, the Committee may delegate to one or more
executive officers of the Company the authority to grant Options under this Plan
to employees of the Company who, on the Date of Grant, are not subject to
Section 16 of the Exchange Act with respect to the Stock ("Insiders"), and are
not "covered employees" as such term is defined for purposes of Section 162(m)
of the Code ("Covered Employees"), and in connection therewith the authority to
determine: (i) the number of shares of Stock subject to such Options; (ii) the
duration of the Option; (iii) the vesting schedule for determining the times at
which such Option will become exercisable; and (iv) all other terms and
conditions of such Options. The exercise price for any Option granted by action
of an executive officer or officers pursuant to such delegation of authority
will not be less than the fair market value per share of the Stock on the Date
of Grant. Unless expressly approved in advance by the Board or the Committee,
such delegation of authority will not include the authority to accelerate
vesting, extend the period for exercise or otherwise alter the terms of
outstanding Options. The term "Plan Administrator" when used in any provision of
this Plan other than Sections 2, 5(f), 5(m), and 11 refers to the Board or the
Committee, as the case may be, and an executive officer who has been authorized
to grant Options pursuant thereto, insofar as such provisions may be applied to
persons that are not Insiders and not Covered Employees and Options granted to
such persons.
3. ELIGIBILITY.
Incentive Stock Options may be granted to any individual who, at the
time the Option is granted, is an employee of the Company or any Related
Corporation (as defined below) ("Employees"). Non-Qualified Stock Options may be
granted to Employees and to such other persons as the Plan Administrator may
select. Options may be granted in substitution for outstanding Options of
another corporation in connection with the merger, consolidation, acquisition of
property or stock or other reorganization between such other corporation and the
Company or any subsidiary of the Company. Options also may be granted in
exchange for outstanding Options. Any person to whom an Option is granted under
this Plan is referred to as an "Optionee." Any person who is the owner of an
Option is referred to as a "Holder."
As used in this Plan, the term "Related Corporation" means any
corporation (other than the Company) that is a "Parent Corporation" of the
Company or "Subsidiary Corporation" of the Company, as those terms are defined
in Sections 424(e) and 424(f), respectively, of the Code (or any successor
provisions) and the regulations thereunder (as amended from time to time).
4. STOCK.
The Plan Administrator is authorized to grant Options to acquire up to
a total of one million (1,000,000) shares of the Company's authorized but
unissued, or reacquired, Stock. The number of shares with respect to which
Options may be granted hereunder is subject to adjustment as set forth in
Section 5(m) hereof. If any outstanding Option expires or is terminated for any
reason, the shares of Stock allocable to the unexercised portion of such Option
may again be subject to an Option granted to the same Optionee or to a different
person eligible under Section 3 of this Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under this Plan will be evidenced by a written
agreement approved by the Plan Administrator (the "Agreement"). Agreements may
contain such provisions, not inconsistent with this Plan, as the Plan
Administrator in its discretion may deem advisable. All Options must also comply
with the following requirements:
-2-
<PAGE>
(a) Number of Shares and Type of Option.
Each Agreement must state the number of shares of Stock to
which it pertains and whether the Option is intended to be an Incentive Stock
Option or a Non-Qualified Stock Option. In the absence of action to the contrary
by the Plan Administrator in connection with the grant of an Option, all Options
will be Non-Qualified Stock Options. The aggregate fair market value (determined
at the Date of Grant, as defined below) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (granted under this Plan and all other Incentive Stock
Option plans of the Company, a Related Corporation or a predecessor corporation)
must not exceed $100,000, or such other limit as may be prescribed by the Code
as it may be amended from time to time. Any portion of an Option which exceeds
the annual limit will not be void but rather will be a Non-Qualified Stock
Option.
(b) Date of Grant.
Each Agreement must state the date the Plan Administrator has
deemed to be the effective date of the Option for purposes of this Plan (the
"Date of Grant").
(c) Option Price.
Each Agreement must state the price per share of Stock at
which the Option is exercisable. The Plan Administrator may fix the exercise
price in its sole discretion; provided that the per share exercise price for an
Incentive Stock Option or (if the Company decides to maintain eligibility for
the benefits of Section 162(m) of the Code) any Option granted to a Covered
Employee must not be less than the fair market value per share of the Stock at
the Date of Grant as determined by the Plan Administrator in good faith;
provided further, that with respect to Incentive Stock Options granted to
greater-than-ten percent (> 10%) shareholders of the Company (as determined with
reference to Section 424(d) of the Code), the exercise price per share must not
be less than one hundred ten percent (110%) of the fair market value per share
of the Stock at the Date of Grant as determined by the Plan Administrator in
good faith; and, provided further, that Options granted in substitution for
outstanding options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization
involving such other corporation and the Company or any subsidiary of the
Company may be granted with an exercise price equal to the exercise price for
the substituted option of the other corporation, subject to any adjustment
consistent with the terms of the transaction pursuant to which the substitution
is to occur.
(d) Duration of Options.
At the time of the grant of the Option, the Plan Administrator
will designate, subject to paragraph 5(g) below, the expiration date of the
Option, which date must not be later than ten (10) years from the Date of Grant
in the case of Incentive Stock Options; provided, that the expiration date of
any Incentive Stock Option granted to a greater-than-ten percent ( > 10%)
shareholder of the Company (as determined under Sections 422(b)(6) and 424(d) of
the Code) must not be later than five (5) years from the Date of Grant. In the
absence of action to the contrary by the Plan Administrator in connection with
the grant of a particular Option, and except in the case of Incentive Stock
Options as described above, all Options granted under this Section 5 will expire
ten (10) years from the Date of Grant.
(e) Vesting Schedule.
No Option will be exercisable until it has vested. The Plan
Administrator will specify the vesting schedule for each Option at the time of
grant of the Option prior to the provision of services with respect to which
such Option is granted; provided, that if no vesting schedule is specified at
the time of grant, the Option will vest according to the following schedule:
Number of Years Percentage of Total
Following Date of Grant Option Vested
- ------------------------------------- ----------------------------------
One 33.3%
-3-
<PAGE>
Number of Years Percentage of Total
Following Date of Grant Option Vested
- ------------------------------------- ----------------------------------
Two 66.6%
Three 100%
The Plan Administrator may specify a vesting schedule for all
or any portion of an Option based on the achievement of performance objectives
established in advance of the commencement by the Optionee of services related
to the achievement of the performance objectives. Performance objectives will be
expressed in terms of one or more of the following: return on equity, return on
assets, share price, market share, sales, earnings per share, costs, net
earnings, net worth, inventories, cash and cash equivalents, gross margin or the
Company's performance relative to its internal business plan. Performance
objectives may be in respect of the performance of the Company as a whole
(whether on a consolidated or unconsolidated basis), a Related Corporation, or a
subdivision, operating unit, product or product line of either of the foregoing.
Performance objectives may be absolute or relative and may be expressed in terms
of a progression or a range. An Option that is exercisable (in full or in part)
upon the achievement of one or more performance objectives may be exercised only
following written notice to the Optionee and the Company by the Plan
Administrator that the performance objective has been achieved.
(f) Acceleration of Vesting.
The vesting of one or more outstanding Options may be
accelerated by the Plan Administrator at such times and in such amounts as it
determines in its sole discretion. The vesting of Options also will be
accelerated under the circumstances described in Section 5(m)(2).
(g) Term of Option.
Vested Options will terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events: (i) the
expiration of the Option, as designated by the Plan Administrator in accordance
with Section 5(d) above; (ii) the date of an Optionee's termination of
employment or contractual relationship with the Company or any Related
Corporation for cause (as in Section 5(n) in the sole discretion of the Plan
Administrator); (iii) the expiration of ninety (90) days from the date of an
Optionee's termination of employment or contractual relationship with the
Company or any Related Corporation for any reason whatsoever other than cause,
death or Disability (as defined below) unless, in the case of a Non-Qualified
Stock Option, the exercise period is extended by the Plan Administrator until a
date not later than the expiration date of the Option; or (iv) the expiration of
one year from termination of an Optionee's employment or contractual
relationship by reason of death or Disability (as defined below) unless, in the
case of a Non-Qualified Stock Option, the exercise period is extended by the
Plan Administrator until a date not later than the expiration date of the
Option. Upon the death of an Optionee, any vested Options held by the Optionee
will be exercisable only by the person or persons to whom such Optionee's rights
under such Option will pass by the Optionee's will or by the laws of descent and
distribution of the state or county of the Optionee's domicile at the time of
death and only until such Options terminate as provided above. For purposes of
the Plan, unless otherwise defined in the Agreement, "Disability" means
medically determinable physical or mental impairment which has lasted or can be
expected to last for a continuous period of not less than twelve (12) months or
that can be expected to result in death. The Plan Administrator will determine
whether an Optionee has incurred a Disability on the basis of medical evidence
acceptable to the Plan Administrator. Upon making a determination of Disability,
the Plan Administrator will, for purposes of the Plan, determine the date of an
Optionee's termination of employment or contractual relationship.
Unless accelerated in accordance with Section 5(f) above, unvested Options will
terminate immediately upon termination of employment of the Optionee by the
Company for any reason whatsoever, including death or Disability. If, in the
case of an Incentive Stock Option, an Optionee's relationship with the Company
changes (e.g., from an Employee to a non-Employee, such as a consultant) such
change will constitute a termination of an Optionee's employment with the
Company and the Optionee's Incentive Stock Option shall terminate in accordance
with this subsection. For purposes of this Plan, transfer of employment between
or among
-4-
<PAGE>
the Company and/or any Related Corporation will not be deemed to constitute a
termination of employment with the Company or any Related Corporation. For
purposes of this subsection, employment will be deemed to continue while the
Optionee is on military leave, sick leave or other bona fide leave of absence
(as determined by the Plan Administrator). The foregoing notwithstanding,
employment will not be deemed to continue beyond the first ninety (90) days of
such leave, unless the Optionee's re-employment rights are guaranteed by statute
or by contract.
(h) Exercise of Options.
Options will be exercisable, in full or in part, at any time
after vesting, until termination. If less than all of the shares included in the
vested portion of any Option are purchased, the remainder may be purchased at
any subsequent time prior to the expiration of the Option term. No portion of
any Option for less than fifty (50) shares (as adjusted pursuant to Section 5(m)
below) may be exercised; provided, that if the vested portion of any Option is
less than fifty (50) shares, it may be exercised with respect to all shares for
which it is vested. Only whole shares may be issued pursuant to an Option, and
to the extent that an Option covers less than one (1) share, it is
unexercisable.
Options or portions thereof may be exercised by giving written
notice to the Company, which notice will specify the number of shares to be
purchased, and be accompanied by either: (i) payment in the amount of the
aggregate exercise price for the Stock so purchased, which payment must be in
the form specified in Section 5(i) below, or (ii) upon prior consent of the Plan
Administrator, delivery of an irrevocable subscription agreement obligating the
Optionee to take and pay for the shares of Stock to be purchased within one year
of the date of such exercise. The Company will not be obligated to issue,
transfer or deliver a certificate of Stock to the Holder of any Option, until
provision has been made by the Holder, to the satisfaction of the Company, for
the payment of the aggregate exercise price for all shares for which the Option
has been exercised and for satisfaction of any tax withholding obligations
associated with such exercise. During the lifetime of an Optionee, Options are
exercisable only by the Optionee or in the case of a Non-Qualified Stock Option,
transferee who takes title to such Option in the manner permitted by subsection
5(k) hereof.
(i) Payment upon Exercise of Option.
Upon the exercise of any Option, the aggregate exercise price
will be paid to the Company in cash or by certified or cashier's check. In
addition, upon prior written approval of the Plan Administrator, an Optionee may
pay for all or any portion of the aggregate exercise price by complying with one
or more of the following alternatives:
(1) by delivering to the Company shares of capital stock of
the Company previously held by such Optionee or by having shares withheld from
the amount of shares of Stock to be received by the Optionee. The shares of
Stock received or withheld by the Company as payment for shares of Stock
purchased upon the exercise of Options will have a fair market value at the date
of exercise (as determined by the Plan Administrator) equal to the aggregate
exercise price to be paid by the Optionee upon such exercise;
(2) by complying with any other payment mechanism approved
by the Plan Administrator at the time of exercise.
(j) Rights as a Shareholder.
A Holder will have no rights as a shareholder with respect to
any shares covered by an Option until such Holder becomes a record holder of
such shares, irrespective of whether such Holder has given notice of exercise.
Subject to the provisions of Section 5(m) hereof, no rights will accrue to a
Holder and no adjustments will be made on account of dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights declared on, or created in, the Stock for which the record date
is prior to the date the Holder becomes a record holder of the shares of Stock
covered by the Option, irrespective of whether such Holder has given notice of
exercise.
-5-
<PAGE>
(k) Transfer of Option.
Options granted under this Plan and the rights and privileges
conferred by this Plan may not be transferred, assigned, pledged or hypothecated
in any manner (whether by operation of law or otherwise) other than by will, by
applicable laws of descent and distribution or (except in the case of an
Incentive Stock Option) pursuant to a qualified domestic relations order, and
will not be subject to execution, attachment or similar process; provided
however, that any Agreement may provide or be amended to provide that a
Non-Qualified Stock Option to which it relates is transferable without payment
of consideration to immediate family members of the Optionee or to trusts or
partnerships or limited liability companies established exclusively for the
benefit of the Optionee and the Optionee's immediate family members. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any
Option or of any right or privilege conferred by this Plan contrary to the
provisions hereof, or upon the sale, levy or any attachment or similar process
upon the rights and privileges conferred by this Plan, such Option will
thereupon terminate and become null and void.
(l) Securities Regulation and Tax Withholding.
(1) Shares will not be issued with respect to an Option
unless the exercise of such Option and the issuance and delivery of such shares
complies with all relevant provisions of law, including, without limitation,
Section 162(m) of the Code, any applicable state securities laws, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations thereunder
and the requirements of any stock exchange or automated inter-dealer quotation
system of a registered national securities association upon which such shares
may then be listed, and such issuance will be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of such
shares. The inability of the Company to obtain from any regulatory body the
authority deemed by the Company to be necessary for the lawful issuance and sale
of any shares under this Plan, or the unavailability of an exemption from
registration for the issuance and sale of any shares under this Plan, will
relieve the Company of any liability with respect to the non-issuance or sale of
such shares.
As a condition to the exercise of an Option, the Company may
require the Holder to represent and warrant in writing at the time of such
exercise that the shares are being purchased only for investment and without any
then-present intention to sell or distribute such shares. At the option of the
Company, a stop-transfer order against such shares may be placed on the stock
books and records of the Company, and a legend indicating that the stock may not
be pledged, sold or otherwise transferred unless an opinion of counsel is
provided stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on the certificates representing such shares in order
to assure an exemption from registration. The Plan Administrator also may
require such other documentation as may from time to time be necessary to comply
with federal and state securities laws. THE COMPANY HAS NO OBLIGATION TO
REGISTER THE OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF
OPTIONS.
(2) The Holder must pay to the Company by certified or
cashier's check, promptly upon exercise of an Option or, if later, the date that
the amount of such obligations becomes determinable, all applicable federal,
state, local and foreign withholding taxes that the Plan Administrator, in its
discretion, determines to result upon exercise of an Option or from a transfer
or other disposition of shares of Stock acquired upon exercise of an Option or
otherwise related to an Option or shares of Stock acquired in connection with an
Option. Upon approval of the Plan Administrator, a Holder may satisfy such
obligation by complying with one or more of the following alternatives selected
by the Plan Administrator:
(A) by delivering to the Company shares of Stock
previously held by such Holder or by the Company withholding
shares of Stock otherwise deliverable pursuant to the
exercise of the Option, which shares of Stock received or
withheld must have a fair market value at the date of
exercise (as determined by the Plan Administrator) equal to
any withholding tax obligations arising as a result of such
exercise, transfer or other disposition;
-6-
<PAGE>
(B) by executing appropriate loan documents approved by
the Plan Administrator by which the Holder borrows funds
from the Company to pay any withholding taxes due under this
Paragraph 2, with such repayment terms as the Plan
Administrator may select; or
(C) by complying with any other payment mechanism
approved by the Plan Administrator from time to time.
(3) The issuance, transfer or delivery of certificates of
Stock pursuant to the exercise of Options may be delayed, at the discretion of
the Plan Administrator, until the Plan Administrator is satisfied that the
applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met and that the Holder has paid or
otherwise satisfied any withholding tax obligation as described in (2) above.
(m) Stock Dividend or Reorganization.
(1) If (i) the Company is at any time involved in a
transaction described in Section 424(a) of the Code (or any successor provision)
or any "corporate transaction" described in the regulations thereunder; (ii) the
Company declares a dividend payable in, or subdivides or combines, its Stock or
(iii) any other event with substantially the same effect occurs, the Plan
Administrator will, subject to applicable law, with respect to each outstanding
Option, proportionately adjust the number of shares of Stock subject to such
Option and/or the exercise price per share so as to preserve the rights of the
Holder substantially proportionate to the rights of the Holder prior to such
event, and to the extent that such action includes an increase or decrease in
the number of shares of Stock subject to outstanding Options, the number of
shares available under Section 4 of this Plan will automatically be increased or
decreased, as the case may be, proportionately, without further action on the
part of the Plan Administrator, the Company, the Company's shareholders, or any
Holder.
(2) If the presently authorized capital stock of the Company
is changed into the same number of shares with a different par value, or without
par value, the stock resulting from any such change will be deemed to be Stock
within the meaning of the Plan, and each Option will apply to the same number of
shares of such new stock as it applied to old shares immediately prior to such
change.
(3) If the Company at any time declares an extraordinary
dividend with respect to the Stock, whether payable in cash or other property,
the Plan Administrator may, subject to applicable law, in the exercise of its
sole discretion and with respect to each outstanding Option, proportionately
adjust the number of shares of Stock subject to such Option and/or adjust the
exercise price per share so as to preserve the rights of the Holder
substantially proportionate to the rights of the Holder prior to such event, and
to the extent that such action includes an increase or decrease in the number of
shares of Stock subject to outstanding Options, the number of shares available
under Section 4 of this Plan will automatically be increased or decreased, as
the case may be, proportionately, without further action on the part of the Plan
Administrator, the Company, the Company's shareholders, or any Holder.
(4) The foregoing adjustments in the shares subject to
Options will be made by the Plan Administrator, or by any successor
administrator of this Plan, or by the applicable terms of any assumption or
substitution document.
(5) The grant of an Option will not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
consolidate or dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
(n) Redemption of Stock Upon Termination of Employment.
If an Optionee has acquired shares of Stock pursuant to the exercise of the
Option granted pursuant to the Plan in consideration of his or her services to
the Company or a Related Corporation as an employee or consultant, the Plan
Administrator may require as a condition to exercise by the Optionee of the
Option that the Optionee
-7-
<PAGE>
execute and deliver to a Stock Transfer Agreement in the form approved by the
Plan Administrator, which provides that:
(1) if the engagement of the Optionee is terminated for any
reason other than for "cause" as defined herein, the Optionee will at the option
of the Plan Administrator in its sole discretion and within thirty (30) days of
the termination of Optionee's employment, sell back to the Corporation the
shares acquired pursuant to the exercise of such Option at the higher of the
exercise price or the Fair Market Value of the Stock; or
(2) if the employee is terminated for cause, as defined herein,
the Optionee shall, at the option of the Plan Administrator in its sole
discretion and within thirty (30) days of Optionee's termination of employment,
sell back such shares at the lower of the Fair Market Value of the Stock or the
exercise price.
For purposes of the Plan, fair market value will be determined in good faith by
the Plan Administrator. The foregoing provision applies to all shares acquired
pursuant to the exercise of Options granted under the Plan prior to the initial
public offering of shares of the Stock of the Corporation. Solely for the
purposes of the Plan, "cause" has the meaning assigned to that term in the
Optionee's employment or consulting agreement with the Company or any Related
Corporation or, if there is no such agreement or definition, "cause" means (A)
the Optionee's breach of the terms of his or her engagement with the Company or
any Related Corporation, if not cured within ten (10) days of written notice of
such breach (provided cure is feasible); (B) the Optionee's failure to adhere to
any written policy of the Company or any Related Corporation if the Optionee has
been given a reasonable opportunity to comply with such policy or cure such
failure to comply within ten (10) days of Optionee's receipt of written notice
(provided cure is feasible); (C) the appropriation (or attempted appropriation)
of a material business opportunity of the Company or any Related Corporation,
including attempting to secure or securing any personal profit in connection
with any transaction entered into on behalf of the Company or any Related
Corporation; (D) the misappropriation (or attempted misappropriation) of any
funds or property of the Company or any Related Corporation; (E) the commission
of any crime with respect to which imprisonment is a possible punishment; or (F)
any act or omission by the Optionee involving intentional disloyalty, fraud,
willful misconduct or gross negligence.
6. EFFECTIVE DATE; TERM.
Incentive Stock Options may be granted by the Plan Administrator from
time to time on or after the date on which this Plan is adopted (the "Effective
Date") through the day immediately preceding the tenth anniversary of the
Effective Date. Non-Qualified Stock Options may be granted by the Plan
Administrator on or after the Effective Date and until this Plan is terminated
by the Board in its sole discretion. Termination of this Plan will not terminate
any Option granted prior to such termination. Any Incentive Stock Options
granted by the Plan Administrator prior to the approval of this Plan by a
majority of the shareholders of the Company in accordance with Section 422 of
the Code will be granted subject to ratification of this Plan by the
shareholders of the Company within twelve (12) months before or after the
Effective Date. If such shareholder ratification is sought and not obtained, all
Options granted prior thereto and thereafter will be considered Non-Qualified
Stock Options and any Options granted to Covered Employees will not be eligible
for the exclusion set forth in Section 162(m) of the Code with respect to the
deductibility by the Company of certain compensation.
7. NO OBLIGATIONS TO EXERCISE OPTION.
The grant of an Option will impose no obligation upon the Optionee to
exercise such Option.
8. NO RIGHT TO OPTIONS OR TO EMPLOYMENT.
The Plan Administrator will determine whether or not any Options are to
be granted under this Plan in its sole discretion, and nothing contained in this
Plan will be construed as giving any person any right to participate under this
Plan. The grant of an Option will in no way constitute any form of agreement or
understanding binding
-8-
<PAGE>
on the Company or any Related Company, express or implied, that the Company or
any Related Company will employ or contract with an Optionee for any length of
time, nor will it interfere in any way with the Company's or, where applicable,
a Related Company's right to terminate Optionee's employment at any time, which
right is hereby reserved.
9. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Stock issued upon
the exercise of Options will be used for general corporate purposes, unless
otherwise directed by the Board.
10. INDEMNIFICATION OF PLAN ADMINISTRATOR.
In addition to all other rights of indemnification they may have as
members of the Board, members of the Plan Administrator will be indemnified by
the Company for all reasonable expenses and liabilities of any type or nature,
including attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of them are a party by reason of, or in
connection with, this Plan or any Option granted under this Plan, and against
all amounts paid by them in settlement thereof (provided that such settlement is
approved by independent legal counsel selected by the Company), except to the
extent that such expenses relate to matters for which it is adjudged that such
Plan Administrator member is liable for willful misconduct; provided, that
within fifteen (15) days after the institution of any such action, suit or
proceeding, the Plan Administrator member involved therein will, in writing,
notify the Company of such action, suit or proceeding, so that the Company may
have the opportunity to make appropriate arrangements to prosecute or defend the
same.
11. AMENDMENT OF PLAN.
The Plan Administrator may, at any time, modify, amend or terminate
this Plan or modify or amend Options granted under this Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with applicable statutes, rules or regulations; provided however, no
amendment with respect to an outstanding Option which has the effect of reducing
the benefits afforded to the Holder thereof will be made over the objection of
such Holder; further provided, that the events triggering acceleration of
vesting of outstanding Options may be modified, expanded or eliminated without
the consent of Holders. The Plan Administrator may condition the effectiveness
of any such amendment on the receipt of shareholder approval at such time and in
such manner as the Plan Administrator may consider necessary for the Company to
comply with or to avail the Company and/or the Optionees of the benefits of any
securities, tax, market listing or other administrative or regulatory
requirement. Without limiting the generality of the foregoing, the Plan
Administrator may modify grants to persons who are eligible to receive Options
under this Plan who are foreign nationals or employed outside the United States
to recognize differences in local law, tax policy or custom.
Effective Date: May 26, 1999.
-9-
Exhibit 10.2
SHOPPING SHERLOCK, INC.
1999 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of the _____ day of June, ______ ("Date
of Grant") between Shopping Sherlock, Inc., a Florida corporation (the
"Company"), and _______________ (the "Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") has approved
the 1999 Stock Option Plan (the "Plan"), pursuant to which the Board is
authorized to grant to employees and other selected persons stock options to
purchase common stock, no par value, of the Company (the "Stock");
WHEREAS, the Plan provides for the granting of stock options that either
(i) are intended to qualify as "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) do not qualify under Section 422 of the Code ("Non-Qualified Stock
Options");
WHEREAS, the Plan Administrator (the "Plan Administrator") appointed by the
Board has authorized the grant to the Optionee of options to purchase a total of
_________ shares of Stock (the "Options"), which options are intended to be
(select one):
______ Incentive Stock Options
______ Non-Qualified Stock Options
NOW, THEREFORE, the Company agrees to offer to the Optionee the option to
purchase, upon the terms and conditions set forth herein, ___________ shares of
Stock. Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Plan.
1. Exercise Price. The exercise price of the Options shall be $5.00 per
share during the period 12 months from the date of this Agreement and $6.00 per
share thereafter.
2. Limitation on the Number of Shares. If the Options granted hereby are
Incentive Stock Options, the number of shares which may be acquired upon
exercise thereof is subject to the limitations set forth in Section 5(a) of the
Plan.
3. Vesting Schedule. The Options are exercisable in accordance with the
following vesting schedule:
(a) 33.3% of the Options may be exercised after May 10, 2000.
(b) 66.6% of the Options may be exercised after May 10, 2001.
(c) 100% of the Options may be exercised after May 10, 2002.
The vesting of one or more outstanding Options may be accelerated by the Plan
Administrator at such times and in such amounts as it shall determine in its
sole discretion. The vesting of Options also shall be accelerated under the
circumstances described in Sections 5(m) and 5(n) of the Plan.
4. Options not Transferable. This Option and the rights and privileges
conferred by this Agreement may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise) other than
by will and by applicable laws of descent and distribution and shall not be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any Option or of
any right or privilege conferred by this Agreement contrary to the provisions
hereof, or upon the sale, levy or any attachment or similar process upon the
rights and privileges conferred by this Agreement, such Option shall thereupon
terminate and become null and void.
-1-
<PAGE>
5. Investment Intent. By accepting the Option, the Optionee represents and
agrees that none of the shares of Stock purchased upon exercise of the Option
will be distributed in violation of applicable federal and state laws and
regulations. In addition, the Company may require, as a condition of exercising
the Options, that the Optionee execute an undertaking, in such a form as the
Company shall reasonably specify, that the Stock is being purchased only for
investment and without any then-present intention to sell or distribute such
shares.
6. Termination of Employment and Options. Vested Options shall terminate,
to the extent not previously exercised, upon the occurrence of the first of the
following events:
(i) Expiration: May 10, 2005; except, that the expiration date of any
Incentive Stock Option granted to a greater than 10 percent (>10%)
shareholder of the Company shall not be later than five (5) years from
the Date of Grant.
(ii) Termination Due to Death or Disability: The expiration of one (1)
year from the date of the death of the Optionee or cessation of an
Optionee's employment or contractual relationship by reason of
Disability (as defined in Section 5(g) of the Plan). If an Optionee's
employment or contractual relationship is terminated by death, any
Option held by the Optionee shall be exercisable only by the person or
persons to whom such Optionee's rights under such Option shall pass by
the Optionee's will or by the laws of descent and distribution of the
state or county of the Optionee's domicile at the time of death.
(iii) Termination for Cause. The date of an Optionee's termination of
employment or contractual relationship with the Company or any Related
Corporation for cause (as defined in Section 5(n) of the Plan.
(iv) Termination for Any Other Reason: The expiration of ninety (90)
days from the date of an Optionee's termination of employment or
contractual relationship with the Company for any reason whatsoever
other than cause, death or Disability (as defined in Section 5(g) of
the Plan).
Notwithstanding the occurrence of one of the above events, the exercise period
of a Non-Qualified Stock Option may be extended by resolution of the Plan
Administrator until a date not later than the expiration date of the Option.
Each unvested Option granted pursuant hereto shall terminate immediately upon
termination of the Optionee's employment or contractual relationship with the
Company for any reason whatsoever, including death or Disability unless vesting
is accelerated in accordance with Section 5(f) of the Plan.
7. Stock. In the case of any stock split, stock dividend or like change in
the nature of shares of Stock covered by this Agreement, the number of shares
and exercise price shall be proportionately adjusted as set forth in Sections
5(m) of the Plan.
8. Change in Control.
(a) Subject to earlier termination under the terms and conditions set forth
in this Agreement, at the time of occurrence of any of the events (a "Change of
Control") described in Subparagraphs (i), (ii), (iii) and (iv) below, any and
all Options outstanding hereunder (each an "Eligible Option") shall become
immediately vested and fully exercisable for thirty (30) days beginning on the
applicable date specified below (the "Acceleration Window"):
(i) On the effective date of a registration statement filed by the
Company under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to an underwritten public
offering of Common Stock in which the total proceeds to the
Company are at least $10,000,000;
(ii) On the date on which any "Person" as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than a
shareholder of the Company on the date of this Agreement, the
Company, any subsidiary or employee benefit plan of the Company
-2-
<PAGE>
including any trustee of such plan acting as trustee) together
with all Affiliates and Associates of such Person, becomes, after
the date of this Agreement, the Beneficial Owner (as defined in
Rule 13d-3 under the Exchange Act) of fifty percent (50%) or more
of the shares of Common Stock then outstanding;
(iii)On the date that a tender or exchange offer for Common Stock by
any Person (other than the Company, any subsidiary of the
Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any
employee benefit plan) is first published or sent or given within
the meaning of Rule 14d-2 under the Exchange Act and continuing
so long as such offer remains open (including any extensions or
renewals of such offer), unless by the terms of such offer the
offeror, upon consummation thereof, would be the Beneficial Owner
of less than fifty percent (50%) of the shares of Common Stock
then outstanding; or
(iv) On the date on which the shareholders of the Company approve any
sale or exchange of Common Stock, any sale or exchange of assets
of the Company (other than in the ordinary course of business),
or any merger, statutory share exchange or other similar
transaction that results in a transfer of ownership or control of
more than fifty percent (50%) of the stock, voting power, assets
or business of the Company.
(b) The exercisability of any Eligible Option that remains unexercised
following expiration of an Acceleration Window shall be governed by the vesting
schedule and other terms of this Agreement.
9. Exercise of Option. Options shall be exercisable, in full or in part, at
any time after vesting, until termination. If less than all of the shares
included in the vested portion of any Option are purchased, the remainder may be
purchased at any subsequent time prior to the expiration of the Option term. No
portion of any Option for less than fifty (50) shares (as adjusted pursuant to
Sections 5(m) and (n) of the Plan) may be exercised; provided, that if the
vested portion of any Option is less than fifty (50) shares, it may be exercised
with respect to all shares for which it is vested. Only whole shares may be
issued pursuant to an Option, and to the extent that an Option covers less than
one (1) share, it is unexercisable.
Options or portions thereof may be exercised by giving written notice to
the Company (which may be in the form attached hereto as Exhibit A) which notice
shall specify the number of shares to be purchased and be accompanied by either:
(i) the aggregate exercise price in cash or by certified or cashier's
check. In addition, upon approval of the Plan Administrator, an
Optionee may pay for all or any portion of the aggregate exercise
price by delivering to the Company shares of Stock previously held by
such Optionee or, with the prior consent of the Plan Administrator, by
having shares withheld from the amount of Stock to be received by the
Optionee. The shares of Stock received or withheld by the Company as
payment for shares of Stock purchased on the exercise of Options shall
have a fair market value at the date of exercise (as determined by the
Plan Administrator) equal to the aggregate exercise price (or portion
thereof) to be paid by the Optionee upon such exercise; or
(ii) upon prior consent of the Plan Administrator, delivery of an
irrevocable subscription agreement obligating the Optionee to take and
pay for the shares of Stock to be purchased within one year of the
date of such exercise.
The Company shall not be obligated to issue, transfer or deliver a
certificate of Stock to any Optionee, or to his personal representative, until
the aggregate exercise price has been paid for all shares for which the Option
shall have been exercised and adequate provision has been made by the Optionee
for satisfaction of any tax withholding obligations associated with such
exercise. During the lifetime of the Optionee, Options are exercisable only by
the Optionee
-3-
<PAGE>
It is a condition precedent to the issuance of shares of Stock that the
Optionee execute and deliver to the Company a Stock Transfer Agreement, in a
form acceptable to the Company, to the extent required pursuant to the terms
thereof.
10. Holding Period for Incentive Stock Options. In order to obtain the tax
treatment provided for Incentive Stock Options by Section 422 of the Code, the
shares of Stock received upon exercising any Incentive Stock Options received
pursuant to this Agreement must be sold, if at all, after a date which is later
of two (2) years from the date this Agreement is entered into or one (1) year
from the date upon which the Options are exercised. The Optionee agrees to
report sales of such shares prior to the above determined date to the Company
within one (1) business day after such sale is concluded. The Optionee also
agrees to pay to the Company, within five (5) business days after such sale is
concluded, the amount necessary for the Company to satisfy its withholding
requirement required by the Code in the manner specified in Section 5(l)(2) of
the Plan. Nothing in this Section 11 is intended as a representation that the
Stock may be sold without registration under federal and state securities laws
or an exemption therefrom, or that such registration or exemption will be
available at any specified time.
11. Subject to the 1999 Stock Option Plan. The terms of the Options are
subject to the provisions of the Plan, as the same may be amended from time to
time, and any inconsistencies between this Agreement and the Plan, as the same
may be amended from time to time, shall be governed by the provisions of the
Plan, a copy of which has been delivered to the Optionee, and which is available
for inspection at the principal offices of the Company.
12. Professional Advice. The acceptance of the Options and the sale of
Stock issued pursuant to the exercise of Options may have consequences under
federal and state tax and securities laws which may vary depending upon the
individual circumstances of the Optionee. Accordingly, the Optionee acknowledges
that he or she has been advised to consult his or her personal legal and tax
advisor in connection with this Agreement and his or her dealings with respect
to Options for the Stock. Without limiting other matters to be considered, the
Optionee should consider whether upon the exercise of Options, the Optionee will
file an election with the Internal Revenue Service pursuant to Section 83(b) of
the Code.
13. No Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares covered by an Option until the Optionee
becomes a record holder of such shares, irrespective of whether the Optionee has
given notice of exercise. Subject to the provisions of Sections 5(m) of the
Plan, no rights shall accrue to the Optionee and no adjustments shall be made on
account of dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights declared on, or created in, the
Stock for which the record date is prior to the date the Optionee becomes a
record holder of the shares of Stock covered by the Option, irrespective of
whether the Optionee has given notice of exercise.
14. No Rights to Employment. Nothing contained in this agreement shall be
construed as giving any person any right to employment with the Company. The
grant of Options hereby shall in no way constitute any form of agreement or
understanding binding on the Company or any Related Corporation (as defined in
the Plan), express or implied, that the Company or any Related Corporation will
employ or contract with an Optionee for any length of time.
15. Entire Agreement. This Agreement is the only agreement between the
Optionee and the Company with respect to the Options, and this Agreement and the
Plan supersede all prior and contemporaneous oral and written statements and
representations and contain the entire agreement between the parties with
respect to the Options.
16. Notices. All notices and other communications required or permitted
under this Agreement must be in writing and will be deemed received and
effective upon the earlier of: (i) hand delivery to the recipient; (ii) one day
after posting by traceable air courier; (iii) two (2) days after posting by
certified or registered mail, postage prepaid, return receipt requested; or (iv)
when initially transmitted by facsimile transmission (if confirmed by notice
complying with (i), (ii) or (iii) above):
-4-
<PAGE>
(i) if to the Company:
Shopping Sherlock, Inc.
11201 S.E. 8th Street, Suite 152
Bellevue, WA 98004
Tel. (425) 372-3060
Fax (425) 372-3041
Attn: Patrick McGrath
(ii) if to the Optionee:
===========================
===========================
===========================
or to such other person or address as either of the parties will furnish in
writing to the other party from time to time.
17. Law and Jurisdiction. This Agreement is governed by the internal laws
of the state of Washington, U.S.A., without giving effect to any laws or
principles that would apply the laws of any other jurisdiction. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement may be brought against either of the parties in the
courts of King County, Washington, U.S.A., or, if it has or can acquire
jurisdiction, in the United States District Court for the Western District of
Washington, and each of the parties irrevocably consents to the non-exclusive
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on either party anywhere in the world.
18. Headings And Gender. The headings of the Sections of this Agreement
have been included for convenience of reference purposes only and will in no way
be interpreted to restrict or modify the terms of this Agreement. The use of
pronouns of any gender in this Agreement will include pronouns of all other
genders, as applicable.
19. Counterparts; Delivery by Facsimile. This Agreement may be signed in
counterparts, either one of which will be deemed to be an original and both of
which, when taken together, will constitute one and the same agreement. Delivery
of an executed counterpart of a signature page to this Agreement by telephone
facsimile transmission will be effective as delivery of a manually executed
counterpart of this Agreement.
20. Severability. Any term, condition or other provision of this Agreement
that is prohibited or unenforceable in any jurisdiction will be ineffective, as
to such jurisdiction, to the extent of such prohibition or unenforceability
without affecting the validity or enforceability of such term, condition or
provision in any other jurisdiction and without invalidating the remaining
terms, conditions and other provisions of this Agreement
21. Attorneys' Fees. In the event of litigation arising out of or in
connection with this Agreement, the prevailing party will be entitled to recover
from the other party all of its attorneys' fees and other expenses incurred in
connection with such litigation.
22. Parties in Interest. This Agreement may not be assigned or delegated by
either party without the consent of the other, except that this Agreement
(without the necessity of such consent) will be binding on and inure to the
benefit of any successors, and assigns of the Company or any Related
Corporation, whether by merger, consolidation, sale of assets or otherwise, and
reference herein to the Company will be deemed to include any such successor or
successors.
-5-
<PAGE>
SHOPPING SHERLOCK, INC., a
Florida corporation
By: --------------------------- -----------------------------
Optionee
Its: --------------------------
THERE MAY NOT BE PRESENTLY AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS FOR THE ISSUANCE OF
SHARES OF STOCK UPON EXERCISE OF THESE OPTIONS. ACCORDINGLY, THESE OPTIONS
CANNOT BE EXERCISED UNLESS THESE OPTIONS AND THE SHARES OF STOCK TO BE ISSUED
UPON EXERCISE OF THESE OPTIONS ARE REGISTERED OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE.
THE SHARES OF STOCK ISSUED PURSUANT TO THE EXERCISE OF OPTIONS WILL BE
"RESTRICTED SECURITIES" AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT OF 1933
AND WILL BEAR A LEGEND RESTRICTING RESALE UNLESS THEY ARE REGISTERED UNDER STATE
AND FEDERAL SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THE
COMPANY IS NOT OBLIGATED TO REGISTER THE SHARES OF STOCK OR TO MAKE AVAILABLE
ANY EXEMPTION FROM REGISTRATION.
-6-
<PAGE>
EXHIBIT A
Notice of Election to Exercise
This Notice of Election to Exercise shall constitute proper notice pursuant
to Section 5(h) of the Shopping Sherlock, Inc. 1999 Stock Option Plan (the
"Plan") and Section 8 of that certain Stock Option Agreement (the "Agreement")
dated as of the ____ day of __________ between Shopping Sherlock, Inc. (the
"Company") and the undersigned.
The undersigned hereby elects to exercise Optionee's option to purchase
__________ shares of the common stock of the Company at a price of $__________
per share, for aggregate consideration of $______, on the terms and conditions
set forth in the Agreement and the Plan. Such aggregate consideration, in the
form specified in Section 8 of the Agreement, accompanies this notice.
The undersigned has executed this Notice this ____ day of __________, 19__.
--------------------------------------------
Signature
--------------------------------------------
Name (typed or printed)
-7-
Exhibit 10.3
STRATEGIC ALLIANCE AGREEMENT:
ECOMMERCE, MARKETING AND OPERATIONS
This ecommerce, marketing and operations agreement (the "Agreement") is made
this 4th day of February, 1999 ("Effective Date"), by and between Shopping
Sherlock, Inc., a Delaware corporation, having its principal place of business
at, 24254 San Fernando Road, Newhall, CA, 91321 ("Sherlock") and Premier
Lifestyles International Corp. (PLIC) a California corporation, having its
principal place of business at 24254 San Fernando Road, Newhall, CA, 91321. Each
entity shall hereafter be referred to as a "Party" and jointly as the "Parties."
R E C I T A L S
I. PLIC is a retail and marketing services company with numerous
operations in market segments such as consumer membership,
discount and rebates, point-of-sale systems, check conversion
processing, and web site development and hosting. PLIC has a
large number of existing customer, merchant, fulfillment and
marketing relationships.
II. Sherlock is an ecommerce company focused on providing value
discounts and purchase rebates to its online customers.
III. The Parties desire to allow each others customers access to each
others shopping malls that will consist of merchants that both
parties will enlist to be part of both parties malls.
IV. The Parties also desire to cooperate in issuing rebate cards to
customers, expanding services to existing customers, increasing
the total number of customers and adding to the number of
merchants marketing goods and services through each party's
ecommerce sites.
Now, Therefore, the Parties desire to set forth the terms and
conditions of their agreement with respect to the matters set
forth herein.
1. DEFINITIONS
1.1 "Advertisement" shall mean any promotion or sponsorship of a product
or service on or in conjunction with the Joint Site including, but not
limited to banner advertisements, links, and notification emails, for
which monetary consideration or its equivalent is received.
1.2 "Advertising Net Revenues" shall mean all monetary consideration
actually received for Advertisements, less: (a) ad rep commissions
(not to exceed 15%); (b) ad serving fees, and (c) any sales or use
taxes (not directly paid by advertisers to the applicable taxing
authority) attributable to such Advertisements.
1.3 "Affiliates" shall mean any entity on or after the Effective Date
controlling, controlled by or under common control with a Party. The
term "control" herein shall mean the legal, beneficial or equitable
ownership, directly or indirectly of more than fifty percent (50%) of
the aggregate of all voting equity in such entity.
1.4 "Affinity Group" shall mean a particular group of commonly-denominated
individuals or entities marketed to based on such commonality in
connection with Rebate cards or other promotional efforts of the
Parties. Merchant groups shall be included in the definition of
Affinity Groups.
-1-
<PAGE>
1.5 "Benefit" shall mean i) prepaid and rechargeable telephone calling
cards; ii) prepaid and rechargeable telephone calling cards at the
point of sale at the Merchant; iii) SCORE EFT number/card, benefit
program, and reciprocal rebate card; iv) Interactive Voice Recognition
Telephone calling platform with Benefits program; and v) SCORE EFT,
VISA, Master, and Rebate card.
1.6 "Customer" shall mean a purchaser of goods through any site operated
by Sherlock or PLIC.
1.7 "Customer Data" shall mean customer names, addresses, buying history,
and other supplied or gathered information.
1.8 "Derivative Work" shall mean any work that would be deemed a
derivative work under the Copyright Act, Title 17 of the U.S. Code, as
amended.
1.9 "Helpdesk" shall mean the Customer support services as described in
Section in this agreement.
1.10 "Intellectual Property Rights" shall mean any and all rights in any
jurisdiction in connection with any patents, whether issued, pending
or prospective, copyrights, trade secret rights, database rights,
trademarks, service marks, trade dress, moral rights and/or other
proprietary rights.
1.11 "ISO" shall mean Independent Sales Organization that is signed by an
independent or company to market products and services of PLIC.
1.12 "ISR" shall mean Independent Sales Representative, which in turn is
understood to be a trained sales person who works for an ISO.
1.13 "IVR" shall mean the interactive voice recognition telephone product
sales operation of PLIC.
1.14 "Joint Site" is a World Wide Web site that PLIC and Sherlock will
jointly create, operate, link to, and share as defined in section 5.3
below.
1.15 "Marks" shall mean either Party's domain names, logos, trademarks
and/or service marks, whether owned or licensed from a third party.
1.16 "Internet Merchant" shall mean a merchant that offers goods or
services for sale through either of the Parties, only via the
Internet.
1.17 "Merchant Account" shall mean an account that is set up to clear
credit card transactions originating on Sherlock's ecommerce site.
1.18 "Most-Favored Price" shall mean that the price offered to the Party
receiving such treatment shall be at least as low as the lowest price
offered to any third party, or offered by PLIC itself, for the same or
similar goods or services. Most Favored Pricing applies only to
merchandise offered for sale on the Internet shopping malls and does
not apply to Point of Sale goods and services, which are governed by
the ISO agreement.
1.19 "PLIC" shall mean Premier Lifestyles International Corporation and any
and all divisions and subsidiaries of which PLIC and Richard Stewart
own more than 50%, or entities that PLIC or Richard Stewart control
through the Board of Directors or as officers of the company. It is
understood that Richard Stewart is free to join the board of directors
of
-2-
<PAGE>
any entity he chooses and his presence does not constitute control. If
Richard Stewart is the Chairman of the Board or the CEO of the entity
in question, this would constitute control.
1.20 "PLIC Sites" shall mean PLIC's currently existing ecommerce sites at
www.source4shopping.com and www.source4rebates.com, and any future or
successor sites thereto.
1.21 "Product Fulfillment" shall mean the processing of product orders,
placing such orders with the product supplier, shipping such products,
tracking such shipments and handling any product returns.
1.22 "Point of Sale" shall mean the cash registers located at brick and
mortar retail merchants and Point of Sale Goods and Services is
understood to mean the products sold by these merchants at these
establishments.
1.23 "Rebate Customer" shall mean either Party's Customer that is also a
participant of such Party's Rebate Program.
1.24 "Reciprocal Rebate Program" or "Rebate Program" shall mean either
Party's rebate-card based program whereby the Party's Customers
receive a portion of a product purchase price back in connection with
the Transaction Clearance of the Customer's purchase, in accordance
with the ISO agreement and the reciprocal rebate agreement.
1.25 "Score" shall mean PLIC's Score division responsible for certain
Rebate Card and Transaction Clearance activities SCORE is the
reciprocal logo put on all of the ISO's membership cards that are
private labeled as well as PLIC's own membership card that is called
the SOURCE card.
1.25 "Separate Operations" shall mean the services and operations provided
to Sherlock by PLIC to support it's ecommerce mall. These services
include, but are not limited to, Rebate Card supply, Rebate Card
activation and tracking, Rebate clearing, setting up of merchant
account, and ISP services if needed.
1.26 "Sherlock Site" shall mean Sherlock's ecommerce site.
1.27 "Sherlock ISR" shall mean any and all ISRs set up by Sherlock to
participate and pursue the PLIC Reciprocal Rebate Program. No ISO may
set up another ISO, any ISO may set up a Independent Sales
Representative "ISR" who may set up merchants for various levels of
PLIC products and services. All ISR's must be certified by PLIC before
they are allowed to set up a merchant for any service.
1.28 "Source" shall mean PLIC's membership card that is used by any ISO who
chooses not to create a private labeled membership program and chooses
to use PLIC's generic program, called SOURCE.
1.29 "Term" shall mean the valid term of the Agreement, whether initial or
renewal.
1.30 "Transaction Clearance" shall mean financial processing and bank
and/or credit card clearance of purchases made by Customers.
1.31 "Reciprocal Rebate Program Agreement" is an agreement signed by a PLIC
ISO that all merchants and card holders established by that ISO will
be part of the rebate program. This agreement also acknowledges that
that ISO agrees that other ISO's card holders
-3-
<PAGE>
are able to use that ISO's merchants as well as that ISO's cardholders
my use other ISO's merchants.
1.32 "Wholesale Manufacturer" this is a company that produces the product
and can be set up any way possible by Sherlock. Sherlock is
responsible for any custom software that that manufacture is required
for linking, and purchase and rebate tracking.
2. SCOPE AND LIMITATIONS OF AGREEMENT:
2.1 The agreement governs the terms and conditions under which PLIC and
Sherlock will cooperate to sell product from Sherlock's online
ecommerce site only. Any Relationships between Sherlock and merchants
with regard to the merchant's point of sale will be governed by the
standard PLIC ISO agreement and the reciprocal rebate agreement.
2.2 This agreement shall not preclude PLIC from entering into similar
agreements with other entities. In fact, Sherlock is aware that PLIC
owns and supports other competing ecommerce sites and that this
agreement is not exclusive between PLIC and Sherlock.
3. RECIPROCAL REBATES:
3.1 Sherlock's Commitment: Sherlock agrees to participate in the
Reciprocal Rebate program with PLIC and sign an ISO agreement and
recruit ISR's to market the PLIC programs. Sherlock agrees that any
Sherlock ISR's will also be bound by this agreement. Sherlock ISR's
agree that every card member and merchant that the ISR sets up will be
set up with the SCORE rebate program as a Reciprocal Rebate merchant.
Sherlock ISR's will also use the ISR's best efforts to set up all of
the merchants the ISR already has with the Reciprocal Rebate Program.
All Sherlock ISRs agree that as long as the ISR's are marketing card
Members and Merchants to participate in rebates, and benefits
programs, ISO will exclusively use PLIC as ISO's provider for packaged
benefits, and financial services minus any that have been excluded in
a listing attached hereto or on the reciprocal rebate agreement. All
Sherlock ISRs agree that all of the cards the ISRs sell will be rebate
cards and have the SCORE rebate logo on it.
3.2 Reciprocation: Sherlock as an ISO and all Sherlock ISRs agree to
reciprocate with all other card providers and companies that provide
cards to the public and set up merchants, and all other marketing
company's Members and Merchants that use the SCORE Logo. Sherlock's
ISRs agree to participate and apply the cost and pricing formulas as
defined in the ISO agreement.
3.3 Program Exclusivity: Throughout the term of this agreement, Sherlock
as an ISO and all Sherlock ISR's agree to exclusively sell and market
PLIC services. Sherlock and Sherlock ISR's agree that no similar
service, products, or programs may be offered by ISR during the term
of this agreement and for a period of 3 (three) years after the
termination of this agreement. It is acknowledged by PLIC that
Sherlock ISR's could be currently in the business of marketing
products that are similar to one or more of the SOURCE services and
these services, products, will be excluded from the exclusivity part
of this agreement. The product list on the PLIC web
sitewww.soucreclub.com contains the products that are sold by PLIC and
any exemption from the exclusivity must be approved by PLIC when the
ISR signs the Reciprocal Rebate agreement.
3.4 Rebate and Non-Rebate Purchases: Sherlock will pay PLIC it's
percentage due as defined in the Pricing Section 10 when a rebate card
holder purchases a product or service from Shopping Sherlock's
ecommerce sites. If the buyer holds no rebate card, Sherlock will pay
PLIC an amount as defined in the Pricing Section 10.4.
-4-
<PAGE>
4. BENEFITS: If Sherlock sells Benefits, it will sell only those offered by
PLIC, or those that PLIC sells itself.
5. SITE CREATION, MANAGEMENT AND HOSTING:
5.1 Design and Content of Sherlock Site: Except as specifically agreed
herein, Sherlock shall have sole and exclusive control over the
design, content, hosting and management of the Sherlock Site.
(a) Hosting by PLIC: Sherlock intends to use the service providers
and vendors employed by PLIC in PLIC's Sites, but reserves the
right to choose its own service providers and vendors.
(b) If Sherlock chooses to become an ISP, Sherlock will use PLIC to
set up the ISP program and service all of the Sherlock ISP
members, provided that PLIC's ISP services and prices are
competitive. PLIC has the first rights to match any competitors
bid. Sherlock's mall operations are a completely separate matter.
5.2 Design and Content of PLIC Sites: Except as specifically agreed
herein, PLIC shall have sole and exclusive control over the design,
content, hosting and management of the PLIC Sites.
5.3 Joint Site: The Parties shall cooperate on a Joint Site as follows:
(a) Creation and Operation: The Parties shall be jointly responsible
for the design, content, hosting and management of a Joint Site.
The Parties anticipate that the Joint Site shall be hosted by
PLIC.
(b) Promotion: The Joint Site shall feature information on both the
Sherlock Site and PLIC Sites.
(c) Linking: The Joint Site shall feature links to both the PLIC
Sites and the Sherlock Site. The Parties shall receive equal
space on such Joint Site.
(d) Server Logs: The Parties shall jointly own the server logs from
such site and there shall be no restriction on either Party's use
of such data, except in connection with deceptive sales
practices, misrepresentation, or unfair competition in any manner
that would violate any law or regulation or result in a loss of
either Party's Customer Goodwill. All restrictions that relate to
client protection of other ISO members are totally protected by
the non circumvention in this agreement and neither party has the
right to use financial or other data pertaining to those members
or to attempt in any way to induce an ISO member to change
affinity group or ISO affiliation.
(e) Advertising Net Revenues: The Parties agree to share equally in
the Advertising Net Revenues from such Joint Site. Whichever
Party shall assume responsibility for ad sales, invoicing and
accounting in connection with such Joint Sales shall provide
quarterly reports to the other Party, with payments made as
required therewith.
(f) Customers: Any customers that come to the joint site that are
refered by another ISO or affinity group must be protected and
not in any way to induced to change affinity group or ISO
affiliation.
-5-
<PAGE>
6. MERCHANTS:
6.1 PLIC Merchants: PLIC shall provide Sherlock with its entire list of
Internet Merchants offering goods or services through PLIC. PLIC shall
also provide Sherlock with all necessary information that will enable
Sherlock to offer the goods and services of such Merchants for sale on
the Sherlock Site. This agreement entitles Sherlock the rights to use
any merchant's products that PLIC introduces to Sherlock. PLIC will
also provide to Sherlock the list of all POS merchants as they sign up
from other ISO's.
(a) Merchant Database: PLIC shall provide Sherlock with the best
access and use rights possible to Merchant databases of goods and
services. The Parties anticipate that such access might occur by
providing Sherlock with a functioning current copy of such
database, an electronic and hard copy of the underlying contents
of such database, the ability to link into a database maintained
by PLIC, and/or the ability to collocate an operational database
on PLIC's premises.
(i) Data Agreements: In connection with Sherlock's access and
use of such databases and the contents therein, Sherlock
agrees to abide by any data agreements in place between PLIC
and its Merchants.
(b) New Merchants: If PLIC adds any Internet Merchants to its
Merchant list, PLIC shall promptly notify Sherlock and shall
ensure that Sherlock receives access and use rights to such new
Merchant's database that are equal with PLIC's rights. In
addition, PLIC shall use its best efforts to obtain for Sherlock
rights equal to the rights granted to PLIC with respect to
selling, product and pricing rights from such new Merchants.
Sherlock acknowledges and agrees that other ISO's may bring PLIC
products and merchants that will only be available to that ISO or
may only be available on another mall and the only rights that
PLIC may allow Sherlock is the reciprocal rights for all of the
Sherlock card holders to shop on those malls or stores.
(c) Database Updates: PLIC shall ensure that the Merchant databases
it provides to Sherlock shall be PLIC's most current version and
PLIC shall use its best efforts to ensure that PLIC's Merchants
provide PLIC with the most current databases available.
(d) Lowest PLIC Price: PLIC guarantees that PLIC's Merchant prices to
Sherlock shall be no greater than the Merchant's price to PLIC.
If such pricing is unavailable, PLIC shall disclose the reason
for such unavailability to Sherlock and PLIC shall guarantee
Sherlock its lowest Merchant prices to any third party or the
price for which PLIC itself buys the product, which ever is
lower. Such lowest price shall be determined on a strict
dollar-for-dollar basis, with the exact commitments that are
required by PLIC to obtain these prices. All fees that are
required for holding inventory by merchants including shipping
and handling will be paid for by Sherlock on purchases made by
Sherlock members or shoppers on the Sherlock mall provided these
same fees apply to PLIC.
(e) Lowest Merchant Price: PLIC shall use its best efforts to ensure
that the Merchant prices to PLIC shall be the Merchant's lowest
prices to any entity. Sherlock also agrees and understands that
PLIC is in the business of gaining access to millions of products
and PLIC may choose to market a product that is not at the
guaranteed lowest price. Sherlock has the rights to use those
products if they are not restricted from special ISO or merchant
requirements.
-6-
<PAGE>
(f) Collateral Materials: In connection with Sherlock's Site, and if
available from Merchant, if Sherlock requests any product
marketing material, including graphics, product descriptions or
other collateral, PLIC shall provide such materials to Sherlock
at cost. PLIC is not required to spend money and resources to
gain access and organize collateral materials, but if they are
available to PLIC, PLIC will ensure they are also available to
Sherlock. If PLIC is not in possession of such materials, PLIC
shall make a limited effort to obtain such materials from its
Merchants and/or authorize Sherlock to contact such Merchants
directly. Should PLIC expend significant resources obtaining
collateral materials, Sherlock agrees to pay PLIC a modest fee to
help defray PLIC's cost, and thereby gain full and complete
access and usage rights to the collateral materials.
(g) Any fees or cost that may be incurred by PLIC in obtaining any
data or updates or copies or needed information as a special
request by Sherlock as required in this section or any other
section of this agreement will be paid for by Sherlock as
required.
6.2 Sherlock Merchants:
(a) New Merchants: Sherlock shall be free to solicit and sign up any
new Merchants it desires. If Sherlock signs up any new Merchant,
that Merchant shall belong to Sherlock. PLIC agrees to not
circumvent Sherlock with respect to that Merchant by approaching
such Merchant directly and/or entering into any agreement with
such Merchant for ecommerce. PLIC is not responsible for the
solicitations of other ISOs and Sherlock acknowledges that other
ISOs have the right to solicit Sherlock's merchants.
7. PRODUCT FULFILLMENT AND TRANSACTION PROCESSING:
7.1 Product Fulfillment Via Source:
(a) Sherlock Commitment: Subject to the further requirements set
forth below, Source shall be Sherlock's sole product fulfillment
service provider with respect to products sold on Sherlock's
Site. However, if a Merchant forbids Sherlock from using PLIC,
then Sherlock reserves the right to accommodate such Merchant by
notifying PLIC of the Merchant's preferred product fulfillment
method and then proceeding to attempt to accommodate the
Merchant's requests.
(b) Product Orders: Sherlock and PLIC agree to notify and track all
purchases through a mutually accessible order tracking system
that is accessible to the Helpdesk.
(c) PLIC Obligation: PLIC shall exercise its best efforts in
providing the highest quality services to Sherlock.
(d) PLIC's Cost: PLIC shall provide such services to Sherlock at PLIC
cost for such services under its relationships with jobbers.
(e) Sherlock's Payment to PLIC: Sherlock will pay PLIC in accordance
with the pricing and rebate division parameters set fourth in the
pricing section 10 as well as in the ISO agreement and the
reciprocal rebate agreement.
-7-
<PAGE>
(f) Performance Levels: PLIC has a variety of products and services
that will be delivered to Sherlock members which fall under
Separate Operations. If at any time, Sherlock or Sherlock's
Customers are not satisfied with the level of responsiveness,
accuracy or service provided by any one of the PLIC Separate
Operations, Sherlock will notify PLIC by certified mail and
request that PLIC rectify the operation that is having problems.
If for any reason PLIC cannot rectify the performance problems of
the Separate Operation in trouble within 60 days after notice
through certified mail, the following procedure will be used to
correct the deficiencies:
i) The value of the Separate Operation" needing to be fixed
will be valued. If PLIC and Sherlock cannot agree on the
value, the average of three estimates from outside unbiased
consultants will be used as the fair value.
ii) Sherlock will then proceed to use its best business judgment
to rectify the deficiencies and provide PLIC with the costs
in time and capital expended to fix the problem.
iii) Upon fixing the problem, Sherlock's ownership of the
Separate Operation will equal the total costs expended by
Sherlock to fix the problem, divided by the value agreed to
in Section 7.1(g)(I) above. Sherlock will participate fully
in proportion to its ownership percentage in all profits and
losses of the operation.
iv) The jointly owned Separate Operation may be held in a
separate vehicle from PLIC and Sherlock's other operations
and may need to support it's own accounting procedures and
reporting.
7.2 Transaction Processing:
(a) Sherlock Commitment: Subject to the further requirements set
forth below, PLIC shall be Sherlock's sole Transaction Processing
service provider with respect to purchases on Sherlock's Site.
Sherlock shall have no obligation to use PLIC in connection with
any Sherlock Merchants if Sherlock finds that PLIC is not the low
cost provider of such services or if the Sherlock Merchant has a
preexisting relationship with another Transaction Processor and
requires as a condition of doing business that Sherlock use the
Merchants preferred processor.
(b) PLIC Obligation: PLIC shall exercise its best efforts in
providing the highest quality services to Sherlock.
8. HELPDESK:
In connection with the Sherlock Site, the PLIC Sites, the Joint Site and as per
questions from customers as per their rebates, Sherlock and PLIC shall jointly
establish a Helpdesk to provide first-level support to the Parties' Customers in
connection with first-time Customer orders, shipping to Jobbers, calculating,
changing and tracking orders. The Helpdesk will service only PLIC owned and
controlled ecommerce sites such as Source4Shopping, and Sherlock owned and
operated ecommerce sites such as Shopping Sherlock. Third-party usage of the
helpdesk will only occur if PLIC and Sherlock agree to giving a third party
access, the terms of which will be determined on a case-by-case basis.
8.1 Start-Up Cost: The Parties shall jointly and equally be responsible
for all capital and startup costs in connection with the Helpdesk.
8.2 Ongoing Cost: The Parties agree that the ongoing cost of operating the
Helpdesk shall be billed each month to the Parties on a pro-rata basis
according to the number of each
-8-
<PAGE>
Party's Customers separate orders that are serviced through such
Helpdesk. In dividing the Helpdesk costs, length of time spent on any
order, the number of calls or size of the Customer order shall not be
included as factors.
8.3 Operation: The Parties agree that they shall jointly manage and be
jointly responsible for the various operations of the Helpdesk. Such
responsibility shall include staffing, location, equipment, business
processes and other such matters involved in the operation of an
outsourced support center. The Parties shall each designate Helpdesk
supervisors, who each shall be responsible for that Party's Helpdesk
operations.
9. REBATE CARDS: The following provisions shall apply to the Parties use of
Rebate Cards:
9.1 Provision of Sherlock Rebate Cards: PLIC, through its Reciprocal
rebate program, shall sell Sherlock Rebate Cards for Sherlock
Customers and/or Affinity Groups as Sherlock may request, per the
terms and conditions of the ISO and reciprocal rebate agreement from
PLIC. Sherlock shall have sole discretion and control as to the color,
content and character of such Rebate Cards. Sherlock shall be
permitted to issue its own branded Rebate Card.
(a) At Cost or Most-Favored Price: PLIC shall provide Sherlock such
Rebate Cards at PLIC's current pricing per the other ISO programs
and give Sherlock the option to market rebate cards per the best
option that Sherlock chooses after inspecting all other PLIC ISO
pricing and rebate programs. PLIC must provide Sherlock with a
complete list of the various pricing options that PLIC's ISOs and
Affinity Groups employ. PLIC does not have to provide to Sherlock
its file of all ISO agreements, but PLIC must present all pricing
options.
(b) Sherlock Commitment: Subject to the further requirements set
forth below, PLIC's "SCORE" shall be Sherlock's sole Rebate Card
program and provider.
(c) PLIC Obligation: PLIC shall exercise its best efforts in
providing the highest quality Rebate Card services to Sherlock.
(d) Performance Levels: PLIC has a variety of products and services
that will be delivered to Sherlock members which fall under
Separate Operations. If at any time, Sherlock or Sherlock's
Customers are not satisfied with the level of responsiveness,
accuracy or service provided by any one of the PLIC Separate
Operations, Sherlock will notify PLIC by certified mail to
request that PLIC rectify the operation that is having problems.
If for any reason PLIC cannot rectify the performance problems of
the Separate Operation in trouble within 60 days after notice
through certified mail, the following procedure will be used to
correct the deficiencies:
i) The value of the Separate Operation needing to be fixed will
be valued. If PLIC and Sherlock cannot agree on the value,
the average of three estimates from outside unbiased
consultants will be used as the fair value.
ii) Sherlock will then proceed to use its best business judgment
to rectify the deficiencies and provide PLIC with the costs
in time and capital expended to fix the problem.
iii) Upon fixing the problem, Sherlock's ownership of the
Separate Operation will equal the total costs expended by
Sherlock to fix the problem, divided by the value agreed to
in Section 7.1(g)(I) above. Sherlock will participate
-9-
<PAGE>
fully in proportion to its ownership percentage in all
profits and losses of the operation.
iv) The jointly owned Separate Operation may be held in a
separate vehicle from PLIC and Sherlock's other operations
and may need to support it's own accounting procedures and
reporting.
9.2 Rebate Card Services: Score shall provide Rebate Card administration
services to Sherlock as follows:
(a) Equal Treatment: PLIC shall treat Sherlock's Rebate Customers in
a manner equal to the treatment PLIC accords its most preferred
Rebate Card Customers.
(b) Unique Number: PLIC shall assign each Rebate Card a separate
number and keep track of each Rebate Card in a database.
(c) Credit Allocation: In connection with the Transaction Processing,
PLIC shall coordinate, account for and make any and all Rebate
payments to Sherlock Rebate Card Customers.
(d) Validation: PLIC at some time in the future shall maintain a 24x7
joint electronic database on Sherlock Rebate Cardholders whereby
Sherlock may validate any Rebate Card issued by Sherlock. Such
database shall also include all Sherlock Site sales. Such system
may be located on PLIC servers but Sherlock shall own the
Customer Data for Sherlock's members only in such databases and
have full and complete, unrestricted access to such databases.
Such databases shall allow for the creation and printing of
purchase history reports.
(e) Statements: PLIC shall generate monthly statements on all Rebate
Card activity and provide such statements in a form acceptable to
Sherlock on the 19th day of the previous months business. This
statement will only include reports from all activities and
earnings from merchants and transactions that have been received
by the end of that previous month. Any business that is not paid
for or collected by the end of that month will go on the next
months reports, provided it is collected from the merchants.
9.3 Reciprocity: On the Sherlock Site and the PLIC Sites, each Party
agrees to honor Rebate Cards issued by the other Party in accordance
with the terms on this Agreement.
9.4 Non-Restriction: Nothing in this Agreement shall restrict Sherlock
from providing any other discount coupons, certificates, rewards
and/or customer loyalty incentives to its Customers. However, Sherlock
agrees that during the term of the Agreement, it shall not participate
in any other reciprocal rebate programs.
10. PRICING, REVENUE ALLOCATION AND REBATE SPLIT
10.1 No Pricing Restraint: Sherlock can determine at its sole discretion
the pricing of all goods and services sold through Sherlock's Site,
however, no matter how the product is priced the following rules apply
to total rebate percentages and to the division of the rebate
percentage among the interested parties:
a) If a purchase is made by a customer holding a valid and
recognizable Rebate Card, the rebate will be allocated according
to the percentages in section 10.3 below.
-10-
<PAGE>
b) If a purchase is made by a customer not holding a valid and
recognizable Rebate Card the Rebate will be paid according to the
percentages in section 10.4 below.
10.2 Revenue Allocation for Purchase made with Rebate Cards: The Parties
agree that Sales Expenses (credit card costs, Transaction Processing
costs and Rebates) shall be allocated to the Parties as follows and
are binding and "b" for the rebate is always figured per the formula
below.
(a) Assumptions for Sales Expenses Formula:
"X" is the Cost of Goods from the Merchant; including any fees
or profits that a merchant is requiring such as but not
limited to shipping and handling.
"Y" is the cost of Credit Card Clearing transactions, assumed to
be approximately 3.5 percent of the total sale.
"a" is the Wholesale/retail spread after credit card
transaction costs and wholesale cost of goods expressed
as a percentage of the retail price;
"b" is the Rebate costs expressed as a percentage of the
retail price; and
"c" is Wholesale/retail spread after Rebate costs expressed
as a percent of the retail price.
"Z" is Sherlock's retail price (comprised of X + Y + bZ+ cZ).
(b) Sales Expenses Formula: Under the assumptions in Section 9.2(a)
above, Sales Expenses shall be calculated as follows:
"Y" equals 3.5% of Z
"a" varies depending on how much Sherlock marks up it's
products.
"b" equals 50 percent of "a", but has a maximum limit of 20
percent of the retail cost of the item sold.
"c" equals 50 percent of "a" plus whatever f remains when
"b" reaches it maximum of 20 percent of the retail cost of
the item.
(c) Sherlock's Margin: After deducting X (Cost of Goods) and Y (Sales
Expenses) from Z (Retail Price), Sherlock shall split the
remaining amount into its retail margin and its Rebate
percentage.
(d) Processing and Rebate Allocation for Rebate Card Purchases:
Although nothing restrains Sherlock from setting its own retail
price to Customers, Sherlock agrees that for any Rebate Card
sale, PLIC and the independent sales organization, under the
provisions and percentages of Sections 10.3 below, shall receive
their respective proportion of the rebate.
(e) Processing and Sales Commission for Non-Rebate Card Purchases:
Although nothing restrains Sherlock from setting its own retail
price to Customers, Sherlock agrees that for any Non-Rebate Card
sale, PLIC and the independent sales
-11-
<PAGE>
organization, under the provisions and percentages of Sections 10.4
below, shall receive their respective proportion of the rebate. PLIC
is responsible for paying the ISO's for a non-rebate purchase.
10.3 Rebate Purchase Formula: One hundred percent of each Rebate, "b" as
defined above, shall be divided as follows:
(a) 25% to the Rebate Customer;
(b) 30% to PLIC for processing the Rebate;
(c) 30% to Rebate Card issuer (either Sherlock, PLIC or an Affinity
Group);
(d) 10% to the ISO that signed up the Merchant and product; and
(e) 5% to the Ecommerce Site operator (PLIC).
10.4 Non-Rebate Purchase Formula: One hundred percent of each Rebate, "b"
as defined above, shall be divided as follows:
(a) 25% to Sherlock; and
(b) 75% to PLIC.
10.5 Exhibit 7.5 is attached and shows four examples of how these pricing
formulas work when applied to products that have a wholesale cost of
$100. Examples 1 and 2 represent the purchase by a rebate card holder
of the product with a 50 percent mark up and a 100 percent mark up.
Examples 3 and 4 represent the purchase by a non-rebate card holder of
the product with a 50 percent, and a 100 percent, mark up.
11. LINKING AND OTHER MARKETING
11.1 Linking:
(a) Main Mall "Source4Shopping": PLIC shall include a link to the
Shopping Sherlock site on the Source4shopping site. Such link
shall be on face page of the Source4Shopping site with all of the
other many links.
(b) PLIC ISP hosting: PLIC shall include a link to the Joint Site
from all ISP hosted sites unless the ISP disapproves. .
11.2 Other Marketing:
(a) Affinity Groups: PLIC shall notify all Affinity Groups and
Affinity Group members of Sherlock's Site. The Parties shall
consider whether to send email announcements or promotions via
direct mail.
(b) Guardian: In the event that PLIC concludes an agreement with
Guardian, PLIC shall market the Joint Site to Guardian members.
PLIC shall include a link to the Joint Site on the Guardian face
page.
-12-
<PAGE>
(d) Seeding: Within a reasonably prompt time after the Effective Date
or the implementation of the Sherlock Site, PLIC shall place
links to Sherlock's Site on all search engines and directories
wherever PLIC lists its own rebate site.
12. OWNERSHIP
12.1 Ownership of Sherlock Marks: As between Sherlock and PLIC, PLIC
acknowledges that Sherlock is the sole and exclusive owner of all
right, title and interest in and to the Sherlock Marks.
12.2 Ownership of PLIC Marks: As between Sherlock and PLIC, Sherlock
acknowledges that PLIC is the sole and exclusive owner of all right,
title and interest in and to the PLIC Marks.
12.3 Ownership of Sherlock Site: As between Sherlock and PLIC, PLIC
acknowledges that Sherlock is the sole and exclusive owner of all
right, title and interest in and to all Intellectual Property rights
with respect to: (a) all graphic, textual, audio and audiovisual
content on the Sherlock Site, excluding only the PLIC Marks; (b) all
underlying programming and coding to such site; and (c) any
modifications to the foregoing or Derivative Works created therefrom.
12.4 Ownership of PLIC Sites: As between Sherlock and PLIC, Sherlock
acknowledges that PLIC is the sole and exclusive owner of all right,
title and interest in and to all Intellectual Property rights with
respect to: (a) all graphic, textual, audio and audiovisual content on
the PLIC Sites, excluding only the Sherlock Marks; (b) all underlying
programming and coding to such sites; and (c) any modifications to the
foregoing or Derivative Works created therefrom.
12.5 Ownership of Joint Site: As between Sherlock and PLIC, the Parties
acknowledge that the Parties are joint owners of all right, title and
interest in and to all Intellectual Property rights with respect to:
(a) all graphic, textual, audio and audiovisual content on the Joint
Site, excluding only each Party's Marks; (b) all underlying
programming and coding to the Joint Sites; and (c) any modifications
to the foregoing or Derivative Works created therefrom.
12.6 Ownership of Customer Data: As between the Parties, each Party shall
own the Customer Data of its own Customers. Neither Party may disclose
or sell such Customer Data to any third party. This ownership is the
same on the joint site where data pertaining to all memberships are
owned and controlled by the ISO who owns the cardholder. Sherlock can
not use this data to market to any other ISO's members without special
written consent.
12.7 Ownership of Anonymous Purchase and Rebate Card Data: As between the
Parties, each Party shall own the anonymous purchase and Rebate Card
Customer Data it gathers from the other Party's Customers in
connection with any purchase and/or Rebate Card activity by such
Customers. There are restrictions on both Party's use of such data,
per the terms and conditions of the ISO agreement and the reciprocal
rebate agreement.
13. LICENSES
13.1 Trademark License to Sherlock Marks: During the Term and subject to
the terms and conditions of this Agreement, Sherlock grants PLIC a
non-exclusive, non-sublicenseable license to use Sherlock's Marks in
links to and advertisements and promotions for the Sherlock Site and
Joint Site.
-13-
<PAGE>
13.2 Trademark License to PLIC Marks: During the Term and subject to the
terms and conditions of this Agreement, PLIC grants Sherlock a
non-exclusive, non-sublicenseable license to use the PLIC Marks on the
Sherlock Site and Joint Site.
13.3 Trademark Restrictions. The trademark owner may terminate the
foregoing trademark licenses if, in its sole discretion, the
licensee's use of the marks does not substantially conform to the
owner's reasonable standard of quality. The licensee shall use the
marks exactly in the form provided, in accordance with any trademark
usage policies. The licensee shall not form any combination marks with
the other Party's marks. The licensee shall not take any action
inconsistent with the owner's ownership of the marks and any benefits
accruing from use of such trademarks shall automatically vest in the
owner.
13.4 License to Customer Data: During the Term and subject to the terms and
conditions of this Agreement, each Party shall be permitted to use the
other Party's Customer Data on an internal basis only in furtherance
of performance of such Party's obligations under this Agreement.
However, upon expiration or termination of this Agreement, neither
Party shall retain or otherwise use such Customer Data.
Notwithstanding the foregoing, if any Customer elects to transition
from one Party to the other, such restriction shall not apply. In
addition, if either Party defaults on any compensation obligation
under this Agreement, there shall be no restriction on use of that
Party's Customer Data, except to the extent otherwise required by law.
14. REPORTS AND PAYMENTS
14.1 Reports: Within nineteen (19) days following the end of each calendar
month, commencing with the first calendar month during which
reportable activity occurs, PLIC shall provide Sherlock with detailed
transactional reports for any Sherlock Site or Sherlock Rebate
Customer activity. Such reports shall list each Sherlock Customer, as
well as the value and status of each transaction processed.
14.2 Payments: In connection with such reports, PLIC shall remit to
Sherlock any monies due Sherlock in connection with Sherlock's margin,
any Advertising Net Revenues and/or Rebate participation. Royalties
and all other payments due to Sherlock pursuant hereto will be paid by
check tendered or wire transfer at the following address which will be
supplied as an addendum to this agreement in the normal course of
business:
Remittance Address Wire Transfer Account
------------------ ---------------------
or to such other payment addressees as Sherlock shall hereafter
designate in a notice to PLIC through registered mail.
14.3 Records: For so long as PLIC is obligated to make any payments under
this Agreement, and for a period of three (3) years thereafter, PLIC
agrees to keep and maintain complete and accurate records for the
current year and the preceding (3) three years of all data reasonably
required for the verification and computation of the amounts to be
paid and the information to be reported under or relevant to
performance of this Agreement.
14.4 Audit Rights: During the Term of this Agreement, Sherlock may conduct
an audit of PLIC's records and seek a written certification by a
mutually acceptable independent Certified Public Accountant that the
reports, payments and records are correct and/or that
-14-
<PAGE>
PLIC is performing in accordance with this Agreement. In the event the
Parties cannot in good faith agree as to an auditor within ten (10)
days of the date of the audit request, Sherlock may select any of the
top five (5) CPA firms to conduct the audit. Such auditor will report
to Sherlock only whether the amounts due or payable to Sherlock
pursuant to this Agreement were correct, any amount that is due and
payable to Sherlock, and information related to compliance or
noncompliance with this Agreement. Such auditor will hold such
information in confidence and will not disclose such information to
any other person or entity, other than Sherlock, without the prior
written consent of PLIC, unless required by law. Audits shall occur no
more frequently than once per calendar year, unless Sherlock can
present a reasonable basis for its belief that an audit in a lesser
time period is needed. The cost of such audits will be borne by
Sherlock unless a payment discrepancy unfavorable to Sherlock greater
than or equal to ten percent (10%) of the amounts owed for any
reporting period covered by the audit is discovered, in which case
PLIC shall pay the costs of the audit as well as any payment
deficiency and interest thereon. A copy of any audit shall be
submitted to PLIC.
15. CONFIDENTIALITY
15.1 Confidentiality Information: For purposes of this Agreement, the term
"Confidential Information" shall mean all non-public information that
a Party designates as being confidential, or which, under the
circumstance of disclosure ought to be treated as confidential.
Confidential Information includes, without limitation, information
that relates to research, development, trade secrets, know-how,
product development plans, inventions, technical data, software
programming, concepts, designs, procedures, manufacture, purchasing,
accounting, engineering, marketing, merchandising and selling,
business plans or strategies, customers, and information entrusted to
a Party or its principal officers and employees by third parties.
Confidential Information shall not include information that was known
to a Party prior to disclosure by the other Party, information that
was independently discovered by the other Party by an employee with no
exposure to the Confidential Information, or information that becomes
publicly available through no fault of the recipient.
15.2 Obligation: Each Party agrees that for a period of five (5) years from
the Effective Date, it shall hold in strictest confidence, and will
not use the Confidential Information, except as necessary to perform
its obligations or exercise its rights under the Agreement. Each Party
shall disclose Confidential Information only to its employees and
independent contractors who have a need to know such information for
purposes of performance under this Agreement and who have executed
confidentiality agreements with such Party sufficient to prohibit
unauthorized use and disclosure of the Confidential Information
disclosed. A Party shall not disclose the Confidential Information of
the other Party to any third Party without the prior written consent
of the other Party. If this agreement is terminated for any reason
either party may not for a period of 36 months deal with any business
or company that was introduced to the other party. This is a
non-circumvention agreement and both parties agree that they have
considerable expense in the creation of these contacts and that the
other party has no rights to these customers or merchants. If this
non-circumvention is violated the violator would be liable for a
considerable loss to the other party.
15.3 Exceptions: The confidentiality provisions of this Section 12 shall
apply to prohibit disclosure of the Confidential Information except
(i) as required by applicable disclosure laws; or (ii) or in
connection with a court order requiring disclosure, in which case the
Party under order must provide immediate notice and cooperate in any
attempt to quash such order.
-15-
<PAGE>
15.4 Return of Materials: Upon termination or expiration of this Agreement,
each Party shall return to the other all drawings, blue prints, notes,
memoranda, specifications, designs, devices, documents and any other
material containing or disclosing any confidential or proprietary
information.
16. WARRANTY, WARRANTY DISCLAIMER, INDEMNITY AND LIMITATIONS OF LIABILITY
16.1 Warranty: PLIC hereby makes the following representations and
warranties:
(a) PLIC has issued at least seven hundred and fifty thousand
(750,000) Rebate Cards and numbers through the PLIC ISO's and
affinity groups. Varcom has just completed an online sign up and
registration system for these cards to get activated online and
is now in the process on gathering the names that relate to the
numbers while activating these numbers when they sign on
(b) PLIC has signed up twenty-one (21) Affinity Groups and ISO's to
participate in its programs and these affinity groups claim to
have approximately 12 million members.
(d) In the year prior to the Effective Date, discount shopping
members from all Affinity Groups have purchased approximately one
hundred million dollars (US$100,000,000) in gross sales worth of
products, not counting membership fees, through such Affinity
Group programs. It is acknowledged that these figures are given
to PLIC from the merchants or the affinity group itself as an
estimate. PLIC cannot guarantee accuracy of the amounts sold by
these groups.
(e) PLIC's has established "Tier 1 Supply Agreements" with
approximately eighty (80) merchants, of those, approximately
three or four guarantee PLIC lowest prices.
(f) Of the eighty (80) merchants referenced in Section 16(e) above,
all are POS merchants which belong to a buying consortium.
(g) Through these suppliers PLIC has approximately one million
(1,000,000) items that can be put into a data base format and put
on to the Internet. It is acknowledged at this time PLIC only has
about 100,000 items in the proper data base format and only 1,000
digital pictures.
16.2 Warranty Disclaimer: THE PARTIES HEREBY SPECIFICALLY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY: (I)
WARRANTY OF MERCHANTABILITY; (II) WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE; (III) WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF
DEALING OR USAGE OF TRADE; AND/OR (IV) WARRANTY OF TITLE OR
NONINFRINGEMENT.
16.3 Sherlock Indemnification: Sherlock will defend, indemnify and hold
PLIC harmless from any and all claims, losses, liabilities, damages,
expenses and costs (including attorneys' fees and court costs) which
result from a claim that the Sherlock Site, excluding PLIC's Marks,
infringes any third party Intellectual Property Right, provided that
PLIC gives Sherlock written notice of any such claim and Sherlock has
the right to participate in the defense of any such claim at its
expense.
16.4 PLIC Indemnification: PLIC will defend, indemnify and hold Sherlock
harmless from any and all claims, losses, liabilities, damages,
expenses and costs (including attorneys' fees
-16-
<PAGE>
and court costs) which result from a claim that the PLIC Sites,
excluding Sherlock's Marks, infringe any third party Intellectual
Property Right, provided that Sherlock gives PLIC written notice of
any such claim and PLIC has the right to participate in the defense of
any such claim at its expense.
16.5 Limitation of Liability: EXCEPT FOR A BREACH OF THE LICENSE PROVISIONS
IN SECTION 10 ABOVE OR A VIOLATION OF THE CONFIDENTIALITY PROVISIONS
IN SECTION 12 ABOVE, LIABILITY ARISING UNDER THIS AGREEMENT SHALL BE
LIMITED TO DIRECT, OBJECTIVELY MEASURABLE DAMAGES AND NEITHER PARTY
SHALL HAVE ANY LIABILITY FOR ANY INDIRECT OR SPECULATIVE DAMAGES,
INCLUDING, BUT NOT LIMITED TO CONSEQUENTIAL, INCIDENTAL AND SPECIAL
DAMAGES, SUCH AS LOSS OF USE, BUSINESS INTERRUPTIONS, AND LOSS OF
PROFITS, IRRESPECTIVE OF WHETHER THE PARTY HAS ADVANCE NOTICE OF THE
POSSIBILITY OF ANY SUCH DAMAGES. THE PARTIES ACKNOWLEDGE THAT THESE
LIMITATIONS ON POTENTIAL LIABILITIES WERE AN ESSENTIAL ELEMENT IN
SETTING CONSIDERATION UNDER THIS AGREEMENT.
16.6 Liability Cap: EXCEPT FOR A BREACH OF THE LICENSE PROVISIONS IN
SECTION 13 ABOVE OR A VIOLATION OF THE CONFIDENTIALITY PROVISIONS IN
SECTION 15 ABOVE, NEITHER PARTY'S TOTAL LIABILITY SHALL EXCEED THE
AMOUNT HAVING ACTUALLY BEEN PAID BY SUCH PARTY TO THE OTHER UNDER THIS
AGREEMENT.
17. TERM AND TERMINATION
17.1 Term: The term of this Agreement shall be perpetual, commencing on the
Effective Date.
17.2 Termination: Either Party may terminate this Agreement for cause if
the other Party materially breaches any obligation hereunder,
including but not limited to any failure to pay any amounts owed by
such Party to the other Party or to the other Party's Customers,
Rebate Customers or Merchants; provided that the non-breaching Party
must give thirty (30) days written notice with the opportunity to
cure. If after such thirty (30) day period, the breaching Party has
not substantially remedied such breach or made good faith attempts to
do so, then the non-breaching Party may terminate for cause.
Additionally, either Party may terminate this Agreement immediately if
the other Party: (a) files or has filed against it a petition in
bankruptcy, (b) has a receiver appointed to handle its assets or
affairs, (c) makes or attempts to make an assignment for benefit of
creditors; or (d) violates the confidentiality provisions of this
Agreement.
17.3 Continued Marketing: Upon expiration of the Agreement or termination
for breach, the breaching Party agrees to provide to the non-breaching
Party all information, authorization and records necessary for the
non-breaching Party to continue any joint marketing efforts, under
Section 8 above, that it desires to pursue.
18. GENERAL PROVISIONS
18.1 Notices: All notices and requests in connection with this Agreement
shall be deemed given as of the day they are received either by
messenger, delivery service, or in the mail, postage prepaid,
certified or registered, return receipt requested, and addressed as
set forth above.
-17-
<PAGE>
18.2 Survival: All of the provisions in Sections 12 and 13, and any other
provisions that expressly survive, shall survive expiration or
termination of this Agreement. In addition, upon termination of the
Agreement, the following provisions shall apply and survive:
(a) If termination occurs due to Sherlock breach: For a period of
five (5) years following termination, Sherlock agrees that it
shall not influence or approach PLIC employees, suppliers,
business partners, Merchants, Affinity Groups or Customers, or,
start a competing rebate shopping club.
(b) If termination occurs due to PLIC breach: PLIC agrees that for a
period of five (5) years following termination, PLIC shall not
influence or approach Sherlock employees, suppliers, business
partners, Merchants, Affinity Groups or Customers.
18.3 Assignment: This agreement may not be assigned by either Party without
requiring the prior written consent of the other Party. PLIC will be
paid $150,000 upon the signing of this agreement for an ISO agreement.
18.4 Force Majeure: Neither Party shall be liable for any failure or delay
in fulfilling the terms of this Agreement due to fire, strike, war,
civil unrest, terrorist action, government regulations, acts of Nature
or other causes which are unavoidable in nature and beyond the
reasonable control of the Party claiming force majeure. This provision
shall not be construed as relieving either Party from its obligation
to pay any sum due the other Party.
18.5 Relationship: In all matters relating to this Agreement, Sherlock and
PLIC have acted and shall act as independent contractors. Neither
Party will represent that it has any authority to assume or create any
obligation, expressed or implied, on behalf of the other Party, or to
represent the other Party as agent, employee, or in any other
capacity. Neither Party shall have any obligation, expressed or
implied, except as expressly set forth herein.
18.6 Entire Agreement: This Agreement sets forth the entire Agreement
between the Parties as it relates to the Shopping Sherlock mall. It is
acknowledged that an ISO agreement and a reciprocal rebate agreement
will also be signed to deal with the issuing of membership cards and
setting up of the merchants. This agreement supersedes all prior and
contemporaneous proposals, agreements, and representations as it
relates to the mall whether written or oral, relating to the subject
matter contained herein. This Agreement may be changed only if agreed
to in writing and signed by an authorized signatory of each Party.
18.7 Severability: All rights and remedies, whether conferred hereunder, or
by any other instrument or law will be cumulative and may be exercised
singularly or concurrently. The failure of any Party to enforce any of
the provisions hereof shall not be construed to be a waiver of the
right of such Party thereafter to enforce such provisions. The terms
and conditions stated herein are declared to be severable. If any
provision or provisions of this Agreement shall be held to be invalid,
illegal or unenforceable, they shall be enforced to the maximum amount
possible. The validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
18.8 Counterparts: This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
18.9 Governing Law: Any claims arising under or relating to this Agreement
shall be governed by the internal substantive laws of the State of
Washington or federal courts
-18-
<PAGE>
located in King County, Washington, without regard to
principles of conflict of laws. The Parties consent to
jurisdiction and venue in the state and the federal courts
sitting in King County, Washington.
AGREED TO AND ACCEPTED:
PLIC, INC. SHOPPING SHERLOCK, INC.
By: "Richard Stewart" By: "Richard Stewart"
Printed Name: Richard Stewart Printed Name: Richard Stewart
Title: President Title: Shareholder
Date: February 4, 1999 Date: February 4, 1999
SHOPPING SHERLOCK, INC.
By: "Gary Becker"
Printed Name: Gary Becker
Title: Shareholder
Date: February 4, 1999
-19-
Contractor Name: ------------------------
Effective Date: -------------, 19-- ("Effective Date")
INDEPENDENT CONTRACTOR SERVICES AGREEMENT
THIS AGREEMENT is between SHOPPING SHERLOCK INC., a Washington corporation and
its successors or assignees ("Shopping Sherlock ") and the undersigned
______________________________ (the "Contractor").
1. ENGAGEMENT OF SERVICES. Shopping Sherlock may from time to time issue Project
Assignment(s) in the form attached to this Agreement as Exhibit A. Subject to
the terms of this Agreement, Contractor will, to the best of its ability, render
the services set forth in Project Assignment(s) accepted by Contractor (the
"Project(s)") by the completion dates set forth therein. The manner and means by
which Contractor chooses to complete the Projects are in Contractor's sole
discretion and control. Contractor agrees to exercise the highest degree of
professionalism, and to utilize its expertise and creative talents in completing
such Projects. In completing the Projects, Contractor agrees to provide its own
equipment, tools and other materials at its own expense. Shopping Sherlock will
make its facilities and equipment available to Contractor when necessary.
Contractor shall perform the services necessary to complete the Projects in a
timely and professional manner consistent with industry standards, and at a
location, place and time which the Contractor deems appropriate. Contractor may
not subcontract or otherwise delegate its obligations under this Agreement
without Shopping Sherlock 's prior written consent. [If Contractor is not a
natural person, then before any Contractor employee or consultant performs
services in connection with this Agreement, the employee or consultant and
Contractor must have entered into a written agreement expressly for the benefit
of Shopping Sherlock and containing provisions substantially equivalent to this
section and to Section 4 below.]
2. COMPENSATION. Shopping Sherlock will pay Contractor a fee for services
rendered under this Agreement as set forth in the Project Assignment(s)
undertaken by Contractor. [Contractor shall be responsible for all expenses
incurred in performing services under this Agreement.] or [Contractor will be
reimbursed for any reasonable expenses incurred in connection with the
performance of services under this Agreement provided Contractor submits
verification of such expenses as Shopping Sherlock may require.] Upon
termination of this Agreement for any reason, Contractor will be paid fees and
expenses on a proportional basis as stated in the Project Assignment(s) for work
which is then in progress, to and including the effective date of such
termination. Unless other terms are set forth in the Project Assignment(s) for
work which is in progress, Shopping Sherlock will pay the Contractor for
services and will reimburse the Contractor for previously approved expenses
within thirty (30) days of the date of Contractor's invoice.
3. INDEPENDENT CONTRACTOR RELATIONSHIP. Contractor's relationship with Shopping
Sherlock will be that of an independent contractor and nothing in this Agreement
should be construed to create a partnership, joint venture, or employer-employee
relationship. Contractor is not the agent of Shopping Sherlock and is not
authorized to make any representation, contract, or commitment on behalf of
Shopping Sherlock . Contractor will not be entitled to any of the benefits which
Shopping Sherlock may make available to its employees, such as group insurance,
profit-sharing or retirement benefits. Contractor will be solely responsible for
all tax returns and payments required to be filed with or made to any federal,
state, provincial or local tax authority with respect to Contractor's
performance of services and receipt of fees under this Agreement. Shopping
Sherlock will regularly report amounts paid to Contractor by filing Form
1099-MISC with the Internal Revenue Service and the equivalent forms with
Revenue Canada as required by law. Because Contractor is an independent
contractor, Shopping Sherlock will not withhold or make payments for social
security; make unemployment insurance or disability insurance contributions; or
obtain worker's compensation insurance on Contractor's behalf. Contractor agrees
to accept exclusive liability for complying with all applicable state and
federal laws governing self-employed individuals, including obligations such as
payment of taxes, social security, disability and other contributions and
similar taxes based on fees paid to Contractor, its agents or employees under
this Agreement. Contractor hereby agrees to indemnify and defend Shopping
Sherlock against any and all such taxes or contributions, including penalties
and interest. [Contractor is free to enter any contract to provide services to
other business entities, except any contract which would induce Contractor to
violate this Agreement.]
4. TRADE SECRETS - INTELLECTUAL PROPERTY RIGHTS.
4.1 Proprietary Information. Contractor agrees during the term of this
Agreement and thereafter that it will take all steps reasonably necessary to
hold Shopping Sherlock 's Proprietary Information in trust and confidence, will
not use Proprietary Information in any manner or for any purpose not expressly
set forth in
1.
<PAGE>
this Agreement, and will not disclose any such Proprietary Information to any
third party without first obtaining Shopping Sherlock 's express written consent
on a case-by-case basis. By way of illustration but not limitation "Proprietary
Information" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "Inventions"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of Shopping Sherlock .
Notwithstanding the other provisions of this Agreement, nothing received by
Contractor will be considered to be Shopping Sherlock Proprietary Information if
(1) it has been published or is otherwise readily available to the public other
than by a breach of this Agreement; (2) it has been rightfully received by
Contractor from a third party without confidential limitations; (3) it has been
independently developed for Contractor by personnel or agents having no access
to Shopping Sherlock Proprietary Information; or (4) it was known to Contractor
prior to its first receipt from Shopping Sherlock .
4.2 Third Party Information. Contractor understands that Shopping Sherlock
has received and will in the future receive from third parties confidential or
proprietary information ("Third Party Information") subject to a duty on
Shopping Sherlock 's part to maintain the confidentiality of such information
and use it only for certain limited purposes. Contractor agrees to hold Third
Party Information in confidence and not to disclose to anyone (other than
Shopping Sherlock personnel who need to know such information in connection with
their work for Shopping Sherlock ) or to use, except in connection with
Contractor's work for Shopping Sherlock , Third Party Information unless
expressly authorized in writing by an officer of Shopping Sherlock .
4.3 No Conflict of Interest. Contractor agrees during the term of this
Agreement not to accept work or enter into a contract or accept an obligation,
inconsistent or incompatible with Contractor's obligations under this Agreement
or the scope of services rendered for Shopping Sherlock . Contractor warrants
that to the best of its knowledge, there is no other existing contract or duty
on Contractor's part inconsistent with this Agreement, unless a copy of such
contract or a description of such duty is attached to this Agreement as Exhibit
B. Contractor further agrees not to disclose to Shopping Sherlock , or bring
onto Shopping Sherlock 's premises, or induce Shopping Sherlock to use any
confidential information that belongs to anyone other than Shopping Sherlock or
Contractor.
4.4 Disclosure of Work Product. As used in this Agreement, the term "Work
Product" means any Invention, whether or not patentable, and all related
know-how, designs, mask works, trademarks, formulae, processes, manufacturing
techniques, trade secrets, ideas, artwork, software or other copyrightable or
patentable works. Contractor agrees to disclose promptly in writing to Shopping
Sherlock , or any person designated by Shopping Sherlock , all Work Product
which is solely or jointly conceived, made, reduced to practice, or learned by
Contractor in the course of any work performed for Shopping Sherlock ("Shopping
Sherlock Work Product"). Contractor represents that any Work Product relating to
Shopping Sherlock 's business or any Project which Contractor has made,
conceived or reduced to practice at the time of signing this Agreement ("Prior
Work Product") has been disclosed in writing to Shopping Sherlock and attached
to this Agreement as Exhibit C. If disclosure of any such Prior Work Product
would cause Contractor to violate any prior confidentiality agreement,
Contractor understands that it is not to list such Prior Work Product in Exhibit
C but it will disclose a cursory name for each such invention, a listing of the
party(ies) to whom it belongs, and the fact that full disclosure as to such
Prior Work Product has not been made for that reason. A space is provided in
Exhibit C for such purpose.
4.5 Ownership of Work Product. Contractor shall specifically describe and
identify in Exhibit C all technology which (a) Contractor intends to use in
performing under this Agreement, (b) is either owned solely by Contractor or
licensed to Contractor with a right to sublicense and (c) is in existence in the
form of a writing or working prototype prior to the Effective Date ("Background
Technology"). Contractor agrees that any and all Inventions conceived, written,
created or first reduced to practice in the performance of work under this
Agreement shall be the sole and exclusive property of Shopping Sherlock .
4.6 Assignment of Shopping Sherlock Work Product. Except for Contractor's
rights in the Background Technology, Contractor irrevocably assigns to Shopping
Sherlock all right, title and interest worldwide in and to the Shopping Sherlock
Work Product and all applicable intellectual property rights related to the
Shopping Sherlock Work Product, including without limitation, copyrights,
trademarks, trade secrets, patents, moral rights, contract and licensing
2.
<PAGE>
rights (the "Proprietary Rights"). Except as set forth below, Contractor retains
no rights to use the Shopping Sherlock Work Product and agrees not to challenge
the validity of Shopping Sherlock 's ownership in the Shopping Sherlock Work
Product. Contractor hereby grants to Shopping Sherlock a non-exclusive,
royalty-free, irrevocable and world-wide right, with rights to sublicense
through multiple tiers of sublicensees, to reproduce, make derivative works of,
publicly perform, and publicly display in any form or medium, whether now known
or later developed, distribute, make, use and sell Background Technology and any
Prior Work Product incorporated or used in the Shopping Sherlock Work Product
for the purpose of developing and marketing Shopping Sherlock products [but not
for the purpose of marketing Background Technology or Prior Work Products
separate from Shopping Sherlock products].
4.7 Waiver or Assignment of Other Rights. If Contractor has any rights to
the Shopping Sherlock Work Product that cannot be assigned to Shopping Sherlock,
Contractor unconditionally and irrevocably waives the enforcement of such
rights, and all claims and causes of action of any kind against Shopping
Sherlock with respect to such rights, and agrees, at Shopping Sherlock 's
request and expense, to consent to and join in any action to enforce such
rights. If Contractor has any right to the Shopping Sherlock Work Product that
cannot be assigned to Shopping Sherlock or waived by Contractor, Contractor
unconditionally and irrevocably grants to Shopping Sherlock during the term of
such rights, an exclusive, irrevocable, perpetual, worldwide, fully paid and
royalty-free license, with rights to sublicense through multiple levels of
sublicensees, to reproduce, create derivative works of, distribute, publicly
perform and publicly display by all means now known or later developed, such
rights.
4.8 Assistance. Contractor agrees to cooperate with Shopping Sherlock or
its designee(s), both during and after the term of this Agreement, in the
procurement and maintenance of Shopping Sherlock 's rights in Shopping Sherlock
Work Product and to execute, when requested, any other documents deemed
necessary by Shopping Sherlock to carry out the purpose of this Agreement.
Contractor agrees to execute upon Shopping Sherlock 's request a signed transfer
of copyright to Shopping Sherlock in the form attached to this Agreement as
Exhibit D for all Shopping Sherlock Work Product subject to copyright
protection, including, without limitation, computer programs, notes, sketches,
drawings and reports.
4.9 Enforcement of Proprietary Rights. Contractor will assist Shopping
Sherlock in every proper way to obtain, and from time to time enforce, United
States and foreign Proprietary Rights relating to Shopping Sherlock Work Product
in any and all countries. To that end Contractor will execute, verify and
deliver such documents and perform such other acts (including appearances as a
witness) as Shopping Sherlock may reasonably request for use in applying for,
obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary
Rights and the assignment thereof. In addition, Contractor will execute, verify
and deliver assignments of such Proprietary Rights to Shopping Sherlock or its
designee. Contractor's obligation to assist Shopping Sherlock with respect to
Proprietary Rights relating to such Shopping Sherlock Work Product in any and
all countries shall continue beyond the termination of this Agreement, but
Shopping Sherlock shall compensate Contractor at a reasonable rate after such
termination for the time actually spent by Contractor at Shopping Sherlock 's
request on such assistance.
4.10 Execution of Documents. In the event Shopping Sherlock is unable for
any reason, after reasonable effort, to secure Contractor's signature on any
document needed in connection with the actions specified in the preceding
sections 4.8 and 4.9, Contractor hereby irrevocably designates and appoints
Shopping Sherlock and its duly authorized officers and agents as its agent and
attorney in fact, which appointment is coupled with an interest, to act for and
in its behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by Contractor. Contractor hereby
waives and quitclaims to Shopping Sherlock any and all claims, of any nature
whatsoever, which Contractor now or may hereafter have for infringement of any
Proprietary Rights assigned hereunder to Shopping Sherlock .
5. CONTRACTOR REPRESENTATIONS AND WARRANTIES. Contractor hereby represents and
warrants that (a) the Shopping Sherlock Work Product will be an original work of
Contractor and any third parties will have executed assignment of rights
reasonably acceptable to Shopping Sherlock ; (b) neither the Shopping Sherlock
Work Product nor any element thereof will infringe the Proprietary Rights of any
third party; (c) neither the Shopping Sherlock Work Product nor any element
thereof will be subject to any restrictions or to any mortgages, liens, pledges,
security interests, encumbrances or encroachments; (d) Contractor will not
grant, directly or indirectly, any rights or interest whatsoever in the Shopping
Sherlock
3.
<PAGE>
Work Product to third parties; (e) Contractor has full right and power to enter
into and perform this Agreement without the consent of any third party; (f)
Contractor will take all necessary precautions to prevent injury to any persons
(including employees of Shopping Sherlock ) or damage to property (including
Shopping Sherlock 's property) during the term of this Agreement; and (g) should
Shopping Sherlock permit Contractor to use any of Shopping Sherlock 's
equipment, tools, or facilities during the term of this Agreement, such
permission shall be gratuitous and Contractor shall be responsible for any
injury to any person (including death) or damage to property (including Shopping
Sherlock 's property) arising out of use of such equipment, tools or facilities,
whether or not such claim is based upon its condition or on the alleged
negligence of Shopping Sherlock in permitting its use.
6. INDEMNIFICATION. Contractor will indemnify and hold harmless Shopping
Sherlock , its officers, directors, employees, sublicensees, customers and
agents from any and all claims, losses, liabilities, damages, expenses and costs
(including attorneys' fees and court costs) which result from a breach or
alleged breach of any representation or warranty of Contractor (a "Claim") set
forth in Section 5 of this Agreement, provided that Shopping Sherlock gives
Contractor written notice of any such Claim and Contractor has the right to
participate in the defense of any such Claim at its expense. From the date of
written notice from Shopping Sherlock to Contractor of any such Claim, Shopping
Sherlock shall have the right to withhold from any payments due Contractor under
this Agreement the amount of any defense costs, plus additional reasonable
amounts as security for Contractor's obligations under this Section 6.
Contractor, at its sole cost and expense, shall maintain appropriate insurance
with Commercial General Liability Broad Form Coverage, including Contractual
Liability, Contractor's Protective Liability and Personal Injury/Property Damage
Coverage in a combined single limit of not less than $3,000,000. A Certificate
of Insurance indicating such coverage shall be delivered to Shopping Sherlock
upon request. The Certificate shall indicate that the policy will not be changed
or terminated without at least ten (10) days' prior notice to Shopping Sherlock
, shall name Shopping Sherlock as an additional named insured and shall also
indicate that the insurer has waived its subrogation rights against Shopping
Sherlock .
7. TERMINATION.
7.1 Termination by Shopping Sherlock . Shopping Sherlock may terminate this
Agreement at its convenience for any reason and without any breach by Contractor
upon Ten (10) days' prior written notice to Contractor. Shopping Sherlock may
also terminate this Agreement immediately and without prior notice in its sole
discretion upon Contractor's material breach of Section 4 and/or Section 7.3.
7.2 Termination by Contractor. Contractor may terminate this Agreement at
any time that there is no uncompleted Project Assignment in effect upon fifteen
(15) days' prior written notice to Shopping Sherlock .
7.3 Noninterference with Business. During and for a period of two (2) years
immediately following termination of this Agreement by either party, Contractor
agrees not to solicit or induce any employee or independent contractor to
terminate or breach an employment, contractual or other relationship with
Shopping Sherlock .
7.4 Return of Shopping Sherlock Property. Upon termination of the Agreement
or earlier as requested by Shopping Sherlock , Contractor will deliver to
Shopping Sherlock any and all drawings, notes, memoranda, specifications,
devices, formulas, and documents, together with all copies thereof, and any
other material containing or disclosing any Shopping Sherlock Work Product,
Third Party Information or Proprietary Information of Shopping Sherlock .
Contractor further agrees that any property situated on Shopping Sherlock 's
premises and owned by Shopping Sherlock , including disks and other storage
media, filing cabinets or other work areas, is subject to inspection by Shopping
Sherlock personnel at any time with or without notice.
8. GOVERNMENT OR THIRD PARTY CONTRACTS.
8.1 Government Contracts. In the event that Contractor shall perform
services under this Agreement in connection with any Government contract in
which Shopping Sherlock may be the prime contractor or subcontractor, Contractor
agrees to abide by all laws, rules and regulations relating thereto. To the
extent that any such law, rule or regulation requires that a provision or clause
be included in this Agreement, Contractor agrees that such provision or clause
shall be added to this Agreement and the same shall then become a part of this
Agreement.
8.2 Security. In the event the services of the Contractor should require
Contractor to have access to Department of Defense (United States) and/or
4.
<PAGE>
Ministry of Defence (Canada) classified material, or other classified material
in the possession of Shopping Sherlock 's facility, such material shall not be
removed from Shopping Sherlock 's facility. Contractor agrees that all work
performed under this Agreement by Contractor which involves the use of
classified material mentioned above shall be performed in a secure fashion
(consistent with applicable law and regulations for the handling of classified
material) and only at Shopping Sherlock 's facility.
8.3 Ownership. Contractor also agrees to assign all of its right, title and
interest in and to any Work Product to a Third Party, including without
limitation the United States or Canada, as directed by Shopping Sherlock .
9. GENERAL PROVISIONS.
9.1 Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of Washington. Contractor hereby expressly
consents to the exclusive personal jurisdiction of the state and federal courts
located in King County, Washington for any lawsuit filed there against
Contractor by Shopping Sherlock arising from or related to this Agreement.
9.2 Severability. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.
9.3 No Assignment. This Agreement may not be assigned by Contractor without
Shopping Sherlock 's consent, and any such attempted assignment shall be void
and of no effect.
9.4 Notices. All notices, requests and other communications under this
Agreement must be in writing, and must be mailed by registered or certified
mail, postage prepaid and return receipt requested, or delivered by hand to the
party to whom such notice is required or permitted to be given. If mailed, any
such notice will be considered to have been given five (5) business days after
it was mailed, as evidenced by the postmark. If delivered by hand, any such
notice will be considered to have been given when received by the party to whom
notice is given, as evidenced by written and dated receipt of the receiving
party. The mailing address for notice to either party will be the address shown
on the signature page of this Agreement. Either party may change its mailing
address by notice as provided by this section.
9.5 [Legal Fees. If any dispute arises between the parties with respect to
the matters covered by this Agreement which leads to a proceeding to resolve
such dispute, the prevailing party in such proceeding shall be entitled to
receive its reasonable attorneys' fees, expert witness fees and out-of-pocket
costs incurred in connection with such proceeding, in addition to any other
relief it may be awarded.]
9.6 Injunctive Relief. A breach of any of the promises or agreements
contained in this Agreement may result in irreparable and continuing damage to
Shopping Sherlock for which there may be no adequate remedy at law, and Shopping
Sherlock is therefore entitled to seek injunctive relief as well as such other
and further relief as may be appropriate.
9.7 Survival. The following provisions shall survive termination of this
Agreement: Section 4, Section 5, Section 6 and Section 7.3.
9.8 Export. Contractor agrees not to export, directly or indirectly, any
United States or Canadian source technical data acquired from Shopping Sherlock
or any products utilizing such data to countries outside the United States or
Canada, which export may be in violation of United States or Canadian export
laws or regulations.
9.9 Waiver. No waiver by Shopping Sherlock of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by Shopping
Sherlock of any right under this Agreement shall be construed as a waiver of any
other right. Shopping Sherlock shall not be required to give notice to enforce
strict adherence to all terms of this Agreement.
9.10 Entire Agreement. This Agreement is the final, complete and exclusive
agreement of the parties with respect to the subject matter hereof and
supersedes and merges all prior discussions between Shopping Sherlock and
Contractor. No modification of
5.
<PAGE>
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing and signed by the party to be
charged. The terms of this Agreement will govern all Project Assignments and
services undertaken by Contractor for Shopping Sherlock . In the event of any
conflict between this Agreement and a Project Assignment, the Project Assignment
shall control, but only with respect to the services set forth therein.
IN WITNESS WHEREOF, the parties have caused this Independent Contractor
Services Agreement to be executed by their duly authorized representative.
SHOPPING SHERLOCK INC. CONTRACTOR:
- --------------------------- ---------------------------
(Printed Name) (Printed Name)
By: --------------------------- By: ---------------------------
Title: --------------------------- Title: ---------------------------
Address: --------------------------- Address: ---------------------------
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
For copyright registration purposes only,
Contractor must provide the following
information:
Date of Birth: --------------------
Nationality or Domicile: --------------------
6.
<PAGE>
EXHIBIT A
PROJECT ASSIGNMENT
Services Milestones
Payment of Fees. Fee will be: (cross out inapplicable provisions)
a fixed price for completion of $-------------
based on a rate per hour of $-------------
other, as follows: --------------------------------------------
- ---------------------------------------------------------------
If this Project Assignment or the Independent Contractor Services Agreement
which governs it is terminated for any reason, fees will be paid based on:
(cross out inapplicable provisions)
contractor time spent:
the proportion of the deliverables furnished Shopping Sherlock Inc., as
determined by Shopping Sherlock Inc.:
other, as follows: --------------------------------------------
- ---------------------------------------------------------------
Expenses. Shopping Sherlock Inc. will reimburse Contractor for the following
expenses:
- ---------------------------------------------------------------
NOTE:This Project Assignment is governed by the terms of an Independent
Contractor Services Agreement in effect between Shopping Sherlock Inc. and
Contractor. In the event that any item in this Project Assignment is
inconsistent with that Agreement, the terms of this Project Assignment
shall govern, but only with respect to the services set forth in this
Project Assignment.
Signed: ----------------------------- Signed:----------------------------
SHOPPING SHERLOCK INC. Contractor
Dated: ----------------------------- Dated: ----------------------------
A-1.
<PAGE>
EXHIBIT B
CONFLICT OF INTEREST DISCLOSURE
B-1.
<PAGE>
EXHIBIT C
PRIOR WORK PRODUCT DISCLOSURE
1. Except as listed in Section 2 below, the following is a complete list of
all Prior Work Products that have been made or conceived or first reduced to
practice by Contractor alone or jointly with others prior to its engagement by
Shopping Sherlock Inc.:
[ ] No inventions or improvements.
[ ] See below:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
[ ] Additional sheets attached.
2. Due to a prior confidentiality agreement, Contractor cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which Contractor owes to the following party(ies):
<TABLE>
Invention or Improvement Party(ies) Relationship
<S> <C> <C>
1. ------------------------ ------------- ------------
2. ------------------------ ------------- ------------
3. ------------------------ ------------- ------------
</TABLE>
[ ] Additional sheets attached.
BACKGROUND TECHNOLOGY DISCLOSURE
The following is a list of all Background Technology which Contractor
intends to use in performing under this Agreement:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
C-1.
<PAGE>
EXHIBIT D
ASSIGNMENT OF COPYRIGHT
For good and valuable consideration which has been received, the
undersigned sells, assigns and transfers to Shopping Sherlock Inc., a Washington
corporation, and its successors and assigns, the copyright in and to the
following work, which was created by the following indicated author(s):
Title: ---------------------------------
Author(s): ------------------------------
Copyright Office Identification No. (if any): -----------------
and all of the right, title and interest of the undersigned, vested and
contingent, therein and thereto.
Executed this ----- day of ----------------------, 199--.
Signature: ----------------------------------
Printed Name: -------------------------------
Exhibit 10.5
CONSULTING AGREEMENT FOR NON-TECHNICAL SERVICES
EFFECTIVE DATE: February 15, 1999
THIS CONSULTING AGREEMENT FOR NON-TECHNICAL SERVICES (the "Agreement") is
made by and between SHOPPING SHERLOCK INC. ("Shopping Sherlock"), a Florida
corporation, and John C. Jones, an individual, hereinafter referred to as the
"Consultant".
1. Engagement of Services. Shopping Sherlock may issue Assignments to
Consultant ("Project Assignment"). Subject to the terms of this Agreement,
Consultant will render the services accepted by Consultant as defined in the
Project Assignment ( Exhibit A ) by the completion dates set forth therein.
2. Compensation. Shopping Sherlock will pay Consultant the fee of US$5,000
per month commencing on February 15th 1999 for services rendered pursuant to
this Agreement. Consultant will be reimbursed only for expenses which are
expressly provided for in a Project Assignment or which have been approved in
advance in writing by Shopping Sherlock, provided Consultant has furnished such
documentation for authorized expenses as Shopping Sherlock may reasonably
request. Payment of Consultant's fees and expenses will be within 3 days of the
approval by the Chief Financial Officer of such expenses and at the end of each
month for the fees, until the termination of such Assignment. Upon termination
of this Agreement for any reason, Consultant will be paid fees on the basis
stated for work which has been completed.
3. Ownership of Work Product. Consultant hereby agrees to assign to
Shopping Sherlock all right, title and interest in and to any work product
created by Consultant, or to which Consultant contributes, pursuant to this
Agreement (the "Work Product"), including all copyrights, trademarks and other
intellectual property rights contained therein. Consultant agrees to execute, at
Shopping Sherlock's request and expense, all documents and other instruments
necessary to effectuate such assignment. In the event that Consultant does not,
for any reason, execute such documents within a reasonable time of Shopping
Sherlock's request, Consultant hereby irrevocably appoints Shopping Sherlock as
Consultant's attorney-in-fact for the purpose of executing such documents on
Consultant's behalf, which appointment is coupled with an interest.
4. Artist's and Moral Rights. If Consultant has any rights, including
without limitation "artist's rights" or "moral rights," in the Work Product
which cannot be assigned, Consultant agrees to waive enforcement worldwide of
such rights against Shopping Sherlock.
5. Representations and Warranties. Consultant represents and warrants that:
(a) Consultant has the right and unrestricted ability to carry out the project
for Shopping Sherlock as set forth , and (b) Consultant agrees to indemnify
Shopping Sherlock from any and all damages, costs, claims, expenses or other
liability (including reasonable attorneys' fees) arising from or relating to the
breach or alleged breach by Consultant of the representations and warranties set
forth in this Section 5.
6. Independent Contractor Relationship. Consultant's relationship with
Shopping Sherlock is that of an independent contractor, and nothing in this
Agreement is intended to, or should be construed to, create a partnership,
agency, joint venture or employment relationship. Consultant will not be
entitled to any of the benefits which Shopping Sherlock may make available to
its employees, including, but not limited to, group health or life insurance,
profit-sharing or retirement benefits. Consultant is not authorized to make any
representation,
<PAGE>
contract or commitment on behalf of Shopping Sherlock unless specifically
requested or authorized in writing to do so by a Shopping Sherlock authorised
person. Consultant is solely responsible for, and will file, on a timely basis,
all tax returns and payments required to be filed with, or made to, any federal,
state or local tax authority with respect to the performance of services and
receipt of fees under this Agreement. Consultant is solely responsible for, and
must maintain adequate records of, expenses incurred in the course of performing
services under this Agreement. No part of Consultant's compensation will be
subject to withholding by Shopping Sherlock for the payment of any social
security, federal, state or any other employee payroll taxes.
7. Confidential Information. Consultant agrees to hold Shopping Sherlock's
Confidential Information in strict confidence and not to disclose such
Confidential Information to any third parties. "Confidential Information" as
used in this Agreement shall mean all information disclosed by Shopping Sherlock
to Consultant that is not generally known in the Shopping Sherlock's trade or
industry and shall include, without limitation, (a) concepts and ideas relating
to the development and distribution of content in any medium or to the current,
future and proposed products or services of Shopping Sherlock or its
subsidiaries or affiliates; (b) trade secrets, drawings, inventions, know-how,
software programs, and software source documents; (c) information regarding
plans for research, development, new service offerings or products, marketing
and selling, business plans, business forecasts, budgets and unpublished
financial statements, licenses and distribution arrangements, prices and costs,
suppliers and customers; (d) existence of any business discussions, negotiations
or agreements between the parties; and (e) any information regarding the skills
and compensation of employees, contractors or other agents of the Shopping
Sherlock or its subsidiaries or affiliates. Confidential Information also
includes proprietary or confidential information of any third party who may
disclose such information to Shopping Sherlock or Consultant in the course of
Shopping Sherlock's business. Consultant's obligations set forth in this Section
7 shall not apply with respect to any portion of the Confidential Information
that Consultant can document by competent proof that such portion: (a) was in
the public domain at the time it was communicated to Consultant by Shopping
Sherlock; (b) entered the public domain through no fault of Consultant,
subsequent to the time it was communicated to Consultant by Shopping Sherlock;
(c) was in Consultant's possession free of any obligation of confidence at the
time it was communicated to Consultant by Shopping Sherlock; (d) was rightfully
communicated to Consultant free of any obligation of confidence subsequent to
the time it was communicated to Consultant by Shopping Sherlock; (e) was
developed by employees or agents of Consultant independently of and without
reference to any information communicated to Consultant by Shopping Sherlock; or
(f) was communicated by Shopping Sherlock to an unaffiliated third party free of
any obligation of confidence. In addition, Consultant may disclose Shopping
Sherlock's Confidential Information in response to a valid order by a court or
other governmental body, as otherwise required by law. All Confidential
Information furnished to Consultant by Shopping Sherlock is the sole and
exclusive property of Shopping Sherlock or its suppliers or customers. Upon
request by Shopping Sherlock, Consultant agrees to promptly deliver to Shopping
Sherlock, the original and any copies of such Confidential Information.
8. No Conflict of Interest. During the term of this Agreement, Consultant
will not accept work, enter into a contract, or accept an obligation from any
third party, inconsistent or incompatible with Consultant's obligations, or the
scope of services rendered for Shopping Sherlock, under this Agreement.
Consultant warrants that there is no other contract or duty on its part
inconsistent with this Agreement. Consultant agrees to indemnify Shopping
Sherlock from any and all loss or liability incurred by reason of the alleged
breach by Consultant of any services agreement with any third party.
<PAGE>
9. Term and Termination.
9.1 Term. The initial term of this Agreement is for six months from
the Effective Date set forth above, unless earlier terminated as provided in
this Agreement. Thereafter, this Agreement will automatically renew, for one
month terms, unless Shopping Sherlock provides fifteen (15) days written notice
that the Agreement shall not renew.
9.2 Termination by Shopping Sherlock. Except during the term of a
Project Assignment, Shopping Sherlock may terminate this Agreement with or
without cause, at any time upon fifteen (15) days prior written notice to
Consultant. Shopping Sherlock also may terminate this Agreement or any Project
Assignment: (i) upon thirty (30) days written notice in the event of a material
breach by Consultant of this Agreement or any Project Assignment, provided that,
such breach remains uncured at the end of such thirty (30) day period; (ii)
immediately in its sole discretion upon Consultant's material breach of Sections
7 ("Confidential Information") or 10 ("Noninterference with Business"); or (iii)
upon sixty (60) days written notice.
9.3 Survival. The rights and obligations contained in Sections 3
("Ownership of Work Product"), 4 ("Artist's and Moral Rights"), 5
("Representations and Warranties"), 7 ("Confidential Information") and 10
("Noninterference with Business") will survive any termination or expiration of
this Agreement.
10. Noninterference with Business. During this Agreement, and for a period
of two (2) years immediately following its termination, Consultant agrees not to
interfere with the business of Shopping Sherlock in any manner. By way of
example and not of limitation, Consultant agrees not to solicit or induce any
employee or independent contractor to terminate or breach an employment,
contractual or other relationship with Shopping Sherlock.
11. Successors and Assigns. Consultant may not subcontract or otherwise
delegate its obligations under this Agreement without Shopping Sherlock's prior
written consent. Subject to the foregoing, this Agreement will be for the
benefit of Shopping Sherlock's successors and assigns, and will be binding on
Consultant's assignees.
12. Notices. Any notice required or permitted by this Agreement shall be in
writing and shall be delivered as follows with notice deemed given as indicated:
(i) by personal delivery when delivered personally; (ii) by overnight courier
upon written verification of receipt; (iii) by telecopy or facsimile
transmission upon acknowledgment of receipt of electronic transmission; or (iv)
by certified or registered mail, return receipt requested, upon verification of
receipt. Notice shall be sent to the addresses set forth below or such other
address as either party may specify in writing.
13. Governing Law. This Agreement shall be governed in all respects by the
laws of the United States of America and by the laws of the State of Washington,
as such laws are applied to agreements entered into and to be performed entirely
within Washington between Washington residents.
14. Severability. Should any provisions of this Agreement be held by a
court of law to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired thereby.
15. Waiver. The waiver by Shopping Sherlock of a breach of any provision of
this Agreement by Consultant shall not operate or be construed as a waiver of
any other or subsequent breach by Consultant.
16. Injunctive Relief for Breach. Consultant's obligations under this
Agreement are of a unique character that gives them particular value; breach of
any of such obligations will result in irreparable and continuing damage to
Shopping Sherlock for which there will be no adequate remedy at law; and, in the
event of such breach, Shopping Sherlock will be entitled to injunctive relief
and/or a decree for specific performance, and such other and further relief as
may be proper (including monetary damages if appropriate).
<PAGE>
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to this subject matter and supersedes all prior or
contemporaneous oral or written agreements concerning such subject matter. The
terms of this Agreement will govern all services undertaken by Consultant for
Shopping Sherlock; provided, however, that in the event of any conflict between
the terms of this Agreement and any Project Assignment, the terms of the
applicable Project Assignment will control but only with respect to the services
set forth therein. This Agreement may only be changed by mutual agreement of
authorized representatives of the parties in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
/s/ Richard Stewart "CONSULTANT"
Shopping Sherlock Inc. /s/ John Jones
Address: --------------------------- Address: --------------------------
--------------------------- --------------------------
Tel: --------------------------- Tel: --------------------------
Fax: --------------------------- Fax: --------------------------
By: --------------------------- By: --------------------------
Name: --------------------------- Name: --------------------------
Title: --------------------------- Title: --------------------------
<PAGE>
EXHIBIT A
PROJECT ASSIGNMENT # 1
UNDER CONSULTING AGREEMENT FOR NON-TECHNICAL SERVICES
DATED: MARCH 12TH 1999
PROJECT:
Consultant shall render such services as Shopping Sherlock may from time to time
request in connection with the general administrative activities and
specifically the office of President, including, without limiting the generality
of the foregoing:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE OF WORK:
The work will commence on February 15th 1999, and shall be completed by August
31st 1999.
FEES AND REIMBURSEMENT:
A. Fee: $US30,000.
B. Reimbursement for the following, as approved in advance by Shopping
Sherlock:
1. Outside services at cost:
2. Direct charges at cost:
3. Travel and subsistence at cost:
Consultant shall invoice Shopping Sherlock monthly for services and
expenses and shall provide such reasonable receipts or other documentation
of expenses as Shopping Sherlock might request, including copies of time
records.
Payment terms: net ten (10) days from receipt of invoice. Shopping Sherlock
will be invoiced on the twenty first day of each month for services
rendered and expenses incurred during the previous month.
C. Maximum chargeable by Consultant on this Project Assignment, including all
items in paragraphs A and B above, is $33,000.
B-1.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Project Assignment as of the
date first written above.
"SHOPPING SHERLOCK" "CONSULTANT"
Shopping Sherlock Inc. ----------------------------------
By: --------------------------- By: --------------------------
Name: --------------------------- Name: --------------------------
Title: --------------------------- Title: --------------------------
3.
Exhibit 10.6
- --------------------------------------------------------------------------------
Technical University of BC
Telephone: (604) 586-5225 Facsimile: (604) 586-5237
- --------------------------------------------------------------------------------
CONSULTANT AGREEMENT
This AGREEMENT effective and entered into as of the 1st day of April, 1999.
BETWEEN:
Technical University of British Columbia
a corporation duly continued under the Technical University of
British Columbia Act, having an office at Suite 301 - 10334
152A Street, Surrey, British Columbia, V3R 7P8 (hereinafter
referred to as "TechBC")
AND:
Shopping Sherlock Inc.
a company incorporated under the Florida Business Corporations
Act and having an office at 5837 Pleasure Point Lane,
Bellevue, WA 98006, USA (hereinafter referred to as
"Sherlock"):
WHEREAS:
A. Sherlock wishes TechBC to perform certain consulting duties outlined in
Schedule A; and
B. TechBC is willing to perform such consulting duties on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and mutual covenants herein
contained, TechBC and Sherlock hereby agree to the following:
Article 1 - Consulting Work
In consideration for the payment made pursuant to Article 3 herein, TechBC
hereby covenants and agrees to provide a maximum of 520 hours of consulting work
to Sherlock, as described in Schedule A.
Article 2 - Principal Investigator
The Work shall be carried out by Dr. Jasbir Dhaliwal (herein after referred to
as "Principal Investigator"), Associate Professor at TechBC, or such alternate
as may be acceptable to Sherlock.
Article 3 - Payment and Records
Upon the signing of this Agreement, Sherlock shall pay twelve (12) installments
of CAN$5,113.33 on the last day of each consecutive calendar month period
beginning on the date of the signing of this Agreement and ending twelve (12)
months thereafter. These payments
<PAGE>
shall be paid in full whether or not the maximum of 520 hours of consulting work
to be provided by TechBC is fully exhausted by Sherlock.
Payments made by Sherlock are in consideration for services provided by TechBC
as outlined in Schedule A attached, and include costs relating to overhead
incurred by TechBC in performing the services as well as local travel of the
Principal Investigator in and around the premises of TechBC. The payments do not
cover travel and living expenses relating to the Principal Investigator
performing services for Sherlock outside the Greater Vancouver region of British
Columbia.
TechBC will keep full, clear and accurate records in respect of hours worked and
will permit such records to be examined from time to time by Sherlock.
Article 4 - Method of Payment
The payments stipulated in Article 3 hereof shall be paid by Sherlock by cheque
made payable to: Technical Universityof British Columbia.
Article 5 - Term
The present Agreement shall have an effective date of April 1, 1999, and shall
terminate on March 31, 2000. This Agreement may be terminated prior to its
expiry by either party upon sixty (60) days written notice to the other party.
Article 6 - Amendments to Agreement
The terms herein stipulated may not be modified in any way without the mutual
consent of the parties in writing.
Article 7 - Assignment
No right or obligation related to this Agreement shall be assigned by either
party without the prior written permission of the other, such permission not to
be unreasonably withheld. TechBC shall not subcontract any work to be performed
except as specifically set forth in this Agreement.
Article 8 - Confidentiality
Sherlock and TechBC may disclose confidential information one to the other to
facilitate work unter this Agreement. TechBC, the Principal Investigator, and
Sherlock agree to keep confidential and not disclose to others information
designated as "confidential" and supplied by them for the purpose of this
Agreement. The parties agree to advise and notify the other as to which
inormation disclosed, if any, constitutes confidential information. All written
materials disclosed shall be clearly marked as "confidential", while any oral
disclosures shall be followed by a written memorandum outlining the information
disclosed and its confidential nature within ten (10) days of disclosure.
<PAGE>
Confidential information shall be safeguarded and not disclosed to anyone
without a "need to know" within Sherlock or TechBC. Each party shall protect
such information from disclosure to third parties.
The obligation to keep confidential shall not apply to information which:
(a) is already known to the party to which it is disclosed;
(b) is or becomes part of the public domain without breach of this
Agreement; and
(c) is obtained from third parties which have no obligation to keep
confidential such information to the contracting parties.
Unless otherwise agreed to in writing, the terms and conditions of this
Agreement are confidential. The obligation of confidentiality shall survive for
a period of five (5) years after the termination of this Agrement.
Article 9. - Warranty
TechBC agrees to carry out the consulting work in accordance with high
scientific and profeessional standards but does not promise success in achieving
any desired result. TechBC gives no warranty, express or implied, on the results
of the consulting work, including without limtation all implied warranties or
conditions of merchantable quality and fitness for a particular purpose and all
warranties arising from course of dealing and trade usage. TechBC, its employees
or agents shall not be liable for any direct, indirect, special, incidental,
consequential, or any other damage suffered by Sherlock or others resulting from
the advice or technical knowledge provided to Sherlock under this Agreement,
including without limitation damages for lost data or economic loss, regardless
of the legal theory (including any negligence theory, except in connection with
personal injury or property damage), even if TechBC has been advised of the
possibility of such damage and even if arising from a fundamental breach.
Article 10 - Breach
No condoning, excusing or overlooking by any party of any default, breach, or
non-observance by another at any time or times in respect of any covenants,
provisos or conditions of this Agreement shall operate as a waiver of such
party's rights under this Agreement in respect of any continuing or subsequent
default, breach or non-observance, so as to defeat in any way the rights of such
party in respect of any such continuing or subsequent default or breach and no
waiver shall be inferred from or implied by anything done or omitted by such
party, save only an express waiver in writing.
No exercise of a specific right or remedy by any party precludes it from or
prejudices it in exercising another right or pursuing another remedy or
maintaining any action to which it may otherwise be entitled either at law or in
equity.
Article 11 - Notices
Notices under this Agreement shall be sent by registered mail, return receipt
requested or delivered by hand, return receipt requested to the following
address of either party unless
<PAGE>
changed by written notice. Notice may also be sent by facsimile. Any notice sent
by facsimile will be deemed to have been received one clear day after
transmittal.
TechBC Dr. Tom Calvert
Vice President Research & External Affairs
Technical University of British Columbia
Suite 301 - 10334 152A Street
Surrey, BC, V3R 7P8
Fax: (604) 586-5237
Sherlock: Ms. Raeanne Steele
Business Development & Marketing
Shopping Sherlock Inc.
5837 - Pleasure Point Lane
Bellevue, WA 98006, USA
Article 12 - Force Majeure
Neither party to this Agreement shall be liable to the other for any failure or
delay in performance caused by circumstances beyond its control, including but
not limited to, acts of God, fire, labor difficulties, unusually severe weather,
or governmental action.
Article 13 - Entire Agreement
This Agreement shall supersede all prior documents or agreements, whether
written or verbal, in respect of the subject matter thereof.
Article 14 - Choice of Law
This Agreement shall be governed by and interpreted in accordance with the laws
of the Province of British Columbia.
Article 15 - Arbitration
It is the intention of the parties to settle any dispute relating to this
Agreement among themselves, but if at any time during the term of this
Agreement, or after its termination, any dispute arises between the parties
respecting any matter which they cannot settle among themselves, then the
dispute will be settled by a single arbitrator appointed by agreement between
both parties, under the provisions of the Commercial Arbitration Act (British
Columbia) and the rules of the British Columbia International Commercial
Arbitration Center, as from time to time amended or substituted. If the parties
cannot agree on an arbitrator within 10 days after referral of a matter to
arbitration, then the single arbitrator shall be appointed by the British
Columbia International Commercial Arbitration Center. The decision of the
arbitrator will be final and binding on the parties. The costs of the
arbitration will be apportioned between the parties, or against any one or more
of the parties, as the arbitrator may decide.
<PAGE>
Article 16 - Relationship of Parties
The relationship of TechBC and the Principle Investigator to Sherlock is that of
an independent contractor and nothing in this Agreement shall be construed as
establishing an agency, partnership, or employment relationship between the
parties. Both TechBC and the Principal Investigator are permitted to provide
services to others, provided that these additional services are not in a direct
conflict of interest with Sherlock.
Article 17 - Severability
In the event that any part, section, paragraph or sub-paragraph of this
Agreement shall be held to be indefinite, invalid, illegal or otherwise voidable
or unenforceable, the entire Agreement shall not fail on account thereof, and
the balance of the Agreement shall continue in full force and effect.
Article 18 - Survival of Articles
The payment obligations of Sherlock under Article 3, and the obligations of
Sherlock under Article 8 (Confidentiality), 9 (Warranty), and 15 (Arbitration)
shall survive the termination of this Agreement for any reason in addition to
those articles surviving by operation of Law.
IN WITNESS THEREOF, duly authorized officers of the Parties hereto have executed
duplicate copies of this Agreement as of the day and year first written above.
SIGNED FOR AND ON BEHALF OF SIGNED FOR AND ON BEHALF OF
TECHBC by: Sherlock by:
/s/ Dr. Tom Calvert /s/ Raeanne Steele
- --------------------------------- ------------------------------------
Dr. Tom Calvert Ms. Raeanne Steele
Vice-President Research & External Business Development & Marketing
Affairs Date: March 31, 1999
/s/ Dr. B. Sheeham
- ---------------------------------
Dr. B. Sheeham
President
Date: 31 March 1999
Acknowledged by Principal Investigator:
/s/ Dr. Jasbir Dhaliwal
- ---------------------------------
Dr. Jasbir Dhaliwal
Date: 31/3/99
<PAGE>
Schedule A
The scope of work performed by TechBC is as follows:
1. To provide strategic project management services designed to ensure clarity
and integration in the business planning of Shopping Sherlock;
2. to work with Shopping Sherlock's management and technical personnel to
ensure a high-level of alignment between its business processes and
technology infrastructure;
3. to inject independent third-party expertise pertaining to the
technological, market and supply chain aspects of electronic commerce into
the day-to-day evolution of the managerial thinking at Shopping Sherlock;
4. to provide proactive leadership and on-going support to the day-to-day
management function at Shopping Sherlock to ensure that it successfully
achieves its short-term goals focusing on developing its technological,
marketing and operational capabilities in a timely manner; and
5. to work with Shopping Sherlock management to jointly prepare and implement
a strategic development plan that establishes short, medium, and long-term
priorities and managerial actions that will be required for Shopping
Sherlock to move towards its organizational and operational vision.
It is envisaged that the scope of work will involve Dr. Jasbir Dhaliwal's
participation in working with the Sherlock management team on:
1. flushing out in great depth the details of the electronic business model;
2. developing an action plan for developing the technology architecture;
3. developing an appropriate set of processes for the business;
4. undertaking technology evaluation and selection;
5. developing data models and implementing systems specifications;
6. developing service performance measures;
7. establishing an appropriate supply changing strategy;
8. project management of the systems development and roll-out effort;
9. resource identification and organizational development; and
10. developing an appropriate migration strategy that is scalable for growth.
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 24th day of June, 1999 (this
"Agreement"), between Shopping Sherlock, Inc. a Delaware corporation
("Employer"), and Philip Garratt ("Employee").
6 RECITALS
A. Employer desires to hire Employee and Employee wishes to be employed by
Employer. In such employment, Employee will be given access to information,
which is confidential and proprietary to Employer and its Affiliates and vital
to their business operations. For the purposes of the Agreement, the term
"Affiliate" means any entity currently existing or subsequently organized or
formed that directly or indirectly controls, is controlled by or is under common
control with Employer, whether through the ownership of voting securities, by
contract or otherwise.
B. Employee will receive adequate consideration for executing and delivering
this Agreement, including employment by Employer. Entry into this Agreement is a
condition of Employee's employment with Employer.
AGREEMENT
Based upon the consideration of the mutual covenants herein contained, and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, and in order to induce the Employer to employ Employee, the
parties hereto agree as follows:
1. Employment. Employer hereby agrees to employ Employee, and Employee agrees to
be employed by Employer in the capacity identified in Exhibit A. Employee will
report to the person identified at Exhibit A. Employee's basic responsibilities
are set forth in Exhibit A, although Employee may be required to perform other
responsibilities in addition to those identified at Exhibit A. Employee's base
of operations shall be the Employer's offices identified at Exhibit A. Changes
may be made from time to time by Employer, in its sole discretion, to the
duties, reporting relationship and title of Employee. Employee shall devote all
of Employee's work efforts to Employer. Employee shall comply with all rules,
policies and procedures of Employer as modified from time to time. Employee
shall perform all of Employee's responsibilities in a way that is in complete
compliance with all applicable laws.
2. Term of Employment. The employment is "at will," and the term of employment
shall be for no specific period of time and may be terminated by the Employer or
Employee at any time for any reason, with or without cause, in accordance with
the terms and conditions herein.
3. Compensation. For the duration of Employee's employment, the Employee shall
be paid an annual base salary ("Base Salary"), as identified in Exhibit A. Base
Salary shall be prorated for the actual period of employment and payable in
equal installments in accordance with Employer's normal payroll practices, and
shall be subject to appropriate deductions and withholding.
1
<PAGE>
4. Other Benefits. Employee shall be entitled to participate in employee benefit
programs established by Employer, such as medical, pension, disability and life
insurance plans, to the extent that Employee is eligible for such benefits in
accordance with Employer's policies, as they may be changed from time to time.
Nothing in this Agreement requires the adoption or maintenance of any such
arrangements or plans. For the duration of Employee's employment under this
Agreement, Employee shall accrue and utilize sick leave and vacation in
accordance with the policies and procedures of Employer, as they may be modified
from time to time. Employer shall reimburse Employee for reasonable expenses
necessarily incurred in the performance of Employee's duties in accordance with
Employer policies. All expenses in excess of the amount identified at Exhibit A
must be approved in advance by Employee's supervisor.
5. Termination or Discharge by Employer.
5.1.1 For Cause. Employer shall have the right to immediately terminate
Employee's services and this Agreement for cause. "Cause" means: any material
breach of this Agreement by Employee, including, without limitation, breach of
Employee's covenants in Sections 7, 8, 9 and 10; any failure to perform assigned
job responsibilities that continues without remedy for a period of thirty (30)
days after written notice to Employee by Employer; conviction of a felony (or
its legal equivalent in any jurisdiction) or failure to contest prosecution for
a felony (or its legal equivalent in any jurisdiction); violation of any
statute, rule or regulation, any of which in the judgment of Employer is harmful
to Employer's Business (as defined herein) or to Employer's reputation;
unethical practices; dishonesty; disloyalty; or any reason that would constitute
cause under the laws of the State of Washington or any other jurisdiction in
which the Employee performs services hereunder.
5.1.2 Upon termination of Employee's employment hereunder for cause or upon the
death or disability of Employee, Employee will have no rights to any unvested
benefits or any other compensation or payments after the termination date or the
last day of the month in which Employee's death or disability occurred. For
purposes of this Agreement, "disability" means the incapacity or inability of
Employee, whether due to accident, sickness or otherwise, as determined by a
medical doctor acceptable to the Board of Directors of Employer and confirmed in
writing by such doctor, to perform the essential functions of Employee's
position under this Agreement, with or without reasonable accommodation
(provided that no accommodation that imposes undue hardship on Employer will be
required) for an aggregate of ninety (90) days during any period of one hundred
eighty (180) consecutive days.
5.2 Without Cause. If Employer terminates Employee's employment without cause,
Employer shall provide Employee with the amount of advance notice set forth as
minimum notice in Exhibit A ("Minimum Notice"). Alternatively, and in the sole
discretion of Employer, Employer may terminate Employee's employment without
notice or with notice less than the Minimum Notice, but in such a situation,
Employer shall pay Employee the amount of Base Salary Employee would have earned
had Employee remained employed through the Minimum Notice period (based on the
Base Salary rate on the termination date), less the amount of Base Salary
actually earned during the Minimum Notice period. Such payments shall be sent to
Employee in amounts allocated per pay period by mail on Employer's usual and
customary paydays and shall be less required withholdings and deductions.
Employee shall have no rights to any unvested benefits at the time of
termination or any other payments except as stated in this paragraph.
2
<PAGE>
6. Termination by Employee. Employee may terminate Employee's employment under
this Agreement for any reason provided that Employee gives Employer the amount
of notice set forth as Minimum Notice in Exhibit A. In the event of such Notice,
Employee's compensation and benefits hereunder shall cease as of the date of
Employee's designated termination date, except that Employer may accelerate the
termination date to any date determined by Employer after which Employee's
services would not be required. In the event of termination by Employee, there
shall be no further compensation beyond the termination date.
7. Covenant Not To Compete. During the Restricted Period defined in Exhibit A,
Employee covenants and agrees that Employee shall not:
a. Directly, indirectly, or otherwise, own, manage, operate, control, serve
as a consultant to, be employed by, participate in, or be connected, in any
manner, with the ownership management, operation or control of any business
which is competitive with any type of business which Employer is engaged in
or planned to engage in at any time during Employee's employment with
Employer up to and including the time of the termination of employment
("Employer's Business");
b. Hire, offer to hire, entice away or in any other manner persuade or
attempt to persuade any officer, employee or agent of Employer to alter or
discontinue his or her relationship with Employer;
c. Directly or indirectly solicit, divert, or attempt to solicit or divert
any customers or business of Employer; or
d. Directly or indirectly solicit, divert, or in any other manner persuade
or attempt to persuade any supplier or Employee to alter or discontinue its
relationship with Employer.
7.1 For the purposes of this Section 7, Employer's Business includes, without
limitation, the development and operation of multiple commerce sites on the
Internet for the sale of products, services, and privileges over the Internet,
participating and building a reciprocal rebate program, providing e-commerce
services to direct and multi-level marketing companies as well as discount
warehouse companies, and inventing or adapting any e-commerce systems necessary
to the operation of such sites. Notwithstanding Employee's obligations under
this Section 7, Employee shall be entitled to own, as a passive investor, up to
five percent (5%) of any publicly-traded company without violating this
provision.
7.2 Employer and Employee agree that this provision does not impose an undue
hardship on Employee and is not injurious to the public; that this provision is
necessary to protect the valuable goodwill and the business of Employer; that
the nature of Employee's responsibilities with Employer under this Agreement
require Employee to have access to confidential information which is valuable
and confidential to Employer's Business; that the scope of this Section 7 is
reasonable in terms of length of time; and that adequate consideration supports
this Section 7.
7.3 Employee recognizes that Employer has entered into strategic alliance
agreements with partners, vendors and clients that include various
non-competition, nondisclosure, and non-circumvention requirements and employee
agrees to uphold and abide by these agreements.
3
<PAGE>
8. Confidential Information. Employee recognizes that Employer's Business and
continued success depend upon the use and protection of confidential and
proprietary business information, including, without limitation, the information
and technology developed by or available through licenses to Employer related to
Employer's Business, to which Employee has access (all such information being
"Confidential Information"). For purposes of this Agreement, the phrase
"Confidential Information" includes for Employer and its current or future
subsidiaries and affiliates, without limitation, and whether or not specifically
designated as confidential or proprietary: all business plans and marketing
strategies; information concerning existing and prospective markets and
customers; financial information; information concerning the development of new
products and services; and technical and non-technical data related to software
programs, designs, specifications, compilations, inventions, improvements,
methods, processes, procedures and techniques; provided, however, that the
phrase does not include information that;
(a) was lawfully in Employee's possession prior to disclosure of such
information by Employer;
(b) was, or at any time becomes, available in the public domain other than
through a violation of this Agreement;
(c) is documented by Employee as having been developed by Employee outside
the scope of Employee's employment and independently; or
(d) is furnished to Employee by a third party not under an obligation of
confidentiality to Employer. Employee agrees that during Employee's
employment and after termination of employment irrespective of cause,
Employee will use Confidential Information only for the benefit of Employer
and will not directly or indirectly use or divulge, or permit others to use
or divulge, any Confidential Information for any reason, except as
authorized by Employer.
(e) Employee's obligation under this Agreement is in addition to any
obligations Employee has under state, provincial or federal law.
8.1 Employee agrees to deliver to Employer immediately upon termination of
Employee's employment, or at any time Employer so requests, all tangible items
containing any Confidential Information (including, without limitation, all
memoranda, photographs, records, reports, manuals, drawings, blueprints,
prototypes, notes taken by or provided to Employee, and any other documents or
items of a confidential belonging to Employer), together with all copies of such
material in Employee's possession or control.
8.2 Employee agrees that in the course of Employee's employment with Employer,
Employee will not violate in any way the rights that any entity has with regard
to trade secrets or proprietary or confidential information. Employee's
obligations under this Section 8 are indefinite in term and shall survive the
termination of this Agreement.
9. Work Product and Copyrights. Employee agrees that all right, title and
interest in and to all products, materials and documents resulting from the
performance of Employee's duties at Employer and all copies thereof, including
works in progress, in whatever media, (the "Work"), will be and remain in
Employer upon their creation. Employee will mark all Work with Employer's
copyright or other proprietary notice as directed by Employer. Employee further
agrees:
9.1 To the extent that any portion of the Work constitutes a work able to be
protected under the copyright laws of the United States (the "Copyright Law"),
that all such Work will be considered a "work made for hire" as such term is
used and defined in the Copyright Law and that Employer will be
4
<PAGE>
considered the "author" of such portion of the Work and the sole and exclusive
owner throughout the world of copyright therein; and
9.2 If any portion of the Work does not qualify as a "work made for hire" as
such term is used and defined in the Copyright Law, that Employee hereby assigns
and agrees to assign to Employer, without further consideration, all right,
title and interest in and to such Work or in any such portion thereof including
without limitation any copyright, trade secret, trademark, trade dress, service
mark or other proprietary interest therein and further agrees to execute and
deliver to Employer, upon request, appropriate assignments of such Work and
copyright and other rights therein and such other documents and instruments as
Employer may request to fully and completely assign such Work and copyright and
other rights therein to Employer, its successors or nominees, and that Employee
hereby appoints Employer as attorney-in-fact to execute and deliver any such
documents on Employee's behalf in the event Employee should fail or refuse to do
so within a reasonable period following Employer's request.
10. Inventions and Patents. For purposes of this Agreement, "Inventions"
includes, without limitation, information, inventions, contributions,
improvements, ideas, or discoveries, whether they are able to be patented or
not, and whether or not conceived or made during work hours. Employee agrees
that all Inventions conceived or made by Employee during the period of
employment with Employer belong to Employer, provided they relate directly to
the business of the Employer, or relate to the employer's actual or demonstrably
anticipated research and development, or result from work performed by Employer.
Accordingly, Employee will:
10.1 Make adequate written records of such Inventions, which records will be
Employer's property; and
10.2 Assign to Employer, at its request, any rights Employee may have to such
Inventions for the U.S. and all foreign countries;
10.3 Waive and agree not to assert any moral rights Employee may have or acquire
in any Inventions and agree to provide written waivers from time to time as
requested by Employer; and assist Employer (at Employer's expense) in obtaining
and maintaining patents or copyright registrations with respect to such
Inventions.
10.4 Employee understands and agrees that Employer or its designee will
determine, in its sole and absolute discretion, whether an application for
patent will be filed on any Invention that is the exclusive property of
Employer, as set forth above, and whether such an application will be abandoned
prior to issuance of a patent. Employer will pay to Employee, either during or
after the term of this Agreement, the following amounts if Employee is sole
inventor, or Employee's proportionate share if Employee is joint inventor: $750
upon filing of the initial application for patent on such Invention; and $1,500
upon issuance of a patent resulting from such initial patent application,
provided Employee is named as an inventor in the patent.
10.5 Employee further agrees that Employee will promptly disclose in writing to
Employer during the term of Employee's employment and for one (1) year
thereafter, all Inventions whether developed during the time of such employment
or thereafter (whether or not Employer has rights in such Inventions) so that
Employee's rights and Employer's rights in such Inventions can be determined.
Except as set forth on the initialed Exhibit B to this Agreement, if any,
Employee represents and warrants that Employee has no Inventions, software,
writings or other works of authorship useful to Employer in the normal course
5
<PAGE>
of Employer's Business, which were conceived, made or written prior to the date
of this Agreement and which are excluded from the operation of this Agreement.
NOTICE: In accordance with Washington law, this Section 10 does not apply
to Inventions for which no equipment, supplies, facility, or trade secret
information of Employer was used and which was developed entirely on
Employee's own time, unless: (a) the Invention relates (i) directly to the
business of Employer or (ii) to Employer's actual or demonstrably
anticipated research or development, or (b) the Invention results from any
work performed by Employee for Employer.
11. Remedies. Notwithstanding other provisions of this Agreement regarding
dispute resolution, Employee agrees that Employee's violation of any of Sections
7, 8, 9 or 10 of this Agreement would cause Employer or its Affiliates
irreparable harm which would not be adequately compensated by monetary damages,
and that an injunction may be granted by any court or courts having
jurisdiction, restraining Employee from violation of the terms of this
Agreement, upon any breach or threatened breach of Employee of obligations set
forth in any of Sections 7, 8, 9 or 10. The preceding sentence shall not be
construed to limit Employer or its Affiliates from any other relief or damages
to which it may be entitled to as a result of Employee's violation of any
obligation owed Employer under law or provision of this Agreement, including any
of Sections 7, 8, 9 or 10.
12. Dispute Resolution. Except with regard to the right of Employer or Employee
to commence any judicial action or proceeding to obtain injunctive relief, and
to the greatest extent permitted by law, any controversy, claim or dispute of
whatever nature arising out of or relating to this Agreement, whether such
controversy, claim or dispute is based upon statute, contract, tort, common law
or otherwise, and whether such controversy, claim or dispute existed prior to or
arises after the date of this Agreement (any such controversy, claim or dispute
being a "Dispute"), shall be resolved in accordance with the procedures set
forth in this Section 12, which procedures will be the sole and exclusive
procedures for the resolution of any Disputes. Matters to be resolved under
these procedures also include claims and disputes arising out of statutes such
as Title VII of the Civil Rights Act, the Age Discrimination in Employment Act,
and the Washington Law against Discrimination or similar statues in
jurisdictions in which the Employee performs services under this agreement.
Nothing in this provision is intended to restrict Employee from submitting any
matter to an administrative agency with jurisdiction over such matter.
12.1 Compliance with Employer Policy. Employee and Employer will make a good
faith attempt to resolve all disputes in accordance with any dispute resolution
policy adopted by Employer before resorting to any other dispute resolution
procedure.
12.2 Mediation. Employer and Employee will make a good faith attempt to resolve
any and all claims and disputes not resolved in accordance with Section 12.1 by
submitting them to mediation in Seattle, Washington before resorting to
arbitration or any other dispute resolution procedure. The mediation of any
claim or dispute must be conducted in accordance with the then-current American
Arbitration Association ("AAA") national rules for the resolution of employment
disputes by mediation, by a mediator who has had both training and experience as
a mediator of general employment and commercial matters. If the parties to this
agreement cannot agree on a mediator, then the mediator will be selected by the
AAA in accordance with the criteria described in this provision. Within thirty
(30) days after the selection of the mediator, Employer and Employee and their
respective attorneys will meet with the mediator for one mediation session of at
least four hours. If the claim or dispute cannot be
6
<PAGE>
settled during such mediation session or mutually agreed continuation of the
session, either Employer or Employee may give the mediator and the other party
to the claim or dispute written notice declaring the end of the mediation
process. All discussions connected with this mediation provision will be
confidential and treated as compromise and settlement discussions. Nothing
disclosed in such discussions, which is not independently discoverable, may be
used for any purpose in any later proceeding.
12.3 Arbitration. If any claim or dispute has not been resolved in accordance
with Section 12.1 and Section 12.2, then the claim or dispute will be determined
by arbitration in Seattle, Washington, in accordance with the then-current AAA
national rules for the resolution of employment disputes by arbitration, except
as modified herein. The arbitration will be conducted by a sole neutral
arbitrator who has had both training and experience as an arbitrator of general
employment and commercial matters and who is and for at least ten (10) years has
been, a partner, a shareholder, or a member in a law firm. If Employer and
Employee cannot agree on an arbitrator, then the arbitrator will be selected by
the AAA applying the criteria in this provision. No person who has served as a
mediator under the mediation provision, however, may be selected as the
arbitrator for the same claim or dispute. Reasonable discovery will be permitted
and the arbitrator may decide any issue as to discovery. The arbitrator may
decide any issue as to whether or as to the extent to which, any dispute is
subject to the dispute resolution provisions in Section 12 and the arbitrator
may award any relief permitted by law. The arbitrator must base the arbitration
award on the provisions of Section 12 and applicable law and must render the
award in writing, including an explanation of the reasons for the award. Any
court having jurisdiction of the matter may enter judgment upon the award, and
the decision of the arbitrator will be final and binding. The statute of
limitations applicable to the commencement of a lawsuit will apply to the
commencement of arbitration under Section 12.3.
12.4 Reasonable attorneys' fees incurred in any Dispute relating to the
interpretation or enforcement of this Agreement shall be paid by the
non-prevailing party to such Dispute.
13. Insider Trading Compliance. Employee agrees to abide by the employer's
insider trading compliance program as set forth in Exhibit C.
14. Disclosure. Employee agrees to reveal the terms of this Agreement to any
future employer or potential employer of Employee and authorizes Employer, at
its election, to make such disclosure.
15. Representation of Employee. Employee represents and warrants to Employer
that Employee is free to enter into this Agreement and has no commitment,
arrangement or understanding to or with any party which restrains or is in
conflict with Employee's performance of the covenants, services and duties
provided for in this Agreement. Employee shall not violate any obligation owed
to any other party, including former employees, and shall not violate any rights
that any third party has with regard to proprietary information or trade
secrets. Employee agrees to indemnify Employer and to hold it harmless against
any and all liabilities or claims arising out of breach of this representation
and warranty.
16. Assignability. During Employee's employment hereunder, this Agreement may
not be assigned by either party without the written consent of the other;
provided, however, that Employer may assign its rights and obligations under
this Agreement to a successor by sale, merger or liquidation, if such successor
carries on Employer's business substantially in the form in which it is being
conducted at the time of the sale, merger or liquidation.
7
<PAGE>
17. Right of Set-off. By accepting this Agreement, Employee consents to a
deduction from any amounts Employer owes Employee from time to time (including
amounts owed to Employee as wages or other compensation, or vacation pay, as
well as any other amounts owed to Employee by Employer), to the extent of the
amounts Employee owes Employer. Whether or not Employer elects to make any
set-off in whole or in part, if Employer does not recover by means of set-off
the full amount Employee owes it, calculated as set forth above, Employee agrees
to pay immediately the unpaid balance to Employer.
18. Notices. Any notice required or permitted to be given hereunder shall be
sufficient if in writing, by registered or certified mail, to Employee at the
address set forth at Exhibit A, or to the President of Employer at Shopping
Sherlock, Inc., 11201 S.E. 8th Street, Suite 152, Bellevue, WA, 98004. Notice
shall be deemed to have been given on the third day after deposit into the mail.
Notices to the Employee, may, at the discretion of Employer, alternatively be
hand delivered to Employee.
19. Severability. In the event that any provision of this Agreement or
compliance by any of the parties with any provision of this Agreement shall
constitute a violation of any law, unenforceable or void, then such provision,
to the extent only that it is in violation of law, void or unenforceable, shall
be deemed modified to the extent necessary so that it is no longer
unenforceable, void or in violation of law. If such modification is not
possible, said provision, to the extent that it is in violation of law, void or
unenforceable, shall be deemed severable from the remaining provisions of this
Agreement, which provisions shall remain binding on the parties.
20. Entire Agreement. This instrument contains the entire agreement of the
parties, and it may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought, and any such modification will be signed by the President
of Employer.
21. Governing Law. The validity, construction and performance of this Agreement
shall be governed by the laws of the State of Washington without regard to the
conflicts of law provisions of such laws.
22. Other. The waiver by Employer of a breach of any provision of this Agreement
by Employee shall not operate or be construed as a waiver of any subsequent
breach by Employee. Affiliates of Employer are and shall be third-party
beneficiaries of this Agreement.
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Patrick McGrath Philip Garratt
Its: CFO
Date: June 24, 1999 Date: -----------------
8
<PAGE>
Exhibit A to Employment Agreement
Name of Employee: Philip Garratt
Position: CEO
Title of position to whom employee reports: Board of Directors
Basic responsibilities.
Minimum Hours: 40 Hours per week.
Base salary: U.S. $10,000
Options: The company plans to grant 150,000 options to individual
Expense limit without
prior approval: U.S. $3,000
Minimum Notice: One month
Restricted Period: The Restricted Period shall be the period of one year
following the termination of Employee's employment with Employer for any reason.
Place of notice to Employee.
- ----------------------------
- ----------------------------
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Patrick McGrath Philip Garratt
Its: CFO
Date: June 24, 1999 Date: -----------------
9
<PAGE>
Exhibit B to Employment Agreement
Employee represents and warrants that Employee has no Inventions, software,
writings, artistic works, audiovisual works or other works of authorship useful
to Employer in the normal course of Employer's Business, which were conceived,
made or written prior to the date of this Agreement and which are excluded from
the operation of this Agreement.
List exemptions:
Initials of Employee: -----------
10
<PAGE>
Exhibit C to Employment Agreement
INSIDER TRADING COMPLIANCE
SHOPPING SHERLOCK INC.
UPDATED INSIDER TRADING COMPLIANCE - PROGRAM
As at June 22nd 1999
Adopted: June 22, 1999
Exhibits Updated: June 22, 1999
In order to continue its active role in the prevention of any question regarding
insider trading violations by its officers, directors, employees, shareholders
and other related individuals, to alter that role as necessary and appropriate
in light of the Company's increased size and publicly traded status, and to
ensure that its policies continue to be in accordance with the latest
developments in the law, the Company has adopted the policies and procedures
described in this Memorandum Effective as of the date set forth above. These
policies and procedures are regularly updated and posted to the Shopping
Sherlock Intranet under "Legal".
I. Adoption of Insider Trading Policy.
The Company has adopted the Shopping Sherlock Insider Trading Policy attached as
Exhibit A (the "Policy"), which prohibits trading while in possession of
Material Nonpublic Information regarding the Company. The Policy covers
officers, directors, shareholders and all other employees of, or consultants or
contractors to, the Company, as well as family members of such persons, and
other persons who have or may have access to Material Nonpublic Information. The
Policy (and/or a summary thereof is to be delivered to all new employees and
consultants upon the commencement of their relationships with the Company, and
is to be circulated to all personnel at least annually.
II. Designation of Certain Persons.
A. Section 16 Individuals. The Company has determined that those persons listed
on Exhibit B attached hereto are the persons currently subject to the reporting
and liability provisions of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder ("Section 16 Individuals"). Exhibit B will be amended and -updated
from time to time as appropriate to include an updated list of directors and
officers and shareholders who beneficially own more than 10% of the Company's
common stock.
B. Other Restricted Persons. The Company has determined that those persons
listed on Exhibit C attached hereto, together with the Section 16 Individuals
listed on Exhibit are currently subject to the pre clearance requirement
described in Section IV below. The Company believes that those persons have, or
are likely to have, regular access to Material Nonpublic Information. Exhibit C
may be amended from time to time. Under special circumstances, certain persons
not listed on Exhibit-C may have access to Material Nonpublic Information for a
period of time. During such period, such persons are also subject to the pre
clearance procedure described in Section IV.
11
<PAGE>
III. Appointment of Compliance Officer.
The Company designates its CFO as the Company's Insider Trading Compliance
Officer.
IV. Duties of Compliance Officer.
The duties of the Compliance Officer include, but are not limited to, the
following:
A. Pre clear all transactions involving the Company's securities by those
individuals listed on Exhibits B and C in order to define compliance with the
Policy, insider trading laws, Section 16 of the Exchange Act and Rule 144
promulgated under the Securities Act of 1933, as amended.
B. Coordinate preparation and filing of Section 16 reports (Forms 3, 4 and 5)
for all Section 16 Individuals.
C. Serve as the designated recipient at the Company of copies of reports filed
with the SEC by Section 16 Individuals under Section 16 of the Exchange Act.
D. Perform periodic cross-checks of available materials which may include Forms
3, 4 and 5, Form 144, officers' and directors' questionnaires, and reports
received from the Company's stock administrator and transfer agent, to determine
trading activity by officers, directors and others who access to Material
Nonpublic Information.
E. Circulate the Policy (and/or a summary thereof) to all employees, including
Section 16 Individuals, on an annual basis, and provide the Policy and other
appropriate materials to new officers, directors and others who have, or may
have, access to Material Nonpublic Information.
F. Assist the Company's Board of Directors with implementation of the Policy and
Sections I and II of this memorandum.
G. Coordinate with Company counsel regarding compliance with Rule 144 sales.
Attachments:
Exhibit "A" - Insider Trading Policy
Exhibit "B" - List of Section 16 insiders
12
<PAGE>
EXHIBIT "A"
SHOPPING SHERLOCK INC.
INSIDER TRADING POLICY and Guidelines with Respect to Certain Transactions in
Company Securities
This Policy provides guidelines to employees, officers and directors of, and
consultants and contractors to, SHOPPING SHERLOCK INC. (the "Company") with
respect to transactions' in the Company's securities.
APPLICABILITY OF POLICY
This policy applies to all transactions in the Company's securities, including
Common Stock, options for Common Stock and any other securities the Company may
issue from time to time, such as preferred stock, warrants and convertible
debentures, as well as to derivative securities relating to the Company's stock,
whether or not issued by the Company, such as exchange-traded options. It
applies to all officers of the Company, all members of the Company's Board of
Directors, and all employees of, and consultants and contractors to, the Company
and its subsidiaries. This group of people when in receipt of or having access
to Material Nonpublic Information (as defined below) regarding the Company,
along with members of their immediate families and members of their households,
are sometimes referred to in this Policy as "Insiders". This Policy also applies
to any person who receives Material Nonpublic Information from any insider.
Any person who possesses Material Nonpublic Information regarding the Company is
an Insider for so long as the information is not publicly known. Any employee
can be an Insider from time to time, and would at those times be subject to this
Policy.
GENERAL POLICY
It is the policy of the Company to oppose the unauthorized disclosure of any
Material Nonpublic Information regarding the Company acquired in the workplace
or otherwise and the misuse of Material Nonpublic Information in securities
trading.
SPECIFIC POLICIES
1. Trading on Material Nonpublic Information. No director, officer or employee
of, or consultant or contractor to, the Company, and no member of the immediate
family or household of any such person, shall engage in any transaction
involving a purchase or sale of the Company's securities, including any offer to
purchase or offer to sell, during any period commencing with the date that he or
she possesses Material Nonpublic Information concerning the Company, and ending
at the close of business on the second Trading Day following the date of public
disclosure of that information, or at such time as such nonpublic information is
no longer material. As used herein, the term "Trading Day" shall mean a day on
which national stock exchanges and the NASDAQ Stock Market are open for trading.
2. Tipping. No Insider shall disclose ("tip") Material Nonpublic Information to
any other person (including family members) where such information may be used
by such person to his or her profit by
13
<PAGE>
trading in the securities of companies to which such information relates, nor
shall such Insider or related person make recommendations or express opinions on
the basis of Materials Nonpublic Information as to trading in the Company's
securities.
3. Confidential of Nonpublic Information. Nonpublic information relating to the
Company is the property of the Company and the unauthorized disclosure of such
information is forbidden.
POTENTIAL CRIMINAL AND CIVIL LIABILITY AND/OR DISCIPLINARY ACTION
1. Liability for Insider Trading. Insiders may be subject to disgorgement of
profits (or losses avoided) (trebled in some cases), penalties of up to
$1,000,000 and up to ten years in jail for engaging in transactions in the
Company's securities at a time when they have knowledge of Material Nonpublic
Information regarding the Company.
2. Liability for Tipping. Insiders may also be liable for improper transactions
by any person (commonly referred to as a "tippee") to whom they have disclosed
nonpublic information regarding the Company or to whom they have made
recommended or expressed opinions on the basis of such information as to trading
in the Company's securities. The Securities and Exchange Commission (the "SEC")
has imposed large penalties even when the disclosing person did not profit from
the trading. The SEC, the stock exchanges and the National Association of
Securities Dealers, Inc. use sophisticated electronic surveillance techniques to
uncover insider trading.
3. Possible Disciplinary Actions. Employees of the Company who violate this
policy shall also be subject to disciplinary action by the Company, which my
include ineligibility for future participation in the Company's equity incentive
plan or immediate termination of employment.
GUIDELINES
1. Recommended Trading Window- To ensure compliance with this Policy and
applicable federal and state securities laws, the Company requires that all
directors, officers, employees, consultants and contractors having access to the
Company's internal financial statements or other Material Nonpublic Information
refrain from conducting transactions involving the purchase or sale of the
Company's securities other than during the following period (the "Trading
Window"):
Trading Window: The period in any fiscal quarter commencing at the close of
business two full Trading Days following the date of public disclosure of the
financial results for the prior fine quarter or year and ending on the last day
of the second fiscal month of the fiscal quarter.
The safest period for trading in the Company's securities, assuming the absence
of Material Nonpublic Information, is generally the first ten days of the
Trading Window. Periods other than the Trading Window are more highly sensitive
for transactions in the Company's stock from the perspective of compliance with
applicable securities laws. This is due to the fact that officers, directors and
certain other employees will, as any quarter progresses, be increasingly likely
to possess Material Nonpublic Information about the expected financial results
for the quarter.
The purpose behind the recommended Trading Window is to help establish a
diligent effort to avoid any improper transaction. An Insider may choose not to
follow this suggestion, but he or she should be
14
<PAGE>
particularly careful with respect to trading outside the Trading Window, since
the Insider may, at such time, have access to (or later be deemed to have had
access to) Material Nonpublic Information regarding, among other things, the
Company's anticipated financial performance for the quarter.
It should be noted that even during the Trading Window any person possessing
Material Nonpublic Information concerning the Company should not engage in any
transactions in the Company's securities until such information has been known
publicly for at least two Trading Days. Although the Company may from time to
time recommend during a Trading Window that directors, officers, selected
employees and others suspend trading because of developments known to the
Company and not yet disclosed to the public,
each person is individually responsible at all times for compliance with the
prohibitions against insider trading. Trading in the Company's securities during
the Trading Window should not be considered a "safe harbor," and all directors,
officers and other persons should use good judgment at all times.
2. Pre clearance of Trades. The Company has determined that all officers and
directors of the Company should refrain from trading in the Company's
securities, even during the Trading Window, without first complying with the
Company's "Pre clearance" process. Each officer and director should contact the
Company's Insider Trading Compliance officer prior to commencing any trade in
the Company's securities.
The Company may also find it necessary, from time to time, to require compliance
with the pre clearance process from certain employees, consultants and
contractors other than and in addition to officers and directors.
3. No Short Sales or Options Trading. The Company requires that all officers,
directors, employees, consultants and contractors refrain from engaging in any
short sale of the Company's securities or any purchase or sale of put or call
options involving the Company's securities.
4. Trading in Stock of Customers and Suppliers. The Company requires that all
officers, directors, employees, consultants and contractors refrain from trading
in the securities of customers, suppliers or other third party entities with
whom the Company has a business relationship at a time that such person is in
possession of material non public information concerning the issuer of such
securities obtained through the Company's relationship with such other entity.
5. Individual Responsibility. Every officer, director and employee has the
individual responsibility to comply with this Policy against insider trading,
regardless of whether the Company has recommended a trading window to that
Insider or any other Insiders of the Company. The guidelines set forth in this
Policy are guidelines only, and appropriate judgment should be exercised in
connection with any trade in the Company's securities.
An Insider may, from time to time, have to forego, a proposed transaction in the
Company's securities even if he or she planned to make the transaction before
learning of the Material Nonpublic Information and even though the Insider
believes he or she may suffer an economic loss or forego anticipated profit by
waiting.
15
<PAGE>
APPLICABILITY OF POLICY TO INSIDE INFORMATION
REGARDING OTHER COMPANIES
This policy and the guidelines described herein also apply to Material Nonpublic
Information relating to other companies, including the Company's customers,
vendors, suppliers or acquisition candidates ("business partners"), when that
information is obtained in the course of employment with, or other services
performed on behalf of, the Company. Civil and penalties, and termination of
employment, may result from trading on inside information regarding the
Company's business partners.
All employees should treat Material Nonpublic information about the company's
business partners with the same care required with respect to information
related directly to the Company.
DEFINITION OF MATERIAL N0N PUBLIC INFORMATION
It is not possible to define all categories of material information. However,
information should be regarded as material if there is a reasonable likelihood
that it would be considered important to an investor in making an investment
decision regarding the purchase or sale of the Company's securities.
While it may be difficult under this standard to determine whether particular
information is material there are various categories of information that are
particularly sensitive and, as a general rule, should always be considered
material.
Examples of such information may include:
Financial results
Projections of future earnings or losses
News of a pending or proposed merger
News of a pending or proposed significant acquisition
News of the disposition of a subsidiary
Impending bankruptcy or financial liquidity problems
Gain or loss of a substantial customer or supplier
Changes in dividend policy
New product announcements of a significant nature
Significant product defects or modifications Significant pricing changes
Stock splits
New equity or debt offerings
Major acquisitions
Significant litigation exposure due to actual or threatened litigation
Major changes in senior management
Either positive or negative information may be material.
Non public information is information that has not been previously disclosed to
the general public and is otherwise not readily available to the general public.
CERTAIN EXPECTATIONS
For purposes of this Policy, the Company considers that the exercise of a stock
option for cash under the Company's stock option plans or the purchase of shares
under the Company's employee stock purchase
16
<PAGE>
plan (but not the sale of any such shares) is exempt from this Policy, since the
other party to the transaction is the Company itself and the price does not vary
with the market but is fixed by the terms of the option agreement or the plan.
Further, the Company does not believe that employees, officers or directors
should ordinarily be prohibited from making bonafide gifts and charitable
donations outside the Trading Window in situations where there is no unusual
activity or other reason to believe that a transaction would be particularly
risky.
ADDITIONAL INFORMATION - DIRECTORS AND OFFICERS
Directors and officers of the Company must also comply with the reporting
obligations and limitations on short-swing transactions set forth in Section 16
of the Securities Exchange Act of 1934, as amended. The practical effect of
these provisions is that officers and directors who purchase and sell the
Company's securities within a six-month period must disgorge all profits to the
Company whether or not they bad knowledge of any Material Nonpublic Information.
Under these provisions, and so long as certain other criteria are met, neither
the receipt of an option trader the Company's option plan, nor the exercise of
that option nor the receipt of stock under the Company's employee stock purchase
plan is deemed a purchase under Section 16; however, the sale of any such shares
is a sale under Section 16.
Moreover, no officer or director may ever make a short sale of the Company's
stock. The Company has provided, or will provide, separate memoranda and other
appropriate materials to its officers and directors regarding compliance with
Section 16 and its related rules.
INQUIRIES
Please direct your questions as to any of the matters discussed in this Policy
to the Company's Insider Trading Compliance officer.
17
<PAGE>
EXHIBIT "B"
DIRECTORS, OFFICERS AND SHAREHOLDERS SUBJECT TO SECTION 16
As of June 22, 1999
Directors:
Richard Stewart
Jasbir Dhaliwal
Philip Garratt
Raeanne Steele
Mitchell Eggers
Officers:
TITLE NAME
----- ----
1. President and Chief Executive Officer Philip Garratt
2. Chief Financial Officer/Secretary Patrick McGrath
3. Chief Technology Officer Jan Walter
4. Chief Operating Officer Mitchell Eggers
5. Executive Vice President of Sales and Marketing Raeanne Steele
Shareholders:
Premier Lifestyles International Corporation (PLIC)
18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 24th day of June, 1999 (this
"Agreement"), between Shopping Sherlock, Inc. a Delaware corporation
("Employer"), and Mitchell Eggers ("Employee").
RECITALS
A. Employer desires to hire Employee and Employee wishes to be employed by
Employer. In such employment, Employee will be given access to information,
which is confidential and proprietary to Employer and its Affiliates and vital
to their business operations. For the purposes of the Agreement, the term
"Affiliate" means any entity currently existing or subsequently organized or
formed that directly or indirectly controls, is controlled by or is under common
control with Employer, whether through the ownership of voting securities, by
contract or otherwise.
B. Employee will receive adequate consideration for executing and delivering
this Agreement, including employment by Employer. Entry into this Agreement is a
condition of Employee's employment with Employer.
AGREEMENT
Based upon the consideration of the mutual covenants herein contained, and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, and in order to induce the Employer to employ Employee, the
parties hereto agree as follows:
1. Employment. Employer hereby agrees to employ Employee, and Employee agrees to
be employed by Employer in the capacity identified in Exhibit A. Employee will
report to the person identified at Exhibit A. Employee's basic responsibilities
are set forth in Exhibit A, although Employee may be required to perform other
responsibilities in addition to those identified at Exhibit A. Employee's base
of operations shall be the Employer's offices identified at Exhibit A. Changes
may be made from time to time by Employer, in its sole discretion, to the
duties, reporting relationship and title of Employee. Employee shall devote all
of Employee's work efforts to Employer. Employee shall comply with all rules,
policies and procedures of Employer as modified from time to time. Employee
shall perform all of Employee's responsibilities in a way that is in complete
compliance with all applicable laws.
2. Term of Employment. The employment is "at will," and the term of employment
shall be for no specific period of time and may be terminated by the Employer or
Employee at any time for any reason, with or without cause, in accordance with
the terms and conditions herein.
3. Compensation. For the duration of Employee's employment, the Employee shall
be paid an annual base salary ("Base Salary"), as identified in Exhibit A. Base
Salary shall be prorated for the actual period of employment and payable in
equal installments in accordance with Employer's normal payroll practices, and
shall be subject to appropriate deductions and withholding.
4. Other Benefits. Employee shall be entitled to participate in employee benefit
programs established by Employer, such as medical, pension, disability and life
insurance plans, to the extent that
1
<PAGE>
Employee is eligible for such benefits in accordance with Employer's policies,
as they may be changed from time to time. Nothing in this Agreement requires the
adoption or maintenance of any such arrangements or plans. For the duration of
Employee's employment under this Agreement, Employee shall accrue and utilize
sick leave and vacation in accordance with the policies and procedures of
Employer, as they may be modified from time to time. Employer shall reimburse
Employee for reasonable expenses necessarily incurred in the performance of
Employee's duties in accordance with Employer policies. All expenses in excess
of the amount identified at Exhibit A must be approved in advance by Employee's
supervisor.
5. Termination or Discharge by Employer.
5.1.1 For Cause. Employer shall have the right to immediately terminate
Employee's services and this Agreement for cause. "Cause" means: any material
breach of this Agreement by Employee, including, without limitation, breach of
Employee's covenants in Sections 7, 8, 9 and 10; any failure to perform assigned
job responsibilities that continues without remedy for a period of thirty (30)
days after written notice to Employee by Employer; conviction of a felony (or
its legal equivalent in any jurisdiction) or failure to contest prosecution for
a felony (or its legal equivalent in any jurisdiction); violation of any
statute, rule or regulation, any of which in the judgment of Employer is harmful
to Employer's Business (as defined herein) or to Employer's reputation;
unethical practices; dishonesty; disloyalty; or any reason that would constitute
cause under the laws of the State of Washington or any other jurisdiction in
which the Employee performs services hereunder.
5.1.2 Upon termination of Employee's employment hereunder for cause or upon the
death or disability of Employee, Employee will have no rights to any unvested
benefits or any other compensation or payments after the termination date or the
last day of the month in which Employee's death or disability occurred. For
purposes of this Agreement, "disability" means the incapacity or inability of
Employee, whether due to accident, sickness or otherwise, as determined by a
medical doctor acceptable to the Board of Directors of Employer and confirmed in
writing by such doctor, to perform the essential functions of Employee's
position under this Agreement, with or without reasonable accommodation
(provided that no accommodation that imposes undue hardship on Employer will be
required) for an aggregate of ninety (90) days during any period of one hundred
eighty (180) consecutive days.
5.2 Without Cause. If Employer terminates Employee's employment without cause,
Employer shall provide Employee with the amount of advance notice set forth as
minimum notice in Exhibit A ("Minimum Notice"). Alternatively, and in the sole
discretion of Employer, Employer may terminate Employee's employment without
notice or with notice less than the Minimum Notice, but in such a situation,
Employer shall pay Employee the amount of Base Salary Employee would have earned
had Employee remained employed through the Minimum Notice period (based on the
Base Salary rate on the termination date), less the amount of Base Salary
actually earned during the Minimum Notice period. Such payments shall be sent to
Employee in amounts allocated per pay period by mail on Employer's usual and
customary paydays and shall be less required withholdings and deductions.
Employee shall have no rights to any unvested benefits at the time of
termination or any other payments except as stated in this paragraph.
2
<PAGE>
6. Termination by Employee. Employee may terminate Employee's employment under
this Agreement for any reason provided that Employee gives Employer the amount
of notice set forth as Minimum Notice in Exhibit A. In the event of such Notice,
Employee's compensation and benefits hereunder shall cease as of the date of
Employee's designated termination date, except that Employer may accelerate the
termination date to any date determined by Employer after which Employee's
services would not be required. In the event of termination by Employee, there
shall be no further compensation beyond the termination date.
7. Covenant Not To Compete. During the Restricted Period defined in Exhibit A,
Employee covenants and agrees that Employee shall not:
a. Directly, indirectly, or otherwise, own, manage, operate, control, serve
as a consultant to, be employed by, participate in, or be connected, in any
manner, with the ownership management, operation or control of any business
which is competitive with any type of business which Employer is engaged in
or planned to engage in at any time during Employee's employment with
Employer up to and including the time of the termination of employment
("Employer's Business");
b. Hire, offer to hire, entice away or in any other manner persuade or
attempt to persuade any officer, employee or agent of Employer to alter or
discontinue his or her relationship with Employer;
c. Directly or indirectly solicit, divert, or attempt to solicit or divert
any customers or business of Employer; or
d. Directly or indirectly solicit, divert, or in any other manner persuade
or attempt to persuade any supplier or Employee to alter or discontinue its
relationship with Employer.
7.1 For the purposes of this Section 7, Employer's Business includes, without
limitation, the development and operation of multiple commerce sites on the
Internet for the sale of products, services, and privileges over the Internet,
participating and building a reciprocal rebate program, providing e-commerce
services to direct and multi-level marketing companies as well as discount
warehouse companies, and inventing or adapting any e-commerce systems necessary
to the operation of such sites. Notwithstanding Employee's obligations under
this Section 7, Employee shall be entitled to own, as a passive investor, up to
five percent (5%) of any publicly-traded company without violating this
provision.
7.2 Employer and Employee agree that this provision does not impose an undue
hardship on Employee and is not injurious to the public; that this provision is
necessary to protect the valuable goodwill and the business of Employer; that
the nature of Employee's responsibilities with Employer under this Agreement
require Employee to have access to confidential information which is valuable
and confidential to Employer's Business; that the scope of this Section 7 is
reasonable in terms of length of time; and that adequate consideration supports
this Section 7.
7.3 Employee recognizes that Employer has entered into strategic alliance
agreements with partners, vendors and clients that include various
non-competition, nondisclosure, and non-circumvention requirements and employee
agrees to uphold and abide by these agreements.
3
<PAGE>
8. Confidential Information. Employee recognizes that Employer's Business and
continued success depend upon the use and protection of confidential and
proprietary business information, including, without limitation, the information
and technology developed by or available through licenses to Employer related to
Employer's Business, to which Employee has access (all such information being
"Confidential Information"). For purposes of this Agreement, the phrase
"Confidential Information" includes for Employer and its current or future
subsidiaries and affiliates, without limitation, and whether or not specifically
designated as confidential or proprietary: all business plans and marketing
strategies; information concerning existing and prospective markets and
customers; financial information; information concerning the development of new
products and services; and technical and non-technical data related to software
programs, designs, specifications, compilations, inventions, improvements,
methods, processes, procedures and techniques; provided, however, that the
phrase does not include information that;
(a) was lawfully in Employee's possession prior to disclosure of such
information by Employer;
(b) was, or at any time becomes, available in the public domain other than
through a violation of this Agreement;
(c) is documented by Employee as having been developed by Employee outside
the scope of Employee's employment and independently; or
(d) is furnished to Employee by a third party not under an obligation of
confidentiality to Employer. Employee agrees that during Employee's
employment and after termination of employment irrespective of cause,
Employee will use Confidential Information only for the benefit of Employer
and will not directly or indirectly use or divulge, or permit others to use
or divulge, any Confidential Information for any reason, except as
authorized by Employer.
(e) Employee's obligation under this Agreement is in addition to any
obligations Employee has under state, provincial or federal law.
8.1 Employee agrees to deliver to Employer immediately upon termination of
Employee's employment, or at any time Employer so requests, all tangible items
containing any Confidential Information (including, without limitation, all
memoranda, photographs, records, reports, manuals, drawings, blueprints,
prototypes, notes taken by or provided to Employee, and any other documents or
items of a confidential belonging to Employer), together with all copies of such
material in Employee's possession or control.
8.2 Employee agrees that in the course of Employee's employment with Employer,
Employee will not violate in any way the rights that any entity has with regard
to trade secrets or proprietary or confidential information. Employee's
obligations under this Section 8 are indefinite in term and shall survive the
termination of this Agreement.
9. Work Product and Copyrights. Employee agrees that all right, title and
interest in and to all products, materials and documents resulting from the
performance of Employee's duties at Employer and all copies thereof, including
works in progress, in whatever media, (the "Work"), will be and remain in
Employer upon their creation. Employee will mark all Work with Employer's
copyright or other proprietary notice as directed by Employer. Employee further
agrees:
9.1 To the extent that any portion of the Work constitutes a work able to be
protected under the copyright laws of the United States (the "Copyright Law"),
that all such Work will be considered a "work made for hire" as such term is
used and defined in the Copyright Law and that Employer will be
4
<PAGE>
considered the "author" of such portion of the Work and the sole and exclusive
owner throughout the world of copyright therein; and
9.2 If any portion of the Work does not qualify as a "work made for hire" as
such term is used and defined in the Copyright Law, that Employee hereby assigns
and agrees to assign to Employer, without further consideration, all right,
title and interest in and to such Work or in any such portion thereof including
without limitation any copyright, trade secret, trademark, trade dress, service
mark or other proprietary interest therein and further agrees to execute and
deliver to Employer, upon request, appropriate assignments of such Work and
copyright and other rights therein and such other documents and instruments as
Employer may request to fully and completely assign such Work and copyright and
other rights therein to Employer, its successors or nominees, and that Employee
hereby appoints Employer as attorney-in-fact to execute and deliver any such
documents on Employee's behalf in the event Employee should fail or refuse to do
so within a reasonable period following Employer's request.
10. Inventions and Patents. For purposes of this Agreement, "Inventions"
includes, without limitation, information, inventions, contributions,
improvements, ideas, or discoveries, whether they are able to be patented or
not, and whether or not conceived or made during work hours. Employee agrees
that all Inventions conceived or made by Employee during the period of
employment with Employer belong to Employer, provided they relate directly to
the business of the Employer, or relate to the employer's actual or demonstrably
anticipated research and development, or result from work performed by Employer.
Accordingly, Employee will:
10.1 Make adequate written records of such Inventions, which records will be
Employer's property; and
10.2 Assign to Employer, at its request, any rights Employee may have to such
Inventions for the U.S. and all foreign countries;
10.3 Waive and agree not to assert any moral rights Employee may have or acquire
in any Inventions and agree to provide written waivers from time to time as
requested by Employer; and assist Employer (at Employer's expense) in obtaining
and maintaining patents or copyright registrations with respect to such
Inventions.
10.4 Employee understands and agrees that Employer or its designee will
determine, in its sole and absolute discretion, whether an application for
patent will be filed on any Invention that is the exclusive property of
Employer, as set forth above, and whether such an application will be abandoned
prior to issuance of a patent. Employer will pay to Employee, either during or
after the term of this Agreement, the following amounts if Employee is sole
inventor, or Employee's proportionate share if Employee is joint inventor: $750
upon filing of the initial application for patent on such Invention; and $1,500
upon issuance of a patent resulting from such initial patent application,
provided Employee is named as an inventor in the patent.
10.5 Employee further agrees that Employee will promptly disclose in writing to
Employer during the term of Employee's employment and for one (1) year
thereafter, all Inventions whether developed during the time of such employment
or thereafter (whether or not Employer has rights in such Inventions) so that
Employee's rights and Employer's rights in such Inventions can be determined.
Except as set forth on the initialed Exhibit B to this Agreement, if any,
Employee represents and warrants that Employee has no Inventions, software,
writings or other works of authorship useful to Employer in the normal course of
5
<PAGE>
Employer's Business, which were conceived, made or written prior to the date of
this Agreement and which are excluded from the operation of this Agreement.
NOTICE: In accordance with Washington law, this Section 10 does not apply
to Inventions for which no equipment, supplies, facility, or trade secret
information of Employer was used and which was developed entirely on
Employee's own time, unless: (a) the Invention relates (i) directly to the
business of Employer or (ii) to Employer's actual or demonstrably
anticipated research or development, or (b) the Invention results from any
work performed by Employee for Employer.
11. Remedies. Notwithstanding other provisions of this Agreement regarding
dispute resolution, Employee agrees that Employee's violation of any of Sections
7, 8, 9 or 10 of this Agreement would cause Employer or its Affiliates
irreparable harm which would not be adequately compensated by monetary damages,
and that an injunction may be granted by any court or courts having
jurisdiction, restraining Employee from violation of the terms of this
Agreement, upon any breach or threatened breach of Employee of obligations set
forth in any of Sections 7, 8, 9 or 10. The preceding sentence shall not be
construed to limit Employer or its Affiliates from any other relief or damages
to which it may be entitled to as a result of Employee's violation of any
obligation owed Employer under law or provision of this Agreement, including any
of Sections 7, 8, 9 or 10.
12. Dispute Resolution. Except with regard to the right of Employer or Employee
to commence any judicial action or proceeding to obtain injunctive relief, and
to the greatest extent permitted by law, any controversy, claim or dispute of
whatever nature arising out of or relating to this Agreement, whether such
controversy, claim or dispute is based upon statute, contract, tort, common law
or otherwise, and whether such controversy, claim or dispute existed prior to or
arises after the date of this Agreement (any such controversy, claim or dispute
being a "Dispute"), shall be resolved in accordance with the procedures set
forth in this Section 12, which procedures will be the sole and exclusive
procedures for the resolution of any Disputes. Matters to be resolved under
these procedures also include claims and disputes arising out of statutes such
as Title VII of the Civil Rights Act, the Age Discrimination in Employment Act,
and the Washington Law against Discrimination or similar statues in
jurisdictions in which the Employee performs services under this agreement.
Nothing in this provision is intended to restrict Employee from submitting any
matter to an administrative agency with jurisdiction over such matter.
12.1 Compliance with Employer Policy. Employee and Employer will make a good
faith attempt to resolve all disputes in accordance with any dispute resolution
policy adopted by Employer before resorting to any other dispute resolution
procedure.
12.2 Mediation. Employer and Employee will make a good faith attempt to resolve
any and all claims and disputes not resolved in accordance with Section 12.1 by
submitting them to mediation in Seattle, Washington before resorting to
arbitration or any other dispute resolution procedure. The mediation of any
claim or dispute must be conducted in accordance with the then-current American
Arbitration Association ("AAA") national rules for the resolution of employment
disputes by mediation, by a mediator who has had both training and experience as
a mediator of general employment and commercial matters. If the parties to this
agreement cannot agree on a mediator, then the mediator will be selected by the
AAA in accordance with the criteria described in this provision. Within thirty
(30) days after the selection of the mediator, Employer and Employee and their
respective attorneys will meet with the mediator for one mediation session of at
least four hours. If the claim or dispute cannot be settled
6
<PAGE>
during such mediation session or mutually agreed continuation of the session,
either Employer or Employee may give the mediator and the other party to the
claim or dispute written notice declaring the end of the mediation process. All
discussions connected with this mediation provision will be confidential and
treated as compromise and settlement discussions. Nothing disclosed in such
discussions, which is not independently discoverable, may be used for any
purpose in any later proceeding.
12.3 Arbitration. If any claim or dispute has not been resolved in accordance
with Section 12.1 and Section 12.2, then the claim or dispute will be determined
by arbitration in Seattle, Washington, in accordance with the then-current AAA
national rules for the resolution of employment disputes by arbitration, except
as modified herein. The arbitration will be conducted by a sole neutral
arbitrator who has had both training and experience as an arbitrator of general
employment and commercial matters and who is and for at least ten (10) years has
been, a partner, a shareholder, or a member in a law firm. If Employer and
Employee cannot agree on an arbitrator, then the arbitrator will be selected by
the AAA applying the criteria in this provision. No person who has served as a
mediator under the mediation provision, however, may be selected as the
arbitrator for the same claim or dispute. Reasonable discovery will be permitted
and the arbitrator may decide any issue as to discovery. The arbitrator may
decide any issue as to whether or as to the extent to which, any dispute is
subject to the dispute resolution provisions in Section 12 and the arbitrator
may award any relief permitted by law. The arbitrator must base the arbitration
award on the provisions of Section 12 and applicable law and must render the
award in writing, including an explanation of the reasons for the award. Any
court having jurisdiction of the matter may enter judgment upon the award, and
the decision of the arbitrator will be final and binding. The statute of
limitations applicable to the commencement of a lawsuit will apply to the
commencement of arbitration under Section 12.3.
12.4 Reasonable attorneys' fees incurred in any Dispute relating to the
interpretation or enforcement of this Agreement shall be paid by the
non-prevailing party to such Dispute.
13. Insider Trading Compliance. Employee agrees to abide by the employer's
insider trading compliance program as set forth in Exhibit C.
14. Disclosure. Employee agrees to reveal the terms of this Agreement to any
future employer or potential employer of Employee and authorizes Employer, at
its election, to make such disclosure.
15. Representation of Employee. Employee represents and warrants to Employer
that Employee is free to enter into this Agreement and has no commitment,
arrangement or understanding to or with any party which restrains or is in
conflict with Employee's performance of the covenants, services and duties
provided for in this Agreement. Employee shall not violate any obligation owed
to any other party, including former employees, and shall not violate any rights
that any third party has with regard to proprietary information or trade
secrets. Employee agrees to indemnify Employer and to hold it harmless against
any and all liabilities or claims arising out of breach of this representation
and warranty.
16. Assignability. During Employee's employment hereunder, this Agreement may
not be assigned by either party without the written consent of the other;
provided, however, that Employer may assign its rights and obligations under
this Agreement to a successor by sale, merger or liquidation, if such successor
carries on Employer's business substantially in the form in which it is being
conducted at the time of the sale, merger or liquidation.
7
<PAGE>
17. Right of Set-off. By accepting this Agreement, Employee consents to a
deduction from any amounts Employer owes Employee from time to time (including
amounts owed to Employee as wages or other compensation, or vacation pay, as
well as any other amounts owed to Employee by Employer), to the extent of the
amounts Employee owes Employer. Whether or not Employer elects to make any
set-off in whole or in part, if Employer does not recover by means of set-off
the full amount Employee owes it, calculated as set forth above, Employee agrees
to pay immediately the unpaid balance to Employer.
18. Notices. Any notice required or permitted to be given hereunder shall be
sufficient if in writing, by registered or certified mail, to Employee at the
address set forth at Exhibit A, or to the President of Employer at Shopping
Sherlock, Inc., 11201 S.E. 8th Street, Suite 152, Bellevue, WA, 98004. Notice
shall be deemed to have been given on the third day after deposit into the mail.
Notices to the Employee, may, at the discretion of Employer, alternatively be
hand delivered to Employee.
19. Severability. In the event that any provision of this Agreement or
compliance by any of the parties with any provision of this Agreement shall
constitute a violation of any law, unenforceable or void, then such provision,
to the extent only that it is in violation of law, void or unenforceable, shall
be deemed modified to the extent necessary so that it is no longer
unenforceable, void or in violation of law. If such modification is not
possible, said provision, to the extent that it is in violation of law, void or
unenforceable, shall be deemed severable from the remaining provisions of this
Agreement, which provisions shall remain binding on the parties.
20. Entire Agreement. This instrument contains the entire agreement of the
parties, and it may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought, and any such modification will be signed by the President
of Employer.
21. Governing Law. The validity, construction and performance of this Agreement
shall be governed by the laws of the State of Washington without regard to the
conflicts of law provisions of such laws.
22. Other. The waiver by Employer of a breach of any provision of this Agreement
by Employee shall not operate or be construed as a waiver of any subsequent
breach by Employee. Affiliates of Employer are and shall be third-party
beneficiaries of this Agreement.
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Philip Garratt Mitchell Eggers
Its: CEO
Date: June 24, 1999 Date: --------------------
8
<PAGE>
Exhibit A to Employment Agreement
Name of Employee: Mitchell Eggers
Position: COO
Title of position to whom employee reports: President (Philip Garratt)
Basic responsibilities.
Minimum Hours: 40 hours per week.
Base salary: U.S. $10,000 per month
Options: The company plans to grant 165,000 options to individual
Expense limit without
prior approval: U.S. $3,000
Minimum Notice: One month
Restricted Period: The Restricted Period shall be the period of one year
following the termination of Employee's employment with Employer for any reason.
Place of notice to Employee.
- ----------------------------
- ----------------------------
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Philip Garratt Mitchell Eggers
Its: CEO
Date: June 24, 1999 Date: --------------------
9
<PAGE>
Exhibit B to Employment Agreement
Employee represents and warrants that Employee has no Inventions, software,
writings, artistic works, audiovisual works or other works of authorship useful
to Employer in the normal course of Employer's Business, which were conceived,
made or written prior to the date of this Agreement and which are excluded from
the operation of this Agreement.
List exemptions:
Initials of Employee: -------------
10
<PAGE>
Exhibit C to Employment Agreement
INSIDER TRADING COMPLIANCE
SHOPPING SHERLOCK INC.
UPDATED INSIDER TRADING COMPLIANCE - PROGRAM
As at June 22nd 1999
Adopted: June 22, 1999
Exhibits Updated: June 22, 1999
In order to continue its active role in the prevention of any question regarding
insider trading violations by its officers, directors, employees, shareholders
and other related individuals, to alter that role as necessary and appropriate
in light of the Company's increased size and publicly traded status, and to
ensure that its policies continue to be in accordance with the latest
developments in the law, the Company has adopted the policies and procedures
described in this Memorandum Effective as of the date set forth above. These
policies and procedures are regularly updated and posted to the Shopping
Sherlock Intranet under "Legal".
I. Adoption of Insider Trading Policy.
The Company has adopted the Shopping Sherlock Insider Trading Policy attached as
Exhibit A (the "Policy"), which prohibits trading while in possession of
Material Nonpublic Information regarding the Company. The Policy covers
officers, directors, shareholders and all other employees of, or consultants or
contractors to, the Company, as well as family members of such persons, and
other persons who have or may have access to Material Nonpublic Information. The
Policy (and/or a summary thereof is to be delivered to all new employees and
consultants upon the commencement of their relationships with the Company, and
is to be circulated to all personnel at least annually.
II. Designation of Certain Persons.
A. Section 16 Individuals. The Company has determined that those persons listed
on Exhibit B attached hereto are the persons currently subject to the reporting
and liability provisions of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder ("Section 16 Individuals"). Exhibit B will be amended and -updated
from time to time as appropriate to include an updated list of directors and
officers and shareholders who beneficially own more than 10% of the Company's
common stock.
B. Other Restricted Persons. The Company has determined that those persons
listed on Exhibit C attached hereto, together with the Section 16 Individuals
listed on Exhibit are currently subject to the pre clearance requirement
described in Section IV below. The Company believes that those persons have, or
are likely to have, regular access to Material Nonpublic Information. Exhibit C
may be amended from time to time. Under special circumstances, certain persons
not listed on Exhibit-C may have access to Material Nonpublic Information for a
period of time. During such period, such persons are also subject to the pre
clearance procedure described in Section IV.
11
<PAGE>
III. Appointment of Compliance Officer.
The Company designates its CFO as the Company's Insider Trading Compliance
Officer.
IV. Duties of Compliance Officer.
The duties of the Compliance Officer include, but are not limited to, the
following:
A. Pre clear all transactions involving the Company's securities by those
individuals listed on Exhibits B and C in order to define compliance with the
Policy, insider trading laws, Section 16 of the Exchange Act and Rule 144
promulgated under the Securities Act of 1933, as amended.
B. Coordinate preparation and filing of Section 16 reports (Forms 3, 4 and 5)
for all Section 16 Individuals.
C. Serve as the designated recipient at the Company of copies of reports filed
with the SEC by Section 16 Individuals under Section 16 of the Exchange Act.
D. Perform periodic cross-checks of available materials which may include Forms
3, 4 and 5, Form 144, officers' and directors' questionnaires, and reports
received from the Company's stock administrator and transfer agent, to determine
trading activity by officers, directors and others who access to Material
Nonpublic Information.
E. Circulate the Policy (and/or a summary thereof) to all employees, including
Section 16 Individuals, on an annual basis, and provide the Policy and other
appropriate materials to new officers, directors and others who have, or may
have, access to Material Nonpublic Information.
F. Assist the Company's Board of Directors with implementation of the Policy and
Sections I and II of this memorandum.
G. Coordinate with Company counsel regarding compliance with Rule 144 sales.
Attachments:
Exhibit "A" - Insider Trading Policy
Exhibit "B" - List of Section 16 insiders
12
<PAGE>
EXHIBIT "A"
SHOPPING SHERLOCK INC.
INSIDER TRADING POLICY and Guidelines with Respect to Certain Transactions in
Company Securities
This Policy provides guidelines to employees, officers and directors of, and
consultants and contractors to, SHOPPING SHERLOCK INC. (the "Company") with
respect to transactions' in the Company's securities.
APPLICABILITY OF POLICY
This policy applies to all transactions in the Company's securities, including
Common Stock, options for Common Stock and any other securities the Company may
issue from time to time, such as preferred stock, warrants and convertible
debentures, as well as to derivative securities relating to the Company's stock,
whether or not issued by the Company, such as exchange-traded options. It
applies to all officers of the Company, all members of the Company's Board of
Directors, and all employees of, and consultants and contractors to, the Company
and its subsidiaries. This group of people when in receipt of or having access
to Material Nonpublic Information (as defined below) regarding the Company,
along with members of their immediate families and members of their households,
are sometimes referred to in this Policy as "Insiders". This Policy also applies
to any person who receives Material Nonpublic Information from any insider.
Any person who possesses Material Nonpublic Information regarding the Company is
an Insider for so long as the information is not publicly known. Any employee
can be an Insider from time to time, and would at those times be subject to this
Policy.
GENERAL POLICY
It is the policy of the Company to oppose the unauthorized disclosure of any
Material Nonpublic Information regarding the Company acquired in the workplace
or otherwise and the misuse of Material Nonpublic Information in securities
trading.
SPECIFIC POLICIES
1. Trading on Material Nonpublic Information. No director, officer or employee
of, or consultant or contractor to, the Company, and no member of the immediate
family or household of any such person, shall engage in any transaction
involving a purchase or sale of the Company's securities, including any offer to
purchase or offer to sell, during any period commencing with the date that he or
she possesses Material Nonpublic Information concerning the Company, and ending
at the close of business on the second Trading Day following the date of public
disclosure of that information, or at such time as such nonpublic information is
no longer material. As used herein, the term "Trading Day" shall mean a day on
which national stock exchanges and the NASDAQ Stock Market are open for trading.
2. Tipping. No Insider shall disclose ("tip") Material Nonpublic Information to
any other person (including family members) where such information may be used
by such person to his or her profit by
13
<PAGE>
trading in the securities of companies to which such information relates, nor
shall such Insider or related person make recommendations or express opinions on
the basis of Materials Nonpublic Information as to trading in the Company's
securities.
3. Confidential of Nonpublic Information. Nonpublic information relating to the
Company is the property of the Company and the unauthorized disclosure of such
information is forbidden.
POTENTIAL CRIMINAL AND CIVIL LIABILITY AND/OR DISCIPLINARY ACTION
1. Liability for Insider Trading. Insiders may be subject to disgorgement of
profits (or losses avoided) (trebled in some cases), penalties of up to
$1,000,000 and up to ten years in jail for engaging in transactions in the
Company's securities at a time when they have knowledge of Material Nonpublic
Information regarding the Company.
2. Liability for Tipping. Insiders may also be liable for improper transactions
by any person (commonly referred to as a "tippee") to whom they have disclosed
nonpublic information regarding the Company or to whom they have made
recommended or expressed opinions on the basis of such information as to trading
in the Company's securities. The Securities and Exchange Commission (the "SEC")
has imposed large penalties even when the disclosing person did not profit from
the trading. The SEC, the stock exchanges and the National Association of
Securities Dealers, Inc. use sophisticated electronic surveillance techniques to
uncover insider trading.
3. Possible Disciplinary Actions. Employees of the Company who violate this
policy shall also be subject to disciplinary action by the Company, which my
include ineligibility for future participation in the Company's equity incentive
plan or immediate termination of employment.
GUIDELINES
1. Recommended Trading Window- To ensure compliance with this Policy and
applicable federal and state securities laws, the Company requires that all
directors, officers, employees, consultants and contractors having access to the
Company's internal financial statements or other Material Nonpublic Information
refrain from conducting transactions involving the purchase or sale of the
Company's securities other than during the following period (the "Trading
Window"):
Trading Window: The period in any fiscal quarter commencing at the close of
business two full Trading Days following the date of public disclosure of the
financial results for the prior fine quarter or year and ending on the last day
of the second fiscal month of the fiscal quarter.
The safest period for trading in the Company's securities, assuming the absence
of Material Nonpublic Information, is generally the first ten days of the
Trading Window. Periods other than the Trading Window are more highly sensitive
for transactions in the Company's stock from the perspective of compliance with
applicable securities laws. This is due to the fact that officers, directors and
certain other employees will, as any quarter progresses, be increasingly likely
to possess Material Nonpublic Information about the expected financial results
for the quarter.
The purpose behind the recommended Trading Window is to help establish a
diligent effort to avoid any improper transaction. An Insider may choose not to
follow this suggestion, but he or she should be
14
<PAGE>
particularly careful with respect to trading outside the Trading Window, since
the Insider may, at such time, have access to (or later be deemed to have had
access to) Material Nonpublic Information regarding, among other things, the
Company's anticipated financial performance for the quarter.
It should be noted that even during the Trading Window any person possessing
Material Nonpublic Information concerning the Company should not engage in any
transactions in the Company's securities until such information has been known
publicly for at least two Trading Days. Although the Company may from time to
time recommend during a Trading Window that directors, officers, selected
employees and others suspend trading because of developments known to the
Company and not yet disclosed to the public,
each person is individually responsible at all times for compliance with the
prohibitions against insider trading. Trading in the Company's securities during
the Trading Window should not be considered a "safe harbor," and all directors,
officers and other persons should use good judgment at all times.
2. Pre clearance of Trades. The Company has determined that all officers and
directors of the Company should refrain from trading in the Company's
securities, even during the Trading Window, without first complying with the
Company's "Pre clearance" process. Each officer and director should contact the
Company's Insider Trading Compliance officer prior to commencing any trade in
the Company's securities.
The Company may also find it necessary, from time to time, to require compliance
with the pre clearance process from certain employees, consultants and
contractors other than and in addition to officers and directors.
3. No Short Sales or Options Trading. The Company requires that all officers,
directors, employees, consultants and contractors refrain from engaging in any
short sale of the Company's securities or any purchase or sale of put or call
options involving the Company's securities.
4. Trading in Stock of Customers and Suppliers. The Company requires that all
officers, directors, employees, consultants and contractors refrain from trading
in the securities of customers, suppliers or other third party entities with
whom the Company has a business relationship at a time that such person is in
possession of material non public information concerning the issuer of such
securities obtained through the Company's relationship with such other entity.
5. Individual Responsibility. Every officer, director and employee has the
individual responsibility to comply with this Policy against insider trading,
regardless of whether the Company has recommended a trading window to that
Insider or any other Insiders of the Company. The guidelines set forth in this
Policy are guidelines only, and appropriate judgment should be exercised in
connection with any trade in the Company's securities.
An Insider may, from time to time, have to forego, a proposed transaction in the
Company's securities even if he or she planned to make the transaction before
learning of the Material Nonpublic Information and even though the Insider
believes he or she may suffer an economic loss or forego anticipated profit by
waiting.
15
<PAGE>
APPLICABILITY OF POLICY TO INSIDE INFORMATION
REGARDING OTHER COMPANIES
This policy and the guidelines described herein also apply to Material Nonpublic
Information relating to other companies, including the Company's customers,
vendors, suppliers or acquisition candidates ("business partners"), when that
information is obtained in the course of employment with, or other services
performed on behalf of, the Company. Civil and penalties, and termination of
employment, may result from trading on inside information regarding the
Company's business partners.
All employees should treat Material Nonpublic information about the company's
business partners with the same care required with respect to information
related directly to the Company.
DEFINITION OF MATERIAL N0N PUBLIC INFORMATION
It is not possible to define all categories of material information. However,
information should be regarded as material if there is a reasonable likelihood
that it would be considered important to an investor in making an investment
decision regarding the purchase or sale of the Company's securities.
While it may be difficult under this standard to determine whether particular
information is material there are various categories of information that are
particularly sensitive and, as a general rule, should always be considered
material. Examples of such information may include:
Financial results
Projections of future earnings or losses
News of a pending or proposed merger
News of a pending or proposed significant acquisition
News of the disposition of a subsidiary
Impending bankruptcy or financial liquidity problems
Gain or loss of a substantial customer or supplier
Changes in dividend policy
New product announcements of a significant nature
Significant product defects or modifications Significant pricing changes
Stock splits
New equity or debt offerings
Major acquisitions
Significant litigation exposure due to actual or threatened litigation
Major changes in senior management
Either positive or negative information may be material.
Non public information is information that has not been previously disclosed to
the general public and is otherwise not readily available to the general public.
CERTAIN EXPECTATIONS
For purposes of this Policy, the Company considers that the exercise of a stock
option for cash under the Company's stock option plans or the purchase of shares
under the Company's employee stock purchase
16
<PAGE>
plan (but not the sale of any such shares) is exempt from this Policy, since the
other party to the transaction is the Company itself and the price does not vary
with the market but is fixed by the terms of the option agreement or the plan.
Further, the Company does not believe that employees, officers or directors
should ordinarily be prohibited from making bonafide gifts and charitable
donations outside the Trading Window in situations where there is no unusual
activity or other reason to believe that a transaction would be particularly
risky.
ADDITIONAL INFORMATION - DIRECTORS AND OFFICERS
Directors and officers of the Company must also comply with the reporting
obligations and limitations on short-swing transactions set forth in Section 16
of the Securities Exchange Act of 1934, as amended. The practical effect of
these provisions is that officers and directors who purchase and sell the
Company's securities within a six-month period must disgorge all profits to the
Company whether or not they bad knowledge of any Material Nonpublic Information.
Under these provisions, and so long as certain other criteria are met, neither
the receipt of an option trader the Company's option plan, nor the exercise of
that option nor the receipt of stock under the Company's employee stock purchase
plan is deemed a purchase under Section 16; however, the sale of any such shares
is a sale under Section 16.
Moreover, no officer or director may ever make a short sale of the Company's
stock. The Company has provided, or will provide, separate memoranda and other
appropriate materials to its officers and directors regarding compliance with
Section 16 and its related rules.
INQUIRIES
Please direct your questions as to any of the matters discussed in this Policy
to the Company's Insider Trading Compliance officer.
17
<PAGE>
EXHIBIT "B"
DIRECTORS, OFFICERS AND SHAREHOLDERS SUBJECT TO SECTION 16
As of June 22, 1999
Directors:
Richard Stewart
Jasbir Dhaliwal
Philip Garratt
Raeanne Steele
Mitchell Eggers
Officers:
TITLE NAME
1. President and Chief Executive Officer Philip Garratt
2. Chief Financial Officer/Secretary Patrick McGrath
3. Chief Technology Officer Jan Walter
4. Chief Operating Officer Mitchell Eggers
5. Executive Vice President of Sales and Marketing Raeanne Steele
Shareholders:
Premier Lifestyles International Corporation (PLIC)
18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 24th day of June, 1999 (this
"Agreement"), between Shopping Sherlock, Inc. a Delaware corporation
("Employer"), and Raeanne Steele ("Employee").
RECITALS
A. Employer desires to hire Employee and Employee wishes to be employed by
Employer. In such employment, Employee will be given access to information,
which is confidential and proprietary to Employer and its Affiliates and vital
to their business operations. For the purposes of the Agreement, the term
"Affiliate" means any entity currently existing or subsequently organized or
formed that directly or indirectly controls, is controlled by or is under common
control with Employer, whether through the ownership of voting securities, by
contract or otherwise.
B. Employee will receive adequate consideration for executing and delivering
this Agreement, including employment by Employer. Entry into this Agreement is a
condition of Employee's employment with Employer.
AGREEMENT
Based upon the consideration of the mutual covenants herein contained, and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, and in order to induce the Employer to employ Employee, the
parties hereto agree as follows:
1. Employment. Employer hereby agrees to employ Employee, and Employee agrees to
be employed by Employer in the capacity identified in Exhibit A. Employee will
report to the person identified at Exhibit A. Employee's basic responsibilities
are set forth in Exhibit A, although Employee may be required to perform other
responsibilities in addition to those identified at Exhibit A. Employee's base
of operations shall be the Employer's offices identified at Exhibit A. Changes
may be made from time to time by Employer, in its sole discretion, to the
duties, reporting relationship and title of Employee. Employee shall devote all
of Employee's work efforts to Employer. Employee shall comply with all rules,
policies and procedures of Employer as modified from time to time. Employee
shall perform all of Employee's responsibilities in a way that is in complete
compliance with all applicable laws.
2. Term of Employment. The employment is "at will," and the term of employment
shall be for no specific period of time and may be terminated by the Employer or
Employee at any time for any reason, with or without cause, in accordance with
the terms and conditions herein.
3. Compensation. For the duration of Employee's employment, the Employee shall
be paid an annual base salary ("Base Salary"), as identified in Exhibit A. Base
Salary shall be prorated for the actual period of employment and payable in
equal installments in accordance with Employer's normal payroll practices, and
shall be subject to appropriate deductions and withholding.
1
<PAGE>
4. Other Benefits. Employee shall be entitled to participate in employee benefit
programs established by Employer, such as medical, pension, disability and life
insurance plans, to the extent that Employee is eligible for such benefits in
accordance with Employer's policies, as they may be changed from time to time.
Nothing in this Agreement requires the adoption or maintenance of any such
arrangements or plans. For the duration of Employee's employment under this
Agreement, Employee shall accrue and utilize sick leave and vacation in
accordance with the policies and procedures of Employer, as they may be modified
from time to time. Employer shall reimburse Employee for reasonable expenses
necessarily incurred in the performance of Employee's duties in accordance with
Employer policies. All expenses in excess of the amount identified at Exhibit A
must be approved in advance by Employee's supervisor.
5. Termination or Discharge by Employer.
5.1.1 For Cause. Employer shall have the right to immediately terminate
Employee's services and this Agreement for cause. "Cause" means: any material
breach of this Agreement by Employee, including, without limitation, breach of
Employee's covenants in Sections 7, 8, 9 and 10; any failure to perform assigned
job responsibilities that continues without remedy for a period of thirty (30)
days after written notice to Employee by Employer; conviction of a felony (or
its legal equivalent in any jurisdiction) or failure to contest prosecution for
a felony (or its legal equivalent in any jurisdiction); violation of any
statute, rule or regulation, any of which in the judgment of Employer is harmful
to Employer's Business (as defined herein) or to Employer's reputation;
unethical practices; dishonesty; disloyalty; or any reason that would constitute
cause under the laws of the State of Washington or any other jurisdiction in
which the Employee performs services hereunder.
5.1.2 Upon termination of Employee's employment hereunder for cause or upon the
death or disability of Employee, Employee will have no rights to any unvested
benefits or any other compensation or payments after the termination date or the
last day of the month in which Employee's death or disability occurred. For
purposes of this Agreement, "disability" means the incapacity or inability of
Employee, whether due to accident, sickness or otherwise, as determined by a
medical doctor acceptable to the Board of Directors of Employer and confirmed in
writing by such doctor, to perform the essential functions of Employee's
position under this Agreement, with or without reasonable accommodation
(provided that no accommodation that imposes undue hardship on Employer will be
required) for an aggregate of ninety (90) days during any period of one hundred
eighty (180) consecutive days.
5.2 Without Cause. If Employer terminates Employee's employment without cause,
Employer shall provide Employee with the amount of advance notice set forth as
minimum notice in Exhibit A ("Minimum Notice"). Alternatively, and in the sole
discretion of Employer, Employer may terminate Employee's employment without
notice or with notice less than the Minimum Notice, but in such a situation,
Employer shall pay Employee the amount of Base Salary Employee would have earned
had Employee remained employed through the Minimum Notice period (based on the
Base Salary rate on the termination date), less the amount of Base Salary
actually earned during the Minimum Notice period. Such payments shall be sent to
Employee in amounts allocated per pay period by mail on Employer's usual and
customary paydays and shall be less required withholdings and deductions.
Employee shall have no rights to any unvested benefits at the time of
termination or any other payments except as stated in this paragraph.
2
<PAGE>
6. Termination by Employee. Employee may terminate Employee's employment under
this Agreement for any reason provided that Employee gives Employer the amount
of notice set forth as Minimum Notice in Exhibit A. In the event of such Notice,
Employee's compensation and benefits hereunder shall cease as of the date of
Employee's designated termination date, except that Employer may accelerate the
termination date to any date determined by Employer after which Employee's
services would not be required. In the event of termination by Employee, there
shall be no further compensation beyond the termination date.
7. Covenant Not To Compete. During the Restricted Period defined in Exhibit A,
Employee covenants and agrees that Employee shall not:
a. Directly, indirectly, or otherwise, own, manage, operate, control, serve
as a consultant to, be employed by, participate in, or be connected, in any
manner, with the ownership management, operation or control of any business
which is competitive with any type of business which Employer is engaged in
or planned to engage in at any time during Employee's employment with
Employer up to and including the time of the termination of employment
("Employer's Business");
b. Hire, offer to hire, entice away or in any other manner persuade or
attempt to persuade any officer, employee or agent of Employer to alter or
discontinue his or her relationship with Employer;
c. Directly or indirectly solicit, divert, or attempt to solicit or divert
any customers or business of Employer; or
d. Directly or indirectly solicit, divert, or in any other manner persuade
or attempt to persuade any supplier or Employee to alter or discontinue its
relationship with Employer.
7.1 For the purposes of this Section 7, Employer's Business includes, without
limitation, the development and operation of multiple commerce sites on the
Internet for the sale of products, services, and privileges over the Internet,
participating and building a reciprocal rebate program, providing e-commerce
services to direct and multi-level marketing companies as well as discount
warehouse companies, and inventing or adapting any e-commerce systems necessary
to the operation of such sites. Notwithstanding Employee's obligations under
this Section 7, Employee shall be entitled to own, as a passive investor, up to
five percent (5%) of any publicly-traded company without violating this
provision.
7.2 Employer and Employee agree that this provision does not impose an undue
hardship on Employee and is not injurious to the public; that this provision is
necessary to protect the valuable goodwill and the business of Employer; that
the nature of Employee's responsibilities with Employer under this Agreement
require Employee to have access to confidential information which is valuable
and confidential to Employer's Business; that the scope of this Section 7 is
reasonable in terms of length of time; and that adequate consideration supports
this Section 7.
7.3 Employee recognizes that Employer has entered into strategic alliance
agreements with partners, vendors and clients that include various
non-competition, nondisclosure, and non-circumvention requirements and employee
agrees to uphold and abide by these agreements.
3
<PAGE>
8. Confidential Information. Employee recognizes that Employer's Business and
continued success depend upon the use and protection of confidential and
proprietary business information, including, without limitation, the information
and technology developed by or available through licenses to Employer related to
Employer's Business, to which Employee has access (all such information being
"Confidential Information"). For purposes of this Agreement, the phrase
"Confidential Information" includes for Employer and its current or future
subsidiaries and affiliates, without limitation, and whether or not specifically
designated as confidential or proprietary: all business plans and marketing
strategies; information concerning existing and prospective markets and
customers; financial information; information concerning the development of new
products and services; and technical and non-technical data related to software
programs, designs, specifications, compilations, inventions, improvements,
methods, processes, procedures and techniques; provided, however, that the
phrase does not include information that;
(a) was lawfully in Employee's possession prior to disclosure of such
information by Employer;
(b) was, or at any time becomes, available in the public domain other than
through a violation of this Agreement;
(c) is documented by Employee as having been developed by Employee outside
the scope of Employee's employment and independently; or
(d) is furnished to Employee by a third party not under an obligation of
confidentiality to Employer. Employee agrees that during Employee's
employment and after termination of employment irrespective of cause,
Employee will use Confidential Information only for the benefit of Employer
and will not directly or indirectly use or divulge, or permit others to use
or divulge, any Confidential Information for any reason, except as
authorized by Employer.
(e) Employee's obligation under this Agreement is in addition to any
obligations Employee has under state, provincial or federal law.
8.1 Employee agrees to deliver to Employer immediately upon termination of
Employee's employment, or at any time Employer so requests, all tangible items
containing any Confidential Information (including, without limitation, all
memoranda, photographs, records, reports, manuals, drawings, blueprints,
prototypes, notes taken by or provided to Employee, and any other documents or
items of a confidential belonging to Employer), together with all copies of such
material in Employee's possession or control.
8.2 Employee agrees that in the course of Employee's employment with Employer,
Employee will not violate in any way the rights that any entity has with regard
to trade secrets or proprietary or confidential information. Employee's
obligations under this Section 8 are indefinite in term and shall survive the
termination of this Agreement.
9. Work Product and Copyrights. Employee agrees that all right, title and
interest in and to all products, materials and documents resulting from the
performance of Employee's duties at Employer and all copies thereof, including
works in progress, in whatever media, (the "Work"), will be and remain in
Employer upon their creation. Employee will mark all Work with Employer's
copyright or other proprietary notice as directed by Employer. Employee further
agrees:
9.1 To the extent that any portion of the Work constitutes a work able to be
protected under the copyright laws of the United States (the "Copyright Law"),
that all such Work will be considered a "work made for hire" as such term is
used and defined in the Copyright Law and that Employer will be
4
<PAGE>
considered the "author" of such portion of the Work and the sole and exclusive
owner throughout the world of copyright therein; and
9.2 If any portion of the Work does not qualify as a "work made for hire" as
such term is used and defined in the Copyright Law, that Employee hereby assigns
and agrees to assign to Employer, without further consideration, all right,
title and interest in and to such Work or in any such portion thereof including
without limitation any copyright, trade secret, trademark, trade dress, service
mark or other proprietary interest therein and further agrees to execute and
deliver to Employer, upon request, appropriate assignments of such Work and
copyright and other rights therein and such other documents and instruments as
Employer may request to fully and completely assign such Work and copyright and
other rights therein to Employer, its successors or nominees, and that Employee
hereby appoints Employer as attorney-in-fact to execute and deliver any such
documents on Employee's behalf in the event Employee should fail or refuse to do
so within a reasonable period following Employer's request.
10. Inventions and Patents. For purposes of this Agreement, "Inventions"
includes, without limitation, information, inventions, contributions,
improvements, ideas, or discoveries, whether they are able to be patented or
not, and whether or not conceived or made during work hours. Employee agrees
that all Inventions conceived or made by Employee during the period of
employment with Employer belong to Employer, provided they relate directly to
the business of the Employer, or relate to the employer's actual or demonstrably
anticipated research and development, or result from work performed by Employer.
Accordingly, Employee will:
10.1 Make adequate written records of such Inventions, which records will be
Employer's property; and
10.2 Assign to Employer, at its request, any rights Employee may have to such
Inventions for the U.S. and all foreign countries;
10.3 Waive and agree not to assert any moral rights Employee may have or acquire
in any Inventions and agree to provide written waivers from time to time as
requested by Employer; and assist Employer (at Employer's expense) in obtaining
and maintaining patents or copyright registrations with respect to such
Inventions.
10.4 Employee understands and agrees that Employer or its designee will
determine, in its sole and absolute discretion, whether an application for
patent will be filed on any Invention that is the exclusive property of
Employer, as set forth above, and whether such an application will be abandoned
prior to issuance of a patent. Employer will pay to Employee, either during or
after the term of this Agreement, the following amounts if Employee is sole
inventor, or Employee's proportionate share if Employee is joint inventor: $750
upon filing of the initial application for patent on such Invention; and $1,500
upon issuance of a patent resulting from such initial patent application,
provided Employee is named as an inventor in the patent.
10.5 Employee further agrees that Employee will promptly disclose in writing to
Employer during the term of Employee's employment and for one (1) year
thereafter, all Inventions whether developed during the time of such employment
or thereafter (whether or not Employer has rights in such Inventions) so that
Employee's rights and Employer's rights in such Inventions can be determined.
Except as set forth on the initialed Exhibit B to this Agreement, if any,
Employee represents and warrants that Employee has no Inventions, software,
writings or other works of authorship useful to Employer in the normal course
5
<PAGE>
of Employer's Business, which were conceived, made or written prior to the date
of this Agreement and which are excluded from the operation of this Agreement.
NOTICE: In accordance with Washington law, this Section 10 does not apply
to Inventions for which no equipment, supplies, facility, or trade secret
information of Employer was used and which was developed entirely on
Employee's own time, unless: (a) the Invention relates (i) directly to the
business of Employer or (ii) to Employer's actual or demonstrably
anticipated research or development, or (b) the Invention results from any
work performed by Employee for Employer.
11. Remedies. Notwithstanding other provisions of this Agreement regarding
dispute resolution, Employee agrees that Employee's violation of any of Sections
7, 8, 9 or 10 of this Agreement would cause Employer or its Affiliates
irreparable harm which would not be adequately compensated by monetary damages,
and that an injunction may be granted by any court or courts having
jurisdiction, restraining Employee from violation of the terms of this
Agreement, upon any breach or threatened breach of Employee of obligations set
forth in any of Sections 7, 8, 9 or 10. The preceding sentence shall not be
construed to limit Employer or its Affiliates from any other relief or damages
to which it may be entitled to as a result of Employee's violation of any
obligation owed Employer under law or provision of this Agreement, including any
of Sections 7, 8, 9 or 10.
12. Dispute Resolution. Except with regard to the right of Employer or Employee
to commence any judicial action or proceeding to obtain injunctive relief, and
to the greatest extent permitted by law, any controversy, claim or dispute of
whatever nature arising out of or relating to this Agreement, whether such
controversy, claim or dispute is based upon statute, contract, tort, common law
or otherwise, and whether such controversy, claim or dispute existed prior to or
arises after the date of this Agreement (any such controversy, claim or dispute
being a "Dispute"), shall be resolved in accordance with the procedures set
forth in this Section 12, which procedures will be the sole and exclusive
procedures for the resolution of any Disputes. Matters to be resolved under
these procedures also include claims and disputes arising out of statutes such
as Title VII of the Civil Rights Act, the Age Discrimination in Employment Act,
and the Washington Law against Discrimination or similar statues in
jurisdictions in which the Employee performs services under this agreement.
Nothing in this provision is intended to restrict Employee from submitting any
matter to an administrative agency with jurisdiction over such matter.
12.1 Compliance with Employer Policy. Employee and Employer will make a good
faith attempt to resolve all disputes in accordance with any dispute resolution
policy adopted by Employer before resorting to any other dispute resolution
procedure.
12.2 Mediation. Employer and Employee will make a good faith attempt to resolve
any and all claims and disputes not resolved in accordance with Section 12.1 by
submitting them to mediation in Seattle, Washington before resorting to
arbitration or any other dispute resolution procedure. The mediation of any
claim or dispute must be conducted in accordance with the then-current American
Arbitration Association ("AAA") national rules for the resolution of employment
disputes by mediation, by a mediator who has had both training and experience as
a mediator of general employment and commercial matters. If the parties to this
agreement cannot agree on a mediator, then the mediator will be selected by the
AAA in accordance with the criteria described in this provision. Within thirty
(30) days after the selection of the mediator, Employer and Employee and their
respective attorneys will meet with the mediator for one mediation session of at
least four hours. If the claim or dispute cannot be
6
<PAGE>
settled during such mediation session or mutually agreed continuation of the
session, either Employer or Employee may give the mediator and the other party
to the claim or dispute written notice declaring the end of the mediation
process. All discussions connected with this mediation provision will be
confidential and treated as compromise and settlement discussions. Nothing
disclosed in such discussions, which is not independently discoverable, may be
used for any purpose in any later proceeding.
12.3 Arbitration. If any claim or dispute has not been resolved in accordance
with Section 12.1 and Section 12.2, then the claim or dispute will be determined
by arbitration in Seattle, Washington, in accordance with the then-current AAA
national rules for the resolution of employment disputes by arbitration, except
as modified herein. The arbitration will be conducted by a sole neutral
arbitrator who has had both training and experience as an arbitrator of general
employment and commercial matters and who is and for at least ten (10) years has
been, a partner, a shareholder, or a member in a law firm. If Employer and
Employee cannot agree on an arbitrator, then the arbitrator will be selected by
the AAA applying the criteria in this provision. No person who has served as a
mediator under the mediation provision, however, may be selected as the
arbitrator for the same claim or dispute. Reasonable discovery will be permitted
and the arbitrator may decide any issue as to discovery. The arbitrator may
decide any issue as to whether or as to the extent to which, any dispute is
subject to the dispute resolution provisions in Section 12 and the arbitrator
may award any relief permitted by law. The arbitrator must base the arbitration
award on the provisions of Section 12 and applicable law and must render the
award in writing, including an explanation of the reasons for the award. Any
court having jurisdiction of the matter may enter judgment upon the award, and
the decision of the arbitrator will be final and binding. The statute of
limitations applicable to the commencement of a lawsuit will apply to the
commencement of arbitration under Section 12.3.
12.4 Reasonable attorneys' fees incurred in any Dispute relating to the
interpretation or enforcement of this Agreement shall be paid by the
non-prevailing party to such Dispute.
13. Insider Trading Compliance. Employee agrees to abide by the employer's
insider trading compliance program as set forth in Exhibit C.
14. Disclosure. Employee agrees to reveal the terms of this Agreement to any
future employer or potential employer of Employee and authorizes Employer, at
its election, to make such disclosure.
15. Representation of Employee. Employee represents and warrants to Employer
that Employee is free to enter into this Agreement and has no commitment,
arrangement or understanding to or with any party which restrains or is in
conflict with Employee's performance of the covenants, services and duties
provided for in this Agreement. Employee shall not violate any obligation owed
to any other party, including former employees, and shall not violate any rights
that any third party has with regard to proprietary information or trade
secrets. Employee agrees to indemnify Employer and to hold it harmless against
any and all liabilities or claims arising out of breach of this representation
and warranty.
16. Assignability. During Employee's employment hereunder, this Agreement may
not be assigned by either party without the written consent of the other;
provided, however, that Employer may assign its rights and obligations under
this Agreement to a successor by sale, merger or liquidation, if such successor
carries on Employer's business substantially in the form in which it is being
conducted at the time of the sale, merger or liquidation.
7
<PAGE>
17. Right of Set-off. By accepting this Agreement, Employee consents to a
deduction from any amounts Employer owes Employee from time to time (including
amounts owed to Employee as wages or other compensation, or vacation pay, as
well as any other amounts owed to Employee by Employer), to the extent of the
amounts Employee owes Employer. Whether or not Employer elects to make any
set-off in whole or in part, if Employer does not recover by means of set-off
the full amount Employee owes it, calculated as set forth above, Employee agrees
to pay immediately the unpaid balance to Employer.
18. Notices. Any notice required or permitted to be given hereunder shall be
sufficient if in writing, by registered or certified mail, to Employee at the
address set forth at Exhibit A, or to the President of Employer at Shopping
Sherlock, Inc., 11201 S.E. 8th Street, Suite 152, Bellevue, WA, 98004. Notice
shall be deemed to have been given on the third day after deposit into the mail.
Notices to the Employee, may, at the discretion of Employer, alternatively be
hand delivered to Employee.
19. Severability. In the event that any provision of this Agreement or
compliance by any of the parties with any provision of this Agreement shall
constitute a violation of any law, unenforceable or void, then such provision,
to the extent only that it is in violation of law, void or unenforceable, shall
be deemed modified to the extent necessary so that it is no longer
unenforceable, void or in violation of law. If such modification is not
possible, said provision, to the extent that it is in violation of law, void or
unenforceable, shall be deemed severable from the remaining provisions of this
Agreement, which provisions shall remain binding on the parties.
20. Entire Agreement. This instrument contains the entire agreement of the
parties, and it may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought, and any such modification will be signed by the President
of Employer.
21. Governing Law. The validity, construction and performance of this Agreement
shall be governed by the laws of the State of Washington without regard to the
conflicts of law provisions of such laws.
22. Other. The waiver by Employer of a breach of any provision of this Agreement
by Employee shall not operate or be construed as a waiver of any subsequent
breach by Employee. Affiliates of Employer are and shall be third-party
beneficiaries of this Agreement.
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Philip Garratt Raeanne Steele
Its: CEO
Date: June 24, 1999 Date: --------------
8
<PAGE>
Exhibit A to Employment Agreement
Name of Employee: Raeanne Steele
Position: Executive Vice President of Marketing and Sales
Title of position to whom employee reports: President (Philip Garratt)
Basic responsibilities.
Minimum Hours: Normal business hours of 8:00 a.m. to 5:00 p.m. Monday
through Friday.
Base salary: Canadian $10,000 per month
Options: The company plans to grant 100,000 options to individual
Expense limit without
prior approval: U.S. $3,000
Minimum Notice: One month
Restricted Period: The Restricted Period shall be the period of one year
following the termination of Employee's employment with Employer for any reason.
Place of notice to Employee.
- ----------------------------
- ----------------------------
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Philip Garratt Raeanne Steele
Its: CEO
Date: June 24, 1999 Date: --------------
9
<PAGE>
Exhibit B to Employment Agreement
Employee represents and warrants that Employee has no Inventions, software,
writings, artistic works, audiovisual works or other works of authorship useful
to Employer in the normal course of Employer's Business, which were conceived,
made or written prior to the date of this Agreement and which are excluded from
the operation of this Agreement.
List exemptions:
Initials of Employee: -----------
10
<PAGE>
Exhibit C to Employment Agreement
INSIDER TRADING COMPLIANCE
SHOPPING SHERLOCK INC.
UPDATED INSIDER TRADING COMPLIANCE - PROGRAM
As at June 22nd 1999
Adopted: June 22, 1999
Exhibits Updated: June 22, 1999
In order to continue its active role in the prevention of any question regarding
insider trading violations by its officers, directors, employees, shareholders
and other related individuals, to alter that role as necessary and appropriate
in light of the Company's increased size and publicly traded status, and to
ensure that its policies continue to be in accordance with the latest
developments in the law, the Company has adopted the policies and procedures
described in this Memorandum Effective as of the date set forth above. These
policies and procedures are regularly updated and posted to the Shopping
Sherlock Intranet under "Legal".
I. Adoption of Insider Trading Policy.
The Company has adopted the Shopping Sherlock Insider Trading Policy attached as
Exhibit A (the "Policy"), which prohibits trading while in possession of
Material Nonpublic Information regarding the Company. The Policy covers
officers, directors, shareholders and all other employees of, or consultants or
contractors to, the Company, as well as family members of such persons, and
other persons who have or may have access to Material Nonpublic Information. The
Policy (and/or a summary thereof is to be delivered to all new employees and
consultants upon the commencement of their relationships with the Company, and
is to be circulated to all personnel at least annually.
II. Designation of Certain Persons.
A. Section 16 Individuals. The Company has determined that those persons listed
on Exhibit B attached hereto are the persons currently subject to the reporting
and liability provisions of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder ("Section 16 Individuals"). Exhibit B will be amended and -updated
from time to time as appropriate to include an updated list of directors and
officers and shareholders who beneficially own more than 10% of the Company's
common stock.
B. Other Restricted Persons. The Company has determined that those persons
listed on Exhibit C attached hereto, together with the Section 16 Individuals
listed on Exhibit are currently subject to the pre clearance requirement
described in Section IV below. The Company believes that those persons have, or
are likely to have, regular access to Material Nonpublic Information. Exhibit C
may be amended from time to time. Under special circumstances, certain persons
not listed on Exhibit-C may have access to Material Nonpublic Information for a
period of time. During such period, such persons are also subject to the pre
clearance procedure described in Section IV.
11
<PAGE>
III. Appointment of Compliance Officer.
The Company designates its CFO as the Company's Insider Trading Compliance
Officer.
IV. Duties of Compliance Officer.
The duties of the Compliance Officer include, but are not limited to, the
following:
A. Pre clear all transactions involving the Company's securities by those
individuals listed on Exhibits B and C in order to define compliance with the
Policy, insider trading laws, Section 16 of the Exchange Act and Rule 144
promulgated under the Securities Act of 1933, as amended.
B. Coordinate preparation and filing of Section 16 reports (Forms 3, 4 and 5)
for all Section 16 Individuals.
C. Serve as the designated recipient at the Company of copies of reports filed
with the SEC by Section 16 Individuals under Section 16 of the Exchange Act.
D. Perform periodic cross-checks of available materials which may include Forms
3, 4 and 5, Form 144, officers' and directors' questionnaires, and reports
received from the Company's stock administrator and transfer agent, to determine
trading activity by officers, directors and others who access to Material
Nonpublic Information.
E. Circulate the Policy (and/or a summary thereof) to all employees, including
Section 16 Individuals, on an annual basis, and provide the Policy and other
appropriate materials to new officers, directors and others who have, or may
have, access to Material Nonpublic Information.
F. Assist the Company's Board of Directors with implementation of the Policy and
Sections I and II of this memorandum.
G. Coordinate with Company counsel regarding compliance with Rule 144 sales.
Attachments:
Exhibit "A" - Insider Trading Policy
Exhibit "B" - List of Section 16 insiders
12
<PAGE>
EXHIBIT "A"
SHOPPING SHERLOCK INC.
INSIDER TRADING POLICY and Guidelines with Respect to Certain Transactions in
Company Securities
This Policy provides guidelines to employees, officers and directors of, and
consultants and contractors to, SHOPPING SHERLOCK INC. (the "Company") with
respect to transactions' in the Company's securities.
APPLICABILITY OF POLICY
This policy applies to all transactions in the Company's securities, including
Common Stock, options for Common Stock and any other securities the Company may
issue from time to time, such as preferred stock, warrants and convertible
debentures, as well as to derivative securities relating to the Company's stock,
whether or not issued by the Company, such as exchange-traded options. It
applies to all officers of the Company, all members of the Company's Board of
Directors, and all employees of, and consultants and contractors to, the Company
and its subsidiaries. This group of people when in receipt of or having access
to Material Nonpublic Information (as defined below) regarding the Company,
along with members of their immediate families and members of their households,
are sometimes referred to in this Policy as "Insiders". This Policy also applies
to any person who receives Material Nonpublic Information from any insider.
Any person who possesses Material Nonpublic Information regarding the Company is
an Insider for so long as the information is not publicly known. Any employee
can be an Insider from time to time, and would at those times be subject to this
Policy.
GENERAL POLICY
It is the policy of the Company to oppose the unauthorized disclosure of any
Material Nonpublic Information regarding the Company acquired in the workplace
or otherwise and the misuse of Material Nonpublic Information in securities
trading.
SPECIFIC POLICIES
1. Trading on Material Nonpublic Information. No director, officer or employee
of, or consultant or contractor to, the Company, and no member of the immediate
family or household of any such person, shall engage in any transaction
involving a purchase or sale of the Company's securities, including any offer to
purchase or offer to sell, during any period commencing with the date that he or
she possesses Material Nonpublic Information concerning the Company, and ending
at the close of business on the second Trading Day following the date of public
disclosure of that information, or at such time as such nonpublic information is
no longer material. As used herein, the term "Trading Day" shall mean a day on
which national stock exchanges and the NASDAQ Stock Market are open for trading.
2. Tipping. No Insider shall disclose ("tip") Material Nonpublic Information to
any other person (including family members) where such information may be used
by such person to his or her profit by
13
<PAGE>
trading in the securities of companies to which such information relates, nor
shall such Insider or related person make recommendations or express opinions on
the basis of Materials Nonpublic Information as to trading in the Company's
securities.
3. Confidential of Nonpublic Information. Nonpublic information relating to the
Company is the property of the Company and the unauthorized disclosure of such
information is forbidden.
POTENTIAL CRIMINAL AND CIVIL LIABILITY AND/OR DISCIPLINARY ACTION
1. Liability for Insider Trading. Insiders may be subject to disgorgement of
profits (or losses avoided) (trebled in some cases), penalties of up to
$1,000,000 and up to ten years in jail for engaging in transactions in the
Company's securities at a time when they have knowledge of Material Nonpublic
Information regarding the Company.
2. Liability for Tipping. Insiders may also be liable for improper transactions
by any person (commonly referred to as a "tippee") to whom they have disclosed
nonpublic information regarding the Company or to whom they have made
recommended or expressed opinions on the basis of such information as to trading
in the Company's securities. The Securities and Exchange Commission (the "SEC")
has imposed large penalties even when the disclosing person did not profit from
the trading. The SEC, the stock exchanges and the National Association of
Securities Dealers, Inc. use sophisticated electronic surveillance techniques to
uncover insider trading.
3. Possible Disciplinary Actions. Employees of the Company who violate this
policy shall also be subject to disciplinary action by the Company, which my
include ineligibility for future participation in the Company's equity incentive
plan or immediate termination of employment.
GUIDELINES
1. Recommended Trading Window- To ensure compliance with this Policy and
applicable federal and state securities laws, the Company requires that all
directors, officers, employees, consultants and contractors having access to the
Company's internal financial statements or other Material Nonpublic Information
refrain from conducting transactions involving the purchase or sale of the
Company's securities other than during the following period (the "Trading
Window"):
Trading Window: The period in any fiscal quarter commencing at the close of
business two full Trading Days following the date of public disclosure of the
financial results for the prior fine quarter or year and ending on the last day
of the second fiscal month of the fiscal quarter.
The safest period for trading in the Company's securities, assuming the absence
of Material Nonpublic Information, is generally the first ten days of the
Trading Window. Periods other than the Trading Window are more highly sensitive
for transactions in the Company's stock from the perspective of compliance with
applicable securities laws. This is due to the fact that officers, directors and
certain other employees will, as any quarter progresses, be increasingly likely
to possess Material Nonpublic Information about the expected financial results
for the quarter.
The purpose behind the recommended Trading Window is to help establish a
diligent effort to avoid any improper transaction. An Insider may choose not to
follow this suggestion, but he or she should be
14
<PAGE>
particularly careful with respect to trading outside the Trading Window, since
the Insider may, at such time, have access to (or later be deemed to have had
access to) Material Nonpublic Information regarding, among other things, the
Company's anticipated financial performance for the quarter.
It should be noted that even during the Trading Window any person possessing
Material Nonpublic Information concerning the Company should not engage in any
transactions in the Company's securities until such information has been known
publicly for at least two Trading Days. Although the Company may from time to
time recommend during a Trading Window that directors, officers, selected
employees and others suspend trading because of developments known to the
Company and not yet disclosed to the public,
each person is individually responsible at all times for compliance with the
prohibitions against insider trading. Trading in the Company's securities during
the Trading Window should not be considered a "safe harbor," and all directors,
officers and other persons should use good judgment at all times.
2. Pre clearance of Trades. The Company has determined that all officers and
directors of the Company should refrain from trading in the Company's
securities, even during the Trading Window, without first complying with the
Company's "Pre clearance" process. Each officer and director should contact the
Company's Insider Trading Compliance officer prior to commencing any trade in
the Company's securities.
The Company may also find it necessary, from time to time, to require compliance
with the pre clearance process from certain employees, consultants and
contractors other than and in addition to officers and directors.
3. No Short Sales or Options Trading. The Company requires that all officers,
directors, employees, consultants and contractors refrain from engaging in any
short sale of the Company's securities or any purchase or sale of put or call
options involving the Company's securities.
4. Trading in Stock of Customers and Suppliers. The Company requires that all
officers, directors, employees, consultants and contractors refrain from trading
in the securities of customers, suppliers or other third party entities with
whom the Company has a business relationship at a time that such person is in
possession of material non public information concerning the issuer of such
securities obtained through the Company's relationship with such other entity.
5. Individual Responsibility. Every officer, director and employee has the
individual responsibility to comply with this Policy against insider trading,
regardless of whether the Company has recommended a trading window to that
Insider or any other Insiders of the Company. The guidelines set forth in this
Policy are guidelines only, and appropriate judgment should be exercised in
connection with any trade in the Company's securities.
An Insider may, from time to time, have to forego, a proposed transaction in the
Company's securities even if he or she planned to make the transaction before
learning of the Material Nonpublic Information and even though the Insider
believes he or she may suffer an economic loss or forego anticipated profit by
waiting.
15
<PAGE>
APPLICABILITY OF POLICY TO INSIDE INFORMATION
REGARDING OTHER COMPANIES
This policy and the guidelines described herein also apply to Material Nonpublic
Information relating to other companies, including the Company's customers,
vendors, suppliers or acquisition candidates ("business partners"), when that
information is obtained in the course of employment with, or other services
performed on behalf of, the Company. Civil and penalties, and termination of
employment, may result from trading on inside information regarding the
Company's business partners.
All employees should treat Material Nonpublic information about the company's
business partners with the same care required with respect to information
related directly to the Company.
DEFINITION OF MATERIAL N0N PUBLIC INFORMATION
It is not possible to define all categories of material information. However,
information should be regarded as material if there is a reasonable likelihood
that it would be considered important to an investor in making an investment
decision regarding the purchase or sale of the Company's securities.
While it may be difficult under this standard to determine whether particular
information is material there are various categories of information that are
particularly sensitive and, as a general rule, should always be considered
material. Examples of such information may include:
Financial results
Projections of future earnings or losses
News of a pending or proposed merger
News of a pending or proposed significant acquisition
News of the disposition of a subsidiary
Impending bankruptcy or financial liquidity problems
Gain or loss of a substantial customer or supplier
Changes in dividend policy
New product announcements of a significant nature
Significant product defects or modifications Significant pricing changes
Stock splits
New equity or debt offerings
Major acquisitions
Significant litigation exposure due to actual or threatened litigation
Major changes in senior management
Either positive or negative information may be material.
Non public information is information that has not been previously disclosed to
the general public and is otherwise not readily available to the general public.
CERTAIN EXPECTATIONS
For purposes of this Policy, the Company considers that the exercise of a stock
option for cash under the Company's stock option plans or the purchase of shares
under the Company's employee stock purchase
16
<PAGE>
plan (but not the sale of any such shares) is exempt from this Policy, since the
other party to the transaction is the Company itself and the price does not vary
with the market but is fixed by the terms of the option agreement or the plan.
Further, the Company does not believe that employees, officers or directors
should ordinarily be prohibited from making bonafide gifts and charitable
donations outside the Trading Window in situations where there is no unusual
activity or other reason to believe that a transaction would be particularly
risky.
ADDITIONAL INFORMATION - DIRECTORS AND OFFICERS
Directors and officers of the Company must also comply with the reporting
obligations and limitations on short-swing transactions set forth in Section 16
of the Securities Exchange Act of 1934, as amended. The practical effect of
these provisions is that officers and directors who purchase and sell the
Company's securities within a six-month period must disgorge all profits to the
Company whether or not they bad knowledge of any Material Nonpublic Information.
Under these provisions, and so long as certain other criteria are met, neither
the receipt of an option trader the Company's option plan, nor the exercise of
that option nor the receipt of stock under the Company's employee stock purchase
plan is deemed a purchase under Section 16; however, the sale of any such shares
is a sale under Section 16.
Moreover, no officer or director may ever make a short sale of the Company's
stock. The Company has provided, or will provide, separate memoranda and other
appropriate materials to its officers and directors regarding compliance with
Section 16 and its related rules.
INQUIRIES
Please direct your questions as to any of the matters discussed in this Policy
to the Company's Insider Trading Compliance officer.
17
<PAGE>
EXHIBIT "B"
DIRECTORS, OFFICERS AND SHAREHOLDERS SUBJECT TO SECTION 16
As of June 22, 1999
Directors:
Richard Stewart
Jasbir Dhaliwal
Philip Garratt
Raeanne Steele
Mitchell Eggers
Officers:
TITLE NAME
----- ----
1. President and Chief Executive Officer Philip Garratt
2. Chief Financial Officer/Secretary Patrick McGrath
3. Chief Technology Officer Jan Walter
4. Chief Operating Officer Mitchell Eggers
5. Executive Vice President of Sales and Marketing Raeanne Steele
Shareholders:
Premier Lifestyles International Corporation (PLIC)
18
Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 24th day of June, 1999 (this
"Agreement"), between Shopping Sherlock, Inc. a Delaware corporation
("Employer"), and Jan Walter ("Employee").
RECITALS
A. Employer desires to hire Employee and Employee wishes to be employed by
Employer. In such employment, Employee will be given access to information,
which is confidential and proprietary to Employer and its Affiliates and vital
to their business operations. For the purposes of the Agreement, the term
"Affiliate" means any entity currently existing or subsequently organized or
formed that directly or indirectly controls, is controlled by or is under common
control with Employer, whether through the ownership of voting securities, by
contract or otherwise.
B. Employee will receive adequate consideration for executing and delivering
this Agreement, including employment by Employer. Entry into this Agreement is a
condition of Employee's employment with Employer.
AGREEMENT
Based upon the consideration of the mutual covenants herein contained,
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, and in order to induce the Employer to employ Employee,
the parties hereto agree as follows:
1. Employment. Employer hereby agrees to employ Employee, and Employee agrees to
be employed by Employer in the capacity identified in Exhibit A. Employee will
report to the person identified at Exhibit A. Employee's basic responsibilities
are set forth in Exhibit A, although Employee may be required to perform other
responsibilities in addition to those identified at Exhibit A. Employee's base
of operations shall be the Employer's offices identified at Exhibit A. Changes
may be made from time to time by Employer, in its sole discretion, to the
duties, reporting relationship and title of Employee. Employee shall devote all
of Employee's work efforts to Employer. Employee shall comply with all rules,
policies and procedures of Employer as modified from time to time. Employee
shall perform all of Employee's responsibilities in a way that is in complete
compliance with all applicable laws.
2. Term of Employment. The employment is "at will," and the term of employment
shall be for no specific period of time and may be terminated by the Employer or
Employee at any time for any reason, with or without cause, in accordance with
the terms and conditions herein.
3. Compensation. For the duration of Employee's employment, the Employee shall
be paid an annual base salary ("Base Salary"), as identified in Exhibit A. Base
Salary shall be prorated for the actual period of employment and payable in
equal installments in accordance with Employer's normal payroll practices, and
shall be subject to appropriate deductions and withholding.
1
<PAGE>
4. Other Benefits. Employee shall be entitled to participate in employee benefit
programs established by Employer, such as medical, pension, disability and life
insurance plans, to the extent that Employee is eligible for such benefits in
accordance with Employer's policies, as they may be changed from time to time.
Nothing in this Agreement requires the adoption or maintenance of any such
arrangements or plans. For the duration of Employee's employment under this
Agreement, Employee shall accrue and utilize sick leave and vacation in
accordance with the policies and procedures of Employer, as they may be modified
from time to time. Employer shall reimburse Employee for reasonable expenses
necessarily incurred in the performance of Employee's duties in accordance with
Employer policies. All expenses in excess of the amount identified at Exhibit A
must be approved in advance by Employee's supervisor.
5. Termination or Discharge by Employer.
5.1.1 For Cause. Employer shall have the right to immediately terminate
Employee's services and this Agreement for cause. "Cause" means: any material
breach of this Agreement by Employee, including, without limitation, breach of
Employee's covenants in Sections 7, 8, 9 and 10; any failure to perform assigned
job responsibilities that continues without remedy for a period of thirty (30)
days after written notice to Employee by Employer; conviction of a felony (or
its legal equivalent in any jurisdiction) or failure to contest prosecution for
a felony (or its legal equivalent in any jurisdiction); violation of any
statute, rule or regulation, any of which in the judgment of Employer is harmful
to Employer's Business (as defined herein) or to Employer's reputation;
unethical practices; dishonesty; disloyalty; or any reason that would constitute
cause under the laws of the State of Washington or any other jurisdiction in
which the Employee performs services hereunder.
5.1.2 Upon termination of Employee's employment hereunder for cause or upon the
death or disability of Employee, Employee will have no rights to any unvested
benefits or any other compensation or payments after the termination date or the
last day of the month in which Employee's death or disability occurred. For
purposes of this Agreement, "disability" means the incapacity or inability of
Employee, whether due to accident, sickness or otherwise, as determined by a
medical doctor acceptable to the Board of Directors of Employer and confirmed in
writing by such doctor, to perform the essential functions of Employee's
position under this Agreement, with or without reasonable accommodation
(provided that no accommodation that imposes undue hardship on Employer will be
required) for an aggregate of ninety (90) days during any period of one hundred
eighty (180) consecutive days.
5.2 Without Cause. If Employer terminates Employee's employment without cause,
Employer shall provide Employee with the amount of advance notice set forth as
minimum notice in Exhibit A ("Minimum Notice"). Alternatively, and in the sole
discretion of Employer, Employer may terminate Employee's employment without
notice or with notice less than the Minimum Notice, but in such a situation,
Employer shall pay Employee the amount of Base Salary Employee would have earned
had Employee remained employed through the Minimum Notice period (based on the
Base Salary rate on the termination date), less the amount of Base Salary
actually earned during the Minimum Notice period. Such payments shall be sent to
Employee in amounts allocated per pay period by mail on Employer's usual and
customary paydays and shall be less required withholdings and deductions.
Employee shall have no rights to any unvested benefits at the time of
termination or any other payments except as stated in this paragraph.
2
<PAGE>
6. Termination by Employee. Employee may terminate Employee's employment under
this Agreement for any reason provided that Employee gives Employer the amount
of notice set forth as Minimum Notice in Exhibit A. In the event of such Notice,
Employee's compensation and benefits hereunder shall cease as of the date of
Employee's designated termination date, except that Employer may accelerate the
termination date to any date determined by Employer after which Employee's
services would not be required. In the event of termination by Employee, there
shall be no further compensation beyond the termination date.
7. Covenant Not To Compete. During the Restricted Period defined in Exhibit A,
Employee covenants and agrees that Employee shall not:
a. Directly, indirectly, or otherwise, own, manage, operate, control, serve
as a consultant to, be employed by, participate in, or be connected, in any
manner, with the ownership management, operation or control of any business
which is competitive with any type of business which Employer is engaged in
or planned to engage in at any time during Employee's employment with
Employer up to and including the time of the termination of employment
("Employer's Business");
b. Hire, offer to hire, entice away or in any other manner persuade or
attempt to persuade any officer, employee or agent of Employer to alter or
discontinue his or her relationship with Employer;
c. Directly or indirectly solicit, divert, or attempt to solicit or divert
any customers or business of Employer; or
d. Directly or indirectly solicit, divert, or in any other manner persuade
or attempt to persuade any supplier or Employee to alter or discontinue its
relationship with Employer.
7.1 For the purposes of this Section 7, Employer's Business includes, without
limitation, the development and operation of multiple commerce sites on the
Internet for the sale of products, services, and privileges over the Internet,
participating and building a reciprocal rebate program, providing e-commerce
services to direct and multi-level marketing companies as well as discount
warehouse companies, and inventing or adapting any e-commerce systems necessary
to the operation of such sites. Notwithstanding Employee's obligations under
this Section 7, Employee shall be entitled to own, as a passive investor, up to
five percent (5%) of any publicly-traded company without violating this
provision.
7.2 Employer and Employee agree that this provision does not impose an undue
hardship on Employee and is not injurious to the public; that this provision is
necessary to protect the valuable goodwill and the business of Employer; that
the nature of Employee's responsibilities with Employer under this Agreement
require Employee to have access to confidential information which is valuable
and confidential to Employer's Business; that the scope of this Section 7 is
reasonable in terms of length of time; and that adequate consideration supports
this Section 7.
7.3 Employee recognizes that Employer has entered into strategic alliance
agreements with partners, vendors and clients that include various
non-competition, nondisclosure, and non-circumvention requirements and employee
agrees to uphold and abide by these agreements.
3
<PAGE>
8. Confidential Information. Employee recognizes that Employer's Business and
continued success depend upon the use and protection of confidential and
proprietary business information, including, without limitation, the information
and technology developed by or available through licenses to Employer related to
Employer's Business, to which Employee has access (all such information being
"Confidential Information"). For purposes of this Agreement, the phrase
"Confidential Information" includes for Employer and its current or future
subsidiaries and affiliates, without limitation, and whether or not specifically
designated as confidential or proprietary: all business plans and marketing
strategies; information concerning existing and prospective markets and
customers; financial information; information concerning the development of new
products and services; and technical and non-technical data related to software
programs, designs, specifications, compilations, inventions, improvements,
methods, processes, procedures and techniques; provided, however, that the
phrase does not include information that;
(a) was lawfully in Employee's possession prior to disclosure of such
information by Employer;
(b) was, or at any time becomes, available in the public domain other than
through a violation of this Agreement;
(c) is documented by Employee as having been developed by Employee outside
the scope of Employee's employment and independently; or
(d) is furnished to Employee by a third party not under an obligation of
confidentiality to Employer. Employee agrees that during Employee's
employment and after termination of employment irrespective of cause,
Employee will use Confidential Information only for the benefit of Employer
and will not directly or indirectly use or divulge, or permit others to use
or divulge, any Confidential Information for any reason, except as
authorized by Employer. (e) Employee's obligation under this Agreement is
in addition to any obligations Employee has under state, provincial or
federal law.
8.1 Employee agrees to deliver to Employer immediately upon termination of
Employee's employment, or at any time Employer so requests, all tangible items
containing any Confidential Information (including, without limitation, all
memoranda, photographs, records, reports, manuals, drawings, blueprints,
prototypes, notes taken by or provided to Employee, and any other documents or
items of a confidential belonging to Employer), together with all copies of such
material in Employee's possession or control.
8.2 Employee agrees that in the course of Employee's employment with Employer,
Employee will not violate in any way the rights that any entity has with regard
to trade secrets or proprietary or confidential information. Employee's
obligations under this Section 8 are indefinite in term and shall survive the
termination of this Agreement.
9. Work Product and Copyrights. Employee agrees that all right, title and
interest in and to all products, materials and documents resulting from the
performance of Employee's duties at Employer and all copies thereof, including
works in progress, in whatever media, (the "Work"), will be and remain in
Employer upon their creation. Employee will mark all Work with Employer's
copyright or other proprietary notice as directed by Employer. Employee further
agrees:
9.1 To the extent that any portion of the Work constitutes a work able to be
protected under the copyright laws of the United States (the "Copyright Law"),
that all such Work will be considered a "work made for hire" as such term is
used and defined in the Copyright Law and that Employer will be
4
<PAGE>
considered the "author" of such portion of the Work and the sole and exclusive
owner throughout the world of copyright therein; and
9.2 If any portion of the Work does not qualify as a "work made for hire" as
such term is used and defined in the Copyright Law, that Employee hereby assigns
and agrees to assign to Employer, without further consideration, all right,
title and interest in and to such Work or in any such portion thereof including
without limitation any copyright, trade secret, trademark, trade dress, service
mark or other proprietary interest therein and further agrees to execute and
deliver to Employer, upon request, appropriate assignments of such Work and
copyright and other rights therein and such other documents and instruments as
Employer may request to fully and completely assign such Work and copyright and
other rights therein to Employer, its successors or nominees, and that Employee
hereby appoints Employer as attorney-in-fact to execute and deliver any such
documents on Employee's behalf in the event Employee should fail or refuse to do
so within a reasonable period following Employer's request.
10. Inventions and Patents. For purposes of this Agreement, "Inventions"
includes, without limitation, information, inventions, contributions,
improvements, ideas, or discoveries, whether they are able to be patented or
not, and whether or not conceived or made during work hours. Employee agrees
that all Inventions conceived or made by Employee during the period of
employment with Employer belong to Employer, provided they relate directly to
the business of the Employer, or relate to the employer's actual or demonstrably
anticipated research and development, or result from work performed by Employer.
Accordingly, Employee will:
10.1 Make adequate written records of such Inventions, which records will be
Employer's property; and
10.2 Assign to Employer, at its request, any rights Employee may have to such
Inventions for the U.S. and all foreign countries;
10.3 Waive and agree not to assert any moral rights Employee may have or acquire
in any Inventions and agree to provide written waivers from time to time as
requested by Employer; and assist Employer (at Employer's expense) in obtaining
and maintaining patents or copyright registrations with respect to such
Inventions.
10.4 Employee understands and agrees that Employer or its designee will
determine, in its sole and absolute discretion, whether an application for
patent will be filed on any Invention that is the exclusive property of
Employer, as set forth above, and whether such an application will be abandoned
prior to issuance of a patent. Employer will pay to Employee, either during or
after the term of this Agreement, the following amounts if Employee is sole
inventor, or Employee's proportionate share if Employee is joint inventor: $750
upon filing of the initial application for patent on such Invention; and $1,500
upon issuance of a patent resulting from such initial patent application,
provided Employee is named as an inventor in the patent.
10.5 Employee further agrees that Employee will promptly disclose in writing to
Employer during the term of Employee's employment and for one (1) year
thereafter, all Inventions whether developed during the time of such employment
or thereafter (whether or not Employer has rights in such Inventions) so that
Employee's rights and Employer's rights in such Inventions can be determined.
Except as set forth on the initialed Exhibit B to this Agreement, if any,
Employee represents and warrants that Employee has no Inventions, software,
writings or other works of authorship useful to Employer in the normal course of
5
<PAGE>
Employer's Business, which were conceived, made or written prior to the date of
this Agreement and which are excluded from the operation of this Agreement.
NOTICE: In accordance with Washington law, this Section 10 does not apply
to Inventions for which no equipment, supplies, facility, or trade secret
information of Employer was used and which was developed entirely on
Employee's own time, unless: (a) the Invention relates (i) directly to the
business of Employer or (ii) to Employer's actual or demonstrably
anticipated research or development, or (b) the Invention results from any
work performed by Employee for Employer.
11. Remedies. Notwithstanding other provisions of this Agreement regarding
dispute resolution, Employee agrees that Employee's violation of any of Sections
7, 8, 9 or 10 of this Agreement would cause Employer or its Affiliates
irreparable harm which would not be adequately compensated by monetary damages,
and that an injunction may be granted by any court or courts having
jurisdiction, restraining Employee from violation of the terms of this
Agreement, upon any breach or threatened breach of Employee of obligations set
forth in any of Sections 7, 8, 9 or 10. The preceding sentence shall not be
construed to limit Employer or its Affiliates from any other relief or damages
to which it may be entitled to as a result of Employee's violation of any
obligation owed Employer under law or provision of this Agreement, including any
of Sections 7, 8, 9 or 10.
12. Dispute Resolution. Except with regard to the right of Employer or Employee
to commence any judicial action or proceeding to obtain injunctive relief, and
to the greatest extent permitted by law, any controversy, claim or dispute of
whatever nature arising out of or relating to this Agreement, whether such
controversy, claim or dispute is based upon statute, contract, tort, common law
or otherwise, and whether such controversy, claim or dispute existed prior to or
arises after the date of this Agreement (any such controversy, claim or dispute
being a "Dispute"), shall be resolved in accordance with the procedures set
forth in this Section 12, which procedures will be the sole and exclusive
procedures for the resolution of any Disputes. Matters to be resolved under
these procedures also include claims and disputes arising out of statutes such
as Title VII of the Civil Rights Act, the Age Discrimination in Employment Act,
and the Washington Law against Discrimination or similar statues in
jurisdictions in which the Employee performs services under this agreement.
Nothing in this provision is intended to restrict Employee from submitting any
matter to an administrative agency with jurisdiction over such matter.
12.1 Compliance with Employer Policy. Employee and Employer will make a good
faith attempt to resolve all disputes in accordance with any dispute resolution
policy adopted by Employer before resorting to any other dispute resolution
procedure.
12.2 Mediation. Employer and Employee will make a good faith attempt to resolve
any and all claims and disputes not resolved in accordance with Section 12.1 by
submitting them to mediation in Seattle, Washington before resorting to
arbitration or any other dispute resolution procedure. The mediation of any
claim or dispute must be conducted in accordance with the then-current American
Arbitration Association ("AAA") national rules for the resolution of employment
disputes by mediation, by a mediator who has had both training and experience as
a mediator of general employment and commercial matters. If the parties to this
agreement cannot agree on a mediator, then the mediator will be selected by the
AAA in accordance with the criteria described in this provision. Within thirty
(30) days after the selection of the mediator, Employer and Employee and their
respective attorneys will meet with the mediator for one mediation session of at
least four hours. If the claim or dispute cannot be
6
<PAGE>
settled during such mediation session or mutually agreed continuation of the
session, either Employer or Employee may give the mediator and the other party
to the claim or dispute written notice declaring the end of the mediation
process. All discussions connected with this mediation provision will be
confidential and treated as compromise and settlement discussions. Nothing
disclosed in such discussions, which is not independently discoverable, may be
used for any purpose in any later proceeding.
12.3 Arbitration. If any claim or dispute has not been resolved in accordance
with Section 12.1 and Section 12.2, then the claim or dispute will be determined
by arbitration in Seattle, Washington, in accordance with the then-current AAA
national rules for the resolution of employment disputes by arbitration, except
as modified herein. The arbitration will be conducted by a sole neutral
arbitrator who has had both training and experience as an arbitrator of general
employment and commercial matters and who is and for at least ten (10) years has
been, a partner, a shareholder, or a member in a law firm. If Employer and
Employee cannot agree on an arbitrator, then the arbitrator will be selected by
the AAA applying the criteria in this provision. No person who has served as a
mediator under the mediation provision, however, may be selected as the
arbitrator for the same claim or dispute. Reasonable discovery will be permitted
and the arbitrator may decide any issue as to discovery. The arbitrator may
decide any issue as to whether or as to the extent to which, any dispute is
subject to the dispute resolution provisions in Section 12 and the arbitrator
may award any relief permitted by law. The arbitrator must base the arbitration
award on the provisions of Section 12 and applicable law and must render the
award in writing, including an explanation of the reasons for the award. Any
court having jurisdiction of the matter may enter judgment upon the award, and
the decision of the arbitrator will be final and binding. The statute of
limitations applicable to the commencement of a lawsuit will apply to the
commencement of arbitration under Section 12.3.
12.4 Reasonable attorneys' fees incurred in any Dispute relating to the
interpretation or enforcement of this Agreement shall be paid by the
non-prevailing party to such Dispute.
13. Insider Trading Compliance. Employee agrees to abide by the employer's
insider trading compliance program as set forth in Exhibit C.
14. Disclosure. Employee agrees to reveal the terms of this Agreement to any
future employer or potential employer of Employee and authorizes Employer, at
its election, to make such disclosure.
15. Representation of Employee. Employee represents and warrants to Employer
that Employee is free to enter into this Agreement and has no commitment,
arrangement or understanding to or with any party which restrains or is in
conflict with Employee's performance of the covenants, services and duties
provided for in this Agreement. Employee shall not violate any obligation owed
to any other party, including former employees, and shall not violate any rights
that any third party has with regard to proprietary information or trade
secrets. Employee agrees to indemnify Employer and to hold it harmless against
any and all liabilities or claims arising out of breach of this representation
and warranty.
16. Assignability. During Employee's employment hereunder, this Agreement may
not be assigned by either party without the written consent of the other;
provided, however, that Employer may assign its rights and obligations under
this Agreement to a successor by sale, merger or liquidation, if such successor
carries on Employer's business substantially in the form in which it is being
conducted at the time of the sale, merger or liquidation.
7
<PAGE>
17. Right of Set-off. By accepting this Agreement, Employee consents to a
deduction from any amounts Employer owes Employee from time to time (including
amounts owed to Employee as wages or other compensation, or vacation pay, as
well as any other amounts owed to Employee by Employer), to the extent of the
amounts Employee owes Employer. Whether or not Employer elects to make any
set-off in whole or in part, if Employer does not recover by means of set-off
the full amount Employee owes it, calculated as set forth above, Employee agrees
to pay immediately the unpaid balance to Employer.
18. Notices. Any notice required or permitted to be given hereunder shall be
sufficient if in writing, by registered or certified mail, to Employee at the
address set forth at Exhibit A, or to the President of Employer at Shopping
Sherlock, Inc., 11201 S.E. 8th Street, Suite 152, Bellevue, WA, 98004. Notice
shall be deemed to have been given on the third day after deposit into the mail.
Notices to the Employee, may, at the discretion of Employer, alternatively be
hand delivered to Employee.
19. Severability. In the event that any provision of this Agreement or
compliance by any of the parties with any provision of this Agreement shall
constitute a violation of any law, unenforceable or void, then such provision,
to the extent only that it is in violation of law, void or unenforceable, shall
be deemed modified to the extent necessary so that it is no longer
unenforceable, void or in violation of law. If such modification is not
possible, said provision, to the extent that it is in violation of law, void or
unenforceable, shall be deemed severable from the remaining provisions of this
Agreement, which provisions shall remain binding on the parties.
20. Entire Agreement. This instrument contains the entire agreement of the
parties, and it may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought, and any such modification will be signed by the President
of Employer.
21. Governing Law. The validity, construction and performance of this Agreement
shall be governed by the laws of the State of Washington without regard to the
conflicts of law provisions of such laws.
22. Other. The waiver by Employer of a breach of any provision of this Agreement
by Employee shall not operate or be construed as a waiver of any subsequent
breach by Employee. Affiliates of Employer are and shall be third-party
beneficiaries of this Agreement.
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Philip Garratt Jan Walter
Its: CEO
Date: June 24, 1999 Date: ------------
8
<PAGE>
Exhibit A to Employment Agreement
Name of Employee: Jan Walter
Position: CTO
Title of position to whom employee reports: COO (Mitch Eggers)
Basic responsibilities.
Minimum Hours: Normal business hours of 8:00 a.m. to 5:00 p.m.
Monday through Friday.
Base salary: U.S. $5,000 per month
Options: The company plans to grant 75,000 options to the
individual
Expense limit without
prior approval: U.S. $1,000
Minimum Notice: One month
Restricted Period: The Restricted Period shall be the period of one
year following the termination of Employee's employment with Employer for any
reason.
Place of notice to Employee.
- ----------------------------
- ----------------------------
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Philip Garratt Jan Walter
Its: CEO
Date: June 24, 1999 Date: ------------
9
<PAGE>
Exhibit B to Employment Agreement
Employee represents and warrants that Employee has no Inventions, software,
writings, artistic works, audiovisual works or other works of authorship useful
to Employer in the normal course of Employer's Business, which were conceived,
made or written prior to the date of this Agreement and which are excluded from
the operation of this Agreement.
List exemptions:
Initials of Employee: -----------
10
<PAGE>
Exhibit C to Employment Agreement
INSIDER TRADING COMPLIANCE
SHOPPING SHERLOCK INC.
UPDATED INSIDER TRADING COMPLIANCE - PROGRAM
As at June 22nd 1999
Adopted: June 22, 1999
Exhibits Updated: June 22, 1999
In order to continue its active role in the prevention of any question regarding
insider trading violations by its officers, directors, employees, shareholders
and other related individuals, to alter that role as necessary and appropriate
in light of the Company's increased size and publicly traded status, and to
ensure that its policies continue to be in accordance with the latest
developments in the law, the Company has adopted the policies and procedures
described in this Memorandum Effective as of the date set forth above. These
policies and procedures are regularly updated and posted to the Shopping
Sherlock Intranet under "Legal".
I. Adoption of Insider Trading Policy.
The Company has adopted the Shopping Sherlock Insider Trading Policy attached as
Exhibit A (the "Policy"), which prohibits trading while in possession of
Material Nonpublic Information regarding the Company. The Policy covers
officers, directors, shareholders and all other employees of, or consultants or
contractors to, the Company, as well as family members of such persons, and
other persons who have or may have access to Material Nonpublic Information. The
Policy (and/or a summary thereof is to be delivered to all new employees and
consultants upon the commencement of their relationships with the Company, and
is to be circulated to all personnel at least annually.
II. Designation of Certain Persons.
A. Section 16 Individuals. The Company has determined that those persons listed
on Exhibit B attached hereto are the persons currently subject to the reporting
and liability provisions of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder ("Section 16 Individuals"). Exhibit B will be amended and -updated
from time to time as appropriate to include an updated list of directors and
officers and shareholders who beneficially own more than 10% of the Company's
common stock.
B. Other Restricted Persons. The Company has determined that those persons
listed on Exhibit C attached hereto, together with the Section 16 Individuals
listed on Exhibit are currently subject to the pre clearance requirement
described in Section IV below. The Company believes that those persons have, or
are likely to have, regular access to Material Nonpublic Information. Exhibit C
may be amended from time to time. Under special circumstances, certain persons
not listed on Exhibit-C may have access to Material Nonpublic Information for a
period of time. During such period, such persons are also subject to the pre
clearance procedure described in Section IV.
11
<PAGE>
III. Appointment of Compliance Officer.
The Company designates its CFO as the Company's Insider Trading Compliance
Officer.
IV. Duties of Compliance Officer.
The duties of the Compliance Officer include, but are not limited to, the
following:
A. Pre clear all transactions involving the Company's securities by those
individuals listed on Exhibits B and C in order to define compliance with the
Policy, insider trading laws, Section 16 of the Exchange Act and Rule 144
promulgated under the Securities Act of 1933, as amended.
B. Coordinate preparation and filing of Section 16 reports (Forms 3, 4 and 5)
for all Section 16 Individuals.
C. Serve as the designated recipient at the Company of copies of reports filed
with the SEC by Section 16 Individuals under Section 16 of the Exchange Act.
D. Perform periodic cross-checks of available materials which may include Forms
3, 4 and 5, Form 144, officers' and directors' questionnaires, and reports
received from the Company's stock administrator and transfer agent, to determine
trading activity by officers, directors and others who access to Material
Nonpublic Information.
E. Circulate the Policy (and/or a summary thereof) to all employees, including
Section 16 Individuals, on an annual basis, and provide the Policy and other
appropriate materials to new officers, directors and others who have, or may
have, access to Material Nonpublic Information.
F. Assist the Company's Board of Directors with implementation of the Policy and
Sections I and II of this memorandum.
G. Coordinate with Company counsel regarding compliance with Rule 144 sales.
Attachments:
Exhibit "A" - Insider Trading Policy
Exhibit "B" - List of Section 16 insiders
12
<PAGE>
EXHIBIT "A"
SHOPPING SHERLOCK INC.
INSIDER TRADING POLICY and Guidelines with Respect to Certain Transactions in
Company Securities
This Policy provides guidelines to employees, officers and directors of, and
consultants and contractors to, SHOPPING SHERLOCK INC. (the "Company") with
respect to transactions' in the Company's securities.
APPLICABILITY OF POLICY
This policy applies to all transactions in the Company's securities, including
Common Stock, options for Common Stock and any other securities the Company may
issue from time to time, such as preferred stock, warrants and convertible
debentures, as well as to derivative securities relating to the Company's stock,
whether or not issued by the Company, such as exchange-traded options. It
applies to all officers of the Company, all members of the Company's Board of
Directors, and all employees of, and consultants and contractors to, the Company
and its subsidiaries. This group of people when in receipt of or having access
to Material Nonpublic Information (as defined below) regarding the Company,
along with members of their immediate families and members of their households,
are sometimes referred to in this Policy as "Insiders". This Policy also applies
to any person who receives Material Nonpublic Information from any insider.
Any person who possesses Material Nonpublic Information regarding the Company is
an Insider for so long as the information is not publicly known. Any employee
can be an Insider from time to time, and would at those times be subject to this
Policy.
GENERAL POLICY
It is the policy of the Company to oppose the unauthorized disclosure of any
Material Nonpublic Information regarding the Company acquired in the workplace
or otherwise and the misuse of Material Nonpublic Information in securities
trading.
SPECIFIC POLICIES
1. Trading on Material Nonpublic Information. No director, officer or employee
of, or consultant or contractor to, the Company, and no member of the immediate
family or household of any such person, shall engage in any transaction
involving a purchase or sale of the Company's securities, including any offer to
purchase or offer to sell, during any period commencing with the date that he or
she possesses Material Nonpublic Information concerning the Company, and ending
at the close of business on the second Trading Day following the date of public
disclosure of that information, or at such time as such nonpublic information is
no longer material. As used herein, the term "Trading Day" shall mean a day on
which national stock exchanges and the NASDAQ Stock Market are open for trading.
2. Tipping. No Insider shall disclose ("tip") Material Nonpublic Information to
any other person (including family members) where such information may be used
by such person to his or her profit by
13
<PAGE>
trading in the securities of companies to which such information relates, nor
shall such Insider or related person make recommendations or express opinions on
the basis of Materials Nonpublic Information as to trading in the Company's
securities.
3. Confidential of Nonpublic Information. Nonpublic information relating to the
Company is the property of the Company and the unauthorized disclosure of such
information is forbidden.
POTENTIAL CRIMINAL AND CIVIL LIABILITY AND/OR DISCIPLINARY ACTION
1. Liability for Insider Trading. Insiders may be subject to disgorgement of
profits (or losses avoided) (trebled in some cases), penalties of up to
$1,000,000 and up to ten years in jail for engaging in transactions in the
Company's securities at a time when they have knowledge of Material Nonpublic
Information regarding the Company.
2. Liability for Tipping. Insiders may also be liable for improper transactions
by any person (commonly referred to as a "tippee") to whom they have disclosed
nonpublic information regarding the Company or to whom they have made
recommended or expressed opinions on the basis of such information as to trading
in the Company's securities. The Securities and Exchange Commission (the "SEC")
has imposed large penalties even when the disclosing person did not profit from
the trading. The SEC, the stock exchanges and the National Association of
Securities Dealers, Inc. use sophisticated electronic surveillance techniques to
uncover insider trading.
3. Possible Disciplinary Actions. Employees of the Company who violate this
policy shall also be subject to disciplinary action by the Company, which my
include ineligibility for future participation in the Company's equity incentive
plan or immediate termination of employment.
GUIDELINES
1. Recommended Trading Window- To ensure compliance with this Policy and
applicable federal and state securities laws, the Company requires that all
directors, officers, employees, consultants and contractors having access to the
Company's internal financial statements or other Material Nonpublic Information
refrain from conducting transactions involving the purchase or sale of the
Company's securities other than during the following period (the "Trading
Window"):
Trading Window: The period in any fiscal quarter commencing at the close of
business two full Trading Days following the date of public disclosure of the
financial results for the prior fine quarter or year and ending on the last day
of the second fiscal month of the fiscal quarter.
The safest period for trading in the Company's securities, assuming the absence
of Material Nonpublic Information, is generally the first ten days of the
Trading Window. Periods other than the Trading Window are more highly sensitive
for transactions in the Company's stock from the perspective of compliance with
applicable securities laws. This is due to the fact that officers, directors and
certain other employees will, as any quarter progresses, be increasingly likely
to possess Material Nonpublic Information about the expected financial results
for the quarter.
The purpose behind the recommended Trading Window is to help establish a
diligent effort to avoid any improper transaction. An Insider may choose not to
follow this suggestion, but he or she should be
14
<PAGE>
particularly careful with respect to trading outside the Trading Window, since
the Insider may, at such time, have access to (or later be deemed to have had
access to) Material Nonpublic Information regarding, among other things, the
Company's anticipated financial performance for the quarter.
It should be noted that even during the Trading Window any person possessing
Material Nonpublic Information concerning the Company should not engage in any
transactions in the Company's securities until such information has been known
publicly for at least two Trading Days. Although the Company may from time to
time recommend during a Trading Window that directors, officers, selected
employees and others suspend trading because of developments known to the
Company and not yet disclosed to the public,
each person is individually responsible at all times for compliance with the
prohibitions against insider trading. Trading in the Company's securities during
the Trading Window should not be considered a "safe harbor," and all directors,
officers and other persons should use good judgment at all times.
2. Pre clearance of Trades. The Company has determined that all officers and
directors of the Company should refrain from trading in the Company's
securities, even during the Trading Window, without first complying with the
Company's "Pre clearance" process. Each officer and director should contact the
Company's Insider Trading Compliance officer prior to commencing any trade in
the Company's securities.
The Company may also find it necessary, from time to time, to require compliance
with the pre clearance process from certain employees, consultants and
contractors other than and in addition to officers and directors.
3. No Short Sales or Options Trading. The Company requires that all officers,
directors, employees, consultants and contractors refrain from engaging in any
short sale of the Company's securities or any purchase or sale of put or call
options involving the Company's securities.
4. Trading in Stock of Customers and Suppliers. The Company requires that all
officers, directors, employees, consultants and contractors refrain from trading
in the securities of customers, suppliers or other third party entities with
whom the Company has a business relationship at a time that such person is in
possession of material non public information concerning the issuer of such
securities obtained through the Company's relationship with such other entity.
5. Individual Responsibility. Every officer, director and employee has the
individual responsibility to comply with this Policy against insider trading,
regardless of whether the Company has recommended a trading window to that
Insider or any other Insiders of the Company. The guidelines set forth in this
Policy are guidelines only, and appropriate judgment should be exercised in
connection with any trade in the Company's securities.
An Insider may, from time to time, have to forego, a proposed transaction in the
Company's securities even if he or she planned to make the transaction before
learning of the Material Nonpublic Information and even though the Insider
believes he or she may suffer an economic loss or forego anticipated profit by
waiting.
15
<PAGE>
APPLICABILITY OF POLICY TO INSIDE INFORMATION
REGARDING OTHER COMPANIES
This policy and the guidelines described herein also apply to Material Nonpublic
Information relating to other companies, including the Company's customers,
vendors, suppliers or acquisition candidates ("business partners"), when that
information is obtained in the course of employment with, or other services
performed on behalf of, the Company. Civil and penalties, and termination of
employment, may result from trading on inside information regarding the
Company's business partners.
All employees should treat Material Nonpublic information about the company's
business partners with the same care required with respect to information
related directly to the Company.
DEFINITION OF MATERIAL N0N PUBLIC INFORMATION
It is not possible to define all categories of material information. However,
information should be regarded as material if there is a reasonable likelihood
that it would be considered important to an investor in making an investment
decision regarding the purchase or sale of the Company's securities.
While it may be difficult under this standard to determine whether particular
information is material there are various categories of information that are
particularly sensitive and, as a general rule, should always be considered
material. Examples of such information may include:
Financial results
Projections of future earnings or losses
News of a pending or proposed merger
News of a pending or proposed significant acquisition
News of the disposition of a subsidiary
Impending bankruptcy or financial liquidity problems
Gain or loss of a substantial customer or supplier
Changes in dividend policy
New product announcements of a significant nature
Significant product defects or modifications Significant pricing changes
Stock splits
New equity or debt offerings
Major acquisitions
Significant litigation exposure due to actual or threatened litigation
Major changes in senior management
Either positive or negative information may be material.
Non public information is information that has not been previously disclosed to
the general public and is otherwise not readily available to the general public.
CERTAIN EXPECTATIONS
For purposes of this Policy, the Company considers that the exercise of a stock
option for cash under the Company's stock option plans or the purchase of shares
under the Company's employee stock purchase
16
<PAGE>
plan (but not the sale of any such shares) is exempt from this Policy, since the
other party to the transaction is the Company itself and the price does not vary
with the market but is fixed by the terms of the option agreement or the plan.
Further, the Company does not believe that employees, officers or directors
should ordinarily be prohibited from making bonafide gifts and charitable
donations outside the Trading Window in situations where there is no unusual
activity or other reason to believe that a transaction would be particularly
risky.
ADDITIONAL INFORMATION - DIRECTORS AND OFFICERS
Directors and officers of the Company must also comply with the reporting
obligations and limitations on short-swing transactions set forth in Section 16
of the Securities Exchange Act of 1934, as amended. The practical effect of
these provisions is that officers and directors who purchase and sell the
Company's securities within a six-month period must disgorge all profits to the
Company whether or not they bad knowledge of any Material Nonpublic Information.
Under these provisions, and so long as certain other criteria are met, neither
the receipt of an option trader the Company's option plan, nor the exercise of
that option nor the receipt of stock under the Company's employee stock purchase
plan is deemed a purchase under Section 16; however, the sale of any such shares
is a sale under Section 16.
Moreover, no officer or director may ever make a short sale of the Company's
stock. The Company has provided, or will provide, separate memoranda and other
appropriate materials to its officers and directors regarding compliance with
Section 16 and its related rules.
INQUIRIES
Please direct your questions as to any of the matters discussed in this Policy
to the Company's Insider Trading Compliance officer.
17
<PAGE>
EXHIBIT "B"
DIRECTORS, OFFICERS AND SHAREHOLDERS SUBJECT TO SECTION 16
As of June 22, 1999
Directors:
Richard Stewart
Jasbir Dhaliwal
Philip Garratt
Raeanne Steele
Mitchell Eggers
Officers:
TITLE NAME
----- ----
1. President and Chief Executive Officer Philip Garratt
2. Chief Financial Officer/Secretary Patrick McGrath
3. Chief Technology Officer Jan Walter
4. Chief Operating Officer Mitchell Eggers
5. Executive Vice President of Sales and Marketing Raeanne Steele
Shareholders:
Premier Lifestyles International Corporation (PLIC)
18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 24th day of June, 1999 (this
"Agreement"), between Shopping Sherlock, Inc. a Delaware corporation
("Employer"), and Patrick McGrath ("Employee").
RECITALS
A. Employer desires to hire Employee and Employee wishes to be employed by
Employer. In such employment, Employee will be given access to information,
which is confidential and proprietary to Employer and its Affiliates and vital
to their business operations. For the purposes of the Agreement, the term
"Affiliate" means any entity currently existing or subsequently organized or
formed that directly or indirectly controls, is controlled by or is under common
control with Employer, whether through the ownership of voting securities, by
contract or otherwise.
B. Employee will receive adequate consideration for executing and delivering
this Agreement, including employment by Employer. Entry into this Agreement is a
condition of Employee's employment with Employer.
AGREEMENT
Based upon the consideration of the mutual covenants herein contained, and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, and in order to induce the Employer to employ Employee, the
parties hereto agree as follows:
1. Employment. Employer hereby agrees to employ Employee, and Employee agrees to
be employed by Employer in the capacity identified in Exhibit A. Employee will
report to the person identified at Exhibit A. Employee's basic responsibilities
are set forth in Exhibit A, although Employee may be required to perform other
responsibilities in addition to those identified at Exhibit A. Employee's base
of operations shall be the Employer's offices identified at Exhibit A. Changes
may be made from time to time by Employer, in its sole discretion, to the
duties, reporting relationship and title of Employee. Employee shall devote all
of Employee's work efforts to Employer. Employee shall comply with all rules,
policies and procedures of Employer as modified from time to time. Employee
shall perform all of Employee's responsibilities in a way that is in complete
compliance with all applicable laws.
2. Term of Employment. The employment is "at will," and the term of employment
shall be for no specific period of time and may be terminated by the Employer or
Employee at any time for any reason, with or without cause, in accordance with
the terms and conditions herein.
3. Compensation. For the duration of Employee's employment, the Employee shall
be paid an annual base salary ("Base Salary"), as identified in Exhibit A. Base
Salary shall be prorated for the actual period of employment and payable in
equal installments in accordance with Employer's normal payroll practices, and
shall be subject to appropriate deductions and withholding.
1
<PAGE>
4. Other Benefits. Employee shall be entitled to participate in employee benefit
programs established by Employer, such as medical, pension, disability and life
insurance plans, to the extent that Employee is eligible for such benefits in
accordance with Employer's policies, as they may be changed from time to time.
Nothing in this Agreement requires the adoption or maintenance of any such
arrangements or plans. For the duration of Employee's employment under this
Agreement, Employee shall accrue and utilize sick leave and vacation in
accordance with the policies and procedures of Employer, as they may be modified
from time to time. Employer shall reimburse Employee for reasonable expenses
necessarily incurred in the performance of Employee's duties in accordance with
Employer policies. All expenses in excess of the amount identified at Exhibit A
must be approved in advance by Employee's supervisor.
5. Termination or Discharge by Employer.
5.1.1 For Cause. Employer shall have the right to immediately terminate
Employee's services and this Agreement for cause. "Cause" means: any material
breach of this Agreement by Employee, including, without limitation, breach of
Employee's covenants in Sections 7, 8, 9 and 10; any failure to perform assigned
job responsibilities that continues without remedy for a period of thirty (30)
days after written notice to Employee by Employer; conviction of a felony (or
its legal equivalent in any jurisdiction) or failure to contest prosecution for
a felony (or its legal equivalent in any jurisdiction); violation of any
statute, rule or regulation, any of which in the judgment of Employer is harmful
to Employer's Business (as defined herein) or to Employer's reputation;
unethical practices; dishonesty; disloyalty; or any reason that would constitute
cause under the laws of the State of Washington or any other jurisdiction in
which the Employee performs services hereunder.
5.1.2 Upon termination of Employee's employment hereunder for cause or upon the
death or disability of Employee, Employee will have no rights to any unvested
benefits or any other compensation or payments after the termination date or the
last day of the month in which Employee's death or disability occurred. For
purposes of this Agreement, "disability" means the incapacity or inability of
Employee, whether due to accident, sickness or otherwise, as determined by a
medical doctor acceptable to the Board of Directors of Employer and confirmed in
writing by such doctor, to perform the essential functions of Employee's
position under this Agreement, with or without reasonable accommodation
(provided that no accommodation that imposes undue hardship on Employer will be
required) for an aggregate of ninety (90) days during any period of one hundred
eighty (180) consecutive days.
5.2 Without Cause. If Employer terminates Employee's employment without cause,
Employer shall provide Employee with the amount of advance notice set forth as
minimum notice in Exhibit A ("Minimum Notice"). Alternatively, and in the sole
discretion of Employer, Employer may terminate Employee's employment without
notice or with notice less than the Minimum Notice, but in such a situation,
Employer shall pay Employee the amount of Base Salary Employee would have earned
had Employee remained employed through the Minimum Notice period (based on the
Base Salary rate on the termination date), less the amount of Base Salary
actually earned during the Minimum Notice period. Such payments shall be sent to
Employee in amounts allocated per pay period by mail on Employer's usual and
customary paydays and shall be less required withholdings and deductions.
Employee shall have no rights to any unvested benefits at the time of
termination or any other payments except as stated in this paragraph.
2
<PAGE>
6. Termination by Employee. Employee may terminate Employee's employment under
this Agreement for any reason provided that Employee gives Employer the amount
of notice set forth as Minimum Notice in Exhibit A. In the event of such Notice,
Employee's compensation and benefits hereunder shall cease as of the date of
Employee's designated termination date, except that Employer may accelerate the
termination date to any date determined by Employer after which Employee's
services would not be required. In the event of termination by Employee, there
shall be no further compensation beyond the termination date.
7. Covenant Not To Compete. During the Restricted Period defined in Exhibit A,
Employee covenants and agrees that Employee shall not:
a. Directly, indirectly, or otherwise, own, manage, operate, control, serve
as a consultant to, be employed by, participate in, or be connected, in any
manner, with the ownership management, operation or control of any business
which is competitive with any type of business which Employer is engaged in
or planned to engage in at any time during Employee's employment with
Employer up to and including the time of the termination of employment
("Employer's Business");
b. Hire, offer to hire, entice away or in any other manner persuade or
attempt to persuade any officer, employee or agent of Employer to alter or
discontinue his or her relationship with Employer;
c. Directly or indirectly solicit, divert, or attempt to solicit or divert
any customers or business of Employer; or
d. Directly or indirectly solicit, divert, or in any other manner persuade
or attempt to persuade any supplier or Employee to alter or discontinue its
relationship with Employer.
7.1 For the purposes of this Section 7, Employer's Business includes, without
limitation, the development and operation of multiple commerce sites on the
Internet for the sale of products, services, and privileges over the Internet,
participating and building a reciprocal rebate program, providing e-commerce
services to direct and multi-level marketing companies as well as discount
warehouse companies, and inventing or adapting any e-commerce systems necessary
to the operation of such sites. Notwithstanding Employee's obligations under
this Section 7, Employee shall be entitled to own, as a passive investor, up to
five percent (5%) of any publicly-traded company without violating this
provision.
7.2 Employer and Employee agree that this provision does not impose an undue
hardship on Employee and is not injurious to the public; that this provision is
necessary to protect the valuable goodwill and the business of Employer; that
the nature of Employee's responsibilities with Employer under this Agreement
require Employee to have access to confidential information which is valuable
and confidential to Employer's Business; that the scope of this Section 7 is
reasonable in terms of length of time; and that adequate consideration supports
this Section 7.
7.3 Employee recognizes that Employer has entered into strategic alliance
agreements with partners, vendors and clients that include various
non-competition, nondisclosure, and non-circumvention requirements and employee
agrees to uphold and abide by these agreements.
3
<PAGE>
8. Confidential Information. Employee recognizes that Employer's Business and
continued success depend upon the use and protection of confidential and
proprietary business information, including, without limitation, the information
and technology developed by or available through licenses to Employer related to
Employer's Business, to which Employee has access (all such information being
"Confidential Information"). For purposes of this Agreement, the phrase
"Confidential Information" includes for Employer and its current or future
subsidiaries and affiliates, without limitation, and whether or not specifically
designated as confidential or proprietary: all business plans and marketing
strategies; information concerning existing and prospective markets and
customers; financial information; information concerning the development of new
products and services; and technical and non-technical data related to software
programs, designs, specifications, compilations, inventions, improvements,
methods, processes, procedures and techniques; provided, however, that the
phrase does not include information that;
(a) was lawfully in Employee's possession prior to disclosure of such
information by Employer;
(b) was, or at any time becomes, available in the public domain other than
through a violation of this Agreement;
(c) is documented by Employee as having been developed by Employee outside
the scope of Employee's employment and independently; or
(d) is furnished to Employee by a third party not under an obligation of
confidentiality to Employer. Employee agrees that during Employee's
employment and after termination of employment irrespective of cause,
Employee will use Confidential Information only for the benefit of Employer
and will not directly or indirectly use or divulge, or permit others to use
or divulge, any Confidential Information for any reason, except as
authorized by Employer.
(e) Employee's obligation under this Agreement is in addition to any
obligations Employee has under state, provincial or federal law.
8.1 Employee agrees to deliver to Employer immediately upon termination of
Employee's employment, or at any time Employer so requests, all tangible items
containing any Confidential Information (including, without limitation, all
memoranda, photographs, records, reports, manuals, drawings, blueprints,
prototypes, notes taken by or provided to Employee, and any other documents or
items of a confidential belonging to Employer), together with all copies of such
material in Employee's possession or control.
8.2 Employee agrees that in the course of Employee's employment with Employer,
Employee will not violate in any way the rights that any entity has with regard
to trade secrets or proprietary or confidential information. Employee's
obligations under this Section 8 are indefinite in term and shall survive the
termination of this Agreement.
9. Work Product and Copyrights. Employee agrees that all right, title and
interest in and to all products, materials and documents resulting from the
performance of Employee's duties at Employer and all copies thereof, including
works in progress, in whatever media, (the "Work"), will be and remain in
Employer upon their creation. Employee will mark all Work with Employer's
copyright or other proprietary notice as directed by Employer. Employee further
agrees:
9.1 To the extent that any portion of the Work constitutes a work able to be
protected under the copyright laws of the United States (the "Copyright Law"),
that all such Work will be considered a "work made for hire" as such term is
used and defined in the Copyright Law and that Employer will be
4
<PAGE>
considered the "author" of such portion of the Work and the sole and exclusive
owner throughout the world of copyright therein; and
9.2 If any portion of the Work does not qualify as a "work made for hire" as
such term is used and defined in the Copyright Law, that Employee hereby assigns
and agrees to assign to Employer, without further consideration, all right,
title and interest in and to such Work or in any such portion thereof including
without limitation any copyright, trade secret, trademark, trade dress, service
mark or other proprietary interest therein and further agrees to execute and
deliver to Employer, upon request, appropriate assignments of such Work and
copyright and other rights therein and such other documents and instruments as
Employer may request to fully and completely assign such Work and copyright and
other rights therein to Employer, its successors or nominees, and that Employee
hereby appoints Employer as attorney-in-fact to execute and deliver any such
documents on Employee's behalf in the event Employee should fail or refuse to do
so within a reasonable period following Employer's request.
10. Inventions and Patents. For purposes of this Agreement, "Inventions"
includes, without limitation, information, inventions, contributions,
improvements, ideas, or discoveries, whether they are able to be patented or
not, and whether or not conceived or made during work hours. Employee agrees
that all Inventions conceived or made by Employee during the period of
employment with Employer belong to Employer, provided they relate directly to
the business of the Employer, or relate to the employer's actual or demonstrably
anticipated research and development, or result from work performed by Employer.
Accordingly, Employee will:
10.1 Make adequate written records of such Inventions, which records will be
Employer's property; and
10.2 Assign to Employer, at its request, any rights Employee may have to such
Inventions for the U.S. and all foreign countries;
10.3 Waive and agree not to assert any moral rights Employee may have or acquire
in any Inventions and agree to provide written waivers from time to time as
requested by Employer; and assist Employer (at Employer's expense) in obtaining
and maintaining patents or copyright registrations with respect to such
Inventions.
10.4 Employee understands and agrees that Employer or its designee will
determine, in its sole and absolute discretion, whether an application for
patent will be filed on any Invention that is the exclusive property of
Employer, as set forth above, and whether such an application will be abandoned
prior to issuance of a patent. Employer will pay to Employee, either during or
after the term of this Agreement, the following amounts if Employee is sole
inventor, or Employee's proportionate share if Employee is joint inventor: $750
upon filing of the initial application for patent on such Invention; and $1,500
upon issuance of a patent resulting from such initial patent application,
provided Employee is named as an inventor in the patent.
10.5 Employee further agrees that Employee will promptly disclose in writing to
Employer during the term of Employee's employment and for one (1) year
thereafter, all Inventions whether developed during the time of such employment
or thereafter (whether or not Employer has rights in such Inventions) so that
Employee's rights and Employer's rights in such Inventions can be determined.
Except as set forth on the initialed Exhibit B to this Agreement, if any,
Employee represents and warrants that Employee has no Inventions, software,
writings or other works of authorship useful to Employer in the normal course
5
<PAGE>
of Employer's Business, which were conceived, made or written prior to the date
of this Agreement and which are excluded from the operation of this Agreement.
NOTICE: In accordance with Washington law, this Section 10 does not apply
to Inventions for which no equipment, supplies, facility, or trade secret
information of Employer was used and which was developed entirely on
Employee's own time, unless: (a) the Invention relates (i) directly to the
business of Employer or (ii) to Employer's actual or demonstrably
anticipated research or development, or (b) the Invention results from any
work performed by Employee for Employer.
11. Remedies. Notwithstanding other provisions of this Agreement regarding
dispute resolution, Employee agrees that Employee's violation of any of Sections
7, 8, 9 or 10 of this Agreement would cause Employer or its Affiliates
irreparable harm which would not be adequately compensated by monetary damages,
and that an injunction may be granted by any court or courts having
jurisdiction, restraining Employee from violation of the terms of this
Agreement, upon any breach or threatened breach of Employee of obligations set
forth in any of Sections 7, 8, 9 or 10. The preceding sentence shall not be
construed to limit Employer or its Affiliates from any other relief or damages
to which it may be entitled to as a result of Employee's violation of any
obligation owed Employer under law or provision of this Agreement, including any
of Sections 7, 8, 9 or 10.
12. Dispute Resolution. Except with regard to the right of Employer or Employee
to commence any judicial action or proceeding to obtain injunctive relief, and
to the greatest extent permitted by law, any controversy, claim or dispute of
whatever nature arising out of or relating to this Agreement, whether such
controversy, claim or dispute is based upon statute, contract, tort, common law
or otherwise, and whether such controversy, claim or dispute existed prior to or
arises after the date of this Agreement (any such controversy, claim or dispute
being a "Dispute"), shall be resolved in accordance with the procedures set
forth in this Section 12, which procedures will be the sole and exclusive
procedures for the resolution of any Disputes. Matters to be resolved under
these procedures also include claims and disputes arising out of statutes such
as Title VII of the Civil Rights Act, the Age Discrimination in Employment Act,
and the Washington Law against Discrimination or similar statues in
jurisdictions in which the Employee performs services under this agreement.
Nothing in this provision is intended to restrict Employee from submitting any
matter to an administrative agency with jurisdiction over such matter.
12.1 Compliance with Employer Policy. Employee and Employer will make a good
faith attempt to resolve all disputes in accordance with any dispute resolution
policy adopted by Employer before resorting to any other dispute resolution
procedure.
12.2 Mediation. Employer and Employee will make a good faith attempt to resolve
any and all claims and disputes not resolved in accordance with Section 12.1 by
submitting them to mediation in Seattle, Washington before resorting to
arbitration or any other dispute resolution procedure. The mediation of any
claim or dispute must be conducted in accordance with the then-current American
Arbitration Association ("AAA") national rules for the resolution of employment
disputes by mediation, by a mediator who has had both training and experience as
a mediator of general employment and commercial matters. If the parties to this
agreement cannot agree on a mediator, then the mediator will be selected by the
AAA in accordance with the criteria described in this provision. Within thirty
(30) days after the selection of the mediator, Employer and Employee and their
respective attorneys will meet with the mediator for one mediation session of at
least four hours. If the claim or dispute cannot be
6
<PAGE>
settled during such mediation session or mutually agreed continuation of the
session, either Employer or Employee may give the mediator and the other party
to the claim or dispute written notice declaring the end of the mediation
process. All discussions connected with this mediation provision will be
confidential and treated as compromise and settlement discussions. Nothing
disclosed in such discussions, which is not independently discoverable, may be
used for any purpose in any later proceeding.
12.3 Arbitration. If any claim or dispute has not been resolved in accordance
with Section 12.1 and Section 12.2, then the claim or dispute will be determined
by arbitration in Seattle, Washington, in accordance with the then-current AAA
national rules for the resolution of employment disputes by arbitration, except
as modified herein. The arbitration will be conducted by a sole neutral
arbitrator who has had both training and experience as an arbitrator of general
employment and commercial matters and who is and for at least ten (10) years has
been, a partner, a shareholder, or a member in a law firm. If Employer and
Employee cannot agree on an arbitrator, then the arbitrator will be selected by
the AAA applying the criteria in this provision. No person who has served as a
mediator under the mediation provision, however, may be selected as the
arbitrator for the same claim or dispute. Reasonable discovery will be permitted
and the arbitrator may decide any issue as to discovery. The arbitrator may
decide any issue as to whether or as to the extent to which, any dispute is
subject to the dispute resolution provisions in Section 12 and the arbitrator
may award any relief permitted by law. The arbitrator must base the arbitration
award on the provisions of Section 12 and applicable law and must render the
award in writing, including an explanation of the reasons for the award. Any
court having jurisdiction of the matter may enter judgment upon the award, and
the decision of the arbitrator will be final and binding. The statute of
limitations applicable to the commencement of a lawsuit will apply to the
commencement of arbitration under Section 12.3.
12.4 Reasonable attorneys' fees incurred in any Dispute relating to the
interpretation or enforcement of this Agreement shall be paid by the
non-prevailing party to such Dispute.
13. Insider Trading Compliance. Employee agrees to abide by the employer's
insider trading compliance program as set forth in Exhibit C.
14. Disclosure. Employee agrees to reveal the terms of this Agreement to any
future employer or potential employer of Employee and authorizes Employer, at
its election, to make such disclosure.
15. Representation of Employee. Employee represents and warrants to Employer
that Employee is free to enter into this Agreement and has no commitment,
arrangement or understanding to or with any party which restrains or is in
conflict with Employee's performance of the covenants, services and duties
provided for in this Agreement. Employee shall not violate any obligation owed
to any other party, including former employees, and shall not violate any rights
that any third party has with regard to proprietary information or trade
secrets. Employee agrees to indemnify Employer and to hold it harmless against
any and all liabilities or claims arising out of breach of this representation
and warranty.
16. Assignability. During Employee's employment hereunder, this Agreement may
not be assigned by either party without the written consent of the other;
provided, however, that Employer may assign its rights and obligations under
this Agreement to a successor by sale, merger or liquidation, if such successor
carries on Employer's business substantially in the form in which it is being
conducted at the time of the sale, merger or liquidation.
7
<PAGE>
17. Right of Set-off. By accepting this Agreement, Employee consents to a
deduction from any amounts Employer owes Employee from time to time (including
amounts owed to Employee as wages or other compensation, or vacation pay, as
well as any other amounts owed to Employee by Employer), to the extent of the
amounts Employee owes Employer. Whether or not Employer elects to make any
set-off in whole or in part, if Employer does not recover by means of set-off
the full amount Employee owes it, calculated as set forth above, Employee agrees
to pay immediately the unpaid balance to Employer.
18. Notices. Any notice required or permitted to be given hereunder shall be
sufficient if in writing, by registered or certified mail, to Employee at the
address set forth at Exhibit A, or to the President of Employer at Shopping
Sherlock, Inc., 11201 S.E. 8th Street, Suite 152, Bellevue, WA, 98004. Notice
shall be deemed to have been given on the third day after deposit into the mail.
Notices to the Employee, may, at the discretion of Employer, alternatively be
hand delivered to Employee.
19. Severability. In the event that any provision of this Agreement or
compliance by any of the parties with any provision of this Agreement shall
constitute a violation of any law, unenforceable or void, then such provision,
to the extent only that it is in violation of law, void or unenforceable, shall
be deemed modified to the extent necessary so that it is no longer
unenforceable, void or in violation of law. If such modification is not
possible, said provision, to the extent that it is in violation of law, void or
unenforceable, shall be deemed severable from the remaining provisions of this
Agreement, which provisions shall remain binding on the parties.
20. Entire Agreement. This instrument contains the entire agreement of the
parties, and it may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought, and any such modification will be signed by the President
of Employer.
21. Governing Law. The validity, construction and performance of this Agreement
shall be governed by the laws of the State of Washington without regard to the
conflicts of law provisions of such laws.
22. Other. The waiver by Employer of a breach of any provision of this Agreement
by Employee shall not operate or be construed as a waiver of any subsequent
breach by Employee. Affiliates of Employer are and shall be third-party
beneficiaries of this Agreement.
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Philip Garratt Patrick McGrath
Its: CEO
Date: June 24, 1999 Date: -----------------
8
<PAGE>
Exhibit A to Employment Agreement
Name of Employee: Patrick McGrath
Position: CFO
Title of position to whom employee reports: President (Philip Garratt)
Basic responsibilities.
Minimum Hours: 40 hours per week.
Base salary: U.S. $3,400 per month
Options: The company plans to grant 80,000 options to individuals
Expense limit without
prior approval: U.S. $1,000
Minimum Notice: One month
Restricted Period: The Restricted Period shall be the period of one year
following the termination of Employee's employment with Employer for any reason.
Place of notice to Employee.
- ----------------------------
- ----------------------------
EMPLOYER EMPLOYEE
- ---------------------------- ----------------------------------
By: Philip Garratt Patrick McGrath
Its: CEO
Date: June 24, 1999 Date: -----------------
9
<PAGE>
Exhibit B to Employment Agreement
Employee represents and warrants that Employee has no Inventions, software,
writings, artistic works, audiovisual works or other works of authorship useful
to Employer in the normal course of Employer's Business, which were conceived,
made or written prior to the date of this Agreement and which are excluded from
the operation of this Agreement.
List exemptions:
Initials of Employee: ------------
10
<PAGE>
Exhibit C to Employment Agreement
INSIDER TRADING COMPLIANCE
SHOPPING SHERLOCK INC.
UPDATED INSIDER TRADING COMPLIANCE - PROGRAM
As at June 22nd 1999
Adopted: June 22, 1999
Exhibits Updated: June 22, 1999
In order to continue its active role in the prevention of any question regarding
insider trading violations by its officers, directors, employees, shareholders
and other related individuals, to alter that role as necessary and appropriate
in light of the Company's increased size and publicly traded status, and to
ensure that its policies continue to be in accordance with the latest
developments in the law, the Company has adopted the policies and procedures
described in this Memorandum Effective as of the date set forth above. These
policies and procedures are regularly updated and posted to the Shopping
Sherlock Intranet under "Legal".
I. Adoption of Insider Trading Policy.
The Company has adopted the Shopping Sherlock Insider Trading Policy attached as
Exhibit A (the "Policy"), which prohibits trading while in possession of
Material Nonpublic Information regarding the Company. The Policy covers
officers, directors, shareholders and all other employees of, or consultants or
contractors to, the Company, as well as family members of such persons, and
other persons who have or may have access to Material Nonpublic Information. The
Policy (and/or a summary thereof is to be delivered to all new employees and
consultants upon the commencement of their relationships with the Company, and
is to be circulated to all personnel at least annually.
II. Designation of Certain Persons.
A. Section 16 Individuals. The Company has determined that those persons listed
on Exhibit B attached hereto are the persons currently subject to the reporting
and liability provisions of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder ("Section 16 Individuals"). Exhibit B will be amended and -updated
from time to time as appropriate to include an updated list of directors and
officers and shareholders who beneficially own more than 10% of the Company's
common stock.
B. Other Restricted Persons. The Company has determined that those persons
listed on Exhibit C attached hereto, together with the Section 16 Individuals
listed on Exhibit are currently subject to the pre clearance requirement
described in Section IV below. The Company believes that those persons have, or
are likely to have, regular access to Material Nonpublic Information. Exhibit C
may be amended from time to time. Under special circumstances, certain persons
not listed on Exhibit-C may have access to Material Nonpublic Information for a
period of time. During such period, such persons are also subject to the pre
clearance procedure described in Section IV.
11
<PAGE>
III. Appointment of Compliance Officer.
The Company designates its CFO as the Company's Insider Trading Compliance
Officer.
IV. Duties of Compliance Officer.
The duties of the Compliance Officer include, but are not limited to, the
following:
A. Pre clear all transactions involving the Company's securities by those
individuals listed on Exhibits B and C in order to define compliance with the
Policy, insider trading laws, Section 16 of the Exchange Act and Rule 144
promulgated under the Securities Act of 1933, as amended.
B. Coordinate preparation and filing of Section 16 reports (Forms 3, 4 and 5)
for all Section 16 Individuals.
C. Serve as the designated recipient at the Company of copies of reports filed
with the SEC by Section 16 Individuals under Section 16 of the Exchange Act.
D. Perform periodic cross-checks of available materials which may include Forms
3, 4 and 5, Form 144, officers' and directors' questionnaires, and reports
received from the Company's stock administrator and transfer agent, to determine
trading activity by officers, directors and others who access to Material
Nonpublic Information.
E. Circulate the Policy (and/or a summary thereof) to all employees, including
Section 16 Individuals, on an annual basis, and provide the Policy and other
appropriate materials to new officers, directors and others who have, or may
have, access to Material Nonpublic Information.
F. Assist the Company's Board of Directors with implementation of the Policy and
Sections I and II of this memorandum.
G. Coordinate with Company counsel regarding compliance with Rule 144 sales.
Attachments:
Exhibit "A" - Insider Trading Policy
Exhibit "B" - List of Section 16 insiders
12
<PAGE>
EXHIBIT "A"
SHOPPING SHERLOCK INC.
INSIDER TRADING POLICY and Guidelines with Respect to Certain Transactions in
Company Securities
This Policy provides guidelines to employees, officers and directors of, and
consultants and contractors to, SHOPPING SHERLOCK INC. (the "Company") with
respect to transactions' in the Company's securities.
APPLICABILITY OF POLICY
This policy applies to all transactions in the Company's securities, including
Common Stock, options for Common Stock and any other securities the Company may
issue from time to time, such as preferred stock, warrants and convertible
debentures, as well as to derivative securities relating to the Company's stock,
whether or not issued by the Company, such as exchange-traded options. It
applies to all officers of the Company, all members of the Company's Board of
Directors, and all employees of, and consultants and contractors to, the Company
and its subsidiaries. This group of people when in receipt of or having access
to Material Nonpublic Information (as defined below) regarding the Company,
along with members of their immediate families and members of their households,
are sometimes referred to in this Policy as "Insiders". This Policy also applies
to any person who receives Material Nonpublic Information from any insider.
Any person who possesses Material Nonpublic Information regarding the Company is
an Insider for so long as the information is not publicly known. Any employee
can be an Insider from time to time, and would at those times be subject to this
Policy.
GENERAL POLICY
It is the policy of the Company to oppose the unauthorized disclosure of any
Material Nonpublic Information regarding the Company acquired in the workplace
or otherwise and the misuse of Material Nonpublic Information in securities
trading.
SPECIFIC POLICIES
1. Trading on Material Nonpublic Information. No director, officer or employee
of, or consultant or contractor to, the Company, and no member of the immediate
family or household of any such person, shall engage in any transaction
involving a purchase or sale of the Company's securities, including any offer to
purchase or offer to sell, during any period commencing with the date that he or
she possesses Material Nonpublic Information concerning the Company, and ending
at the close of business on the second Trading Day following the date of public
disclosure of that information, or at such time as such nonpublic information is
no longer material. As used herein, the term "Trading Day" shall mean a day on
which national stock exchanges and the NASDAQ Stock Market are open for trading.
2. Tipping. No Insider shall disclose ("tip") Material Nonpublic Information to
any other person (including family members) where such information may be used
by such person to his or her profit by
13
<PAGE>
trading in the securities of companies to which such information relates, nor
shall such Insider or related person make recommendations or express opinions on
the basis of Materials Nonpublic Information as to trading in the Company's
securities.
3. Confidential of Nonpublic Information. Nonpublic information relating to the
Company is the property of the Company and the unauthorized disclosure of such
information is forbidden.
POTENTIAL CRIMINAL AND CIVIL LIABILITY AND/OR DISCIPLINARY ACTION
1. Liability for Insider Trading. Insiders may be subject to disgorgement of
profits (or losses avoided) (trebled in some cases), penalties of up to
$1,000,000 and up to ten years in jail for engaging in transactions in the
Company's securities at a time when they have knowledge of Material Nonpublic
Information regarding the Company.
2. Liability for Tipping. Insiders may also be liable for improper transactions
by any person (commonly referred to as a "tippee") to whom they have disclosed
nonpublic information regarding the Company or to whom they have made
recommended or expressed opinions on the basis of such information as to trading
in the Company's securities. The Securities and Exchange Commission (the "SEC")
has imposed large penalties even when the disclosing person did not profit from
the trading. The SEC, the stock exchanges and the National Association of
Securities Dealers, Inc. use sophisticated electronic surveillance techniques to
uncover insider trading.
3. Possible Disciplinary Actions. Employees of the Company who violate this
policy shall also be subject to disciplinary action by the Company, which my
include ineligibility for future participation in the Company's equity incentive
plan or immediate termination of employment.
GUIDELINES
1. Recommended Trading Window- To ensure compliance with this Policy and
applicable federal and state securities laws, the Company requires that all
directors, officers, employees, consultants and contractors having access to the
Company's internal financial statements or other Material Nonpublic Information
refrain from conducting transactions involving the purchase or sale of the
Company's securities other than during the following period (the "Trading
Window"):
Trading Window: The period in any fiscal quarter commencing at the close of
business two full Trading Days following the date of public disclosure of the
financial results for the prior fine quarter or year and ending on the last day
of the second fiscal month of the fiscal quarter.
The safest period for trading in the Company's securities, assuming the absence
of Material Nonpublic Information, is generally the first ten days of the
Trading Window. Periods other than the Trading Window are more highly sensitive
for transactions in the Company's stock from the perspective of compliance with
applicable securities laws. This is due to the fact that officers, directors and
certain other employees will, as any quarter progresses, be increasingly likely
to possess Material Nonpublic Information about the expected financial results
for the quarter.
The purpose behind the recommended Trading Window is to help establish a
diligent effort to avoid any improper transaction. An Insider may choose not to
follow this suggestion, but he or she should be
14
<PAGE>
particularly careful with respect to trading outside the Trading Window, since
the Insider may, at such time, have access to (or later be deemed to have had
access to) Material Nonpublic Information regarding, among other things, the
Company's anticipated financial performance for the quarter.
It should be noted that even during the Trading Window any person possessing
Material Nonpublic Information concerning the Company should not engage in any
transactions in the Company's securities until such information has been known
publicly for at least two Trading Days. Although the Company may from time to
time recommend during a Trading Window that directors, officers, selected
employees and others suspend trading because of developments known to the
Company and not yet disclosed to the public,
each person is individually responsible at all times for compliance with the
prohibitions against insider trading. Trading in the Company's securities during
the Trading Window should not be considered a "safe harbor," and all directors,
officers and other persons should use good judgment at all times.
2. Pre clearance of Trades. The Company has determined that all officers and
directors of the Company should refrain from trading in the Company's
securities, even during the Trading Window, without first complying with the
Company's "Pre clearance" process. Each officer and director should contact the
Company's Insider Trading Compliance officer prior to commencing any trade in
the Company's securities.
The Company may also find it necessary, from time to time, to require compliance
with the pre clearance process from certain employees, consultants and
contractors other than and in addition to officers and directors.
3. No Short Sales or Options Trading. The Company requires that all officers,
directors, employees, consultants and contractors refrain from engaging in any
short sale of the Company's securities or any purchase or sale of put or call
options involving the Company's securities.
4. Trading in Stock of Customers and Suppliers. The Company requires that all
officers, directors, employees, consultants and contractors refrain from trading
in the securities of customers, suppliers or other third party entities with
whom the Company has a business relationship at a time that such person is in
possession of material non public information concerning the issuer of such
securities obtained through the Company's relationship with such other entity.
5. Individual Responsibility. Every officer, director and employee has the
individual responsibility to comply with this Policy against insider trading,
regardless of whether the Company has recommended a trading window to that
Insider or any other Insiders of the Company. The guidelines set forth in this
Policy are guidelines only, and appropriate judgment should be exercised in
connection with any trade in the Company's securities.
An Insider may, from time to time, have to forego, a proposed transaction in the
Company's securities even if he or she planned to make the transaction before
learning of the Material Nonpublic Information and even though the Insider
believes he or she may suffer an economic loss or forego anticipated profit by
waiting.
15
<PAGE>
APPLICABILITY OF POLICY TO INSIDE INFORMATION
REGARDING OTHER COMPANIES
This policy and the guidelines described herein also apply to Material Nonpublic
Information relating to other companies, including the Company's customers,
vendors, suppliers or acquisition candidates ("business partners"), when that
information is obtained in the course of employment with, or other services
performed on behalf of, the Company. Civil and penalties, and termination of
employment, may result from trading on inside information regarding the
Company's business partners.
All employees should treat Material Nonpublic information about the company's
business partners with the same care required with respect to information
related directly to the Company.
DEFINITION OF MATERIAL N0N PUBLIC INFORMATION
It is not possible to define all categories of material information. However,
information should be regarded as material if there is a reasonable likelihood
that it would be considered important to an investor in making an investment
decision regarding the purchase or sale of the Company's securities.
While it may be difficult under this standard to determine whether particular
information is material there are various categories of information that are
particularly sensitive and, as a general rule, should always be considered
material. Examples of such information may include:
Financial results
Projections of future earnings or losses
News of a pending or proposed merger
News of a pending or proposed significant acquisition
News of the disposition of a subsidiary
Impending bankruptcy or financial liquidity problems
Gain or loss of a substantial customer or supplier
Changes in dividend policy
New product announcements of a significant nature
Significant product defects or modifications Significant pricing changes
Stock splits
New equity or debt offerings
Major acquisitions
Significant litigation exposure due to actual or threatened litigation
Major changes in senior management
Either positive or negative information may be material.
Non public information is information that has not been previously disclosed to
the general public and is otherwise not readily available to the general public.
CERTAIN EXPECTATIONS
For purposes of this Policy, the Company considers that the exercise of a stock
option for cash under the Company's stock option plans or the purchase of shares
under the Company's employee stock purchase
16
<PAGE>
plan (but not the sale of any such shares) is exempt from this Policy, since the
other party to the transaction is the Company itself and the price does not vary
with the market but is fixed by the terms of the option agreement or the plan.
Further, the Company does not believe that employees, officers or directors
should ordinarily be prohibited from making bonafide gifts and charitable
donations outside the Trading Window in situations where there is no unusual
activity or other reason to believe that a transaction would be particularly
risky.
ADDITIONAL INFORMATION - DIRECTORS AND OFFICERS
Directors and officers of the Company must also comply with the reporting
obligations and limitations on short-swing transactions set forth in Section 16
of the Securities Exchange Act of 1934, as amended. The practical effect of
these provisions is that officers and directors who purchase and sell the
Company's securities within a six-month period must disgorge all profits to the
Company whether or not they bad knowledge of any Material Nonpublic Information.
Under these provisions, and so long as certain other criteria are met, neither
the receipt of an option trader the Company's option plan, nor the exercise of
that option nor the receipt of stock under the Company's employee stock purchase
plan is deemed a purchase under Section 16; however, the sale of any such shares
is a sale under Section 16.
Moreover, no officer or director may ever make a short sale of the Company's
stock. The Company has provided, or will provide, separate memoranda and other
appropriate materials to its officers and directors regarding compliance with
Section 16 and its related rules.
INQUIRIES
Please direct your questions as to any of the matters discussed in this Policy
to the Company's Insider Trading Compliance officer.
17
<PAGE>
EXHIBIT "B"
DIRECTORS, OFFICERS AND SHAREHOLDERS SUBJECT TO SECTION 16
As of June 22, 1999
Directors:
Richard Stewart
Jasbir Dhaliwal
Philip Garratt
Raeanne Steele
Mitchell Eggers
Officers:
TITLE NAME
----- ----
1. President and Chief Executive Officer Philip Garratt
2. Chief Financial Officer/Secretary Patrick McGrath
3. Chief Technology Officer Jan Walter
4. Chief Operating Officer Mitchell Eggers
5. Executive Vice President of Sales and Marketing Raeanne Steele
Shareholders:
Premier Lifestyles International Corporation (PLIC)
18
Exhibit 10.12
SUBLEASE
1. PARTIES
This Sublease is entered into as of the 21st day of May, 1999 by and between
Global Mobility Systems, Inc., a Nevada corporation, as Sublessor, and Shopping
Sherlock, Inc., a Delaware corporation, as Sublessee, under that certain
Bellefield Office Park Lease Agreement ("Master Lease") dated February 10, 1998
by and between Spieker Properties, L.P. as Landlord, and Sublessor as Tenant, a
copy of which is attached hereto marked Exhibit A, and incorporated herein by
reference.
2. PROVISIONS CONSTITUTING SUBLEASE
This Sublease shall be of no force and effect unless and until the Landlord
under the Master Lease shall grant its consent in writing thereto and this
Sublease is subject to all of the terms and conditions of the Master Lease
except as specifically exempted herein and Sublessee shall assume and perform
the obligations of Sublessor as Tenant in said Master Lease to the extent said
terms and conditions are applicable to the premises subleased pursuant to this
Sublease. Sublessee shall not commit or permit to be committed on the subleased
premises any act or omission that shall violate any term or condition of the
Master Lease. Sublessor shall not commit or permit to be committed on the
subleased premises any act or omission that shall violate any term or condition
of the Master Lease or interfere with Sublessee's quiet enjoyment of the
premises. All of the terms and conditions contained in the Master Lease are
incorporated herein as terms and conditions of this Sublease (with each
reference therein to Landlord and Tenant to be deemed to refer to Sublessor and
Sublessee) and, along with all of the following paragraphs set out in this
Sublease, shall be the complete terms and conditions of this Sublease.
3. PREMISES
Sublessor subleases to Sublessee and Sublessee hires from Sublessor those
certain premises consisting of approximately 1,723 rentable square feet,
addressed as ("Premises") 11201 S.E. 8th Street, Suite 152, Bellevue, WA, shown
on the plan attached hereto as Exhibit B.
The Premises shall be subleased in its present "as-is", "where-is" condition,
except that Sublessor, at Sublessor's expense, shall a) re-key the front entry
door, providing Sublessee with three (3) sets of Building and Premises keys, and
b) provide Building Standard directory and suite signage for Sublessee.
Sublessor makes no warranties or representations whatsoever as to the condition
of the Premises including, without limiting the intent hereof, the existence of
toxic or hazardous materials or if the Premises meet all current laws,
regulations or building codes. If modifications are required to be made to the
Premises in order to comply with such current laws, regulations or building
codes, now or in the future, then all expenses related to such modifications
shall be borne solely by Sublessee. Any such required modifications by Sublessee
shall not be performed without obtaining Landlord's and Sublessor's prior
written consent.
4. TERM
Approximately Twenty One and one half months commencing June 15, 1999 and ending
March 31, 2001. Upon execution hereof and consent by Landlord, Sublessee shall
be provided
<PAGE>
possession of the Premises for purposes of installing network cabling, server
racks and other work necessary for the operation of its business.
5. RENT
Sublessee shall pay to Sublessor, as basic rent for the Premises, monthly
installments in advance on the first day of each month in the amount of Three
Thousand Four Hundred Forty Six and No/100 Dollars ($3,446.00) in lawful money
of the United States of America, to Sublessor at the address stated herein or to
such other person or at such other places as Sublessor may designate in writing.
Upon execution hereof, Sublessee shall prepay the first month's rent in the
amount of Three Thousand Four Hundred Forty Six and No/100 Dollars ($3,446.00).
6. USE
The Premises shall be used and occupied for general office purposes.
7. SECURITY DEPOSIT
Sublessee shall deposit with Sublessor, upon execution hereof, the sum of Three
Thousand Four Hundred Forty Six and No/100 Dollars ($3,446.00) as security for
Sublessee's faithful performance of Sublessee's obligations hereunder. If
Sublessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Sublease, Sublessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which
Sublessor may become obligated by any reason of Sublessee's default, or to
compensate Sublessor for any loss or damage which Sublessor may suffer thereby.
If Sublessor so uses or applies all or any portion of said deposit, Sublessee
shall, within ten (10) days after written demand therefor, deposit cash with
Sublessor in an amount sufficient to restore said deposit to the full amount
hereinabove stated and Sublessee's failure to do so shall be a breach of this
Sublease, and Sublessor may at its option, terminate this Sublease. Sublessor
shall not be required to keep said deposit separate from its general accounts.
If Sublessee performs all of Sublessee's obligations hereunder, said deposit or
so much thereof as had not theretofore been applied by Sublessor shall be
credited, without payment of interest for its use, against the last month's
rent.
8. DEFAULT
In the event of default by Sublessee of the payment of rents or in the
performance of any other terms and conditions of this Sublease, Sublessor shall
have, in addition to whatever other rights and remedies it may have at law or in
equity, the same rights and remedies against Sublessee as Landlord has against
Sublessor as Tenant under the Master Lease.
9. ASSIGNMENT AND SUBLETTING
Neither Sublessee nor Sublessor shall further assign this Sublease or any
interest therein or further sublet any portion of the premises or any right or
privilege appurtenant thereto without
<PAGE>
the consent of the Landlord and Sublessor first had and obtained, which shall
not be unreasonably withheld.
10. PARKING
Parking shall be allowed as per the Master Lease. Therefore, any parking stalls
which may be allocated to Sublessor under the terms of the Master Lease, if any,
shall be transferred to Sublessee as part of this Sublease. Charges, if any, for
the use of such parking stalls shall be borne solely by Sublessee.
11. NOTICE
Any notice required and permitted to be given hereunder must be in writing and
may be given by personal delivery or by mail, and if given by mail shall be
deemed sufficiently given if sent by registered or certified mail addressed to
Sublessee at the Premises or served upon Sublessee or its representative at the
Premises, and to Sublessor at the address below. Either party may give written
notice to the other specifying a different address for notice purposes except
that Sublessor may in any event use the premises as Sublessee's address for
notice purposes.
IN WITNESS WHEREOF, this Sublease has been executed the date and year first
above written.
SUBLESSEE
Shopping Sherlock, Inc. BY: /s/ Patrick McGrath
11201 S.E. 8th Street, #152 ------------------------------------
Bellevue, WA 98004 TITLE: CFO
SUBLESSOR
Global Mobility Systems, Inc. BY: /s/ William Grossman
11201 S.E. 8th Street ------------------------------------
Bellevue, WA 98004 TITLE: VP, Finance
<PAGE>
FOR AN ACKNOWLEDGEMENT IN A CORPORATE CAPACITY:
STATE OF Washington )
)
COUNTY OF King )
On this 21st day of May, 1999, before me personally appeared Patrick McGrath to
me known to be the CFO and executed the within and foregoing instrument, and
acknowledged the same instrument to the true and voluntary act and deed of said
corporation for the uses and purposes therein mentioned and on oath stated that
they were authorized to execute said instrument.
Dated: 5-21-99 /s/ Brenda Forsman
-------------------------------------
Notary Public Signature
Brenda Forsman
Seal or Stamp Type or Print Name of Notary
State of Washington
Residing in Kirkland
Appointment Expires 4/29/02
FOR AN ACKNOWLEDGEMENT IN A CORPORATE CAPACITY:
STATE OF Washington )
)
COUNTY OF King )
On this 21st day of May, 1999, before me personally appeared William Grossman to
me known to be the VP, Finance and executed within the foregoing instrument,
acknowledged the same instrument to the true and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned and on oath stated that
they were authorized to execute said instrument.
Dated: 5/21/99 /s/ Derek W. Truson
-------------------------------------
Notary Public Signature
Derek W. Truson
Seal or Stamp Type or Print Name of Notary
State of Washington
Residing in Seattle
Appointment Expires 11/1/99
<PAGE>
RIDER 1
12. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SUBLESSOR
a. Sublessor represents and warrants the following to Sublessee as of the date
of this Sublease: (1) the document attached hereto as Exhibit A is a true,
accurate and complete copy of the Master Lease, and there is no other document,
agreement or understanding between Sublessor and Landlord with respect to the
lease of the Premises; (2) Sublessor has not assigned , sublet or transferred
any interest of Sublessor in the Master Lease or the Premises, except as set
forth in this Sublease; (3) to the best of Sublessor's knowledge, there exists
no default under the Master Lease, or any condition which with the passage of
time or the giving of notice, or both, would constitute a default under the
Master Lease, on the part of either Sublessor or Landlord; (4) the expiration
date of the Master Lease is March 31, 2001.
b. Sublessor shall perform all obligations of Tenant under the Master Lease,
except to the extent such obligation is required to be performed by Sublessee
hereunder. Sublessor shall use reasonable efforts (exclusive of filing any
lawsuit or paying any monies or incurring any liabilities) to enforce the
obligations of Landlord for the benefit of Sublessee, to the extent that the
failure to perform any such obligation by Landlord has, or is reasonably
anticipated to have, a material adverse effect upon Sublease. If Sublessor is
not obligated, by the preceding sentence or otherwise, to enforce the
obligations of Landlord of the benefit of Sublessee, and does not enforce such
obligations in a timely manner, then, upon written request of Sublessee,
Sublessor will assign to Sublessee any claim, cause of action, right or remedy
available to enforce such obligation, and collect damages for such failure top
perform, and Sublessor will thereafter cooperate with Sublessee as reasonably
necessary to enforce such obligations. Sublessor will not modify the Master
Lease (so as to materially decrease the obligations of Landlord with respect to
the Premises, or to diminish the rights available to Sublessee hereunder) or
terminate the Master Lease without the express written consent of Sublessee,
notwithstanding that any such termination may be permitted by the terms of the
Master Lease, Sublessor will immediately forward to Sublessee all communications
received by Sublessor relating to the Premises.
13. INDEMNITY
a. Except to the extent caused by the negligence or willful misconduct of
Sublessor, its agents, employees, contractors or invitees, Sublessee shall
indemnify, defend with counsel reasonably acceptable to Sublessor and hold
Sublessor harmless from and against any and al claims, litigation, judgments
causes of action, damages, costs and expenses (including reasonable attorneys'
fees) caused by or arising in connection with: (i) the use, occupancy or
condition of the Premises by Sublessee; (ii) the negligence or willful
misconduct of Sublessee or its agents, employees, contractors, or invitees; or
(iii) a breach of Sublessee's obligations under this Sublease or the provisions
of the Master Lease assumed by Sublessee hereunder. Sublessee's indemnification
of Sublessor shall survive termination of this Sublease.
b. Except to the extent caused by the negligence or willful misconduct of
Sublessee, its agents, employees. Contractors or invitee, Sublessor shall
indemnify, defend with counsel reasonably acceptable to Sublessee and hold
Sublessee harmless from and against any and all claims, liabilities, judgments,
causes of action, damages, costs and expenses (including attorneys' and experts'
fees) caused by or arising in connection with: (i) a breach of Sublessor's
<PAGE>
representations or obligations under this Sublease; (ii) a breach of Sublessor's
representations or obligations as Tenant under the Master Lease to the extent
those obligations are not assumed by Sublessee under this Sublease; or (iii) the
negligence or willful misconduct of Sublessor, its agents, employees,
contractors or invitees occurring on the Premises. Sublessor's indemnification
of Sublease shall survivee termination of this Sublease.
c. Neither Sublessor nor the Sublessee shall be liable to the other for
incidental, consequential, indirect or special damages of any kind, including
any financial loss that would be properly characterized at any of the foregoing.
<PAGE>
EXHIBIT B
Cross hatched portion outlined in red reflects the Premises as referenced in
Paragraph 1 of the Lease. As built condition may vary from plan. Not to scale
[Floor Plan of Premises]
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 5-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAY-31-1999 DEC-31-1998
<CASH> 752,120 0
<SECURITIES> 0 0
<RECEIVABLES> 54,121 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 779,241 0
<PP&E> 74,504 0
<DEPRECIATION> 4,155 0
<TOTAL-ASSETS> 2,853,745 0
<CURRENT-LIABILITIES> 64,912 0
<BONDS> 0 0
0 0
0 0
<COMMON> 9,000 1,000
<OTHER-SE> 2,779,833 0
<TOTAL-LIABILITY-AND-EQUITY> 2,853,745 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 461,167 2,079
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (461,167) (2,079)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (461,167) (2,079)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (461,167) (2,079)
<EPS-BASIC> (0.12) (0.05)
<EPS-DILUTED> (0.12) (0.05)
</TABLE>
